AICPA
The American Institute of Certified Public Accountants is the national governing body for rules and regulations. Whether or not a CPA is a member, certain guidelines must be adhered to. Any deviation may result in disciplinary action. Here we explore some of the rules and regulations.
Independence
To perform certain services, a CPA must be independent of the client. The CPA is prohibited from having any direct financial interest in the client. A material indirect financial interest is also prohibited. The CPA’s immediate family is also bound by these rules.
Examples of prohibitions include a CPA that acts in the capacity of management for a client. The members of the immediate family cannot own more than 5% of a client’s ownership interest as a group. So if the wife owns 3% and the CPA owns 3%, his independence is impaired. A spouse is permitted to work for the client, as long as it is not in a key position.
Tracking independence takes time and money and is certainly a contributory element to your CPA bill.
Confidential Client Information
No client information may be shared with any third party without the expressed written consent of the client. Even if a CPA is alerted to client illegal activity, he may only excuse himself from the engagement and sever all ties with the client. Any contact with authorities is considered a breach of client confidentiality.
The exceptions include an official inquiry from a federal or state government regulatory agency. A validly enforceable subpoena or summons is also an exception. A CPA is required to respond to these types of documents.
Contingent Fees
Contingent fees are generally prohibited. However, these fees are permitted in certain circumstances centering around tax issue resolution. If a CPA offers a free consultation and a discount on tax preparation services, this is permitted. The discount was not contingent on anything, but rather is just a flat across the board discount. Contingent implies an event or set of circumstances that affects the amount to be charged. The fee owed the CPA is not set until after the event occurs.
Other Miscellaneous Items
False and misleading advertising is strictly prohibited. Implying an ability to influence a governing body is not allowed. The advertisement is not permitted if a reasonable person would be misled by the claims. Fictitious CPA firm names cannot be false or misleading to a reasonable person. The rule is intended to mimic the advertising rules.
A majority of the ownership interest in a CPA firm must belong to CPAs. This includes financial interests and voting rights.
Summary
CPAs, like any other licensed profession, are subject to a set of rules and regulations. Compliance requires monitoring certain aspects of all staff members’ activities and takes time and cash outlay. But such standards help ensure a quality of work for all clients. We have only explored a few of the many requirements to help you understand what belonging to a licensed profession really entails.
For More Information
The AICPA website may be accessed online.
