CPA Professional Ethics Exams and Wisconsin Disciplinary Actions

Introduction: Ethics and the CPA Profession

Bordeman and Westermann (2019) note that CPAs have become a crucial part of the United States' financial framework, serving in nearly every facet of the country's financial system — from small-town practitioners to the largest firms. Given their critical role, the behavior of these professionals has attracted considerable attention in recent years, primarily because CPA conduct has significant impacts on the stability of the financial services industry. Consequently, CPAs are held to standards of behavior and professional practice established by the American Institute of Certified Public Accountants (AICPA).

This paper discusses the Professional Ethics for CPAs (PETH) exam and provides a comparison of two recent disciplinary actions in Wisconsin relating to the conduct of CPAs.

The Professional Ethics Exam for CPAs

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 demonstrated 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 that are likely to emerge throughout an accounting career. It helps those seeking licensure 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 covering national and state regulations relating to CPAs' professional conduct. It comprises 50 multiple-choice questions in a self-study, open-book format and must be completed 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 — specifically, after passing all four sections of the state's CPA exam. The three key topics covered are the Code of Professional Conduct, Ethics in Business, and Basic Concepts and Philosophy of Professional Conduct.

Based on anecdotal evidence, the PETH exam is considered more difficult than the CPA exam itself. Completing such a demanding exam benefits both individual accountants and the accounting profession as a whole. For individual accountants, the exam clarifies what is required of them in terms of professional conduct and deepens their understanding of ethics in practice (Bordeman & Westermann, 2019). For the profession, it provides a mechanism for ensuring that individual accountants are answerable for their conduct. To maintain an active CPA license, the continuing education ethics requirement involves familiarization with both the national AICPA and applicable state rules on professional conduct. The advantages of a take-home testing approach for the PETH exam include giving candidates sufficient time to prepare and formulate well-considered answers. A disadvantage, however, is the increased likelihood of copying or exam dishonesty.

Disciplinary Action: Weisbrod and Associates

The disciplinary proceeding against Lawrence P. Weisbrod and Weisbrod & Associates Inc. was conducted before the Wisconsin Accounting Examining Board, Case No. 19 Acc 023, with an effective date of June 9, 2021. Lawrence P. Weisbrod, born in 1964, is a licensed and certified CPA in the State of Wisconsin. His certification and license number, 11865-1, was issued on July 25, 1989, and remained active until December 14, 2021 (Wisconsin Department of Safety and Professional Services, 2021). Weisbrod & Associates Inc. is a licensed accounting firm in Wisconsin with license number 1361-3. The firm's license was first issued on September 14, 2012, and remained active through December 14, 2021; however, the license had 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 for Weisbrod & Associates Inc.

Weisbrod & Associates, a respondent in this case, admitted to offering accounting services — including attest services — during the period when its license was expired. The expiration was identified after the department obtained an email from the Wisconsin Office of the Commissioner of Insurance along with a letter from Lawrence P. Weisbrod. An investigation was opened, as department records showed the firm had continued to operate after its license expired on December 15, 2013. The firm's license was renewed on February 10, 2020, and the firm admitted to providing accounting services in the interim. Upon inquiry, Respondent Weisbrod stated that he was unaware the firm's license had expired and promised to renew it as soon as possible.

By operating with an expired license, Weisbrod & Associates Inc. violated the professional code of conduct for CPAs, specifically Wis. Stat. § 442.03. That statute prohibits any individual from lawfully practicing 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). The statute further prohibits such practice unless all provisions of the chapter — including licensure requirements — have been met.

Accordingly, Weisbrod & Associates Inc. violated the licensure requirement for the period between December 15, 2013 and February 10, 2020, during which it continued to provide accounting services without a valid license (Wisconsin Department of Safety and Professional Services, 2021). Additionally, the firm violated Wis. Admin. Code § Accy 5.101 by offering attest services while unlicensed. That provision prohibits a licensed CPA from providing attest services through a firm that does not hold a valid license.

Lawrence P. Weisbrod and Weisbrod & Associates Inc. were subjected to disciplinary proceedings pursuant to Wis. Stat. § 442.12(1)(b) and (c), which authorize the Wisconsin Accounting Examining Board to revoke, suspend, limit, or reprimand an officer or accounting firm found guilty of violating standards or rules of practice (Wisconsin Legislature, 2021). The board reprimanded both respondents and ordered them to pay all costs associated with the matter, amounting to $1,155.

In addition to violating Wisconsin statutes, Lawrence P. Weisbrod and Weisbrod & Associates Inc. violated the AICPA Code of Professional Conduct. Specifically, the respondents violated the Compliance With Standards Rule, 1.310.001, which requires members to comply with standards promulgated by bodies designated by the Council (Association of International Certified Professional Accountants, 2014). In this context, the Wisconsin Accounting Examining Board functions as the body designated by the AICPA Council. By violating the licensure requirements promulgated by that board, the respondents also violated AICPA Rule 1.310.001.

The Wisconsin Accounting Examining Board provided an appropriate punishment by reprimanding the respondents. Wis. Stat. § 442.12(1)(b) and (c) grant the board discretion to select a suitable disciplinary action based on the specific violation (Wisconsin State Legislature, 2021). The respondents did not commit a serious violation that would have significantly harmed their clients. Therefore, a reprimand was a suitable disciplinary action. Failing to act at all would have been too lenient, while imposing a penalty beyond a reprimand and cost payment would have been too harsh given the nature of the violation.

Conclusion

National and state standards are enacted to guide professional practice in the accounting field. These rules and standards define the boundaries of ethical and unethical behavior in the profession. Certified public accountants and accounting firms found guilty of violating those standards are subjected to disciplinary actions calibrated to the nature and impact of the specific violations. As this discussion illustrates, due process is followed in pursuing and resolving disciplinary violations pursuant to relevant regulations — yet the relevant board may adapt its procedural approach depending on the circumstances of each case. Ultimately, the disciplinary framework for CPAs serves both a corrective and a deterrent function, helping to uphold public trust in the accounting profession.

References

Association of International Certified Professional Accountants. (2014). AICPA Code of Professional Conduct. Retrieved October 4, 2021, from

Bordeman, A., & Westermann, K. D. (2019). The professional ethics exam and acts discreditable: An introductory assignment. Issues in Accounting Education, 34(4), 39–48.

Colin, S. (2021). Wisconsin CPA exam and license requirements: How to become a CPA in Wisconsin. Retrieved October 4, 2021, from https://www.cpaexammaven.com/wisconsin-cpa-requirements/

Wisconsin Department of Safety and Professional Services. (2021). Order 0007409. Retrieved October 4, 2021, from https://online.drl.wi.gov/decisions/2021/ORDER0007409-00017800.pdf

Wisconsin Department of Safety and Professional Services. (2021). Order 0007577. Retrieved October 4, 2021, from https://online.drl.wi.gov/decisions/2021/ORDER0007577-00018107.pdf

Wisconsin State Legislature. (2021). Statutes — Chapter 442. Retrieved from the Wisconsin State Legislature website.