December 2003

Ethics for CPAs

By Dan M. Guy, Douglas R. Carmichael, and Linda A. Lach
John Wiley & Sons, Inc.; $45; 364 pages; ISBN: 0471271764

Reviewed by Vincent J. Love, CPA, Vice President, NYSSCPA

When I reviewed the authors’ previous book, The CPA’s Guide to Professional Ethics (May 2001), I believed it left little room for improvement, but Ethics for CPAs is even better. Carmichael, Guy, and Lach bring the same simple and logical structure and understandable prose to this comprehensive compendium of ethics in the CPA profession.

The book integrates the rules, regulations, and interpretations of the AICPA Code of Professional Conduct, the SEC, the Independence Standards Board, the Department of Labor, the International Federation of Accountants, and state CPA societies and boards of accountancy.

Every CPA performing professional services in public practice, working in industry, or teaching in academia, should read and own this book, which is entirely up-to-date and refers the reader to a website where one can find new developments, particularly those that may result from the Sarbanes-Oxley Act. Throughout the book the authors include helpful notes that clarify certain vague rules and interpretations, give additional background information, or reference other ethics regulatory authorities’ differing requirements.

After the opening “Introduction to Ethics,” the book addresses the ethics enforcement mechanism and guides the reader through the maze of investigations and proceedings that will occur after a CPA is charged with an ethics violation. The authors recommend that the CPA treat any notice of a potential violation seriously, respond timely, engage professional representatives, and carefully consider all alternatives before deciding how to proceed.

The introductory chapter also lists all the chapters, noting which are applicable to members in public practice and which are applicable to members not in public practice, further enhancing the book’s value for CPAs in industry.

Easy to Find Guidance

The book is designed to facilitate the search for information on any ethics topic for all of the services performed by CPAs. Each chapter begins with an overview of the subjects covered in each section of the chapter. Sections are structured to cover each major topic, starting with basic concepts and continuing into sufficient detail for the reader to understand the ethics rule’s purpose and application.

The authors address application of ethics standards under each regulatory authority’s rules and explain any differences between their requirements. The book discusses the specific ethical issues raised by the Enron investigation and emphasizes the importance of independence—in fact, in mental attitude, and in appearance—when conducting an audit or related attestation engagement.

Independence, integrity, and objectivity are the focus of a major section. These three characteristics of both the conduct of an attest engagement and of a CPA performing this work are simply and descriptively explained using examples, charts, decision trees, and other graphics.

The authors are comprehensive in addressing the complicated and difficult provisions of the AICPA rules. The SEC has some conflicting rules that are relevant when the CPA’s client is a public company. The authors are meticulous in pointing out these differences and giving the necessary guidance to identify and understand them.

Chapter 7, “Requirements for Integrity and Objectivity (Including Freedom from Conflicts of Interest),” devotes a section to CPAs that are not in public practice. The member in industry in many instances does not recognize that he is also bound by the applicable ethics rules and interpretations. Integrity requires all members to observe both the form and spirit of technical and ethical standards. This chapter also contains a list of suggested steps for the member in industry to follow when there is a disagreement with a supervisor related to the preparation of financial statements or the recording of transactions. The authors then discuss each step in detail, giving sound, practical advice. In another chapter, the authors also caution the CPA in industry that “Rule 203 [Accounting Principles] applies to members not in public practice when they represent in a letter or other communication that a financial statement is presented in conformity with GAAP.”

In Chapter 26, “Alternative Practice Structures,” the authors give guidance for navigating through the labyrinth of any organizational structure to determine if a firm and a CPA are independent of clients and prospective clients under the various rules. Ample, clear, and concise examples, lists, charts, and graphs facilitate understanding this difficult subject matter.

Other topics include the general standards, compliance with standards, accounting principles, confidentiality, contingent fees, commissions and referral fees, form of organization and firm name, advertising and solicitation, and acts discreditable.

Part E, “Other Ethics Guidance,” addresses tax and consulting services and international standards, including a chapter on where to obtain more information on ethics standards. The authors present guidance on complying with the Statements on Standards for Tax Services and the Statements on Standards for Consulting Services. Chapter 37, “An Interpretative Outline of IFAC’s Code of Ethics,” addresses the International Federation of Accoun-
tants’ ethics standards and has been significantly expanded from the prior book.

One appendix contains a glossary of terms; the other includes a listing of state accounting boards and societies with addresses, telephone numbers, and websites.

Finally, the book includes a self-study CPE program. For $59 the reader can take the ethics test, which, if passed, qualifies for eight hours of CPE credits.

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