Professional Ethics & Independence

American Institute of Certified Public Accountants (AICPA) Code

• Conceptual framework: identify threats → evaluate → apply safeguards (or decline).
• Threats: self-review, advocacy, adverse interest, familiarity, management participation, self-interest, undue influence.

Independence

• Required for audits, reviews, examinations, agreed-upon procedures. Not for compilations (disclose), tax, consulting.
• Covered members: engagement team, those who can influence it, partners/managers with ≥ 10 hours of nonattest services, partners in the lead partner's office.
• Direct interest (any amount) → impaired. Indirect → only if material.
• Non-covered partner/employee owning > 5% → impaired.
• Permitted bank loans: auto (collateralized), cash-collateralized, credit cards ≤ $10,000, grandfathered mortgages.

Nonattest services (nonissuers)

No management responsibilities + client designee with suitable skill + written understanding. Issuers: most nonaudit services prohibited; audit committee pre-approval.

Other rules

• Contingent fees: banned for attest clients and for preparing tax returns; allowed for tax examinations.
• Confidentiality exceptions: subpoena, peer review, ethics investigations, laws.
• Client-provided records: return even if unpaid.
• Issuer partner rotation: 5 years on / 5 years off. Cooling-off: 1 year.

Exam traps

• An immediate family member's direct financial interest in a client is treated as the covered member's own.
• Fees for professional services more than one year past due when the current report is issued impair independence.
• Gifts must be clearly insignificant; entertainment must be reasonable in the circumstances.
• Issuer clients follow stricter Securities and Exchange Commission (SEC) rules — bookkeeping for an issuer audit client is prohibited outright.