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Avoiding Subordination of Judgment When Threats Exist
According to Rule 102 of the AICPA Code of Professional Conduct, "in the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others." Rule 102 thus prohibits a member from knowingly misrepresenting facts or subordinating judgment when performing professional services for a client and employer.
Interpretation 102-4, "Subordination of Judgment by a Member," was revised (effective August 31, 2013) to provide additional guidance on the scope and application of Rule 102, with respect to extending the subordination of judgment provision. Interpretation 102^4 now includes guidelines for situations where differences of opinion exist between a CPA and a supervisor or other individual. (This is in addition to, and separate from, the independence requirements of Rule 101.)
Integrity is a fundamental character trait that enables a CPA to prevail in the face of a client or superior's influence, which might otherwise lead to the subordination of individual judgment. A person of integrity will act out of moral principle and will reject act- ing for the sake of expediency. In some circumstances, refusing to suborn one's judgment could result in the loss of a client, the loss of a promotion, or the loss of employment. But CPAs should always place the public interest (i.e., that of investors and creditors) ahead of their own self-interest or the interests of others, including superiors or clients. In accounting, "integrity" means that a person acts on principle-that is, a conviction that there is a right way to act when faced with an ethical dilemma-and upholds the public trust.
Threats to Integrity and Objectivity
A common challenge to integrity occurs when CPAs, whether working in public practice or performing internal accounting or auditing services, are pressured by a supervisor (internal accountant) or a client (external auditor) to concur with potentially materially misstated financial statements. Common explanations for such coercion include meeting financial analysts' earnings expectations, meeting or exceeding budgeted amounts, or increasing earnings over a prior period. In some cases, bonuses and stock option values depend upon a higher level of earnings each reporting period. The rationalization that it is a "one-time...