Accountants, along with the executive and financial officers of a corporation, are responsible for preparing and presenting accurate financial statements of an organization. Auditors who are Certified Public Accountants (CPAs) have the responsibility of independently examining financial statement and forming an opinion on the accuracy of the financial statements of their client,. by doing so, this allows the client to accomplish their objective of presenting accurate and reliable financial information to not only their company, but also to the parties who will rely on these financial statements, in particular investors in the company, lenders to the company, the suppliers and customers who do business with the company, taxation authorities, and others. The profession of accounting, consistent with its responsibilities to the public, has developed a number of codes of ethics
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History of AICPA
The American Institute of Certified Public Accountant (AICPA) is a non-profit organization that represents the Certified Public Accountants (CPA), in the United States. The history of AICPA dates back to 1887, when the American Association of Public Accountants began. In 1916 and 1917, the Institute of Public Accountant and the American Institute of Accounts were founded. The American Society of Public Accountants was founded in 1921, and later merged with the Institute of Accountant in 1936. The Global Management Accountants Principle (GMAPs) were developed in 2017 by the AICPA and the Chartered Institute of Management Accountants (CIMA) in collaboration with 2012. The Association of International Certified Professional. Accountants in the third association that these two organizations founded.
Principles of AICPA Professional Conduct
The AICPA is divided into two sections; principles and rules. Principles are basic presumptions that specify what is ethically right, whereas rules are laws or rules that specify what is legally right. The purpose of AICPA is to guide all Certified Public Accountants. The public, colleagues, and clients are the three groups that the code especially names having ethical obligations for accountants. Because of these three groups, it is important to realize the relationship and obligations.
There are 5 principles outlined in the AICPA Professional Conduct. Responsibility, The Public Interest, Integrity, Objectivity and Independence, and Due Care.
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ET Section 52 - Article I - Responsibilities: In carrying out their responsibilities as professionals, members should exercise sensitive professional and normal judgment in all their activities. As professionals, members perform an essential role in the society. Consistent with that role, members of the American Institute of Certified Public Accountants have responsibilities to all those who use their professional services. Members also have a continuing responsibility to cooperate with each other to improve the art of accounting, maintain the public’s confidence, and carry out the profession’s special responsibilities for self-governance. The collective efforts of all members are required to maintain and enhance the tradition of the profession.
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ET Section 53 - Article II - The Public Interest: Members should accept the obligation to act in a way that will serve the public interest, honor the public trust and demonstrate commitment to professionalism. A distinguishing mark of a profession is acceptance of its responsibility to the public. The accounting profession’s public consists of clients, credit grantors, governments, employers, investigators, and the business and financial company, and others who rely on the objectivity and integrity of the members to maintain the orderly functioning of commerce. This reliance imposes a public interest responsibility on members. The public interest is defined as the collective well-being of the community of people and institutions that the profession serves.
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ET Section 54 - Article III - Integrity: To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity. Integrity is an element of character fundamental to professional recognition. It is the quality from which the public trust derives and the benchmark against which a member ultimately tests all decisions.
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ET Section 55 - Article IV - Objectivity and Independence: 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
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ET Section 56 - Article V - Due Care: A member should observe the professions technical and ethical standards, strive continually to improve competence and quality of services, and discharge professional responsibility to the best of the members ability
Generally Accepted Accounting Principles (GAAP)
Generally Accepted Accounting Principles (GAAP) is a combination of standards set by policy boards and gives a way to record and report accounting statements. The main goal of GAAP is to make sure that a company’s financial statements are complete, and reliable. GAAP helps maintain trust in the financial reports presented.
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There are ten principles that make up GAAP, and at the end, they all tie together and come to the conclusion of presenting the right information. The ten principles that make up GAAP are:
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The Principle of Regularity: The Principle of Regularity says that the accountant must practice all the established rules and regulations. These rules and regulations are set by the GAAP.
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The Principle of Consistency: The Principle of Consistency says that accountants must be consistent when going through the financial reporting process. That makes sure that the accountant is not able to mislead the numbers and avoid any errors. If the reporting standards are changed, then the accountant must explain why it happened.
The Principle of Sincerity: The Principle of Sincerity dictates that accountants must have the goal to provide an accurate financial statement. This forces accountants to follow the AICPA Professional code of integrity and maintain the public and client trust.
The Principle of Permanence of Methods: The Principles of Permanence of Methods dictates that. Accountants must have a set procedure that they will follow throughout the entire financial reporting process. It strives to be consistent and prevents any misleading information.
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The Principle of Compensation: The Principle of Non-Compensation dictates that whether good or bad, the financial statement must be disclosed.
The Principle of Prudence: The Principle of Prudence dictates that accountants must present all financial information “as-is” and avoid presenting any data that is based on speculation. This principle prevents companies from presenting investors with speculative data that does not reflect the company's current financial situation. Accountants must present the truthful report and avoid misinterpreting the number. This prevents companies from presenting false information to their client and public.
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The Principle of Continuity: The Principle of Continuity dictates that accountants must evaluate assets assuming that the company will carry as usual. This prevents the businesses from estimating how the asset will affect their company in the future.
The Principle of Periodicity: The Principle of Periodicity dictates that financial reports have to be public by the deadline they are given every quarter or year. Doing this, the company cannot keep the information hidden from the public or clients.
The Principle of Materiality: The Principle of Materiality dictates that accountants must disclose all the financial statements as is. This prevents companies from leaving out any financial information, whether the numbers look good or bad.
The Principle of Utmost Good Faith: The Principle of Utmost Good Faith dictates that it should be assumed the company is being truthful when presenting their financial statement.