The CPA code of ethics is instrumental in the accounting profession. To ensure an adherence to CPA ethics, the governing body of accounting, the AICPA, has established a written set of principles1 outlining the major ethical responsibilities to which accountants should adhere in order to maintain their CPA licenses. To help you better understand your obligation to a CPA’s ethical standards, we’re providing insight and context into the CPA code of ethics, the major ethical duties of the modern accountant, and how you are fulfilling them.
The necessity of ethical standards in accounting
Accountants play a crucial role in maintaining the integrity of financial systems, and their adherence to ethical standards is essential for fostering transparency and public trust. Ethical behavior promotes fairness and reliability in financial reporting which investors, creditors, and other stakeholders rely on when analyzing financial statements to make informed business decisions.
Upholding the principles of honesty, objectivity, and professional competence help prevent fraud, financial mismanagement, and economic instability. Additionally, ethical conduct in accounting supports the overall reputation of the profession, reinforcing the public's confidence in financial reporting and the broader economic system. Ultimately, the commitment of accountants to ethical practices is indispensable for the sustainability and credibility of financial markets and institutions. If CPA ethics and ethical standards are violated, the repercussions can be devastating, ranging from a CPA losing their job or facing prosecution to an accounting firm losing business or suffering a loss of reputation.
A violation of CPA ethics and public trust
For example, in March 2023, three men were indicted for crimes related to financial reporting fraud at Austal USA LLC, a shipbuilding company that constructs military vessels. Over a three-year period, the three intentionally manipulated revenue recognition metrics to falsely inflate the company’s earnings and mislead investors.
Accountants are entrusted with a massive responsibility, and it comes with a corresponding high demand for trust.
What are the ethical responsibilities of accountants?
How can we define CPA ethics and the ethical responsibilities of accountants? The Code of Professional Conduct from the American Institute of CPAs (AICPA) and the Code of Ethics from the International Ethics Standards Board for Accountants (IESBA) both prescribe a CPA code of ethics, addressing numerous standards of ethical behavior in the accounting profession. The IESBA establishes five key ethical principles for accountants2.
Integrity
Integrity, in the context of CPA ethics, refers to acting in a way that promotes accuracy, honesty, and transparency in financial reporting to ensure that financial statements and disclosures are reliable.
Objectivity
CPAs must be free from bias, both in fact and appearance, and lacking any conflicts of interest that could compromise the integrity of the work performed.
Professional competence and due care
A key part of the CPA code of ethics is having the skills, knowledge, and experience necessary to perform tasks effectively and efficiently while adhering to the profession's technical standards and guidelines.
Confidentiality
CPAs must maintain required levels of privacy and nondisclosure as it relates to client information and performance.
Professional behavior
Professional behavior refers to complying with relevant regulations while avoiding any conduct that could discredit the firm or the profession.
The principles of CPA ethics can be summarized as committing to working at the highest levels of one’s technical competency (i.e., not taking shortcuts for expediency’s sake), not using or sharing confidential information for personal gain or to benefit another party and maintaining independence and avoiding potential conflicts of interest.
How critical is a commitment to CPA ethical standards? Patrice Johnson, CPA and former Director of CPE Curriculum for Becker, notes that she has seen more accountants fired for ethics violations than for reasons related to technical proficiency or competency. While technical mistakes are not desired, in many cases, accountants can recover from a technical mistake if they openly communicate the error once identified and correct it; however, “It’s often bad ethical decision-making that leads to (accountants) being released from their jobs,” says Johnson.
Common lapses in CPA ethics to avoid
Unfortunately, ethical lapses sometimes occur in the accounting profession. One common example is financial statement fraud, where the internal accountants within an organization may bend to pressure from upper management or are motivated by greed. Meanwhile, external auditors may choose to overlook the behavior or simply fail to detect it by not exercising due care in the performance of their duties.
Other common lapses in CPA ethics include conflicts of interest, insider trading, and improper billing practices which are often motivated by perceived financial pressures or outright greed. However, there's not always malicious intent — CPAs may be driven by excessive pressure to perform or meet time-constraints.
Whether a CPA hastily signs off on a work paper that hasn’t been thoroughly reviewed or overlooks a potential conflict of interest with a client, ethical lapses often arise from perceived time constraints. When people think they don’t have time to follow CPA ethics best practices, they sometimes look for shortcuts that can wind up jeopardizing their career, the success of their firm.
“Where people get themselves stuck or caught is (with) time,” Johnson says. “There’s no margin in their schedule, so they’re looking at tight deadlines and they feel very pressured, and they end up making somewhat poor decisions.”
Raising red flags early about a potential ethical issue can help accountants avoid stressful, pressure-cooker situations that can arise as a deadline approaches. “If there are any concerns you have,” Johnson advises, “Raise the red flag as soon as possible so that you’re not forcing yourself to take some type of shortcut.”
CPA professional ethics - the bottom line
Maintaining ethical behavior, both individually and in the workplace, requires a high level of commitment to integrity, transparency, and accountability. On an individual basis, this involves going beyond the CPA ethics and adhering to a personal code of ethics that emphasizes honesty, respect for others, and a commitment to doing what is right, even when it is difficult — especially when it is difficult.
Individuals should continually reflect on their actions and decisions, seek to understand the ethical implications, and strive to align them with their core values. For CPAs, this also means maintaining a strict observance to the requirements and expectations outlined in the AICPA Code of Professional Conduct as it relates to responsibilities, integrity, independence, and due care.
At the workplace level, accounting firms can foster a culture where CPA ethics are prioritized. This involves creating an environment where ethical practices are encouraged, supported, and rewarded, starting with leadership. Those in power should lead by example by establishing clear policies and procedures that promote transparency and accountability, promoting those standards through their own actions, and communicating the importance of ethical behavior throughout their organization. This culture plus continued training on ethical issues and safe channels to report unethical behavior will build a culture of positivity, productivity, and sustainability within the work environment.
Learn more about the CPA code of ethics with Becker's CPE courses
CPA ethics are continually evolving, but ethics CPE can help you stay up-to-date and on top of regulatory changes and best practices. With Becker's large selection of CPE courses, you can get state-specific insight, regulatory information, and insights into behavioral ethics. Check out the following options or explore our CPE catalog:
- Ethics: Understanding and Applying the AICPA Code of Professional Conduct
- Government Ethics and Independence
- Navigating AI Ethics: Balancing Innovation and Responsibility
Unlock these courses plus our entire CPE catalog with a Prime CPE subscription and get the best value in continuing professional education!
