Professional Ethics and Independence for the US CPA Exam
By SimplyCPA · 11 October 2026
On this page (7)
- Two dimensions: Independence of mind (in fact) and independence in appearance — both are required.
- AICPA approach: A conceptual framework — identify threats (self-interest, self-review, advocacy, familiarity, undue influence, management participation), evaluate them and apply safeguards.
- Financial interests: Any direct financial interest in an attest client impairs independence, however small. An indirect interest impairs it only if material.
- Non-audit services: Never take on management responsibilities. Public-company auditors face a longer list of outright prohibited services under SEC rules.
- Rotation: For SEC registrants, the lead and concurring partners rotate after five years, followed by a five-year time-out.
The AICPA Code of Professional Conduct
The Code has a set of principles (responsibilities, the public interest, integrity, objectivity and independence, due care, and scope and nature of services) and three parts of rules: Part 1 for members in public practice, Part 2 for members in business, and Part 3 for other members. The rules in Part 1 most often tested are:
| Rule | Core requirement |
|---|---|
| Integrity and Objectivity (1.100) | No knowing misrepresentation, conflicts of interest must be managed, no subordinating judgement to others |
| Independence (1.200) | Required for attest engagements — audits, reviews, examinations and some agreed-upon procedures |
| General Standards (1.300) | Professional competence, due care, planning and supervision, sufficient relevant data |
| Compliance With Standards (1.310) and Accounting Principles (1.320) | Follow standards issued by designated bodies; don't report that statements follow GAAP if they materially depart from it (unless unusual circumstances justify it) |
| Acts Discreditable (1.400) | Includes failing to return client records, discrimination, and failing to file tax returns or pay taxes |
| Contingent Fees (1.510) | Prohibited for attest clients and for preparing original tax returns; allowed for some other services |
| Commissions and Referral Fees (1.520) | Prohibited for attest clients; must be disclosed for other clients |
| Advertising (1.600) | Not false, misleading or deceptive |
| Confidential Client Information (1.700) | No disclosure without client consent, with exceptions (subpoena, peer review, ethics investigations) |
| Form of Organization and Name (1.800) | Firm names can't be misleading; non-CPA ownership limits apply |
Government audits also follow the US Government Accountability Office's Government Auditing Standards ("Yellow Book"), which has its own independence framework.
Who sets the independence rules
- AICPA Code of Professional Conduct — applies to AICPA members and, through state board adoption, to most private-company audits.
- SEC Rule 2-01 of Regulation S-X — applies to audits of public companies and other SEC registrants.
- PCAOB — adds its own rules for registered firms auditing issuers.
Where rules differ, the stricter one applies to the engagement.
The conceptual framework (AICPA)
| Threat | Example |
|---|---|
| Self-interest | Fees from one client form a large share of the firm's revenue |
| Self-review | Auditing records the firm itself prepared |
| Advocacy | Promoting the client's shares or representing it in a dispute |
| Familiarity | Long association with the client, or a close relative in a key role there |
| Undue influence | Management threatening to replace the auditor over a disagreement |
| Management participation | Making decisions that are management's responsibility |
If a threat isn't at an acceptable level, the auditor applies safeguards. If no safeguard is enough, the auditor must decline or withdraw.
Financial interests and relationships
- Direct financial interest (for example, owning even one share of an attest client) held by a covered member impairs independence. Materiality doesn't matter.
- Indirect financial interest (for example, through a diversified mutual fund) impairs independence only if material to the covered member.
- Loans from an attest client are generally prohibited, apart from specified grandfathered or ordinary consumer loans on normal terms.
Non-audit services
Under the AICPA Code, a firm may provide many non-attest services — such as tax preparation or some bookkeeping — to a private-company audit client, provided the client takes responsibility for all management decisions and has someone with suitable skill to oversee the service. The SEC's rules for public companies are stricter and prohibit services including bookkeeping, financial information systems design, appraisal and valuation, actuarial services, internal audit outsourcing, management functions, human resources, broker-dealer services, legal services and expert services unrelated to the audit.
Partner rotation and cooling-off
- SEC rules require the lead and concurring audit partners to rotate after five years, with a five-year time-out; certain other audit partners rotate after seven years with a two-year time-out.
- A one-year cooling-off period applies before a member of the audit team can join the client as CEO, CFO, controller, chief accounting officer or equivalent.
- India has its own rotation rules for listed and certain other companies under the Companies Act, 2013.
Study the full rules in professional ethics and independence.