Proposal of Professional Ethics Division Interpretation and Proposed Framework for Meeting the Objectives of the Fundamental Principles

Subsequent to adopting its Conceptual Framework for AICPA Independence Standards[1] (AICPA, Professional Standards, vol. 2, ET sec. 100.01), the Professional Ethics Executive Committee commenced a project to develop a framework that would assist members with meeting the objectives of the fundamental principles that are set forth in the Articles (ET sections 51–57) of the AICPA Code of Professional Conduct (the Code). These fundamental principles provide the framework for the rules in the Code, which govern the performance of professional services by members. Accordingly, the proposed Framework for Meeting the Objectives of the Fundamental Principles (the proposed Framework) applies to all members—members in public practice as well as those not in public practice (including members in business and industry, government, and education).

Because it is impossible to address in the Code every situation that creates such threats and specify the appropriate safeguards to mitigate or eliminate those threats, the proposed Framework provides guidance to members when faced with making decisions on ethical matters that are not explicitly addressed by the Code. Under no circumstances, however, may the proposed Framework be used to justify noncompliance with the prohibitions or requirements contained in the rules, interpretations, and rulings in the Code.

Under the proposed Framework, where a member identifies a threat that is not clearly insignificant, the member is required to apply safeguards to eliminate the threat or reduce it to an acceptable level. If a threat cannot be sufficiently mitigated through the application of safeguards, or if a member is unable to implement appropriate safeguards, the member should decline or discontinue the specific professional service.

The proposed Framework is consistent with, and incorporates many similar threats and safeguards as those described in the Conceptual Framework for AICPA Independence Standards. The Committee also believes the proposed Framework is consistent with the conceptual framework approach set forth in the International Federation of Accountants (IFAC) Code of Ethics for Professional Accountants and therefore will assist the Committee with its efforts to harmonize the AICPA's ethics standards with international ethics standards.

Members and other interested parties are encouraged to comment on this proposal. Comments on this Exposure Draft will be accepted through August 15, 2007, and should be sent to Lisa A. Snyder, Director, Professional Ethics Division, at lsnyder@aicpa.org.

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[1] Effective for all independence decisions made in the absence of an independence interpretation or ruling that addresses a particular circumstance on or after April 30, 2007.

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