This webinar was hosted by Mike Hoffner and Dan Sturm from McKonly & Asbury. This presentation introduced the audience to the structure and background of the new AICPA revised Code of Professional Conduct, provided information on how the AICPA derived the new format, and offered a roadmap of next steps expected from the AICPA on this topic. Check out our Upcoming Events page for news and updates on our future seminars and webinars at http://www.macpas.com/events/

1. October 2014
Webinar Professional
Ethics:
An Introduction to
the Revised Code of
Professional Conduct

4. PROFESSIONAL ETHICS: AN
INTRODUCTION TO THE REVISED
CODE OF PROFESSIONAL
CONDUCT
Michael Hoffner, Partner
Daniel Sturm, Principal

5. ABOUT US
Michael Hoffner
• Partner
• McKonly & Asbury
Daniel Sturm
• Principal
• McKonly & Asbury

6. PROGRAM OUTLINE
Standard Setting Process
Changes to the Code of Professional Conduct
Enforcement Process

7. STANDARD SETTING PROCESS
AICPA Professional Ethics Division
• PEEC: Professional Ethics Executive Committee
• Senior committee of the AICPA, charged with interpreting / enforcing the
AICPA Code of Professional Conduct (The Code)
• Also charged with promulgating new interpretations and rulings,
monitoring existing rules, and making revisions as needed.
• Roots traced back to the “American Association of Public Accountants’
Committee on Ethics” – formed in 1906

8. STANDARD SETTING PROCESS
• PEEC’s Standard Setting Process
• Quarterly meetings, which are open to the public
• Deliberates emerging issues and those brought to its attention via
member inquiry
• Maintains a Three-Year agenda
• Exposure drafts issues with at least 60 days of open comment
period prior to publishing new standards

9. THE REVISED CODE
Existing Code adopted in early 1970’s
• Updated over time, with interpretations issued, but no significant
changes.
• AICPA recognized, based on user input, that a full overhaul was
necessary to:
• Create a more intuitive structure
• Allow easier, faster searching
• Speak more clearly to CPA’s working in different areas

10. THE REVISED CODE
In 2012, Pilot Testing performed over the tentative restructured Code
Result of Pilot Testing was an Exposure Draft, issued April 15, 2013
• Organized by Topic based on a Conceptual Framework approach
• 3 Parts
• Members in Public Practice
• Members in Business
• All other members (retired, unemployed)

11. THE REVISED CODE
The proposed Conceptual Framework will incorporate two
interpretations – one for members in public practice and another
similar one for members in business.
• Additionally, for those providing attest services, there is a conceptual
framework focused on specific threats to independence.
• These are designed to provide assistance for circumstances where no
specific guidance exists.

12. THE REVISED CODE
After consideration of responses to Exposure Draft, PEEC approved a
revised Code on January 28, 2014, to be effective December 15, 2014.
• New conceptual frameworks and related interpretations will not be
effective until December 15, 2015
• Revised code launched on June 2nd, with early adoption encouraged.

13. THE REVISED CODE
Significant changes in the revised code include
• Organization:
• The prior code was organized by rule, with chronological listing of
interpretations and rulings (if any).
• The revised code is organized more intuitively
• Separates guidance by line of business, then by topic
• Where necessary, Topics are broken into subtopics and sections

14. THE REVISED CODE
Significant changes in the revised code include
• Conceptual Frameworks
• Incorporate a “Threats and Safeguards” approach, designed to assist users in
analyzing relationships and circumstances that the code does not specifically
address
• Under this approach, users:
• Identify threats to compliance with the rules
• Evaluate the significance of those threats to determine if it is at an acceptable
level
• If not at an acceptable level, users apply safeguards to eliminate the threats or
reduce them to an acceptable level

15. THE REVISED CODE

16. THE REVISED CODE
Significant changes in the revised code include
• Content
• Redrafted using consistent style and to reflect the conceptual framework
approach
• Expanded to include references to nonauthoritative guidance issued by
the Professional Ethics Division
• Format
• Electronic format designed for search capability, “link creation” and the
ability to create a date-stamped PDF

17. THE REVISED CODE
Preface All Members
• Responsibilities principle In carrying out their responsibilities as professionals, members should
exercise sensitive professional and moral judgments in all their activities.
• The public interest principle Members should accept the obligation to act in a way that will serve
the public interest, honor the public trust, and demonstrate a commitment to professionalism.
• Integrity principle To maintain and broaden public confidence, members should perform all
professional responsibilities with the highest sense of integrity.
• Objectivity and independence principle A member should maintain objectivity and be free of
conflicts of interest in discharging professional responsibilities. A member in public practice should
be independent in fact and appearance when providing auditing and other attestation services.

18. THE REVISED CODE
Preface All Members
• Due care principle A member should observe the profession’s
technical and ethical standards, strive continually to improve
competence and the quality of services, and discharge professional
responsibility to the best of the member’s ability.
• Scope and nature of services principle A member in public practice
should observe the Principles of the Code of Professional Conduct in
determining the scope and nature of services to be provided.

19. THE REVISED CODE
Part 1 Members in Public Practice
• Public Practice: the performance of professional services for a client by a member or a
member’s firm. Also includes Governmental Auditors working in a gov’t organization
• Framework:
A. Identify threats
• Relationships or circumstances that could compromise a member’s compliance with the rules.
B. Evaluate the significance of a threat
• Acceptable level. A level at which a reasonable and informed third party who is aware of the relevant
information would be expected to conclude that a member’s compliance with the rules is not compromised.
C. Identify and apply safeguards
• Actions or other measures that may eliminate a threat or reduce a threat to an acceptable level

20. THE REVISED CODE
Many threats fall into one or more of the following seven broad categories:
• Adverse Interest
• Advocacy
• Familiarity
• Management Participation
• Self-Interest
• Self-Review
• Undue Influence

21. THE REVISED CODE
Safeguards that may eliminate a threat or reduce it to an acceptable level fall
into three broad categories:
• Safeguards created by the profession, legislation, or regulation.
• Safeguards implemented by the client. It is not possible to rely solely on
safeguards implemented by the client to eliminate or reduce significant
threats to an acceptable level.
• Safeguards implemented by the firm, including policies and procedures to
implement professional and regulatory requirements.

22. THE REVISED CODE
Part 2 Members in Business
• Structured very similar to Part 1
• Threats / Safeguards similar, tailored more towards individuals in
business vs. public practice
Both parts followed by detailed interpretations broken down into
broad categories and scenarios to provide specific answers and
guidance.

23. ENFORCEMENT PROCESS
Joint Ethics Enforcement Program (JEEP)
• “The purpose of the JEEP agreement between the AICPA and a state
society is to permit joint enforcement of their respective codes of
professional conduct with respect to a member of either or both by
means of a single investigation and, if warranted, a single settlement
agreement or joint trial board hearing.”
(JEEP Manual of Procedures, Dec. 2006)

24. ENFORCEMENT PROCESS
Summary of the JEEP process
• Complaint is filed
• Preliminary inquiry and analysis
• Respondents are identified
• Case investigator is assigned
• Opening letters are sent to respondents
• Evidence and interviews are collected
• Case is presented to the committee
• Committee votes on case and outcome

25. ENFORCEMENT PROCESS
Possible conclusions of an investigation
No violation
• If there is no evidence of a violation, the investigation will be closed.
Required corrective action (RCA)
• The actions generally include CPE or pre-issuance reviews of engagements.
Settlement agreement
• In lieu of referring the case to the Joint Trial Board, the committee may, at its discretion, choose to
offer the respondent a non-negotiable settlement agreement.
Referral to the Joint Trial Board (JTB)
• The panel may find a respondent not guilty or, if a guilty verdict is issued, may expel or suspend the
respondent’s membership, admonish the respondent, or take additional action as it considers
appropriate. A respondent may appeal a guilty verdict.

26. QUESTIONS?