Section R4-1-455. Professional Conduct: Independence, Integrity, and Objectivity

A.       Independence: A certified public accountant, public accoun- tant, or firm of which the certified public accountant or public accountant is a partner or shareholder shall not express an opinion on a financial statement of an enterprise unless the certified public accountant or public accountant and the firm are independent with respect to the enterprise. Independence is considered to be impaired if, for example:

1.        During the period of professional engagement or at the time of expressing an opinion, the certified public accountant or public accountant or the firm:

a.        Had or was committed to acquire any direct or mate- rial indirect financial interest in the enterprise;

b.        Had any joint closely held business investment with the enterprise or any officer, director, or principal stockholder of the enterprise that was material in relation to the certified public accountant, public accountant, or the firm’s net worth; or

c.        Had any loan to or from the enterprise or any officer, director, or principal stockholder of the enterprise. This latter proscription does not apply to the follow- ing loans from a financial institution if the loans are made under normal lending procedures, terms, and requirements:

i.         Loans obtained by a certified public accountant or public accountant or the firm that are not material in relation to the net worth of the bor- rower;

ii.        Home mortgages; and

iii.      Other secured loans, except loans that would be unsecured if not guaranteed by a certified pub- lic accountant's or public accountant’s firm.

2.        During the period covered by the financial statement, during the period of the professional engagement, or when expressing an opinion, the certified public accoun- tant, public accountant or firm:

a.        Was connected with the enterprise as a promoter, underwriter, or voting trustee, director, or officer, or in any capacity equivalent to that of a member of management or of an employee; or

b.        Was a trustee of any trust or executor or administra- tor of any estate if the trust or estate had or was com- mitted to acquire any direct or material indirect financial interest in the enterprise; or was a trustee for any pension or profit-sharing trust of the enter- prise.

3.        The above examples are not intended to be all-inclusive.

B.       Integrity and objectivity: A certified public accountant, public accountant, or firm shall not knowingly or recklessly misrep- resent facts when engaged in the practice of public accounting, including rendering tax and management advisory services. In tax practices, a certified public accountant or public accoun- tant may resolve doubt in favor of a client as long as there is reasonable support for the position.

1.        Contingent fees: A contingent fee is a fee established for the performance of any service under an arrangement in which no fee will be charged unless a specified finding or result is attained, or in which the amount of the fee is dependent upon the finding or result of the service. For purposes of this Section, fees are not regarded as contin- gent if fixed by courts or other public authorities, or in tax matters, if determined based on the results of judicial pro- ceedings or the findings of governmental agencies.

a.        A certified public accountant, public accountant, or firm engaged in the practice of public accounting shall not for a contingent fee for any client:

i.         Perform an audit or review of a financial state- ment;

ii.        Prepare a compilation of a financial statement when the certified public accountant, public accountant, or firm expects, or reasonably should expect, that a third party will use the financial statement and the certified public accountant's, public accountant's, or firm’s compilation report does not disclose a lack of independence;

iii.      Perform an examination of prospective finan- cial information; or

iv.      Prepare an original or amended tax return or a claim for a tax refund.

b.        The prohibitions in subsection (B)(1)(a) apply during the period in which the certified public accountant, public accountant, or firm is engaged to perform any of the services listed in subsection (B)(1)(a) and the period covered by any historical financial statements involved in the listed services.

2.        Commissions and referral fees:

a.        A commission is a fee calculated as a percentage of the total sale or service.

b.        A referral fee is a fee paid in exchange for producing a purchase of goods or services.

c.        Prohibited commissions: A certified public accoun- tant, public accountant, or firm engaged in the prac- tice of public accounting shall not for a commission recommend or refer to a client any product or ser- vice, recommend or refer any product or service to be supplied by a client, or receive a commission when the certified public accountant, public accoun- tant, or firm also performs any of the following for that client:

i.         An audit or review of a financial statement;

ii.        A compilation of a financial statement when the certified public accountant, public accoun- tant, or firm expects, or reasonably should expect, that a third party will use the financial statement and the certified public accountant, public accountant, or firm’s compilation report does not disclose a lack of independence; or

iii.      An examination of prospective financial infor- mation.

d.        The prohibitions in subsection (B)(2)(c) apply during the period in which the certified public accountant, public accountant, or firm is engaged to perform any of the services listed in subsection (B)(2)(c) and the period covered by any historical financial statements involved in the listed services.

e.        Disclosure of permitted commissions: A certified public accountant, public accountant, or firm engaged in the practice of public accounting that is not prohibited by this Section from performing ser- vices or receiving a commission and is paid or expects to be paid a commission shall make a writ- ten disclosure in advance of accepting the engage- ment. The certified public accountant, public accountant, or firm shall ensure that the written dis- closure is made to any person or entity to which the certified public accountant, public accountant, or firm recommends or refers a product or service to which the commission relates and shall include the dollar amount or percentage to be received.

f.         Disclosure of referral fees: A certified public accountant, public accountant, or firm that accepts a referral fee for recommending or referring a product or service to any person or entity or that pays a refer- ral fee to obtain a client shall disclose to the client, in writing, the acceptance or payment of the referral fee and its amount.

3.        Incompatible occupations: A certified public accountant or public accountant who is engaged in the practice of public accounting shall not concurrently engage in any business or occupation that impairs the objectivity of the certified public accountant or public accountant in ren- dering professional services.

Historical Note

Former Rule 9; Amended effective January 15, 1976

(Supp. 76-1). Amended effective January 3, 1977 (Supp.

77-1). Amended effective February 22, 1978 (Supp. 78-

1). Amended effective November 5, 1980 (Supp. 80-6). Former Section R4-1-56 renumbered as Section R4-1- 455 and amended in subsections (B) and (D) effective July 1, 1983 (Supp. 83-4). Section R4-1-455 amended and divided into R4-1-455 and R4-1-455.01 thru R4-1-

455.04 effective April 22, 1992 (Supp. 92-2). Amended effective December 6, 1995 (Supp. 95-4). Amended

effective November 20, 1998 (Supp. 98-4). Amended by

final rulemaking at 20 A.A.R. 520, effective February 4,

2014 (Supp. 14-1).