I have chosen to research Section 200 of the AICPA Code of Professional Conduct, which focuses on General Standards Accounting Principles. This section has three major rules that members are expected to abide by (all three quoted from the AICPA's website on Section 200):
Rule 201-General Standards
Under this rule, "a member shall comply with the following standards and with any interpretations thereof by bodies designated by the Council." The rule contains the following four standards:
"Professional Competence. Undertake only those professional services that the member or the member's firm can reasonably expect to be completed with professional competence.
Due Professional Care. Exercise due professional care in the performance of professional services.
Planning and Supervision. Adequately plan and supervise the performance of professional services.
Sufficient Relevant Data. Obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed."
Rule 202-Compliance with Standards
Under this rule, "a member who performs auditing, review, compilation, management consulting, tax, or other professional services shall comply with standards promulgated by bodies designated by Council." 2 The standards for Generally Accepted Accounting Principles (GAAP) are established by the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB) for audited statements, and the AICPA Auditing and Review Services Committee for unaudited financial statements and information.
Because the requirement to comply with every auditing standard on every engagement is in the AICPA and in most state society codes of conduct, failure to comply is not just a technical issue. Failure to comply is considered an unethical act.
Rule 203-Accounting Principles
This rule governs the member's attestation of the use of GAAP. Under this rule, "a member shall not (1) express an opinion or state affirmatively that the financial statements or other financial data of any entity are presented in conformity with generally accepted accounting principles or (2) state that he or she is not aware of any material modifications that should be made to such statements or data in order for them to be in conformity with generally accepted accounting principles, if such statements or data contain any departure from an accounting principle promulgated by bodies designated by Council to establish such principles that has a material effect on the statements or data taken as a whole. If, however, the statements or data contain such a departure and the member can demonstrate that due to unusual circumstances the financial statements or data would otherwise have been misleading, the member can comply with the rule by describing the departure, its approximate effects, if practicable, and the reasons why compliance with the principle would result in a misleading statement." 3
Rule 203 implies that if an accountant is claiming to follow in accordance to GAAP and has intentionally deviated from the principles of GAAP, the accountant should not claim and attest of following GAAP.
In addition to these three major rules of Section 200, the amendment to Appendix A of AICPA Rules 202 and 203 gives members the option to use International Financial Reporting Standards (IFRS) as an alternative to U.S. GAAP.
What do you see as the significance of this section for accountants?
The significance of Section 200 of the AICPA's Code of Professional Conduct is that it provides the framework of standards and principles for accountants to abide by in their profession. Rule 201 requires that an accountant exercise professional competence and due care in any professional service that is rendered to his or her client. The rule implies that with any service the accountant has taken on, he or she should demonstrate proficient knowledge and experience to complete the task in a professional and ethical manner, demonstrating compliance with standards designated by the Council, regardless if the company is a public or a non-public entity. Though the most significant, and perhaps the rule which has indirectly caused the most controversy with major corporations, is Rule 203, in which the accountant must attest to the use of GAAP compliance with their client's filings. As with any accounting firm that has committed a fraud by signing off on falsified financial statements for their clients', this would be a major violation of Rule 203. As the outcome, the SEC has enforced stricter internal controls, making it harder for companies and their accountants to fudge numbers to overstate earnings to meet or exceed Wall Street expectations.
Where do you see situations in an accounting practice that would make the contents of this section particularly relevant? Offer examples of such situations.
There are a number of situations in an accounting practice that would make the contents of Section 200 extremely relevant. For example, if an accounting firm intentionally falsifies earnings for a public client, they would be violating Rule 201 (Due Professional Care), Rule 202 (for not complying with AICPA standards), and Rule 203 for attesting to the use of GAAP principles when that obviously was not the case, especially if a firm is falsifying earnings on financial statements. For a non-public company, Rule 202 would be extremely important to an accountant to ensure they are in compliance with AICPA standards. Enforcing Section 200 creates viability and trust between the client and accounting firm, especially knowing that the accountant assigned to their engagement will be professionally competent and exercise due care, will comply with AICPA standards, and will follow GAAP principles when interpreting their financial statements. It is extremely important that the accountant separate "church and state" so to speak and separate any personal feelings they have with their client, as an uninterested third party stating the facts in accordance with the AICPA's Code of Professional Conduct.
