Code of Professional Conduct

Composition, Applicability and Compliance

The Code of Professional Conduct of the American Institute of Certified Public Accountants consists of two sections – (1) the Principles and (2) the Rules. The Principles provide the framework for the Rules, which govern the performance of professional services by members. The Council of the American Institute of Certified Public Accountants is authorized to designate bodies to promulgate technical standards under the Rules, and the bylaws require adherence to those Rules and standards.

The Code of Professional Conduct was adopted by the membership to provide guidance and rules to all members – those in public practice, in industry, in government and in education – in the performance of their professional responsibilities.

Compliance with the Code of Professional Conduct, as with all standards in an open society, depends primarily on members’ understanding and voluntary actions, secondarily on reinforcement by peers and public opinion, and ultimately on disciplinary proceedings, when necessary, against members who fail to comply with the Rules.

SECTION I – PRINCIPLES PREAMBLE

Membership in the American Institute of Certified Public Accountants is voluntary. By accepting membership, a certified public accountant assumes an obligation of self-discipline above and beyond the requirements of laws and regulations.

These Principles of the Code of Professional Conduct of the American Institute of Certified Public Accountants express the profession’s recognition of its responsibilities to the public, to clients, and to colleagues. They guide members in the performance of their professional responsibilities and express the basic tenets of ethical and professional conduct. The Principles call for an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage.

ARTICLE I – RESPONSIBILITIES

In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.

As professionals, certified public accountants perform an essential role in society. Consistent with that role, members of the American Institute of Certified Public Accountants have responsibilities to all those who use their professional services. Members also have a continuing responsibility to cooperate with each other to improve the art of accounting, maintain the public’s confidence, and carry out the profession’s special responsibilities for self-governance. The collective efforts of all members are required to maintain and enhance the traditions of the profession.

ARTICLE II – THE PUBLIC INTEREST

Members should accept the obligation to act in a way that will serve the public interest, honor the public trust and demonstrate commitment to professionalism.

A distinguishing mark of a profession is acceptance of its responsibility to the public. The accounting profession’s public consists of clients, credit grantors, governments, employers, investors, the business and financial community, and others who rely on the objectivity and integrity of certified public accountants to maintain the orderly functioning of commerce. This reliance imposes a public interest responsibility on certified public accountants. The public interest is defined as the collective well being of the community of people and institutions the profession serves.

In discharging their professional responsibilities, members may encounter conflicting pressures from among each of these groups. In resolving those conflicts, members should act with integrity, guided by the precept that when members fulfill their responsibility to the public,clients’ and employers’ interests are best served.

Those who rely on certified public accountants expect them to discharge their responsibilities with integrity, objectivity, due professional care, and a genuine interest in serving the public. They are expected to provide quality services, enter into fee arrangements and offer a range of services-all in a manner that demonstrates a level of professionalism consistent with these Principles of the Code of Professional Conduct.

All who accept membership in the American Institute of Certified Public Accountants commit themselves to honor the public trust. In return for the faith that the public reposes in them, members should seek continually to demonstrate their dedication to professional excellence.

ARTICLE III – INTEGRITY

To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.

Integrity is an element of character fundamental to professional recognition. It is the quality from which the public trust derives and the benchmark against which a member must ultimately test all decisions.

Integrity requires a member to be, among other things, honest and candid within the constraints of client confidentiality. Service and the public trust should not be subordinated to personal gain and advantage. Integrity can accommodate the inadvertent error and the honest difference of opinion; it cannot accommodate deceit or subordination of principle.

Integrity is measured in terms of what is right and just. In the absence of specific rules, standards, or guidance, or in the face of conflicting opinions, a member should test decisions and deeds by asking: “Am Idoing what a person of integrity would do? Have I retained my integrity?” Integrity requires a member to observe both the form and the spirit of technical and ethical standards; circumvention of those standards constitutes subordination of judgment.

Integrity also requires a member to observe the principles of objectivity and independence and of due care.

ARTICLE IV – OBJECTIVITY AND INDEPENDENCE

A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services.

Objectivity is a state of mind, a quality that lends value to a member’s services. It is a distinguishing feature of the profession. The principle of objectivity imposes the obligation to be impartial, intellectually hones, and free of conflicts of interest. Independence precludes relationships that may appear to impair a member’s objectivity in rendering attestation services.

Members often serve multiple interests in many different capacities and must demonstrate their objectivity in varying circumstances. Members in public practice render attest, tax and management advisory services. Other members prepare financial statements in the employment of others, perform internal auditing services, and serve in financial and management capacities in industry, education, and government. They also educate and train those who aspire to admission into the profession. Regardless of service or capacity, members should protect the integrity of their work, maintain objectivity, and avoid any subordination of their judgment.

For a member in public practice, the maintenance of objectivity and independence requires a continuing assessment of client relationships and public responsibility. Such a member who provides auditing and other attestation services should be independent in fact and appearance.

In providing al other services, a member should maintain objectivity and avoid conflicts of interest.

Although members not in public practice cannot maintain the appearance of independence, they nevertheless have the responsibility to maintain objectivity in rendering professional services. Members employed by others to prepare financial statements or to perform auditing, tax, or consulting services are charged with the same responsibility for objectivity as members in public practice and must be scrupulous in their application of generally accepted accounting principles and candid in all their dealing with members in public practice.

ARTICLE V – DUE CARE

A member should observe the profession’s technical and ethical standards; strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member’s ability.

The quest for excellence is the essence of due care. Due care requires a member to discharge professional responsibilities with competence and diligence. It imposes the obligation to perform professional services to the best of a member’s ability with concern for the best interest of those for whom the services are performed and consistent with the profession’s responsibility to the public.

Competence is derived from a synthesis of education and experience. It begins with a mastery of the common body of knowledge required for designation as a certified public accountant. The maintenance of competence requires a commitment to learning and professional improvement that must continue throughout a member’s professional life. It is a member’s individual responsibility. In all engagements and in all responsibilities, each member should undertake to achieve a level of competence that will assure that the quality of the member’s services meets the high level of professionalism required by these Principles.

Competence represents the attainment and maintenance of a level of understanding and knowledge that enables a member to render services with facility and acumen. It also establishes the limitations of a member’s capabilities by dictating that consultation or referral may be required when a professional engagement exceeds the personal competence of a member or a member’s firm. Each member is responsible for assessing his or her own competence – of evaluating whether education, experience, and judgment are adequate for the responsibility to be assumed.

Members should be diligent in discharging the responsibilities to clients, employers, and the public. Diligence imposes the responsibility to render services promptly and carefully, to be thorough, and to observe applicable technical and ethical standards.

Due care requires a member to plan and supervise adequately any professional activity for which he or she is responsible.

ARTICLE VI – SCOPE AND NATURE OF SERVICES

A member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided.

The public interest aspect of certified public accountants’ services requires that such service be consistent with acceptable professional behavior for certified public accountants. Integrity requires that service and the public trust not be subordinated to personal gain and advantage. Objectivity and independence require that members be free from conflicts of interest in discharging professional responsibilities. Due care requires that services be provided with competence and diligence.

Each of these Principles should be considered by members in determining whether or not to provide specific services in individual circumstances.

In some instances, they may represent an overall constraint on the nonaudit services that might be offered to a specific client. No hard-and-fast rules can be developed to help members reach these judgments, but they must be satisfied that they are meeting the spirit of the Principles in this regard.

In order to accomplish this, members should

Practice in firms that have in place internal quality-control procedures to ensure that services are competently delivered and adequately supervised.

Determine, in their individual judgments, whether the scope and nature of other services provided to an audit client would create a conflict of interest in the performance of the audit function for that client.

Assess, in their individual judgments, whether an activity is consistent with their role as professionals.

SECTION II – RULES 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

(Pursuant to its authority under the bylaws section 360.1 to interpret the Code of Professional Conduct, the Professional Ethics Executive Committee has issued the following definitions of terms appearing in the code effective November 30, 1989 unless otherwise indicated).

Attest Engagement. An attest engagement is an engagement that requires independence as defined in AICPA Professional Standards. (Rev. Nov. 2001)

Attest Engagement Team. The attest engagement team consists of individuals participating in the attest engagement, including those who perform concurring and second partner reviews. The attest engagement team includes all employees and contractors retained by the firm who participate in the attest engagement, irrespective of their functional classification (for example, audit, tax or management consulting services). The attest engagement team excludes specialists as discussed in SAS No. 73, Using the Work of Specialist {AU section 336}, and individuals who perform only routine clerical functions, such as work processing and photocopying. (Rev. Nov. 2001)

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—
i. is directly elected by voters of the government or component unit thereof with respect to which professional services are performed; or
ii. is an individual who is (1) appointed by a legislative body, and (2) subject to removal by a legislative body; or
iii. is appointed by someone other than the legislative body, so long as the appointment is confirmed by the legislative body and removal is subject to oversight or approval by the legislative body. (Rev. Dec. 1998)

Close Relative. A close relative is a parent, sibling, or nondependent child. (Rev. Nov. 2001)

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

Covered Member. A covered member is—(a) An individual on the attest engagement team; (b) An individual in a position to influence the attest engagement; (c) A partner or manager who provides non-attest services to the attest client beginning once he or she provides ten hours of non-attest services to the client within any fiscal year and ending on the later of the date (i) the firm signs the report on the financial statements for the fiscal year during which those services were provided or (ii) he or she no longer expects to provide then or more hours of non-attest services to the attest client on a recurring basis; (d) A partner in the office in which the lead attest engagement partner primarily practices in connection with the attest engagement; (e) The firm, including the firm’s employee benefit plans; or (f) An entity whose operating, financial, or accounting policies can be controlled (as defined by generally accepted accounting principles {GAAP} for consolidation purposes) by any of the individuals or entities described in (a) through (e) or by two or more such individuals or entities if they act together. (Rev. Nov. 2001)

Enterprise. For purposes of the Code, the term “enterprise” is synonymous with the term” client”. (Rev. Nov. 2001)

Financial Statements. A presentation of financial data, including accompanying notes, if any, intended to communicate an entity’s economic resources and/or obligations at a point in time or the changes therein for a period of time, in accordance with generally accepted accounting principles or a comprehensive basis of accounting other than generally accepted accounting principles.

Incidental financial to support recommendations to a client or in documents for which the reporting is governed by Statements on Standards for Attestation Engagements and tax returns and supporting schedules do not, for this purpose, constitute financial statements. The statement, affidavit, or signature or preparers required on tax returns neither constitutes an opinion on financial statements nor requires a disclaimer of such opinion.

Firm. A firm is a form of organization permitted by law or regulation whose characteristics conform to resolutions of the Council of the American Institute of Certified Public Accountants that is engaged in the practice of public accounting. Except for purposes of applying rule 101: Independence {ET section 101.01}, the firm includes the individual partners thereof. (Rev. Nov. 2001)

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 the CPA designation on business cards or letterhead, the display of a certificate evidencing a member’s CPA designation, or listing as a CPA in local telephone directories.

Immediate family. Immediate family is a spouse, spousal equivalent, or dependent (whether or not related).

Individual in a position to influence the attest engagement. An individual in a position to influence the attest engagement is one who—(a) Evaluates the performance or recommends the compensation of the attest engagement partner; (b) Directly supervises or manages the attest engagement partner, including all successively senior levels above that individual through the firm’s chief executive; (c) Consults with the attest engagement team regarding technical or industry-related issues specific to the attest engagement; or (d) Participates in or oversees, at all successively senior levels, quality control activities, including internal monitoring, with respect to the specific attest engagement. (Rev. Nov. 2001)

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.

Joint closely held investment. A joint closely held investment is an investment in an entity or property by the member and the client (or the client’s officers or directors, or any owner who has the ability to exercise significant influence over the client) that enables them to control (as defined by GAAP for consolidation purposes) the entity or property. (Rev. Nov. 2001)

Key position. A key position is which an individual: (a) Has primary responsibility for significant accounting functions that support material components of the financial statements; (b) Has primary responsibility for the preparation of the financial statements; or (c) Has the ability to exercise influence over the contents of the financial statements, including when the individual is a member of the board of directors or similar governing body, chief executive officer, president, chief financial officer, chief operating officer, general counsel, chief accounting officer, controller, director of internal audit, director of financial reporting, treasurer or any equivalent position.

For purposes of attest engagements not involving a client’s financial statements, a key position is one in which an individual is primarily responsible for, or able to influence, the subject matter of the attest engagement, as described above. (Rev. Nov 2001)

Loan. A loan is 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, but is not limited to, a guarantee of a loan, a letter of credit, a line of credit, or a loan commitment. (Rev. Nov. 2001)

Manager. A manager is a professional employee of the firm who has either of the following responsibilities: (a) Continuing responsibility for the overall planning and supervision of engagements for specified clients. (b) Authority to determine that an engagement is complete subject to final partner approval if required. (Rev. Nov. 2001)

Member. A member, associate member, or international associate of the American Institute of Certified Public Accountants.

Office. An office is a reasonably distinct subgroup within a firm. Whether constituted by formal organization or informal practice, where personnel who make up the subgroup generally serve the same group of clients or work on the same categories of matters. Substance should govern the office classification. For example, the expected regular personnel interactions and assigned reporting channels of an individual may well be more important than an individual’s physical location. (Rev. Nov. 2001)

Partner. A partner is a proprietor, shareholder, equity or non-equity partner or any individual who assumes the risks and benefits of firm ownership or who is otherwise held out by the firm to be the equivalent of any of the aforementioned. (Rev. Nov. 2001)

Period of the professional engagement. The period of the professional engagement begins when a member either signs an initial engagement letter or other agreement to perform attest services or begins to perform an attest engagement for a client, whichever is earlier. The period lasts for the entire duration of the professional relationship (which could cover many periods) and ends with the formal or informal notification, either by the member or the client, of the termination of the professional relationship or by the issuance of a report, whichever is later. Accordingly, the period does not end with the issuance of a report and recommence with the beginning of the following year’s attest engagement. (Rev. Nov. 2001)

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 on Standards for Accounting and Review Services, Statement on Standards for Attestation Engagements.

However, a member or a member’s firm, while holding out as CPA9s), 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.

Significant influence. The term significant influence is a defined in Accounting Principles Board Opinion No. 18 {AC section 182} and its interpretations. (Rev. Nov. 2001)

RULES

(Only the Rules themselves are published in the Membership Directory of the West Virginia Society of Certified Public Accountants. For interpretations, see the “Code of Professional Conduct” published by the American Institute of Certified Public Accountants).

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

RULE 102 - INTEGRITY AND OBJECTIVITY
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.

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

RULE 202 - COMPLIANCE WITH STANDARDS
A member who performs auditing, review, compilation, management advisory, tax or other professional services shall comply with standards promulgated by bodies designated by Council.

RULE 203 - ACCOUNTING PRINCIPLES
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 modification 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.

RULE 301 - CONFIDENTIAL CLIENT INFORMATION
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 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 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.

RULE 302 - CONTINGENT FEES
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 is 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 services 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 services. 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.