Current through Register Vol. 47, No. 5, March 10, 2024
Authority
The Rules of Professional Conduct are promulgated under the
authority granted under sections
12-20-204 and
12-100-105(1)(c),
C.R.S., to establish and maintain high standards of competence and integrity in
the public accounting profession. The Rules of Professional Conduct apply with
equal force to all licensees, except where the wording of a specific rule
indicates otherwise. As specifically provided in Rules 1.12 and 1.12, these
Rules incorporate by reference additional standards and rules from other
entities. All licensees must comply with the Board's Rules of Professional
Conduct in addition to all standards and rules incorporated by reference. If a
Rule of the State Board of Accountancy is inconsistent or otherwise differs
from the materials incorporated by reference herein, the Rule of the State
Board of Accountancy governs.
Applicability
Title 12, Article 100 of the C.R.S., requires that all
licensees adhere to the Rules of Professional Conduct.
The Rules of Professional Conduct that follow apply to all
services performed except (a) where the wording of the rule indicates otherwise
and (b) that a licensee who is practicing outside the United States will not be
subject to discipline for departing from any of the rules stated herein as long
as the licensee's conduct is in accord with the rules of the organized
accounting profession in the country in which the licensee is practicing.
However, where a licensee's name is associated with financial statements under
circumstances that would entitle the reader to assume that United States
practices were followed, the licensee must comply with the requirements of
Rules 1.12(B), 1.12(E), and 1.12(F).
A.
DEFINITIONS
1. Integrity
An element of character fundamental to professional
recognition which requires a licensee to:
(1) be honest and candid within the
constraints of client confidentiality;
(2) observe both the form and the spirit of
technical and ethical standards; and
(3) keep service and the public trust above
personal gain and advantage. It is the quality from which the public trust
derives and the benchmark against which a licensee must ultimately test all
decisions. It can accommodate the inadvertent error and the honest difference
of opinion. It cannot accommodate dishonesty, deceit, or subordination of
principle.
2.
Objectivity
Requires a licensee to:
(1) be impartial, intellectually honest, and
free of conflicts of interest, except as otherwise provided under Rule 1.12
(5);
(2) protect the integrity of
their work regardless of service or capacity; and
(3) avoid any subordination of their
judgment.
3.
Independence
The absence of relationships that impair or appear to impair
a licensee's objectivity in performing an engagement in which the licensee will
issue an attestation report or opinion, unless the lack of independence is
disclosed in the report or opinion.
4. Due Care
The discharge of responsibilities to clients, employers, and
the public with diligence and competence which requires a licensee to:
(1) render services carefully and in a timely
manner;
(2) be thorough;
(3) observe applicable technical and ethical
standards; and
(4) plan and
supervise adequately any professional activity for which the licensee is
responsible.
5.
Competence
The knowledge and ability to assure that the quality of the
services rendered meets professional standards. It requires a licensee to:
(1) be responsible for assessing and
evaluating whether the education, experience, and judgment of the licensee
and/or the personnel providing the services is adequate for the responsibility
assumed; and
(2) maintain a
commitment to learning and professional improvement that continues throughout a
licensee's professional life.
6. Contingent Fee
A fee established for the performance of any service pursuant
to an arrangement in which no fee will be charged unless a specific finding or
result is attained, or in which the amount of the fee is otherwise dependent
upon the finding or result of such service. Solely for purposes of these Rules,
fees are not regarded as being contingent if fixed by courts or governmental
entities acting in a judicial or regulatory capacity, or in tax matters if
determined based upon the results of judicial proceedings or the findings of
governmental agencies acting in a judicial or regulatory capacity, or there is
a reasonable expectation of substantive review by a taxing authority.
B.
INDEPENDENCE
When a licensee provides auditing or other attestation
services, they shall be independent in fact and appearance and shall conform to
the independence standards provided in the AICPA Professional
Standards, whether or not the individual CPA or Firm are members of
the AICPA. When the licensee performs services regulated by the SEC, PCAOB, or
the U.S. General Accounting Office (GAO), they also shall conform to the
independence standards established by those bodies for those services in effect
and incorporated by reference in Rule 1.4(C).
C.
INTEGRITY AND OBJECTIVITY
In the performance of any professional service, licensees
shall maintain objectivity and integrity, shall be free of conflicts of
interest except as otherwise provided in paragraph (5) of this Rule 1.12(C),
and shall not knowingly misrepresent facts or subordinate their judgment to
others.
1. A licensee shall not engage
in fraud, deceit, or any form of dishonesty in connection with or relating to
offering or providing a professional service, including, but not limited to,
knowingly obtaining or exercising control over anything of value without
authorization, as a result of, in connection with, or otherwise relating to
offering or providing a professional service.
2. A licensee shall not engage in fraud,
deceit, or any form of dishonesty in relation to the Board, including, but not
limited to, any act or omission, any response, representation, application,
form, or communication with or to the Board whether oral or written.
3. A licensee shall not knowingly
misrepresent facts or subordinate his judgment to others.
a. Misrepresentations of fact or
subordination of judgment include, but are not limited to:
(1) Knowingly making, or permitting or
directing another to make, false or misleading entries in an entity's financial
statements or records;
(2)
Misrepresenting or failing to disclose material facts to an external or
internal auditor, or accountant; and
Taking a position in a tax return or advising a tax client to
take a position that does not have a realistic possibility of being sustained
on its merits in an administrative or judicial review unless the position is
not frivolous and is adequately disclosed as provided in the AICPA
Professional Standards, Statements on Standards for Tax
Services.
4.
Subordination of judgment or
principle. When disagreements and disputes arise in the course of
providing professional services by a licensee related to the recording of
transactions or preparing financial statements, a licensee shall determine
whether (a) the entry or the failure to record a transaction in the records, or
(b) the financial statement presentation or the nature or omission of
disclosure in the financial statements, as proposed, represents the use of an
acceptable alternative and does not materially misrepresent the facts.
a. If, after appropriate research or
consultation, the licensee concludes that the matter has authoritative support
or does not result in a material misrepresentation, the licensee need do
nothing further.
b. If the licensee
concludes that the matter results in a material misrepresentation or
misstatement, the licensee shall make any concerns known to the appropriate
higher level(s) of management within the organization (for example, the
supervisor's immediate superior, senior management, the audit committee or
equivalent, the board of directors, or the company's owners). Licensees shall
document their understanding of the facts, the accounting principles involved,
the application of those principles to the facts, and the parties with whom
these matters were discussed.
c.
If, after discussing their concerns with the appropriate person(s) in the
organization, the licensee concludes that appropriate action was not taken, he
must assess his continuing relationship with the client or employer.
d. The licensee also must assess any
responsibility that may exist to communicate to third parties, such as
regulatory authorities or the client or employer's (former employer's) external
accountant.
5.
Conflict of Interest. A conflict of interest may occur
if a licensee performs a professional service for a client or employer and the
licensee has a relationship with another person, product, or service that
could, in the licensee's professional judgment, be viewed by the client,
employer, or other appropriate party as impairing the licensee's objectivity.
a. The licensee may perform the professional
service if:
(1) The licensee reasonably
believes that the professional service can be performed with
objectivity;
(2) The relationship
is comprehensively disclosed to the client, employer, or other appropriate
party; and
(3) The licensee obtains
the informed written consent of the client, employer, or other appropriate
party.
b. Certain
professional engagements, including audits, reviews, and other attest services
require Independence. Independence impairments cannot be eliminated by
disclosure and consent.
D.
COMMISSIONS, REFERRAL FEES, AND
CONTINGENT FEES
1.
Permitted Commissions and Contingent Fees. A licensee
who holds out and who is not otherwise prohibited by this Rule from receiving a
commission or contingent fee shall disclose to the recipient of professional
services or the buyer of a product, in writing, the nature, amount, and source
of any contingent fee or commission prior to performing the professional
services or making the sale that generates the commission or contingent
fee.
2.
Referral
Fees. A licensee who holds out and who accepts a referral fee for
recommending or referring a service or product, or who pays a referral fee to
obtain a client, shall disclose to that client, or the client or other person
receiving the service or product, in writing, the nature, amount, and source of
the referral fee. The written notification shall be provided to the client or
other person prior to the time the client or other person engages the licensee
or other service provider or makes the purchase that generates the referral
fee.
3.
Contingent Fees
in Tax Matters. A licensee shall not prepare an original or
amended tax return or claim for refund for a contingent fee. For purposes of
this Rule, fees are not regarded as contingent if fixed by courts or other
public authorities, or if based on the results of judicial proceedings or the
findings of governmental agencies. A fee is considered to be based on the
findings of a governmental agency if, at the time of a fee arrangement, a
licensee can demonstrate a reasonable expectation of substantive consideration
by an agency with respect to the licensee's client. In the case of the
preparation of an original tax return, such expectation is not deemed
reasonable.
4.
Prohibited Commissions and Contingent Fees. A licensee
that performs:
(1) an audit or review of a
financial statement;
(2) a
compilation of a financial statement when the licensee expects, or reasonably
might expect, that a third party will use the financial statement when the
licensee's compilation report does not disclose a lack of independence;
or
(3) an examination of
prospective financial information, shall not:
a. Receive a commission or, for a commission,
recommend or refer to that client any product or service, or, for a commission,
recommend or refer to any person any product or service to be supplied by that
client; or
b. Receive a contingent
fee for performing the services listed in paragraph (4) of this Rule 1.12, nor
shall the licensee perform for that client any other professional service for a
contingent fee.
This prohibition on commissions and contingent fees shall
apply during the fee period in which the licensee is or was engaged to perform
any of the services listed in paragraph (4) of this Rule 1.12 and the period
covered by any historical financial statements involved in such
services.
E.
PROFESSIONAL COMPETENCE AND
COMPLIANCE WITH APPLICABLE TECHNICAL STANDARDS
A licensee shall comply with the following:
1. General Standards.
a.
Professional
Competence- A licensee shall undertake only those professional
services that the licensee can reasonably expect to complete with professional
competence.
b.
Due
Care- A licensee shall exercise due care in the performance of
professional services.
c.
Planning and Supervision- A licensee shall adequately
plan and supervise the performance of services.
d.
Sufficient Relevant
Data- A licensee shall obtain sufficient relevant data to afford a
reasonable basis for conclusions or recommendations in relation to any
professional service performed.
2. Auditing Standards.
A licensee shall not permit the licensee's name to be
associated with financial statements in such a manner as to imply that the
licensee is acting as an independent certified public accountant, unless the
licensee has complied with all applicable auditing standards. Applicable
auditing standards shall include those defined as generally accepted auditing
standards by the AICPA, such as Statements on Auditing Standards and Government
Auditing Standards as promulgated by the GAO or standards of any successor
organizations, including interpretations.
3. Accounting Principles.
If financial statements or other financial data contain any
material departure from an accounting principle(s) promulgated by the Financial
Accounting Standards Board (FASB), the Government Accounting Standards Board
(GASB), their predecessor entities and other entities having similar generally
recognized authority or jurisdiction to establish such principle(s), a licensee
shall not:
a. Express an opinion or
state affirmatively that the financial statements or other financial data of
any entity are presented in conformity with generally accepted accounting
principles; or
b. State that the
licensee is not aware of any material modifications that should be made to such
statements or data for them to be in conformity with generally accepted
accounting principles.
If, however, the statements or data contain such a departure
and the licensee can demonstrate that unusual circumstances would have caused
the financial statements to be otherwise misleading, the licensee can comply
with this Rule by conspicuously disclosing and describing in the workpapers the
departure, its approximate effects if practicable, and the reasons why
compliance with the principle would result in a misleading statement.
4. Prospective
Financial Information.
Licensees shall not permit their name to be used in
conjunction with any prospective financial information in a manner that may
lead to the belief that the licensees vouch for the achievability of the
prospective financial information. Licensees must comply with standards in this
area promulgated by the AICPA or by other entities having similar generally
recognized authority or jurisdiction over the service provided.
5. Other Attestation Standards.
Licensees shall not permit their name to be associated with
assertions or conclusions about the reliability of a written representation of
another party unless they have complied with the Statements on Standards for
Attestation Engagements (SSAE) promulgated by the AICPA or by other entities
having similar generally recognized authority or jurisdiction over the service
provided.
F.
OTHER PROFESSIONAL STANDARDS
In performing tax services, accounting, review and
compilation services, attestation engagements, personal financial planning,
business valuation, litigation support and expert witness services, and
consulting services, a licensee shall conform with Rule 1.12, any other
professional standards applicable to such services as contained in the AICPA
Professional Standards, and any other rules established or
incorporated by reference herein.
G.
ACTING THROUGH OTHERS
Licensees shall not knowingly permit others to carry out on
their behalf, either with or without compensation, acts or omissions that, if
carried out by the licensees, would place them in violation of these Rules or
the Act. Similarly, in supervising subordinates, licensees shall not accept or
condone conduct in violation of these Rules or the Act.
H.
CONFIDENTIAL CLIENT AND EMPLOYER
INFORMATION
1. General Rule.
A licensee shall not without the specific consent of their
client or employer disclose or use for his own benefit any personal or business
related information pertaining to a client or the employer of the licensee,
which information is obtained from any source or developed by the licensee in
the course of employment or performing professional services. Such information
is deemed confidential. Information obtained as part of a proposed acquisition
or in evaluating the acquisition or merger of an accounting practice shall not
be disclosed or used to the licensee's benefit.
2.
Acceptable
Disclosures. Rule 1.12(H)(1) shall not apply:
a. If information is disclosed with the
specific consent of the client or the employer of the licensee.
b. If information is disclosed pursuant to a
subpoena or summons issued with respect to the licensee or an entity with which
the licensee is associated, where the subpoena or summons has been determined
to be legally enforceable; or if information is disclosed to permit a
licensee's compliance with applicable laws and government rules and
regulations.
c. If information is
disclosed as part of the public record in a civil lawsuit (legal action)
between the licensee and the client or employer.
d. If information is disclosed in the course
of a peer review of a licensee's professional services. Professional practice
reviewers shall not disclose any confidential client information which comes to
their attention from licensees in carrying out their responsibilities, except
that they may furnish such information in response to a formal request from an
investigative or disciplinary body of the kind referred to in paragraph (e) of
this Rule 1.12(H)(2).
e. If
information is disclosed as part of the process of initiating a complaint with,
or responding to an inquiry made by, the Board and the disclosure to the Board
is in accordance with statutes regarding accountant-client privilege or the
client waives the privilege; or if information is disclosed as part of the
process of initiating a complaint with or responding to an investigative or
disciplinary body established by law or formally recognized by the Board.
Members of the Board shall not disclose or use for their own benefit any
confidential client information that comes to their attention from licensees in
disciplinary proceedings or otherwise in carrying out their
responsibilities.
f. If information
is disclosed pursuant to a signed nondisclosure agreement as part of an
acquisition or merger or proposed acquisition or merger of an accounting
practice.
I.
ISSUING COPIES OF REPORTS, TAX RETURNS, OR OTHER DOCUMENTS
1. Unless otherwise prohibited by law, upon
request and reasonable notice, a licensee must furnish to a client or former
client a copy of any report, tax return, or other documents filed or issued
(Documents Filed or Issued) by the licensee to or for such client during the
preceding sixty months. The licensee must furnish these copies in a timely
manner. Unpaid fees for professional services do not constitute justification
for withholding copies of these items.
2. The licensee may charge for the reasonable
cost of providing the copies and may withhold such copies until that cost is
paid. Costs include the time necessary to locate, retrieve, prepare, and
deliver the requested Documents Filed or Issued.
3. Client for the purposes of this Rule 1.12
includes persons who are current owners or who were owners during the time
period addressed by the Documents Filed or Issued, unless otherwise restricted
by contract or law.
4. Records
maintained solely in electronic form may be provided in a retrievable
electronic form that includes information about the software used and passwords
provided, if applicable.
J.
CLIENT RECORDS
1. Client records are:
a. Accounting or other records belonging to
the client that are obtained from or on behalf of the client, or that are
otherwise within a licensee's possession or control.
b. Licensee's workpapers or records that
contain data that should properly be reflected in the client's books and
records, including, but not limited to:
(1)
Adjusting, closing, combining, or consolidating journal entries; and
(2) Information normally contained in the
books of original entry and general ledgers or subsidiary ledgers, such as
accounts receivable, job costs, and equipment ledgers, or depreciation
records.
c. Computer
files that include client information normally contained in the books of
original entry and general ledgers or subsidiary ledgers.
2. Obligation to retain, return, and provide
Client records
a. A licensee must retain
copies of documentation of work performed that constitute client records,
including any Document Filed or Issued by the licensee, for a period of sixty
months from the date the Document was Filed or Issued. If original client
records, in paper or electronic form, or copies of client records are retained
by the licensee, they must also be retained for a period of sixty
months.
b. A licensee must return
or make available client records upon request and reasonable notice from a
client or former client. If the records cannot be returned or made available to
the client, former client, or his designee promptly, the licensee must
immediately notify the client, former client, or designee of the date the
records will be returned or made available. The licensee must return or make
these records available in a timely manner.
c. A licensee must not retain client records
in an attempt to force payment of any kind.
d. Upon completion of an engagement wherein
the client's records have been returned to the client, any duplicate records
requested by the client or former client must be furnished to the client upon
reasonable notice for a reasonable charge. Such charge must be set to reflect
the reasonable cost of providing the copies. A licensee may require that such
charge be paid prior to the time duplicate records are provided to the
client.
3. Workpapers
belonging to the Licensee
a. A licensee is not
required to furnish to the client any workpapers developed by the licensee that
do not result in changes to the client's records or are not in themselves part
of the records ordinarily maintained by a client.
b. Licensee's workpapers are solely the
property of the licensee and are not the property of the client even if
developed with the assistance of the client. For example, the licensee may make
extensive analyses of inventory or other accounts as part of the selective
audit procedures. These analyses are a part of the licensee's workpapers, even
if client personnel has prepared the analyses at the request of the licensee.
Only to the extent these analyses result in changes to the client's records
would the licensee be required to furnish the details from the workpapers in
support of the journal entries recording the changes. The licensee is not
required to furnish such details if the journal entries themselves contain all
necessary details.
4.
Termination of Engagement. If an engagement is
terminated prior to the completion of work, and the licensee's work product has
neither been issued nor paid for by the client, the work product is solely and
exclusively the property of the licensee.
5.
Timely Manner.
Unless otherwise provided, "timely manner" shall be within forty-five business
days.
K.
SAFEGUARDING CLIENT RECORDS AND PROPERTY
1. Every certificate holder has a duty to
safeguard client records, funds, and property in the certificate holder's
possession or control in the event that the certificate holder is
incapacitated, disappears, or dies.
2. The certificate holder shall provide for
continuing services to a client or ensure that, in the event that the
certificate holder is incapacitated, disappears, or dies:
a. Clients are promptly notified;
b. Client records, property, and funds
belonging to a client are securely maintained; and
c. Those client records, property, and funds
are made available or returned to the respective clients within thirty to
forty-five days in the absence of extenuating circumstances.
L.
SOLICITATION
A licensee shall not solicit an engagement to perform
professional services by any communication or other means that:
1. Is false, misleading, or
deceptive;
2. Would:
(1) create false or unjustified expectations;
(2) imply an ability to influence
any court, tribunal, regulatory agency, or similar body or official;
(3) contain a representation of unrealistic
future fees; or
(4) contain a
representation likely to be misunderstood by a reasonable person;
3. Creates or uses coercion,
duress, compulsion, intimidation, threats, overreaching, vexatious, or
harassing conduct; or
4. Contains
untruthful statements about the professional work product or competence of
another licensee.
M.
INCORPORATION OF AICPA CODE OF PROFESSIONAL CONDUCT
1. In addition to these Rules of Professional
Conduct, the Board adopts and incorporates by reference the AICPA Code of
Professional Conduct included in the AICPA Professional
Standards, as provided in Rule 1.4 . All licensees must comply with
the Board's Rules of Professional Conduct and the AICPA Code of Professional
Conduct in the performance of professional services.
2. When the AICPA Code of Professional
Conduct refers to "Member" it is understood that the references apply to all
licensees, regardless of whether the licensee is a member of the AICPA. When
the AICPA Code of Professional Conduct uses the terms "should," "obligated," or
"required", those terms are deemed mandatory and mean "must" for the purposes
of these Rules.
3. If a Rule of the
State Board of Accountancy is inconsistent or otherwise differs from the
materials incorporated by reference herein, the Rule of the State Board of
Accountancy governs.
4. In applying
these Rules to deliberations in disciplinary or other proceedings, the Board
may disregard or may consider as persuasive, but not necessarily conclusive,
applicable interpretations and rulings in the AICPA Code of Professional
Conduct.
N.
INCORPORATION OF STANDARDS
1.
Licensees must also comply with the requirements of the U.S. GAAS, U.S. GAAP,
SEC, PCAOB, IRS, U.S. Government Accountability Office (GAO), Financial
Accounting Standards Board (FASB), the Governmental Accounting Standards Board
(GASB), the Cost Accounting Standards Board (CASB), the Federal Accounting
Standards Advisory Board (FASAB), and the Federal Office of Management and
Budget (OMB) as described in the AICPA Professional Standards
and as provided in Rule 1.4.
2.
Licensees must comply with the AICPA
Professional Standards
and the following standards if such standards are applicable to the
Professional Services being performed:
a.
Statements of Governmental Accounting and Financial Reporting Standards issued
by GASB;
b. Accounting Standards
recognized by FASB;
c. Governmental
Auditing Standards issued by GAO;
d. SEC Rules, Concept Releases,
Interpretative Releases, and Policy Statements; and
e. IRS Circular 230.
3. If the professional services are governed
by standards not included in this Rule 1.12, certificate holders and
registrants, and all licensees who offer or render professional services in
this state or for clients located in this state, must:
a. Maintain documentation of the
justification for the departure from the standards listed in this Rule
1.12(N);
b. Determine and document
what standards are applicable; and
c. Demonstrate compliance with the applicable
standards.
