The Supreme Court’s decision in US v. Arthur Young & Co. (1984) required that the public accountant’s primary responsibility is to put the public interest ahead of the client’s interest.  This concept of “the public interest” was first defined in the AICPA Code of Conduct in 1988, which stated “Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate a commitment to professionalism.”

After the Supreme Court’s decision, threats to this duty to serve the public interest began to emerge. Steven Mintz, an expert in the accounting ethics field, described (2018) how revisions to the AICPA Code of Professional Conduct regarding firm ownership and evaluation of independence contributed to the development of these threats.

Starting in the late 1970’s, accounting firms started performing more consulting engagements, because they realized that these services were more lucrative than audits (Mintz, 2018). Many of these services were provided by non-CPA’s, and, as these engagements increased, these consultants wanted in on the ownership of the firms. The AICPA Code of Conduct was revised in 1991, opening ownership to the consultants, but requiring 66 2/3 percent CPA ownership of firms. The Code was further revised in 1997, requiring only 51 percent ownership of the firm by CPA’s.  Mintz (2018) argued that these consultant-owners came from an ethical culture much less stringent than CPAs and suggested that this new ownership structure may have been one of the root causes of the massive cases of accounting frauds that occurred right after this change. 

The dramatic increase in consulting engagements by accounting firms led to questions of auditor independence, objectivity, and integrity. The accountants had an advisory relationship with client management while also performing audits of these clients. Were they more susceptible to client pressures because they did not want to lose the revenue from consulting? Mintz (2018) found that consulting revenue greatly surpassed the revenue from audits. In 2018, 34% of the Big Four's combined global revenue came from auditing, while 66% was from consulting and advisory work, tax work, and legal work.

The Sarbanes-Oxley Act of 2002 (SOX) attempted to correct this conflict of interest. Since the passage of SOX, the PCAOB oversees, monitors, and performs inspection of public company firms. Many of the consulting services with the audit client have been prohibited.  However, Mintz (2023) found that while audit deficiencies were insignificant in the years after SOX passed, since 2021, there has been a rising trend of audit deficiencies for the Big Four firms.

Deficiencies noted by the PCAOB include poor communication about deficiencies in internal control over financial reporting (ICFR), material misstatements, and critical audit matters (Mintz, 2023).  However, information in PCAOB inspection reports does not disclose information important for protection of the public interest. Specific details on deficiencies in quality control and deficiencies in engagement quality are not disclosed. Additionally, most important to the public interest, the specific audits and the clients are not disclosed.

From Mintz’ perspective, today’s audit firms are used to a competitive environment for providing their services, resulting in compromising independence principles in order to gain lucrative consulting services. Mintz offers several recommendations to improve the accounting ethics culture and restore the accounting profession’s focus to serve the public interest. The PCAOB should disclose the specific audit clients and audit deficiency information in their inspection reports. However, Mintz (2018) conceded that this will probably not occur, because of potential auditor/audit firm liability exposure. Another recommendation posed by Mintz (2020) would be to operationally split audit and non-audit services, to increase independence in both fact and in appearance. These recommendations would better align the public’s perception of accountants and auditors with the focusing on serving the public interest.

References

Mintz, S. M., & Miller, W. F. (2023). Do PCAOB Audit Inspections and ICFR Assessments Protect the Public Interest? CPA Journal, 93(3/4), 32–38.

Mintz, S. M. (2020). Now Is the Time to Operationally Split Audit and Nonaudit Services. CPA Journal, 90(10/11), 56–62.

Mintz, S. (2018, March 1). Accounting in the Public Interest: An Historical Perspective on Professional Ethics. The CPA Journal, 88(3), 22.

In case you haven’t noticed, the forensic accounting field has many areas of specializations. There are many paths you can follow. Do you want to focus on accounting, valuation, or investigating? This month, we will explore several certifications that are available in this field.

INVESTIGATIVE:

CFE - You can obtain the Certified Fraud Examiner certification through the Association of Certified Fraud Examiners. Membership in the ACFE (including student memberships) includes the Fraud Examiner’s Manual. The exam questions are drawn exclusively from this manual, so you have all materials needed to study for the exam!

CAFS - The Certified Anti-Fraud Specialist certification is one of the certifications available from the Association of Certified Anti-Money Laundering Specialists. The CAFS certification consists of five modular certificate courses, combining theory with real-world application followed by an exam. This certification is especially suited for fraud prevention careers in banks and non-bank financial institutions.

Registered Forensic Investigator (RFI) - The American Board of Forensic Accounting (AFBA) offers this certification. Requirements include two years of applicable experience and a bachelor’s degree. The exam covers the same material as the Certified Forensic Accountant credential (see below), also offered by the ABFA.

ACCOUNTING:

AICPA – CFF – The Certified in Financial Forensics certification is offered by the American Institute of Certified Public Accountants.  You must first hold a Certified Public Accountant license. This shows that you have a solid foundation in accounting principles.

ABV – The Accredited in Business Valuations certification is also offered by the AICPA. You must also have a CPA license to pursue this certification. The AICPA website outlines the additional requirements for this certification, including appropriate experience and passing a two-part exam.

CRFAC – The American Board of Forensic Accounting (ABFA) offers the Certified Forensic Accountant certification. Prerequisites include a CPA license and two years of accounting or auditing experience in addition to taking the exam.

CFB – If you do not hold a CPA license, you may pursue the Certified Forensic Bookkeeper, offered by the ABFA. Like the RFI requirements, the exam also covers the same material as the Certified Forensic Accountant credential.

Professional organizations that sponsor these certifications offer not only educational and training opportunities but also networking opportunities so that you can interact with others who share your field of interest in forensic accounting. As you can see, the investigative certifications provide a faster path to becoming a forensic accountant!

References

American Board of Forensic Accounting, www.abfa.us

American Institute of Certified Public Accountants, www.aicpa.org

Association of Certified Anti-Money Laundering Specialists, www.acams.org

Association of Certified Fraud Examiners, www.acfe.com