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A Question of Ethics

The AICPA's CPC is binding upon all practicing and non-practicing CPAs who are members of the Institute. They
must conform to most, but not all, of the rules of conduct in all types of engagements or be subject to disciplinary
actions. Moreover, although each state board of accountancy has specific rules of conduct and licensing
requirements, many states have adopted the CPC to govern the practice of public accounting and licensing within
their state. Thus, a CPA found guilty of violating the rules could lose the license to practice, as well as being barred
from AICPA membership. Both the AICPA and the state societies of CPAs also participate in the Joint Ethics
Enforcement Program, which will be explored later.

As in other professions, a few accountants encounter ethical dilemmas. For many years, there have been highly
publicized reports of accountants violating rules of conduct prescribed by the AICPA or state societies by being
dishonest, biased and/or incompetent While some of these allegations were found to be true, these ethics cases
should not be used to condemn ALL accountants (16).

Crime(s) and Punishment(s). Most real-life violation cases can be classified as either simple ethical dilemmas that are
easy to resolve, or complex cases whose resolutions are hard to reach. The complexity of cases will vary depending
upon a variety of pressures that may or may not be at work including: time, job, client, personal and/or peer-related
(14). Exhibit 3 highlights the various violations by practicing CPAs. As shown in this table, Tidrick (25) identified a
total of 327 cases where the AICPA disciplined individual members between 1980 and 1990 (as reported in its "The
CPA Letter"). Of these:

* The most violations -- 41 -- were in the area of technical standards (Rules 202-203)

* 37 related to a failure to cooperate with the investigation or comply with its requirements

* 28 were for "acts discreditable" (Rule 501)

* 21 were violations of "general standards" (Rule 201), and

* seven were for "independence" violations (Rule 101).

Badawi and Rude (5,6) surveyed the AICPA's CPA Letters from January 1994 through December 1995, ultimately
identifying 170 ethics cases in 32 states in the Continental United States (see Exhibit 5). These cases were classified
into: violations of a single rule or multiple rules of the AICPA's bylaws; failure to cooperate with AICPA disciplinary
investigation; and, criminal acts (see Exhibit 3).

Specifically, the most frequently violated rules include:

* Rule 202 -- Compliance with Standards (57 cases, 34 percent)

* Rule 203 -- Accounting Principles (32 cases, 19 percent)

* Rule 501 -- Acts Discreditable (24 cases, 14 percent)

* Rule 201 B -- Due Professional Care (18 cases, 11 percent); and

* Rule 201 A -- Professional Competence (14 cases, 8 percent).

Of the 170 ethics cases, 38 involve crime and crime-related convictions, ranging from mail fraud (5 cases) to making
false claims to a federal agency (4 cases) to bank fraud (4 cases) and conspiracy (3 cases). The remaining cases
involve everything from concealing assets, theft and bribery to money laundering, obstruction of justice and even

Moriarity's study (20) examined 958 disciplinary sanctions imposed by the AICPA between 1980 and 1998. As shown
in Exhibit 3, these disciplinary actions were primarily for criminal acts (349), substandard professional service (304)
and failure to cooperate in investigation (119), with the remaining sanctions divided among four other categories:
failure to comply with directive; professional practice infractions; nature of act not reported; and, failure to meet
continuing professional education (CPE) requirements.

According to Moriarity's survey, the most common criminal acts involve income tax "filing false returns and failure to
file returns at all" (87), theft "embezzlement and misappropriation of funds" (71), fraud (61), bribery (19), illegal
securities transactions (14) and money laundering (11). There were also other conceivable crime acts, such as sale
and distribution of drugs, jury tampering, perjury and murder (86).

The 304 cases labeled "Substandard Professional Service" involve the quality of professional service provided to a
client or employer, specifically: violations of auditing and/or accounting standards (200), lack of independence (43),
lack of competence or objectivity (17), refusal or failure to return client records (11), and 33 other miscellaneous
violations in this area.