California's accounting code of ethics and professional conduct

California's Accounting Code Of Ethics

Ethics has always been an important part of business transactions. Freedoms of information, stricter government regulations and electronic media have made ethics even more essential to business practices. California's code of business ethics expects the accountants and accounting related professionals to be ethical with their clients as well as the accounting system.

In order to perform their work independently and deal with client-accountant relationship Californian system protects accountant-client privilege similar to that of a lawyer-client relationship with a few exceptions.

The accountants have to carryout their work in a professional manner. Code violations such as fraud, misrepresentation, and negligence could make the client liable to civil or criminal liabilities.

Introduction

Ethics for accounting professionals can be described as practice of the profession with integrity and objectivity, honesty, and according to the best accounting practices. The client satisfaction is only one part of the equation, but if this satisfaction is built by conceding to all legal and illegal wishes of the client, then this lack of ethic will not create a healthy respect for the accounting professional either in the public eye or that of the client.

The recent financial scandals like ENRON, WorldCom, Global Crossing and others brought a considerable drop in general public esteem for the accounting profession. [Schreiber, 2003] shows his concern regarding the abuses of ethics, writing for California Society of Certified Public Accountants (CPA) he insists that the enforcement and education be used till the few professionals involved in unethical practices learn to maintain the standards of the profession.

All professional accounting bodies have made ethics as an essential part of the accountants training. California Board of Accountancy requires all professionals to take a course in 'Professional Conduct & Ethics'. It is necessary to know the importance of retention of records, significance of confidentiality of client information, ethics of commissions and referral fees and of course the importance of protecting oneself against the violation of ethics and its penalties.

The reality is that most accountants, even those involved in unethical practices know what counts as unethical. It is his judgment regarding whether to please the client by unscrupulous practices or follow the acceptable practices to meet ethical, legal and regulatory bodies' requirements. [Schreiber, 2003] quotes an accounting Professor Mary Beth as saying "The regulatory bodies expect the accounting professionals to 'act in good faith', the tax practitioner must use integrity and objectivity to assess the probability that the IRS (or tax court) would agree with the tax treatment being contemplated if they knew all the facts and circumstances." The accountant has reasonable degree of freedom to satisfy his client as well as the regulatory bodies while marinating his integrity and professional interests.

Accountant Work Product

The work an accountant performs for a client is accountant's work product. The accountant has to protect the information to protect his client's interests. In an accountant retained by an attorney, this work product could be considered privileged, which protects them from discovery. The documents prepared by an accountant is considered privileged. The work product doctrine protects all memos, briefs, documents, statements, and all tangible things prepared for a possible legal case.

The accountant has a responsibility for the work produced for his client. Recent decisions by courts have made the accountant liable to those persons who reasonably can be expected to benefit from his work product. An accountant/auditor is not liable to third party who used his financial statements. This ruling limits the professional liability of the accountants. [McCormack, 2005]

Code Violations Liable to Criminal and/or Civil Action

The accounting professionals have to be careful in allowing themselves to be involved in charges of fraud while handling a client's business. The law may decide that the accountant should have known that a fraud was being committed. Anyone recognizing the fraud cannot ignore it. The offense is punishable by professional bodies as well as through civil and criminal courts.

An accountant is liable for his own acts of negligence. He can also be held responsible for civil or criminal violation committed by his partners. An accountant is liable to prosecution if he deliberately misguides his client(s)

Misrepresentation as a member of an accounting body is liable to civil and criminal penalties. A person is not allowed to practice professional accountancy even if his license has expired.