MODULE 21 PROFESSIONAL RESPONSIBILITIES 49

Interpretation 101-15. This interpretation provides definitions of direct and indirect financial in-
terests that may impair independence.
(1) A financial interest is an ownership interest in an equity or a debt security issued by an en-
tity, including derivatives directly related to the interest.
(2) A direct financial interest is
(a) One owned directly by an individual or entity, under control of the individual or entity, or
beneficially owned through an investment vehicle,
(b) Under the control of an individual or entity, or
(c) Beneficially owned through an investment vehicle, estate, trust or other intermediary
when the beneficiary
1] Controls the intermediary, or \
2] Has the authority to supervise or participate in the intermediary's investment
decisions.
Rule 102 Integrity and Objectivity. In performance of any professional service, a member shall
(a) maintain objectivity and integrity, (b) avoid conflicts of interest, and (c) not knowingly misrep-
resent facts or subordinate judgment. '
(1) In tax matters, resolving doubt in favor of client does not, by itself, impair integrity or objec-
tivity.
Interpretation 102-1. Knowingly making or permitting false and misleading entries inan entity's
financialstatements or records is a violation.
Interpretation 102-2. A conflict of interest may occur if a member performing a professional ser-
vice has a significant relationship with another person, entity, product, or service that could be
viewed as impairing the member's objectivity.
(1) If the member believes that the professional service can be performed with objectivity, and if
the relationship is disclosed to and consent is obtained from the client, employer, or other ap~ ,
propriate parties, the rule does not prohibit performance of the professional service.
(2) Nothing in this interpretation overrides Rule 101 (on independence), its interpretations, and
rulings.
Interpretation 102-3. When a member deals with his/her employer's external accountant, the
member must be candid and not knowingly misrepresent facts or knowingly fail to disclose mate-
rial facts.
Interpretation 102-4. If a member and his/her supervisor have a disagreement concerning the
preparation of financial statements or the recording of transactions, the member should
(1) Allow the supervisor's position if that position is an aoceptable alternative with authoritative
support and/or does not result in a material misstatement.
(2) Report the problem to higher levels in firm if supervisor's position could cause material mis-
statements in records.
(3) Consider quitting firm if after reporting the problem to upper management, action is not taken.
Consider reporting this to regulatory authorities and external accountant.
Interpretation 102-5. Those involved in educational services such as teaching full- or part-time at
a university, teaching professional education courses, or engaged in research and scholarship are
subject to Rule 102.
Interpretation 102-6. Sometimes members are asked by clients to act as advocates in support of
clients' position on tax services, consulting services, accounting issues, or financial reporting is-
sues. Member is still subject to Rule 102. Member is also still subject to Rules 201, 202, and 203.
Member is also subject to Rule 101 for professional services requiring independence.
NOTE: While CPA candidates should read the rulings to better understand the ethics rules and interpretations, it is not
necessary to memorize them; consider them to be illustrations. Gaps in sequence are due to deleted sections,