ET Section 501 - Acts Discreditable 


    .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 subsequently solely for use with this interpretation:

    • The term client includes current and former clients.
    • 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, including hardcopy or electronic reproductions of such records.
    • Member-prepared records are accounting or other records that the member was not specifically engaged to prepare and that are not in the client’s books and records or are otherwise not available to the client, with the result that the client’s financial information is incomplete. Examples include adjusting, closing, combining, or consolidating journal entries (including computations supporting such entries) and supporting schedules and documents that are proposed or prepared by the member as part of an engagement (for example, an audit).
    • Member's work products are deliverables as set forth in the terms of the engagement, such as tax returns.
    • Member’s working papers are all other items prepared solely for purposes of the engagement and include items prepared by the
      • member, such as audit programs, analytical review schedules, and statistical sampling results and analyses,  and
      • client, at the request of the member and reflecting testing or other work done by the member.

    Interpretation

    Members must comply with the rules and regulations of authoritative regulatory bodies, such as the member's state board(s) of accountancy, when the member performs services for a client and is subject to the rules and regulations of such regulatory body. For example, a member's state board(s) of accountancy may not permit a member to withhold certain records notwithstanding fees due to the member for the work performed. Failure to comply with the more restrictive provisions contained in the rules and regulations of the applicable regulatory body concerning the return of certain records would constitute a violation of this interpretation.

    Client-provided records in the member's custody or control should be returned to the client at the client's request.

    Unless a member and the client have agreed to the contrary, when a client makes a request for member-prepared records, or a member's work products 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

    • Member-prepared records relating to a completed and issued work product should be provided to the client, except that such records may be withheld if there are fees due to the member for the specific work product.
    • Member's work products should be provided to the client, except that such work products may be withheld
      • if there are fees due to the member for the specific work product;
      • if the work product is incomplete;
      • for purposes of complying with professional standards (for example, withholding an audit report due to outstanding audit issues); or
      • if threatened or outstanding litigation exists concerning the engagement or member's work.

    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, member-prepared records, or a member's work products, 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.

    The member is not required to convert records that are not in electronic format to electronic format or to convert electronic records into a different type of electronic format.  However, if the client requests records in a specific format, and the records are available in such format within the member's custody and control, the client's request should be honored. In addition, the member is not required to provide the client with formulas, unless the formulas support the client's underlying accounting or other records, or the member was engaged to provide such formulas as part of a completed work product.

    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 grant 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.

    [Revised, effective April 30, 2000, by the Professional Ethics Executive Committee. Revised, effective April 30, 2006, by the Professional Ethics Executive Committee. Revised, effective February 28, 2011, by the Professional Ethics Executive Committee. Revised, effective April 30, 2012 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 or she 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 or her 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—

    1. Makes, or permits or directs another to make, materially false and misleading entries in the financial statements or records of an entity; or
    2. 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
    3. 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.]

    .10 501-9—Confidential Information Obtained From Employment or Volunteer Activities.

    A member should maintain confidentiality of his or her employer’s or firm’s (employer) confidential information and should not use or disclose any confidential employer information obtained as a result of an employment relationship (for example, discussions with the employer’s vendors, customers, or lenders). This includes, but is not limited to, any confidential information pertaining to a current or previous employer, subsidiary, affiliate, or parent thereof, as well as any entities for which the member is working in a volunteer capacity. For purposes of this interpretation, confidential employer information is any proprietary information pertaining to the employer or any organization for whom the member may work in a volunteer capacity that is not known to be available to the public and is obtained as a result of such relationships.

    A member should be alert to the possibility of inadvertent disclosure, particularly to a close business associate or a close or immediate family member. The member should also take reasonable steps to ensure that staff under his or her control or others within the employing organization and persons from whom advice and assistance is obtained are aware of the confidential nature of the information.

    When a member changes employment, a member should not use confidential employer information acquired as a result of the prior employment relationship to his or her personal advantage or the advantage of a third party, such as a current or prospective employer. The requirement to maintain confidentiality of an employer’s confidential information continues even after the end of the relationship between a member and the employer. However, the member is entitled to use experience and expertise gained through prior employment relationships.

    A member would be considered to have committed an act discreditable to the profession if the member discloses or uses any confidential employer information acquired as a result of employment or volunteer relationships without the proper authority or specific consent of the employer or organization for whom the member may work in a volunteer capacity, unless there is a legal or professional responsibility to use or disclose such information.

    The following are examples when members are permitted or may be required to disclose confidential employer information or when such disclosure may be appropriate:

    1. Disclosure is permitted by law and authorized by the employer.
    2. Disclosure is required by law, for example, to
      1. comply with a validly issued and enforceable subpoena or summons or
      2. inform the appropriate public authorities of violations of law that have been discovered.
    3. There is a professional responsibility or right to disclose information, when not prohibited by law, to
      1. initiate a complaint with, or respond to any inquiry made by, the professional ethics division or
        trial board of the AICPA or a duly constituted investigative or disciplinary body of a state CPA
        society, board of accountancy, or other regulatory body;
      2. protect the professional interests of a member in legal proceedings;
      3. comply with professional standards and other ethics requirements; or
      4. report potential concerns regarding questionable accounting, auditing, or other matters to the
        employer’s confidential complaint hotline or those charged with governance.

      Members should also consider Interpretation No. 102-4, “Subordination of Judgment by a Member,” under Rule 102, Integrity and Objectivity [sec. 102 par. .05], for additional guidance.
    4. Disclosure is permitted on behalf of the employer to
      1. obtain financing with lenders;
      2. deal with vendors, clients, and customers; or
      3. deal with the employer’s external accountant, attorneys, regulators, and other business
        professionals.

    In deciding whether to disclose confidential employer information, relevant factors to consider include, but are not limited to, the following:

    1. Whether all the relevant information is known and substantiated to the extent that it is practicable
      (when the situation involves unsubstantiated facts, incomplete information, or unsubstantiated
      conclusions, professional judgment should be used in determining the type of disclosure to be made,
      if any)
    2. Whether the parties to whom the communication may be addressed are appropriate recipients

    A member may wish to consult with his or her legal counsel prior to disclosing, or determining whether to disclose, confidential employer information.

    [Added August 2011, effective November 30, 2011]

    .11 501-10—False, Misleading, or Deceptive Acts in Promoting or Marketing Professional Services.

    A member in business who promotes or markets his or her abilities to provide professional services or makes claims about his or her experience or qualifications in a manner that is false, misleading, or deceptive will be considered to have committed an act discreditable to the profession, in violation of Rule 501 [sec. 501 par. .01]. A false, misleading, or deceptive promotion includes any claim or representation that would be likely to cause a reasonable person to be misled or deceived. This includes any representation about CPA licensure or any other professional certification or accreditation that is not in compliance with the requirements of the relevant licensing authority or designating body.

    [Added August 2011, effective November 30, 2011]  

    .12 501-11—Use of the CPA Credential.

    A member should refer to applicable state accountancy laws and board of accountancy rules and regulations for guidance regarding the use of the CPA credential. A member who fails to follow the accountancy laws, rules, and regulations regarding the use of the CPA credential in all the jurisdictions in which the CPA practices would be considered to have used the CPA credential in a manner that is false, misleading, or deceptive and in violation of Rule 501 [sec. 501 par. .01].

    [Added March 2013, effective May 31, 2013.]



    Footnotes (ET Section 501—Acts Discreditable):

    fn 1 The member is under no obligation to retain records for periods that exceed applicable professional standards, state and federal statutes and regulations, and contractual agreements relating to the service performed.

    [fn 2] Footnote deleted by the Professional Ethics Executive Committee, April 2012.




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