It's a matter of integrity.

• Author: Schreiber, William L.
• Position: Professional Ethics; accounting

Integrity is defined in Article III of the California Society of CPAs' Code of Professional Conduct as the quality from which the public trust derives and the benchmark against which a member must ultimately test all decisions.

While the public trust has eroded since Enron, WorldCom, Global Crossings and other recent similar situations- we are coming back.

A recent Gallup Poll indicated the accounting profession's public image has improved the most over the past year of 25 industries surveyed. Pre-Enron, the profession had a positive rating of 39 percent; last year's rating was 0 (when as many people gave it a negative rating as a positive one). This year's rating is a positive 31 percent.

JUDGMENT COUNTS

When CPAs make decisions regarding a matter of materiality or proper disclosure in financial statements, they are making a determination of whether or not the item in question falls above or below a line drawn in the sand. But who draws the line and how is it measured?

Guidelines have been established to help with those decisions, but in the end, it is the CPA whose judgment is relied upon to ensure the accounting treatment is appropriate given the circumstances.

Judgment is determined by several factors, including:

Knowledge of proper ethics. The California Board of Accountancy regulates this with a requirement to take one eight-hour course on professional conduct and ethics every six years. I do not think that is enough. You could easily spend eight hours on professional conduct over a three year period and eight hours on ethics during that same three year period.

Defining materiality. The definition of materiality is gained primarily through experience. There are numerous tables and formulas to assist us in this process, but in the end, the CPA must make a judgment call about what would be considered by the "average Joe" to be misleading in a set of financial statement.

Setting aside client expectations. When gauging the integrity of a CPA's decision, we ask: Is the CPA thinking about keeping the client, the fees he's generating or the proper treatment according to pronouncements even if the client will raise the roof when told? Someone with integrity knows the answer.

WHERE INTEGRITY COMES INTO PLAY

When I received my application to serve on the Professional Conduct Committee, it included a question as to why I wanted to serve. In addition to the major events noted above, I relayed my experience of having run across, with two separate...