CPA Exam — AUDEthics, Professional Responsibilities, and General PrinciplesHard
A CPA firm has been providing audit services to a public company for several years. The firm recently decided to terminate the engagement due to unresolved disagreements with management regarding the accounting treatment of a significant transaction. Which of the following principles is the firm upholding by withdrawing from the engagement under these circumstances?
- AIntegrity and objectivity.
- BProfessional behavior.
- CConfidentiality.
- DProfessional competence and due care.
Show answer & explanationAnswer & explanation
Correct answer: A. Integrity and objectivity.
Withdrawing from an engagement due to unresolved disagreements with management over accounting treatment demonstrates the firm's commitment to integrity and objectivity. The firm is unwilling to compromise its professional judgment or allow management to dictate accounting decisions that would result in materially misstated financial statements.
Why the other options are wrong
- B. Professional behavior relates to compliance with laws and regulations and avoiding discreditable acts, which is a broader concept than the specific issue of accounting disagreements.
- C. Confidentiality relates to protecting client information, not to disagreements over accounting principles.
- D. While competence is always important, the act of withdrawing due to disagreement primarily relates to maintaining an unbiased stance.
Integrity and Objectivity
The AICPA Code of Professional Conduct requires members to maintain integrity and objectivity in all professional services, meaning they must be honest, candid, and free of conflicts of interest.
- Integrity implies honesty and straightforwardness.
- Objectivity implies impartiality and freedom from bias.
- Disagreements over accounting principles can challenge these qualities.
Memory trick: PIC C&D: Professional, Integrity, Confidentiality, Competence, Due care.