Accounting Ethical Case

This paper seeks to answer two sets of questions relating to how the CPAs, who are members of the accounting profession discharge their functions, in the light of different positions taken by their clients and how the AICPA Professional Code of Conduct (Code) and the AICPA’s Statement of Standards for Tax Services (SSTSs) help these CPA could guide and help in resolution of ethical issues involved. Part I Questions. Answers: Integrity and objectivity are important ethical principles (values) for CPAs as members of the accounting profession because they are the foundations upon which the accounting profession rests.

Without these characteristics, professional accountants would just be conniving with taxpayers in cheating the government which is essentially cheating the public. When tax laws are not implemented well because of connivance of accountants with taxpayers not to pay the proper taxes, then governance would become as well a failure and if that happens, the foundations of the legal systems may collapse as well. The effects to other systems would be unimaginable.

The Code provides guidance to Cathy in applying principles (values) with regard to making a decision as to the course of action that she should take. This includes the need to maintain integrity and objectivity in the performance of her duties to client. Cathy, in the discharge of professional responsibilities, is advised by the Code that in case of conflict between the government need for correct taxes and the desire of their clients to act with integrity. She is required by the Code to practice the principles of objectivity, independence and due which are also components of integrity.

Acting with integrity requires honesty in the preparation of the tax return for the client. If she follows the client, the result would be preserving dishonesty which is contrary to the requirements for integrity from members. The error of overstating last year’s expenses as committed by the client appears to be not an inadvertent error or a difference of opinion because of the attitude of the client to preserve the error by understating the current year’s expenses.

Said desire of the client cannot be accommodated within the concept of integrity under the Code as the same could still be considered deceit and subordination of the principle. Part 2 Questions. Answers: Cathy appears to have acted appropriately as far as fulfilling her responsibilities under the SSTS No. 6 is concerned. Under SSTS No. 6, it is the duty of a member AICPA to inform the taxpayer promptly upon becoming aware of an error in a previously filed return and should recommend corrective action.

Case facts say that upon her discovery of an error in Beta Electronics’ previous year’s tax return, Cathy brought to the attention of Ralph Malone, the owner of Beta Electronics about the overstatement of expenses and the consequent understatement of tax liability and subsequently, she recommended an amendment to the return . Thus, Cathy’s actions prove her compliance with AICPA’s ethical standards on tax practice where an error has come to her knowledge as member of the profession.

Cathy should consider withdrawing from the engagement to render professional service to prepare tax return for Ralph if the later continues to insist that she files the current year’s tax return for Beta Electronics and Ralph has not taken appropriate action to correct in the previous year’s tax return. The SSTS No. 6 is very much clear on this that CPA should consider withdrawal as an option. However if she continues with the engagement or tax return preparation, Cathy is advised by SSTS No. 6 to take reasonable steps to ensure that the error is not repeated.

It is therefore not correct to follow the position taken by the owner to just understate the expenses for the current year since the tax rates last year is different form the current year and doing so would cause the perpetuation or repetition of the error and preserve the dishonesty committed earlier. Conclusion CPAs are performing functions which are imbued with public interest, thus there is the requirement to regulate the profession with ethical standards. They could only maintain their membership in the profession by adhering to the strict standards since admission to the profession is not matter of right but a privilege.

Works Cited: AICPA Professional Code of Conduct (Code), Section 53, 54 and 55 {www document} URL, http://www. aicpa. org/About/code/sec50. htm, Accessed Sept 8, 2008 AICPA’s Statements on Standards for Tax Services (SSTSs). Locate SSTS No. 6 “Knowledge of Error: Return Preparation”, {www document} URL http://tax. aicpa. org/Resources/Professional+Standards+and+Ethics/Statements+on+Standards+for+Tax+Services/AICPA+Statements+on+Standards+for+Tax+Services. htm, Accessed September 8, 2008 Case Study – Beta Electronics