Ethics, Professional Responsibilities, and General Principles
What the exam tests here
This domain rewards precision about the AICPA Code of Professional Conduct and the foundational rules that frame every engagement. Know the structure of the Code: the principles (aspirational) sit above the enforceable rules, and the rules are organized by threat-based conceptual framework. Candidates must distinguish the independence rule (applies to attest clients) from general ethical requirements that apply to all services.
Key concepts: threats and safeguards (self-interest, self-review, advocacy, familiarity, undue influence, management participation, and intimidation), the meaning of "covered member," direct vs. indirect financial interests, and when employment relationships impair independence. Also know general principles: integrity and objectivity, general standards (competence, due professional care, planning and supervision, sufficient evidence), compliance with standards, confidentiality, and the forms of advertising/solicitation permitted.
Traps
Questions love edge cases: a loan from a bank under normal lending procedures is generally permissible; a direct financial interest in an attest client is not. Serving as a client's director or trustee normally impairs independence, while honorary positions may not if duties are minimal. Contingent fees are prohibited for attest services but often allowed for nonattest work when disclosed and not creating advocacy. Also watch for the trap of applying independence rules to a tax-only engagement.
Rule of thumb
When a fact pattern introduces a relationship or fee arrangement, ask two questions: (1) Is this an attest client? (2) Does the arrangement create a self-interest or self-review threat that cannot be reduced by safeguards? If both answers point to impairment, independence is lost.
Worked example
An auditor's spouse owns a small direct interest in the audit client. Because a covered member's immediate family has a direct financial interest, independence is impaired; no safeguard cures a direct interest.