What Constitutes an Act Discreditable?

An act discreditable is a professional concept in accounting referring to behaviors damaging to the reputation of an individual accountant and the profession. These acts are prohibited by broad professional codes of conduct to protect the public interest and uphold the integrity of financial services. The rules encompass conduct that occurs both within and outside the direct practice of accounting.

The regulations apply to all members of professional accounting bodies and licensed practitioners. The consequences for such actions can be severe, and the scope extends beyond technical incompetence to include matters of personal integrity and legal compliance.

The Professional Standard for Conduct

The American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct is the primary authority defining and prohibiting acts discreditable. Its “Acts Discreditable Rule” states that a member shall not commit an act discreditable to the profession. This rule is intentionally broad to prevent any behavior that a reasonable and informed third party would likely view as diminishing the profession’s reputation.

The AICPA’s standards form the basis of enforcement for its members. These principles are also highly influential and often incorporated into the codes of conduct established by state boards of accountancy. These government bodies license and regulate Certified Public Accountants (CPAs), meaning nearly every CPA in the United States is subject to similar rules regarding discreditable acts.

This standard applies to accounting professionals in various roles, including those in public practice, business, government, and education. The rule’s authority is rooted in the profession’s commitment to self-regulation and maintaining public trust, which is foundational to the effective functioning of capital markets.

Specific Actions Considered Discreditable

The broad nature of the Acts Discreditable Rule is clarified by interpretations that provide concrete examples of prohibited conduct. These interpretations cover a wide array of actions, ensuring that professionals understand the specific behaviors that can trigger disciplinary proceedings. These actions extend into personal conduct as well.

Discrimination and Harassment

A professional is considered to have committed a discreditable act if a court or administrative agency makes a final determination that the individual has violated antidiscrimination laws. This includes laws related to sexual harassment as well as other forms of unlawful discrimination in employment or professional practices.

Failure to Comply with Professional Standards

Negligence in the performance of professional duties is a violation. This includes making, or directing another to make, materially false and misleading entries in an entity’s financial statements or records. It also covers the failure to correct financial statements that are known to be materially false and misleading when the professional has the authority to do so.

Issues Related to Client Records

An accountant must return client-provided records upon request, even if the client has not paid outstanding fees for services. While the accountant may retain their own work product, withholding records that the client furnished is a discreditable act. This rule ensures that a client is not unduly hampered in managing its affairs or transitioning to a new accountant due to a fee dispute.

Failures in Tax Practice

The Acts Discreditable Rule extends to a professional’s personal and firm-related tax obligations. Failing to file a personal tax return or the tax return of one’s firm in a timely manner is a violation. Similarly, failing to remit payroll and other taxes collected on behalf of others is considered a discreditable act.

Improper Use of CPA Credential

Using the CPA designation in a way that is false, misleading, or deceptive is prohibited. This includes promoting one’s services with claims that are not substantiated or that create false expectations. A professional cannot imply they have the ability to influence a court or regulatory agency, nor can they misrepresent their qualifications or experience. The use of the credential must align with the rules of the state board where the individual is licensed.

Confidentiality and Solicitation

Disclosing confidential client or employer information without proper authority or the specific consent of the party is a discreditable act. Exceptions exist for legal or professional obligations, such as responding to a subpoena or participating in an authorized peer review. Soliciting or knowingly disclosing questions or answers from the Uniform CPA Examination without written authorization from the AICPA is also a violation.

Personal Integrity and Criminal Acts

Certain criminal convictions are deemed acts discreditable to the profession, even if the crime is not directly related to accounting. This is particularly true for felonies or crimes involving fraud, dishonesty, or breach of trust. Convictions for offenses like money laundering, fraud, and even some misdemeanors can lead to professional sanctions because they reflect poorly on the individual’s character.

Consequences and Enforcement by Governing Bodies

Enforcement of the Acts Discreditable Rule is carried out by both professional organizations and state regulatory bodies. The AICPA’s Professional Ethics Division investigates complaints against its members, while state boards of accountancy have the legal authority to discipline any CPA licensed in their jurisdiction. These bodies often work in concert, and a disciplinary action by one entity, such as the SEC or IRS, can trigger an investigation by a state board.

The range of disciplinary actions is broad, allowing enforcement bodies to tailor the penalty to the severity of the misconduct. For minor infractions, a professional might receive a letter of censure or a public admonishment. For more severe offenses, penalties can escalate significantly and may include:

• Mandatory completion of specific remedial education, often focusing on ethics.
• Monetary fines.
• Practice limitations or a period of supervised practice.
• Suspension or permanent revocation of the professional’s license to practice.
• Suspension or termination of an individual’s AICPA membership.

These actions are typically made public, serving as a warning to other professionals and informing the public of the disciplinary measures taken.