AICPA Proposes Changes to Code of Conduct for Members in Business

JANUARY 24, 2017    RECENT DEVELOPMENTS

On January 9, the AICPA Professional Ethics Executive Committee or "PEEC" released an Exposure Draft, seeking comments from interested parties on revisions and a new provision under the Code of Conduct's Integrity and Objectivity Rule for members in business.  The revisions would amend an existing interpretation in the Code, "Knowing Misrepresentations in the Preparation of Financial Statements or Records" and introduce a new interpretation, "Pressure to Breach the Rules," both resulting from the PEEC's consideration of international ethics rules.  The impact of the proposals, if adopted by PEEC, are summarized below:

Knowing Misrepresentations - The Code currently bars members from knowingly misrepresenting financial statements and records in a material manner.  PEEC proposes expanding the interpretation to address additional situations such as presentation of financial information that is not subject to a reporting framework (e.g. budgets or forecasts) and non-financial information (e.g. operating or risk reports); the member's responsibility when relying on others' work; and actions required to avoid association with misleading information.

Pressure to Breach the Rules - The new interpretation would provide guidance to members being pressured, whether by a colleague, supervisor, outside party or other influences (e.g. meeting an earnings target), to take actions that breach the ethics rules, e.g. presenting misleading information to analysts or other constituents or performing work without the requisite due care or competence.  The proposed rule provides factors to consider to identify the situation and safeguards, such as discussions with the appropriate parties, (moving up the chain of command as needed), or disclosure to an ethics hotline, etc. to remedy the pressure. The interpretation also prohibits a member from exerting such pressure on another person. 

Comments on the proposal are due by April 17, 2017.  If adopted, both provisions would take effect upon publication in the Journal of Accountancy.