Code of Professional Conduct


 

 

 

CTCPA

Code of Professional Conduct

As adopted January 14, 1992

Article VIII of the Bylaws states, in part, that the code of Professional Ethics of the Connecticut Society of Certified Public Accountants "shall consist of the Code of Professional Ethics of the American Institute of Certified Public Accountants ..."

Applicability

The bylaws of the American Institute of Certified Public Accountants require that members adhere to the Rules of the Code of Professional Conduct. Members must be prepared to justify departures from these Rules.

Definitions


Client
: A client is any person or entity, other than the member’s employer, that engages a member or a member’s firm to perform professional services or a person or entity with respect to which professional services are performed. The term "employer" for these purposes does not include those entities engaged in the practice of public accounting.

Council: The Council of the American Institute of Certified Public Accountants.

Enterprise: For purposes of the Code, the term "enterprise" is synonymous with the term "client."

Financial Statements: Statements and footnotes related thereto that purport to show financial position which relates to a point in time or changes in financial position which relate to a period of time, and statements which use a cash or other incomplete basis of accounting. Balance sheets, statements of income, statements of retained earnings, statements of changes in financial position, and statements of changes in owners’ equity are financial statements.

Incidental financial data included in management advisory services reports to support recommendations to a client and tax returns and supporting schedules do not, for this purpose, constitute financial statements; and the statement, affidavit, or signature of preparers required on tax returns neither constitutes an opinion on financial statements nor requires a disclaimer of such opinion.

Firm: A form of organization permitted by state law or regulation whose characteristics conform to resolutions of Council that is engaged in the practice of public accounting, including the individual owners thereof.

Holding Out: In general, any action initiated by a member that informs others of his or her status as a CPA or AICPA-accredited specialist constitutes holding out as a CPA. This would include, for example, any oral or written representation to another regarding CPA status, use of CPA designation on business cards or letterhead,the display of certificate evidencing a member’s CPA designation, or listing as a CPA in local telephone directories.

Institute: The American Institute of Certified Public Accountants.

Interpretations of Rules of Conduct: Pronouncements issued by the division of professional ethics to provide guidelines concerning the scope and application of the Rules of Conduct.

Member: A member, associate member, or international associate of the Connecticut Society of Certified Public Accountants.

Practice of Public Accounting: The practice of public accounting consists of the performance for a client, by a member or a member’s firm, while holding out as CPA(s), of the professional services of accounting, tax, personal financial planning, litigation support services, and those professional services for which standards are promulgated by bodies designated by Council, such as Statements of Financial Accounting Standards, Statements on Auditing Standards, Statements for Accounting and Review Services, Statements on Standards for Consulting Services, Statements of Governmental Accounting Standards, Statements on Standards for Attestation Engagements, and Statements on Standards for Accountants’ Services on Prospective Financial Information.

However, a member or a member’s firm, while holding out as CPA(s) is not considered to be in the practice of public accounting if the member or the member’s firm does not perform, for any client, any of the professional services described in the preceding paragraph.

Professional Services: Professional services include all services performed by a member while holding out as a CPA.

Society: The Connecticut Society of Certified Public Accountants.

Independence

Rule 101-A member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by Council.

[The professional ethics executive committee issued interpretation 101-1 January 12,1988, and revised it effective June 30, 1990, and January 1, 1992.] Interpretation 101 -1. Independence shall be considered to be impaired if, for example, a member had any of the following transactions, interests, or relationships:

A. During the period of a professional engagement or at the time of expressing an opinion, a member or a member’s firm

1. Had or was committed to acquire any direct or material indirect financial interest in the enterprise.

2. Was a trustee of any trust or executor or administrator of any estate if such trust or estate had or was committed to acquire any direct or material indirect financial interest in the enterprise.

3. Had any joint, closely held business investment with the enterprise or with any officer, director, or principal stockholders thereof that was material in relation to the member’s net worth or to the net worth of the member’s firm

4. Had any loan to or from the enterprise or any officer, director, or principal stockholder of the enterprise except as specifically permitted in interpretation 101-5.

B. During the period covered by the financial statements, during the period of the professional engagement, or at the time of expressing an opinion, a member or a member’s firm

1. Was connected with the enterprise as a promoter, underwriter or voting trustee, as a director or officer, or in any capacity equivalent to that of a member of management or of an employee.

2. Was a trustee for any pension or profit-sharing trust of the enterprise.

The above examples are not intended to be all-inclusive.

[The professional ethics committee issued interpretation 101-5 January 12 1988, and revised it January 1, 1992.]

Interpretation 101-5, Loans From Financial Institution Clients and Related Terminology. Interpretation 101-1.A.4 provides that, except as permitted in this interpretation, a member’s independence shall be considered to be impaired if the member has any loan to or from the enterprise or any officer, director, or principal stock holder of the enterprise. This interpretation does not consider independence to be impaired for certain grandfathered loans and other permitted loans from financial institution clients for whom services are performed requiring independence as set forth below under "Grandfathered Loans" and "Other Permitted Loans," respectively.

Grandfathered Loans

This interpretation grandfathers the following types of loans obtained from a financial institution under that institution’s normal lending procedures, terms, and requirements, and that meet the other specified conditions stated herein, and (a) that exist as of January 1, 1992; (b) that were obtained from a financial institution prior to its becoming a client requiring independence; (c) that were obtained from a financial institution for which independence was not required and that were later sold to a client for which independence is required; or (d) that were obtained from a firm’s financial institution client requiring independence, by a borrower prior to his or her becoming a member* with respect to such client. However, independence will be considered to be impaired if, after January 1, 1992, a member obtains a loan of the type described in this paragraph from an entity that, at the time of obtaining the loan, is a client requiring independence. Grandfathered loans must, at all times, be current as to all terms and such terms shall not be renegotiated after the latest of the dates in (a) through (d) above.

1. Home mortgages.

2. Other secured loans. The collateral on such loans must equal or exceed the remaining balance of the loan at January 1, 1992 and at all times thereafter.

3. Loans not material to the member’s net worth.

Other Permitted Loans

This interpretation permits the following types of personal loans obtained from a financial institution client for which independence is required under that institution’s normal lending procedures, terms, and requirements. Such loans must at all times, be kept current as to all terms.

1 . Automobile loans and leases collateralized by the automobile.

2. Loans of the surrender value under terms of an insurance policy.

3. Borrowings fully collateralized by cash deposits at the same financial institution (e.g., "passbook loans").

4. Credit cards and cash advances on checking accounts with an aggregate balance not paid currently of $5,000 or less.

Terminology

For purposes of interpretations 101-1.A.4 and 101-5, the following terms are defined:

Loan:  A loan is considered to be a financial transaction, the characteristics of which generally include, but are not limited to, an agreement that provides for repayment terms and a rate of interest. A loan includes a guarantee of a loan, a letter of credit and a line of credit. A loan to a limited partnership in which members have a combined investment exceeding 50 percent of the total limited partnership interest is considered a loan to those members.

Financial Institution:  A financial institution is considered to be an entity that, as part of its normal business operations, makes loans to the general public.

Normal Lending Procedures, Terms, and Requirements:  "Normal lending procedures, terms, and requirements" relating to a member’s loan from a financial institution are defined as lending procedures, terms, and requirements that are reasonably comparable with those relating to loans of a similar character committed to other borrowers during the period in which the loan to the member is committed. Accordingly, in making such comparison and in evaluating whether a loan was made under "normal lending procedures, terms, and requirements, " the member should consider all the circumstances under which the loan was granted, including

1. The amount of the loan in relation to the value of the collateral pledged as security and the credit standing of the member or the member’s firm.

2. Repayment terms.

3. Interest rate, including "points."

4. Closing costs.

5. General availability of such loans to the public.

Related prohibitions that may be more restrictive are prescribed by certain state and federal agencies having regulatory authority over such financial institutions. Broker-dealers, for example, are subject to regulation by the Securities and Exchange Commission.

Integrity and Objectivity

Rule 102-In the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others.

General Standards

Rule 201-A member shall comply with the following standards and with any interpretations thereof by bodies designated by Council.

A. Professional Competence. Undertake only those professional services that the member or the member’s firm can reasonably expect to be completed with professional competence.

B. Due Professional Care. Exercise due professional care in the performance of professional services.

C. Planning and Supervision. Adequately plan and supervise the performance of professional services.

D. Sufficient Relevant Data. Obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed.

Compliance with Standards

Rule 202-A member who performs auditing, review, compilation, management consulting, tax, or other professional services shall comply with standards promulgated by bodies designated by Council.

Accounting Principles

Rule 203-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.

Confidential Client Information

Rule 301-A member in public practice shall not disclose any confidential client information without the specific consent of the client.

This rule shall not be construed (1) to relieve a member of his or her professional obligations under rules 202 and 203, (2) to affect in any way the member’s obligation to comply with a validly issued and enforceable subpoena or summons, or to prohibit a member’s compliance with applicable laws and government regulations, (3) to prohibit review of a member’s professional practice under AICPA or state CPA society or Board of Accountancy authorization, or (4) to preclude a member from initiating a complaint with, or responding to any inquiry made by, the professional ethics division or trial board of the Institute or a duly constituted investigative or disciplinary body of a state CPA society or Board of Accountancy.

Members of any of the bodies identified in (4) above and members involved with professional practice reviews identified in (3) above shall not use to their own advantage or disclose any member’s confidential client information that comes to their attention in carrying out those activities. This prohibition shall not restrict members’ exchange of information in connection with the investigative or disciplinary proceedings described in (4) above or the professional practice reviews described in (3) above.

Contingent Fees

Rule 302-A member in public practice shall not

(1) Perform for a contingent fee any professional services for, or receive such a fee from, a client for whom the member or the member’s firm performs

(a) an audit or review of a financial statement; or

(b) a compilation of a financial statement when the member expects, or reasonably might expect that a third party will use the financial statement and the member’s compilation report does not disclose a lack of independence; or

(c) an examination of prospective financial information; or

(2) Prepare an original or amended tax return or claim for a tax refund for a contingent fee for any client.

The prohibition in (1) above applies during the period in which the member or the member’s firm engaged to perform any of the services listed above and the period covered by any historical financial statements involved in any such listed services.

Except as stated in the next sentence, a contingent fee is a fee established for the performance of any service pursuant to an arrangement in which no fee will be charged unless a specified finding or result is attained, or in which the amount of the fee is otherwise dependent upon the finding or result of such service. Solely for purposes of this rule, fees are not regarded as being contingent if fixed by courts or other public authorities, or in tax matters, if determined based on the results of judicial proceedings or the findings of governmental agencies.

A member’s fees may vary depending, for example, on the complexity of services rendered.

[The professional ethics executive committee issued interpretation 302-1, effective May 20, 1991.] effective May 20, 1991.]

Interpretation 302-1, Contingent Fees in Tax Matters. This interpretation defines certain terms in rule 302 and provides examples of the application of the rule.

Definitions of Terms

(a) Preparation of an original or amended tax return or claim for tax refund includes giving advice on events which have occurred at the time the advice is given if such advice is directly relevant to determining the existence, character, or amount of a schedule, entry, or other portion of a return or claim for refund.

(b) A fee is considered determined based on the findings of governmental agencies if the member can demonstrate a reasonable expectation, at the time of a fee arrangement, of substantive consideration by an agency with respect to the member’s client. Such an expectation is deemed not reasonable in the case of preparation of original tax returns.

Examples

The following are examples, not all-inclusive, of circumstances where a contingent fee would be permitted:

1. Representing a client in an examination by a revenue agent of the client’s federal or state income tax return.

2. Filing an amended federal or state income tax return claiming a tax refund based on a tax issue that is either the subject of a test case (involving a different taxpayer) or with respect to which the taxing authority is developing a position.

3. Filing an amended federal or state income tax return (or refund claim) claiming a tax refund in an amount greater than the threshold for review by the Joint Committee on Internal Revenue Taxation ($1 million at March 1991) or state taxing authority.

4. Requesting a refund of either overpayments of interest or penalties charged to a client’s account or deposits of taxes improperly accounted for by the federal or state taxing authority in circumstances where the taxing authority has established procedures for the substantive review of such refund requests.

5. Requesting, by means of "protest" or similar document, consideration by the state or local taxing authority of a reduction in the "assessed value" of property under an established taxing authority review process for hearing all taxpayer arguments relating to assessed value.

6. Representing a client in connection with obtaining a private letter ruling or influencing the drafting of a regulation or statute.

The following is an example of a circumstance where a contingent fee would not be permitted:

1. Preparing an amended federal or state income tax return for a client claiming a refund of taxes because a deduction was inadvertently omitted from the return originally filed. There is no question as to the propriety of the deduction; rather the claim is filed to correct an omission.

Rule 401 [There are currently no rules in the 400 series.]

Acts Discreditable

Rule 501-A member shall not commit an act discreditable to the profession.

Advertising and Other Forms of Solicitation 

Rule 502-A member in public practice shall not seek to obtain clients by advertising or other forms of solicitation in a manner that is false, misleading, or deceptive. Solicitation by the use of coercion, over-reaching, or harassing conduct is prohibited.

Commissions and Referral Fees

Rule 503-

A. Prohibited Commissions

A member in public practice shall not for a commission recommend or refer to a client any product or service, or for a commission recommend or refer any product or service to be supplied by a client, or receive a commission, when the member or the member’s firm also performs for that client

(a) an audit or review of a financial statement; or

(b) a compilation of a financial statement when the member expects, or reasonably might expect, that a third party will use the financial statement and the member’s compilation report does not disclose a lack of independence; or

(c) an examination of prospective financial information.

This prohibition applies during the period in which the member is engaged to perform any of the services listed above and the period covered by any historical financial statements involved in such listed services.

B. Disclosure of Permitted Commissions

A member in public practice who is not prohibited by this rule from performing services for or receiving a commission and who is paid or expects to be paid a commission shall disclose that fact to any person or entity to whom the member recommends or refers a product or service to which the commission relates.

C . Referral Fees

Any member who accepts a referral fee for recommending or referring any service of a CPA to any person or entity or who pays a referral fee to obtain a client shall disclose such acceptance or payment to the client.

Rule 504 [There is currently no rule 504.]

Form of Organization and Name

Rule 505-A member may practice public accounting only in a form or organization permitted by state law or regulation whose characteristics conform to resolutions of Council.

A member shall not practice public accounting under a firm name that is misleading. Names of one or more past owners may be included in the firm name of a successor organization. Also, an owner surviving the death or withdrawal of all other owners may continue to practice under a name which includes the name of past owners for up to two years after becoming a sole practitioner.

A firm may not designate itself as "Members of the American Institute of Certified Public Accountants" unless all of its owners are members of the Institute.