CPA ethics: the importance of public trust.

• Author: Davis, Conrad
• Position: Certified public accountants

Last weekend I heard my wife laugh out loud as she watched the movie Hitch, which stars Will Smith as an ultra-cool dating consultant hired by co-star Kevin James, who is cast as a socially awkward CPA in desperate need of dating help. The film reminded me of how many times screenwriters have stereotyped CPAs as nerds over the years. As unfair as this is, we have never been able to shake this stereotype.

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However, we may be losing a stereotype that has long been important to us. Generally CPAs have always been and continue to be very ethical and conscientious. However, recent events have clouded this image.

While our image has improved since Enron, there is still work to be done. Unfortunately, lawmakers and others feel we have abused the public trust.

Corporate scandals and tax shelters are seen as examples of this abuse. They think companies are not paying their "fair share" of taxes and that CPAs are helping them cheat.

This column focuses on the process of restoring the government's and public's trust in CPAs. The following are examples of what our profession, the IRS, FTB and lawmakers are doing toward that end.

Circular 230

Taxing authorities have started to make their own corrections, including the IRS' significant changes to Circular 230. These changes limit the taxpayer's ability to avoid paying penalties by relying on tax opinions from CPAs. A best practices standard also has been added.

CPAs always have been thought to run high-quality practices with attention to detail and oversight of their staff. But the IRS now feels it necessary to impose a penalty to ensure that CPAs maintain a high standard of quality control and oversight.

Legislative Action

The California Legislature is responding to the fact that some CPAs have participated in tax evasion. They have proposed two bills aimed at revoking CPA licenses for individuals and firms they determine "aided or abetted" tax evasion. Included in the legislation is a "should have known" standard, which is similar to parents telling their children that they should have known better than to do something.

According to the legislation, CPAs could lose their licenses to practice in California because they should have known someone in their firm, or a client, was participating in a tax evasion scheme.

AICPA Efforts

Our profession has a history of well-developed ethical standards, which we use to assure the public we are committed to maintaining their trust. The AICPA...