AICPAs Code of Professional Conduct Rule 102 for Forensic Accountants

The AICPA’s Code of Professional Conduct Rule 102 applied to forensic accountants requires integrity and objectivity.  But can a couple’s tax CPA testify on behalf of one client against another?

In addition to independence, AICPA’s Code of Professional Conduct Rule 102 requires that a CPA maintain integrity and objectivity:

ET Section 102 – Integrity and Objectivity – Rule 102—Integrity and objectivity

In the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others.

Rule 102 is a mouthful. Objectivity, integrity, absence of conflicts, not misrepresenting facts, and not subordinating judgment are a lot of important concepts all jammed into one sentence. They’re all lumped together, however, for a very good reason. If all of these buzzwords lived in a city, they would reside on the same block. To CPAs, all these terms relate to one another in an interconnected, conceptual framework. Without even one of these, the CPA’s opinion cannot be trusted. Below are passages relating to Rule 102:

Interpretations under Rule 102—Integrity and Objectivity

.03 102-2—Conflicts of interest

A conflict of interest may occur if a member performs a professional service for a client or employer and the member or his or her firm has a relationship with another person, entity, product, or service that could, in the member’s professional judgment, be viewed by the client, employer, or other appropriate parties as impairing the member’s objectivity. If the member believes that the professional service can be performed with objectivity, and the relationship is disclosed to and consent is obtained from such client, employer, or other appropriate parties, the rule shall not operate to prohibit the performance of the professional service. When making the disclosure, the member should consider Rule 301, Confidential Client Information. . . .

The following are examples, not all-inclusive, of situations that should cause a member to consider whether or not the client, employer, or other appropriate parties could view the relationship as impairing the member’s objectivity:

• A member has been asked to perform litigation services for the plaintiff in connection with a lawsuit filed against a client of the member’s firm.

• A member has provided tax or personal financial planning (PFP) services for a married couple who are undergoing a divorce, and the member has been asked to provide the services for both parties during the divorce proceedings.

Being free from conflicts of interest is always a good thing. For determining whether conflicts of interest exist for CPAs who audit, the Code of Professional Conduct provides detailed facts, scenarios, and considerations. For forensic accountants, there is very little helpful guidance. Even though every case and situation is unique, the AICPA and its Forensic and Valuation Services Executive Committee should provide more guidance.

For example, take a very common ethical problem. Is it a conflict of interest for a CPA who provided tax return preparation services for a married couple to provide expert witness testimony in the divorce on behalf of one divorcing spouse against the other? Most forensic accountants agree that this is a troubling situation and that the forensic accountant should not become an expert witness. The CPA can be a fact witness, but not an expert witness. The duty to a former client, albeit undefined by the accounting profession, creates a conflict of interest. For a minority of forensic accountants, however, this does not present a conflict of interest.

As a practical matter, why would a CPA want to give expert witness testimony on behalf of a tax client against another tax client? Either the tax client for whom the CPA testifies also owns a business that is a client or that client will remain the CPA’s client after the divorce. The other spouse’s accounting and tax needs (and associated accounting fees) will usually pale in comparison. In such situations, it is painfully obvious who the CPA wants to please and appease. Does this create an appearance of bias? Most agree, yes. Do all agree? No. Has the AICPA decided this? No. Most states have not dealt with this either. This means that in many states CPAs are arguably allowed (because they are not disallowed) to provide expert witness services on behalf of one client against another client. New Mexico, however, specifically disallows CPAs from serving as an expert witness on behalf of one client against another.

This blog post is an excerpt from The Forensic Accounting Deskbook: A Practical Guide to Financial Investigation and Analysis for Family Lawyers. Reprinted by permission. Copyright © 2011 American Bar Association. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Footnotes may be omitted from the original text.

Miles Mason, Sr., JD, CPA practices family law exclusively and is founder of the Miles Mason Family Law Group, PLC, in Memphis, Tennessee. Miles is the author of The Forensic Accounting Deskbook: A Practical Guide to Financial Investigation and Analysis for Family Lawyers, published by the American Bar Association.

The Forensic Accounting Deskbook teaches lawyers, forensic accountants, and divorcing spouses how to uncover hidden income and discover hidden assets in complex divorces involving business owners and highly compensated corporate executives.  The author, Miles Mason, Sr. has presented numerous seminars on divorce, family law, forensic accounting and business valuations at national and regional conferences for judges, divorce and family lawyers, forensic accountants, and business valuation experts. For a complete listing of speaking presentations, publications, and more of his professional biography, see Miles Mason, Sr.’s professional biography.