Editorial: On CPAs and the Public Interest

A distinguishing mark of a profession is acceptance of its responsibility to the public. The accounting profession’s public consists of clients, credit grantors, governments, employers, investors, the business and financial community, and others who rely on the objectivity and integrity of certified public accountants to maintain the orderly functioning of commerce. This reliance imposes a public interest responsibility on certified public accountants. The public interest is defined as the collective well-being of the community of people and institutions the profession serves.

In discharging their professional responsibilities, members may encounter conflicting pressures from among each of those groups. In resolving those conflicts, members should act with integrity, guided by the precept that when members fulfill their responsibility to the public, clients’ and employers’ interests are best served.

Those who rely on certified public accountants expect them to discharge their responsibilities with integrity, objectivity, due professional care, and a genuine interest in serving the public. They are expected to provide quality services, enter into fee arrangements, and offer a range of services—all in a manner that demonstrates a level of professionalism consistent with these Principles of the Code of Professional Conduct. All who accept membership in the New York State Society of Certified Public Accountants commit themselves to honor the public trust. In return for the faith that the public reposes in them, members should seek continually to demonstrate their dedication to professional excellence.

Because Article 2 applies to CPAs without regard to employment or services performed, it applies equally to a public company auditor, a tax preparer, a tax consultant, an accounting system consultant, a chief financial officer, an editor, or a government employee—as long as they are CPAs. But although many commentators infer that “the public interest” means “third-party users of audit reports,” a careful reading of Article 2 implies that CPAs fulfill their public interest responsibilities when they behave with integrity, objectivity, and due professional care. Considered as a whole, Article 2 says that CPAs serve the public interest when they refrain from advocating the interest or taking the viewpoint of any of the parties that might make up the public.

The Public Guardian

Article 2 contrasts interestingly with the mission of the SEC, which explicitly serves as the public investor’s advocate. The Public Company Accounting Oversight Board (PCAOB), in a press release related to one of its rules, indicated that auditors of public companies should adopt the perspective of protecting the investing public when performing an audit. Recent SEC commissioners and chief accountants have also maintained that auditors should be the guardian of the investing public’s interests. The implication is that auditors should align their interests with users of their reports.

Neutrality and Standards

CPAs’ current approach to the public interest is rooted in concepts about accounting principles and professional standards that were born in the 1930s and developed in the 1950s. The most familiar of these concepts is the “entity” assumption, developed by William Paton and A.C. Littleton, which states that a business can be accounted for in and of itself without invoking a special interest. Before the entity assumption, businesses were usually accounted for from the perspective of their investors, who were also usually the clients of CPAs. By the time the current code of conduct was created, the common understanding among CPAs was that the public interest was best served by their adherence to neutral standards rather than allegiance to any specific interest, such as investors’ interests.

Accountancy’s value to society reflects changes in investing and business practices and in the nature of public involvement with such institutions. These changes mean that CPAs are increasingly being asked to adopt a guardian ethic with regard to their auditing services.

Time for Change

The time has arrived for CPAs to consider seriously whether their code of professional conduct adequately addresses the concerns they face in the public arena. The increasing number of individuals invested in equities through pension plans has changed important characteristics of the public interest. With the equity markets no longer reserved for wealthy investors, the future retirement of nearly every working American depends on the orderly growth and sound management of public companies.

Whereas CPAs most likely do serve the public interest well by maintaining independence and objectivity in their various consulting roles, something more is being asked for in their auditor role: namely, to actively take the interest of third-party users of financial statements. It’s time to revisit the code of professional conduct and make this duty explicit in the principle.