Tag Archives for " Ethics "

Sleeping with Your Decisions as a CPA

By Charles Hall | Accounting and Auditing

Men are alike in their promises. It is only in their deeds that they differ. Molière

We’ve all been there.

Your client wants you to sign off on an issue, one that is in the land of gray–you know, that place where there is no black or white. And, of course, the issue has significant dollars attached to it, so it’s important.

Your anguish rises, so you try to see the Great Oz, but he’s not available. No trips to Kansas today.

You want to do the right thing, but what is it?

Picture courtesy of AdobeStock.com

Four Questions for Clarity

Here are four questions to ask:

1. How would I feel if my choice was placed on the front-page of the local newspaper (or in the Journal of Accountancy)?
2. What would my father do (or anyone else I greatly respect)?
3. What would I advise my child to do? (If your child is three, pretend she is thirty.)
4. What’s the worst thing that could happen? 

Four Actions for Clarity

Here are four actions to take:

1. Call the AICPA Ethics Hotline or the AICPA Technical Hotline (877-242-7212). (They are independent of the issue, so they will give you a straight-up answer.)
2. Call a CPA with knowledge in the area of concern, and ask his or her opinion.
3. Create a memo supporting your proposed decision, and share it with a partner, quality control department, or whoever is in charge. (I find that writing creates clarity.)
4. Sit on it (if you can). I gain clarity as I allow the issue to percolate, and as I pray about it. I try not to make a high-stakes decision quickly. A hurried decision is usually a poor one.

Sleeping Well

Remember, a clear conscience is a precious commodity. If you believe a particular course of action is going to keep you awake at night, then your conscience is speaking to you.

Do the right thing and sleep well. Good evening.

AICPA Code of Professional Conduct: Answers to Your Ethical Questions

By Charles Hall | Auditing , SSARS

Are you a CPA looking for answers to independence or other ethical questions? Below, you’ll see two handy AICPA resources:

• AICPA Code of Professional Conduct
• Plain English Guide to Independence

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AICPA Code of Professional Conduct

The AICPA provides online access to the Code of Conduct. You can also download a PDF copy here (this PDF covers all standards issued through August 31, 2016).

Online access is free, and users are able to save searches and bookmark content.

The Code is organized into three parts:

1. Public practice
2. Members in Business
3. All other members (including those who are in between jobs or retired)

The Code includes a threats and safeguards framework. CPAs should identify threats and then consider safeguards to mitigate those threats. The CPAs can proceed with the engagement if threats–after considering safeguards–are at an acceptance level.

Plain English Guide to Independence

As the Quality Control partner for our firm, I receive quite a few questions about ethical issues (mainly about independence). Nine out of ten times I find the answers to those questions in the AICPA’s Plain English Guide to Independence. I download this guide and keep it handy. When I need to research an issue, I open the document and perform word searches. If you aren’t already using this resource, I highly recommend it. 

Is a Continuance Decision Necessary for Attest Engagements?

By Charles Hall | Accounting and Auditing , SSARS

Most accounting firms do a fine job of thinking about and documenting the initial client acceptance. But after the first year, the continuance decision and related documentation are sometimes forgotten or ignored. Why?

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Continuance Decision

The CPA may think the continuance decision is one those “management by exception” things–only to be thought about when apparent issues arise.

However, independence threats sometimes arise subtly. For example, what if a partners’ spouse invests in an audit client? Or maybe a staff member becomes a board member of a nonprofit audit client and he doesn’t tell anyone.

Also, problems can also arise on the client-side. Have they paid last year’s audit fees? Has the client engaged in any unethical activities? Some actions may cause you to question their integrity.

The time to discover changing engagement dynamics is before the engagement letter is signed. We certainly don’t want to near the end of an audit and realize we are not independent.

Need another reason to document the continuance decision? Think about peer review.

Peer Review

AICPA peer review checklists focus on independence documentation–whether an acceptance or continuance decision is made. So, if for no other reason, we need to consider and document the continuance decision to be safe in peer review.

Nonattest Services

While you are documenting continuance, summarize the nonattest services being performed and the client personnel that will oversee and assume responsibility for those services. Potential independence issues can arise from changes in client personnel. If a key accounting person leaves the employ of your attest client, is there a replacement with sufficient skill, knowledge, and experience to assume responsibility for the financial statements (if you create them)?

Check Your Files

Now would be a good time to sample a few of your files to see if they contain requisite acceptance or continuance documentation. Such documentation is necessary for the following types of engagements:

• Audits
• Reviews
• Compilations (when the report is not disclosing a lack of independence)
• Attestation engagements including agreed-upon-procedures