Professional Ethics and Conduct for CPAs

Professional Ethics for CPA

Browning, Levin & Wolod is a large accounting company that recruits college graduates. This accounting company engages in college job fairs throughout the country with the purpose of hiring the best accounting graduates every year. The firm only hires recent graduates with an excellent understanding of AICPA’s Code of Professional Ethics. As part of the recruitment process, the firm invites candidates to provide a writing sample demonstrating knowledge of the AIPCA Code of Professional Conduct. The selection process involves completing a PETH exam given the likelihood of certified public accountants (CPAs) engaging in unethical behavior. This paper discusses professional ethics exams for CPAs and provides a comparison of the two most recent disciplinary actions in Wisconsin relating to the behavior of CPAs.

Part I - Professional Ethics Exams for CPAs

Bordeman & Westermann (2019) state that CPAs have become a crucial part of the United States’ financial framework. CPAs are indispensable in nearly every facet of the country’s financial framework ranging from small-town practitioners to the largest firms. Given their critical role in the U.S. financial framework, the behavior of these professionals has attracted considerable attention in recent years. This is primarily because the behaviors of CPAs have significant impacts on the stability of the financial services industry. Consequently, CPAs are held to certain standards of behavior and professional practice established by the American Institute of Certified Public Accountants (AICPA).

Individuals seeking licensure to practice as CPAs must pass the Professional Ethics for CPAs (PETH) exam. This exam is critical because CPAs are likely to engage in unethical behavior as proven by the AICPA’s Acts Discreditable Rule. The ultimate purpose of the PETH exam is to determine how well an individual can handle professional ethics issues or questions that are likely to emerge across his/her accounting profession. It helps those seeking licensure to practice as CPAs to understand what is required and expected of them in terms of conduct when working in or with professional organizations.

In Wisconsin, the PETH exam is administered by the Wisconsin Institute of Certified Public Accountants. It is a multiple-choice exam that covers national and state regulations relating to CPAs’ professional conduct. It comprises 50 multiple-choice questions in a self-study, open-book format that must be answered with a score of at least 80% (Colin, 2021). Wisconsin’s PETH exam and related materials cost $75 and are administered once an individual completes a CPA license application. An individual completes this exam after passing all four sections of the State’s CPA exam. The three key topics covered in this exam are the Code of the Professional Conduct, Ethics in Business, and Basic Concepts and Philosophy of Professional Conduct.

Based on anecdotal evidence, the PETH exam is considered to be more difficult in comparison to the CPA exam. Completing such a difficult exam is beneficial to the accounting profession and individual accountants in terms of promoting ethical conduct in professional practice. For individual accountants, the exam helps to understand what is required of them in terms of professional conduct and improves understanding of ethics in practice (Bordeman & Westermann, 2019). For the accounting profession, it provides a means for ensuring individual accountants are answerable for their conduct in professional practice. To keep the candidate’s CPA license status as active in the state of licensure, the continuing education ethics requirement is familiarization with the national AICPA and state rules on professional conduct in the accounting profession. The pros of a take-home testing approach for the PETH exam include giving candidates enough time to prepare and complete the test and providing well-thought-out answers. However, its cons include the likelihood of copying or engaging in exam cheating.

Part II – Disciplinary Actions

The AICPA’s Acts Discreditable Rule demonstrates that CPAs participate in unethical behavior that could have significant impacts on their professional practice and the overall accounting profession. As a result, CPAs are required to familiarize themselves with national or AICPA as well as state rules governing professional conduct in the accounting profession. The PETH exam is one of the approaches used in the accounting profession to enhance a candidate’s understanding of the expected and required professional conduct in this field. However, CPAs still engage in behaviors that violate what is expected of their professional conduct in the accounting field. Consequently, disciplinary actions have been established to help institute necessary corrective actions or measures for CPAs who engage in unethical behavior.

State Boards of Accountancy administer disciplinary actions to CPAs for violation of the professional code of conduct and involvement in unethical behavior. Disciplinary actions differ in each case depending on the specific details of the situation. In essence, the State Boards of Accountancy adopt a disciplinary action based on the specific violation of the professional code of conduct by a CPA. Prior to adopting a disciplinary action, the CPA involved in a violation of professional conduct undergoes a disciplinary process in relation to the due process in licensure within the state. While decisions on disciplinary actions for violation of professional conduct are influenced by the specific violation and the existing national and state rules, the penalties sometimes generate controversies. As shown in this section, some penalties for violation of the professional code of conduct by CPAs are deemed too harsh or too lenient.

Disciplinary Action #1

This disciplinary action relates to the case involving Lawrence P. Weisbrod and Weisbrod & Associates Inc. The disciplinary proceeding against Lawrence P. Weisbrod and Weisbrod & Associates Inc. was conducted before the Wisconsin Accounting Examining Board, Case No. 19 Acc 023. The effective date of the case is June 9, 2021. Lawrence P. Weisbrod who was born in 1964 is a licensed and certified CPA by the State of Wisconsin. His certification and license number, 11865-1, was issued on July 25, 1989, and has remained active until December 14, 2021 (Wisconsin Department of Safety and Professional Services, 2021). On the other hand, Weisbrod & Associates Inc. is a licensed accounting firm in the State of Wisconsin, having license number 1361-3. The accounting firm’s license was first issued on September 14, 2012, and remains active through December 14, 2021. However, the accounting firm’s license was expired between December 15, 2013 and February 10, 2020. Wisconsin’s Department of Legal Services and Compliance identified Lawrence P. Weisbrod as the responsible licensee in charge of Weisbrod & Associates Inc.

Weisbrod & Associates, a respondent in this case, admitted to offering accounting services at a time when its license was expired. Some of the services offered by this accounting firm in the period between December 15, 2013 and February 10, 2020 include attesting services. The expiration of the license was identified after the department obtained an email from the Wisconsin Officer of the Commissioner of Insurance with a letter from Lawrence P. Weisbrod, the other respondent in this case. After receiving the email and letter, an investigation into Weisbrod & Associates’ expired license was opened as Department records demonstrated that the firm continued to operate while its license had expired on December 15, 2013. While the accounting firm’s license was renewed on February 10, 2020, the firm admitted to providing accounting services while its license was expired. Upon inquiry from the Department, Respondent Weisbrod stated that he was unaware that the firm’s license was expired and promised to renew it as soon as possible.

CPA’s Violation and Penalty Issued

By operating with an expired license, Weisbrod & Associates Inc. violated the professional code of conduct for CPAs. As noted in the case, the accounting firm violated Wis. Stat. § 442.03. The statute prohibits any individual from lawful practice as a CPA “either in the person’s own name, or under an assumed name, or as a member of a firm, unless the person has been granted by the examining board a certificate as a certified public accountant” (Wisconsin State Legislature, 2021). In addition, the statute prohibits such a person from lawful practice as a CPA unless he/she and the firm have adhered to all provisions of this chapter including licensure.

Therefore, Weisbrod & Associates Inc. violated the licensure requirement for professional practice as an accounting firm for the period between December 15, 2013 and February 10, 2020 when its license had expired. In essence, the firm continued to provide accounting services at a time when it failed to comply with all provisions of this chapter including licensure (Wisconsin Department of Safety and Professional Services, 2021).

Secondly, Weisbrod & Associates Inc. violated Wis. Admin. Code § Accy 5.101 by offering some attest services when its license had expired. Based on this provision, an individual licensed as a certified public accountant is prohibited from providing some attest services in a firm without a license. Therefore, Weisbrod & Associates Inc. violated this provision as Lawrence P. Weisbrod provided some attest services in a CPA firm without a license for the period between December 15, 2013 and February 10, 2020.

Lawrence P. Weisbrod and Weisbrod & Associates Inc. were subjected to a disciplinary process and action pursuant to Wis. Stat. § 442.12(1) (b) and (c). Based on this provision, the Wisconsin Accounting Examining Board may revoke, suspend, or limit the certificate, license, or practice privilege of an officer or accounting firm found guilty of the violation of standards or rule of practice (Wisconsin Legislature, 2021). The board could also reprimand an officer or accounting firm found guilty of the violation of the promulgated standard or rule of practice. In this regard, the accounting examining board reprimanded Lawrence P. Weisbrod and Weisbrod & Associates Inc. and ordered them to pay all costs of the matter amounting to $1,155.

AICPA Rule

It is evident that Lawrence P. Weisbrod and Weisbrod & Associates Inc. violated state rules regarding the code of professional conduct in the accounting profession. However, the respondents not only violated Wisconsin’s statutes for the accounting profession but also violated the AICPA Code of Professional Conduct. A review of the CPA’s violation shows that the respondents violated the Compliance With Standards Rule of the AICPA Code of Professional Conduct. In this case, Lawrence P. Weisbrod and Weisbrod & Associates Inc. violated 1.310.001 of the AICPA Code of Professional Conduct. This rule stipulates requires members to comply with standards promulgated by bodies selected by the Council (Association of International Certified Professional Accountants, 2014).

In this scenario, the Wisconsin Accounting Examining Board is deemed as the body designated by the AICPA Council. This accounting examining board promulgated standards or rule of practice for CPA and accounting firms in the State of Wisconsin. Some of the standards or rule of practice promulgated by this body include the licensure requirement for CPAs or accounting firms. By violating the licensure requirement, the respondents not only violated these standards or rule of practice but also violated Compliance With Standards Rule, 1.310.001, of the AICPA Code of Professional Conduct.

Suitability of the Punishment

Wisconsin Accounting Examining Board provided an appropriate punishment to the respondents by reprimanding them. According to Wis. Stat. § 442.12(1)(b) and (c), the board may reprimand an officer or accounting firm found guilty of violating duly promulgated standard or rule of practice in Wisconsin (Wisconsin State Legislature, 2021). This implies that Wisconsin’s Statute for professional conduct in the accounting profession gives the board the discretion to choose a suitable disciplinary action depending on the specific violation.

I believe that the board exercised its discretion as required by law and chose an appropriate disciplinary action based on the specific violation. The respondents did not commit a serious violation that would significantly affect their clients. Therefore, a reprimand is a suitable disciplinary action for the respondents. The board would have been too lenient if it failed to act or too harsh if the disciplinary action was more than a reprimand and payment of the costs involved in resolving the matter before the board.

Disciplinary Action #2

A disciplinary proceeding was instituted against Oliver Plunkett and Oliver Plunkett SC, Case No. 18 ACC 012. Oliver Plunkett, born in 1963, is certified and licensed as a CPA by the State of Wisconsin, license number 19090-1. The license was first issued on August 21, 2002 and expired on December 15, 2019. On the other hand, Oliver Plunkett, SC is a licensed accounting firm license number 1123-3 by the State of Wisconsin. The license, which was first issued on January 24, 2007, expired on December 15, 2017 (Wisconsin Department of Safety and Professional Services, 2021). The Department records identify Oliver Plunkett as the responsible licensee for Oliver Plunkett SC.

The disciplinary proceeding was instituted after the Department received a complaint against the respondents for allegations of making an error in filling out a Complainant’s son’s tax returns. Additionally, the Complainant alleged that the respondents did not correct the mistake for more than 18 months and stopped communicating in January 2018. Through email correspondence with the Department, Oliver Plunkett admitted he should have been diligent in performing the IRS engagement and more responsive to the Complainant. While he stipulated corrective actions taken to address the issue, Respondent Plunkett failed to respond to the Division’s request for information on three different occasions between July and September 2019. He later responded indicating that he had been diagnosed with and treated for cancer, experienced the sudden death of a friend, and was still operating as Oliver Plunkett SC. However, the respondents still advertised public accounting services in the state after the expiry of their licenses until July 2021.

CPA’s Violation and Penalty Issued

The two respondents violated Wisconsin’s standards or rule of practice on various occasions as shown in the case. They violated Wis. Stat. § 442.03, Wis. Admin. Code § Accy 1.20l(1)(b), Wis. Admin. Code § Accy 1.407, and Wis. Stat. Admin. Code § Accy 5.101. Based on Wis. Stat. § 442.03, an officer or accounting firm is required to have a license for lawful practice as a CPA or accounting firm (Wisconsin State Legislature, 2021). The respondents violated this rule/standard by continuing to advertise certified public accounting services in the State of Wisconsin while the licenses were expired. They violated Wis. Admin. Code § Accy 5.101 by maintaining an office to transact business as CPA with an expired license. Respondent Plunkett’s violation of Wis. Admin. Code § Accy 1.20l(1)(b) is evident in the failure to exercise professional care when carrying out an engagement while the failure to respond to communications from the board within 30 days of mailing was a violation of Wis. Admin. Code § Accy 1.407.

Wisconsin Accounting Examining Board reprimanded the two respondents with costs in the amount of $1,725. In addition, the board limited the respondents’ right to renew their certifications and licenses until proof of all continuing education and evidence of compliance with peer review requirements were provided. The board instituted these disciplinary actions pursuant to Wis. Stat. § 442.12(1), which grants it the discretion to choose an appropriate disciplinary action based on the specific violation.

AICPA Rule

The respondents’ violation of the state’s duly promulgated standards or rule of professional practice also essentially violated some rules of the AICPA Code of Professional Conduct. One of the rules of the AICPA Code violated by these respondents is the Compliance With Standards Rule, 1.310.001. This rule requires officers or members to perform or offer professional services in compliance with standards promulgated by bodies designated by the Council (Association of International Certified Professional Accountants, 2014). The respondents violated this rule by failing to comply with the licensure requirements promulgated by the relevant body in the State of Wisconsin.

Secondly, they violated the General Standards Rule, 1.300.001, relating to professional competence and due professional care. The respondent failed to demonstrate professional competence and due care when performing the IRS engagement and correspondence with the Complainant and the Board. The General Standards Rule requires CPAs to demonstrate professional competence by undertaking professional services they can reasonably expect to complete and exercise due professional care when carrying out professional services. The respondent was not more diligent in following through with the IRS, did not fix the error for over a year and a half, and stopped communicating with the Complainant ((Wisconsin Department of Safety and Professional Services, 2021).

Suitability of the Punishment

The board’s determination of disciplinary action was pursuant to Wis. Stat. § 442.12. I believe that the punishment was neither too lenient nor too harsh, but was appropriate given the respondents’ violations. The respondents’ violation generated concerns regarding their ability to demonstrate professional competence and follow due care when providing professional services. Therefore, the individual CPA, Oliver Plunkett, and the accounting firm would need to demonstrate professional competence and ability to follow due care and comply with relevant standards before being allowed to continue with professional practice in the accounting field. By reprimanding the respondents and limiting their right to renewal of certification and license, the board ensured that the respondents would face disciplinary measures that are proportionate to their violations.

Disciplinary Actions #1 and #2

Compare and Contrast

The two disciplinary actions in the two cases have some similarities and differences that influenced the board’s resolution and orders. One of the similarities in the two cases is the applicability of national (AICPA) and state rules in professional conduct in the accounting profession. National (AICPA) and state rules or standards play an important role in determining what constitutes appropriate professional conduct in the accounting profession. In addition, ethics in the accounting field is shaped by the existing national and state rules/standards. In the two cases, the respondents’ violated some AICPA and state rules when carrying out their duties as certified public accountants. Their actions constituted infringement of what was required and expected of them as CPAs based on existing national and state rules/standards.