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See also CARPENTER V. HALL; FISCHER V. KLETZ; LAW AND ACCOUNTING; LEGAL LIABILITY OF AUDITORS; REGULATION (FEDERAL U.S.) AND ACCOUNTING; SECURITIES AND EXCHANGE COMMISSION; ULTRAMARES CORPORATION V. TOUCHE, NIVEN AND COMPANY
Estate Accounting
See MANORIAL ACCOUNTING
Ethics, Professional
A primary goal of U.S. accountants in the late 1800s and early 1900s was the attainment of professional status. With aspirations modeled on the "older professions" of medicine and law, and the example of their British and Scottish counterparts, U.S. accountants sought to distin-guish the "profession of accountancy" from other commercial activities. Essential to that goal was a code of conduct that would set the accountant apart from the laity and govern his professional conduct.
Two years before his inauguration as presi-dent of the American Association of Public Accountants (AAPA), Joseph Edmund Sterrett outlined the agenda for future debate and de-velopment of codes of professional ethics. His address to the 20th annual meeting of the AAPA in 1907 formulated a framework for ethical conduct that guided the profession for over half a century. Divided into responsibilities to cli-ents, "professional brethren," and the public, his recommendations sound modern even at the close of the twentieth century: confidentiality, due professional care, tact combined with cou-rageous honesty, not certifying misleading fi-nancial statements, impartiality, financial inde-pendence from clients, speaking well of one's professional colleagues, duties of a subsequent auditor, and duties to assistants. In addition to these positive aspects of professional practice, Sterrett called for banning a series of "unpro-fessional behaviors," including contingent fees, encroachment on the business of other accoun-tants through solicitation, advertising, competi-tive bidding, fee splitting, commissions not earned through professional work, and practic-ing as a corporation. Although other writings make it clear that independence was considered the essence of ethical behavior, early codes did not specifically mention independence. Rather, the negative rules against advertising, competi-tive bidding, and contingent fees were intended
to protect the auditor's independence of mind. Independence did not enter the language of the professional code until 1941 at the urging of the Securities and Exchange Commission (SEC).
Adherence to these standards was by no means the norm in the early 1900s, nor was there universal agreement on the necessity for written codes. Many practitioners opposed written codes, which they believed would re-duce ethical issues to the lowest common de-nominator. Others felt that the rules created an unreasonable burden on practitioners. Throughout the first two decades of the 1900s, the vast majority of accountants solicited, ad-vertised, and accepted commissions from statio-ners and other client vendors. It was also com-mon for auditors to have financial interests in their clients' businesses and to hold manage-ment or director positions in those businesses.
The AAPA became the American Institute of Accountants (AIA) in 1916, responding in part to criticisms that the AAPA was powerless to enforce even its limited rules of ethics due to its membership structure. The AIA promptly established the first comprehensive "Code of Professional Ethics" in 1917. Consisting of eight rules, the code forbade practitioners from: (1) calling themselves members of the AIA un-less all partners were members, (2) certifying financial statements that contained false or misleading statements or omissions, (3) allow-ing someone to practice in their name who was not a partner or employee, (4) engaging in fee splitting or kickbacks, (5) engaging in incom-patible occupations, (6) issuing opinions on fi-nancial statements not properly examined, (7) lobbying on legislation without first notifying the AIA, and (8) engaging in solicitation or en-croachment. Additional rules were added to the code, which continued to expand before and after the AIA merged with the American Soci-ety of Certified Public Accountants in 1959 to become the AICPA. Among the more significant expansions were prohibitions against: accepting contingent fees (1919); vouching for the accu-racy of forecasts (1932); competitive bidding (1934); having a substantial financial interest in audit clients, violating client confidentiality (1941); committing acts discreditable to the profession (1962); and having any financial interest in an audit client (1964).
In 1965, Thomas Higgins, chairman of the AICPA Ethics Committee, told the annual meet-ing of the AICPA that its code of ethics was probably "the worst piece of literature in circu-
e t h i c s , p r o f e s s i o n a l 233
Object Description
| Title |
History of accounting: An international Encyclopedia |
| Author |
Chatfield, Michael Vangermeersch, Richard |
| Subject |
Accounting -- History |
| Date-Issued | 1996 |
| Source | Originally published by Garland Publishing, Inc. |
| Rights | Copyright and permission to reprint held by: Academy of Accounting Hitorians |
| Type | Text |
| Format | PDF scanned at 400dpi with corrected OCR |
| Digital Publisher | University of Mississippi Libraries. Accounting Collection |
| Date-Digitally Created | 2011 |
| Language | eng |
| Identifier | vangermeersch |
