Confronting Subordination of Judgment Issues Without Compromising Your Ethics

As CPAs, we are increasingly called upon to use our professional judgment in facing key auditing, tax and accounting concerns – especially as the profession moves from being rules-based to more principles-based. We gain our ability to apply professional judgment over time, through experience, training and an understanding of what a reasonable person would perceive as the right course of action under certain circumstances. We are informed by our upbringing, by the guidance of our mentors and colleagues, and during interactions with our employers and clients.

At some point during our careers our professional judgment is likely to be tested.

For example, what would you do if your supervisor tells you to post revenue even though there’s no substantiating backup? She tells you that following her order will be good for business, good for year-end bonuses – and good for your career. Of course, if something goes wrong, it’s your conscience, reputation and credential on the line. But if you don’t do it, you could be disciplined or even fired. The AICPA Ethics Hotline handles dozens of inquires like this each year.

The AICPA explores this issue in a new video on cgma.org, Ethical Conduct Is Never Out Of Vogue. It demonstrates how practitioners, specifically on the business and industry side of accounting, might be pressured into behaving unethically. Ana, a young accounting professional, is asked to record revenue from a large sale that hasn’t “quite” gone through yet in order to boost year-end figures. Although she’s assured by everyone, including the CEO of the company that the sale will go through, she questions the ethical implications of recording the revenue. The video takes us through the steps we might take in a similar situation.

Take a look at the video and ask yourself: would you have reached the same conclusion Ana did? Would your conclusion have been the same if Ana had three kids in college, a spouse out of work or any other situation where the possibility of losing her job would put Ana in a financial bind?

To help us all make the right calls regarding subordination of judgment, the AICPA’s Professional Ethics Executive Committee is proposing a revision to the Code of Professional Conduct (Interpretation No. 102-4), which currently provides guidance for members in business on this issue, but expands that guidance for members in public practice. The proposal provides examples of how members in public practice should deal with issues around differences of opinion with a supervisor related to the application of accounting principles; auditing standards; or other relevant professional standards, including standards applicable to tax and advisory services or applicable laws or regulations. Comments on the proposal are being accepted through Jan. 16, 2013.

The AICPA Code of Professional Conduct provides a framework for ethical behavior and is the backbone of the accounting profession. If you’re confronted with a situation involving subordination of judgment and need help, remember that AICPA’s Help Line is always there for you. Inquiries can be made by phone, 888.777.7077, or via e-mail at ethics@aicpa.org.

Susan S. Coffey, CPA, CGMA, Senior Vice President - Public Practice & Global Alliances, American Institute of CPAs.

Pensive woman image via Shutterstock