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.01 Rule
501—Acts discreditable.
A member shall not commit an act discreditable
to the profession.
[As adopted January 12, 1988.]
Interpretations Under Rule 501
—Acts Discreditable
.02 501-1—Response
to requests by clients
and former clients for records.
Terminology
The following terms are defined below solely for
use with this interpretation:
-
Client
provided records
are accounting
or other records belonging to the client that were provided to the member
by or on behalf of the client.
-
Client
records prepared by the member
are
accounting or other records (for example, tax returns, general ledgers, subsidiary
journals, and supporting schedules such as detailed employee payroll records
and depreciation schedules) that the member was engaged to prepare for the
client.
-
Supporting
records
are information not
reflected in the client’s books and records that are otherwise not available
to the client with the result that the client’s financial information is incomplete.
For example, supporting records include adjusting, closing, combining, or
consolidating journal entries (including computations supporting such entries)
that are produced by the member during an engagement (for example, an audit).
-
Member’s
working papers
include, but
are not limited to, audit programs, analytical review schedules, and statistical
sampling results, analyses, and schedules prepared by the client at the request
of the member.
Interpretation
When a client or former client (client) makes a request
for client-provided records, client records prepared by the member, or supporting
records that are in the custody or control of the member or the member’s firm
(member) that have not previously been provided to the client, the member
should respond to the client’s request as follows: fn 1
-
Client
provided records
in the member’s
custody or control should be returned to the client.
-
Client
records prepared by the member
should
be provided to the client, except that client records prepared by the member
may be withheld if the preparation of such records is not complete or there
are fees due the member for the engagement to prepare those
records.
-
Supporting
records relating
to a completed
and issued work product should be provided to the client, except that such
supporting records may be withheld if there are fees due to the member for
the specific work product.
Once the member has complied with these requirements,
he or she is under no ethical obligation to comply with any subsequent requests
to again provide such records or copies of such records. However, if subsequent
to complying with a request, a client experiences a loss of records due to
a natural disaster or an act of war, the member should comply with an additional
request to provide such records.
Member’s working papers are the member’s property
and need not be provided to the client under provisions of this interpretation;
however, such requirements may be imposed by state and federal statutes and
regulations, and contractual agreements.
In connection with any request for client-provided
records, client records prepared by the member, or supporting
records, the member may:
-
Charge
the client a reasonable fee for the time and expense
incurred to retrieve and copy such records and require that such fee be paid
prior to the time such records are provided to the client;
-
Provide
the requested records in any format usable by the
client fn 2 ;
and
-
Make
and retain copies of any records returned or provided
to the client.
Where a member is required to return or provide records
to the client, the member should comply with the client’s request as soon
as practicable but, absent extenuating circumstances, no later than 45 days
after the request is made. The fact that the statutes of the state in which
the member practices grants the member a lien on certain records in his or
her custody or control does not relieve the member of his or her obligation
to comply with this interpretation. In addition, certain states have laws
and regulations that impose obligations on the member greater than the provisions
of this interpretation and should be complied with.
[Revised, effective April 30, 2000, by the Professional
Ethics Executive Committee. Revised, effective April 30, 2006, by the Professional
Ethics Executive Committee.]
.03 501-2—Discrimination
and harassment
in employment practices.
Whenever a member is finally determined by a court
of competent jurisdiction to have violated any of the antidiscrimination laws
of the United States or any state or municipality thereof, including those
related to sexual and other forms of harassment, or has waived or lost his/her
right of appeal after a hearing by an administrative agency, the member will
be presumed to have committed an act discreditable to the profession in violation
of rule 501 [ET section 501.01].
[Revised, effective November 30, 1997, by the Professional
Ethics Executive Committee.]
.04 501-3—Failure
to follow standards and/or
procedures or other requirements in governmental audits.
Engagements for audits of government grants, government
units or other recipients of government monies typically require that such
audits be in compliance with government audit standards, guides, procedures,
statutes, rules, and regulations, in addition to generally accepted auditing
standards. If a member has accepted such an engagement and undertakes an obligation
to follow specified government audit standards, guides, procedures, statutes,
rules and regulations, in addition to generally accepted auditing standards,
he is obligated to follow such requirements. Failure to do so is an act discreditable
to the profession in violation of rule 501 [ET
section 501.01],
unless the member discloses in his report the fact
that such requirements were not followed and the reasons therefor.
.05 501-4—Negligence
in the preparation
of financial statements or records.
A member shall be considered to have committed
an act discreditable to the profession in violation of rule 501 [ET section 501.01]
when, by virtue of his or
her negligence, such member—
a. Makes,
or permits or directs another to make, materially false and misleading entries
in the financial statements or records of an entity; or
b. Fails
to correct an entity’s financial statements that are materially false and
misleading when the member has the authority to record an entry; or
c. Signs,
or permits or directs another to sign, a document containing materially false
and misleading information.
[Revised, effective May 31, 1999, by the Professional
Ethics Executive Committee.]
.06 501-5—Failure
to follow requirements
of governmental bodies, commissions, or other regulatory agencies.
Many governmental bodies, commissions or other
regulatory agencies have established requirements such as audit standards,
guides, rules, and regulations that members are required to follow in the
preparation of financial statements or related information, or in performing
attest or similar services for entities subject to their jurisdiction. For
example, the Securities and Exchange Commission, Federal Communications Commission,
state insurance commissions, and other regulatory agencies, such as the Public
Company Accounting Oversight Board, have established such requirements.
If a member prepares financial statements or related
information (for example, management's discussion and analysis) for purposes
of reporting to such bodies, commissions, or regulatory agencies, the member
should follow the requirements of such organizations in addition to generally
accepted accounting principles. If a member agrees to perform an attest or
similar service for the purpose of reporting to such bodies, commissions,
or regulatory agencies, the member should follow such requirements, in addition
to generally accepted auditing standards (where applicable). A material departure
from such requirements is an act discreditable to the profession, unless the
member discloses in the financial statements or his or her report, as applicable,
that such requirements were not followed and the reasons therefore.
[Effective August 31, 1989. Revised, effective October
31, 2000, by the Professional Ethics Executive Committee. Revised, effective
April 30, 2004, by the Professional Ethics Executive Committee.]
.07 501-6—Solicitation
or disclosure of
CPA examination questions and answers.
A member who solicits or knowingly discloses the
May 1996 or later Uniform CPA Examination question(s) and/or answer(s) without
the written authorization of the AICPA shall be considered to have committed
an act discreditable to the profession in violation of rule 501 [ET section 501.01].
[Effective January 31, 1996. Revised May 1996, by
the Professional Ethics Executive Committee.]
.08 501-7—Failure
to file tax return or
pay tax liability.
A member who fails to comply with applicable federal,
state, or local laws or regulations regarding the timely filing of his or
her personal tax returns or tax returns of the member’s firm, or the timely
remittance of all payroll and other taxes collected on behalf of others,
may be considered to have committed an act discreditable to the profession
in violation of rule 501 [ET section
501.01].
[Effective May 31, 1999.]
.09 501-8—Failure to Follow Requirements of Governmental Bodies, Commissions, or Other Regulatory Agencies on Indemnification and Limitation of Liability Provisions in Connection With Audit and Other Attest Services.
Certain governmental bodies, commissions, or other regulatory agencies (collectively, regulators) have established requirements through laws, regulations, or published interpretations that prohibit entities subject to their regulation (regulated entity) from including certain types of indemnification and limitation of liability provisions in agreements for the performance of audit or other attest services that are required by such regulators or that provide that the existence of such provisions causes a member to be disqualified from providing such services to these entities. For example, federal banking regulators, state insurance commissions, and the Securities and Exchange Commission have established such requirements.
If a member enters into, or directs or knowingly permits another individual to enter into, a contract for the performance of audit or other attest services that are subject to the requirements of these regulators, the member should not include, or knowingly permit or direct another individual to include, an indemnification or limitation of liability provision that would cause the regulated entity or a member to be in violation of such requirements or that would cause a member to be disqualified from providing such services to the regulated entity. A member who enters into, or directs or knowingly permits another individual to enter into, such an agreement for the performance of audit or other attest services that would cause the regulated entity or a member to be in violation of such requirements, or that would cause a member to be disqualified from providing such services to the regulated entity, would be considered to have committed an act discreditable to the profession.
Members should also consult Ethics Ruling No. 94, "Indemnification Clause in Engagement Letters," of ET section 191, Ethics Rulings on Independence, Integrity, and Objectivity (AICPA, Professional Standards, vol. 2, ET sec. 191 par. .188–.189) under Rule 101, Independence and Ethics Ruling No. 102, "Indemnification of a Client," of ET section 191, Ethics Rulings on Independence, Integrity, and Objectivity (AICPA, Professional Standards, vol. 2, ET sec. 191 par. .204–.205) under Rule 101, Independence, for guidance related to use of indemnification clauses in engagement letters and the impact on a member's independence.
[Effective July 31, 2008.]
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