MODULE 21 PROFESSIONAL RESPONSIBILITIES 41

PROFESSIONAL RESPONSIBILITIES
Overview
The Code of Professional Conduct consists of two
sections
1. Principles-which provide the framework
2. Rules-which govern the performance of
profes-
sional services
The first part of this module contains many rules and
interpretations. These are covered over many pages in
part A. of this module. Because this entire area is detailed
and has typically been tested with just a few multiple-
choice questions, less priority and weight should be given
to this area in your study. The remainder of this module,
however, should be studied well.
Accountants' civil liability arises primarily from
contract law, the law of negligence, fraud, the Securities.
Act of 1933, and the Securities Exchange Act of 1934.
The first three are common law and largely judge-made
law, whereas the latter two are federal statutory law.
The agreement between an accountant and his/her
client is generally set out in a carefully drafted engage-
ment letter. Additionally, the accountant has a duty to
conduct his/her work with the same reasonable care as an
average accountant. This duty defines the standard used
in a negligence case, It is important to understand
3. When an accountant can be liable to
his/her cli-
ent.
4. When an accountant can be liable to
third par-
ties.
5. That an accountant is liable to the client
and to
all third parties that relied on the financial state-
ments when the accountant committed fraud,
constructive fraud, or was grossly negligent;
furthermore in these cases, the accountant can be
assessed punitive damages.
6. The extent of liability under the Securities
Act of
1933 and the Securities Exchange Act of 1934 as
well as how they differ from each other and from
common law.
The CP A examination 'also tests the dual nature of the
ownership of the accountant's working papers. Although
the accountant owns the working papers and retains them
as evidence of his/her work, confidentiality must be
maintained. Therefore, the CP A cannot allow this infor-
mation to reach another without the client's consent. In
general, privileged communications between a CPA and
the client are not sanctioned under federal statutory law or
common law, but the privilege is in existence in states
that have passed statutes granting such a right.

7. Code of Conduct and Other Responsibilities

8. Code of Professional Conduct
9. The Code is applicable to all AICPA members, not merely those in public practice
10. Compliance with the Code depends primarily ori members' understanding and voluntary actions,
and only secondarily on
(1) Reinforcement by peers,
(2) Public opinion, and
(3) Disciplinary proceedings.
(a) Possible disciplinary proceedings include from joint trial board panel admonishment,
suspension (for up to two years), or expulsion from AICPA, or acquittal
11. The Code provides minimum levels of acceptable conduct relating to all services performed by
CPAs, unless wording of a standard specifically excludes some members
(1) For example, some standards do not apply to CPAs not in public practice
12. Overall structure of the Code goes from very generally worded standards to more specific and op-
erational rules
(1) Interpretations and rulings remaining from the prior Code are even more specific
13. The Principles section consists of
six Articles
I. Responsibilities
Il. The Public Interest
Ill. Integrity
IV. Objectivity and Independence
V. Due Care
VI. Scope and Nature of Services
14. Code of Professional Conduct-Principles
a. Outline of six Articles in Section 1 of the Code