The AICPAs Code of Professional Conduct Rule 201 describes additional standards to be followed by CPAs:
ET Section 201
Rule 201—General standards
A member shall comply with the following standards and with any interpretations thereof by bodies designated by Council.
A. Professional Competence. Undertake only those professional services that the member or the member’s firm can reasonably expect to be completed with professional competence.
B. Due Professional Care. Exercise due professional care in the performance of professional services.
C. Planning and Supervision. Adequately plan and supervise the performance of professional services.
D. Sufficient Relevant Data. Obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed.
Rule 201 is straightforward. But like many things in life, Rule 201 carries much more meaning than it appears to at first blush. The most important thing you should understand about Rule 201 is that many forensic accountants don’t know it as well as they should. Because its provisions are so basic, forensic accountants comply with its requirements without thinking about it. But many aren’t able to articulate how they comply with Rule 201.
For professional competence concerns, many CPAs know to take on only those cases that they are comfortable handling. How they get comfortable with cases before accepting them can be difficult to articulate. In this respect, forensic accounting can be a lot like practicing law. Often, when lawyers first sign up clients, they don’t know exactly what discovery will be fi led or when, what witnesses may be interviewed, deposed, or called, what legal research questions will need to be answered, or what particular strategy may be employed. Forensic accounting can be the same. Often, even the family lawyer may not know exactly what forensic accounting services may be needed when the CPA is engaged. Certainly, as the engagement progresses, the CPA must acquire the necessary knowledge before rendering an opinion on a matter. Then, at deposition or trial, the CPA should be able to articulate how the CPA determined that he was professionally competent to handle that particular engagement or what steps were taken to become professionally competent. If the engagement was of a type the CPA had not worked on before, becoming professionally competent could include consulting with more experienced CPAs, reading up on the area with which the CPA was unfamiliar, or attending a seminar on that area.
This short answer can lead to many serious follow-up questions. Obtaining the certifications alone arguably does not make a CPA competent to handle any particular type of engagement. Also, if the case was not difficult, why was an expert witness even needed? From there, you could begin to dissect the accountant with a line of questioning
similar to the following:
• "You know Rule 201 from the AICPA Code of Professional Conduct?"
• "You know you are required to be professionally competent in order to accept the engagement?"
• "You are competent because you say so?"
• "Tell me what specific aspect of your education makes you competent?"
• "So, you’ve never handled a case exactly like this before?"
• "Explain every individual step you took to comply with Rule 201 in determining that you were professionally competent to handle this particular engagement."
With tone of voice and simple, detailed, and factual follow-up questions, you may rattle some less-experienced forensic accountants. Rule 201’s Due Professional Care requirement seems fairly benign. It’s not. The forensic accountant must be able to explain how due professional care was exercised. The only real way to accomplish a task that broad is for the forensic accountant to summarize the engagement’s process and methodology. Forensic accountants, as a group, are great at explaining what tasks and analysis were performed. But again, many struggle mightily if asked "why" they chose to do a particular task or use a particular methodology.
Follow-up questions are the key. You can drill down by asking the forensic accountant "why" at each step of his description of what he did:
• "Why did you consult forensic accounting books?"
• "Why did you need additional documents?"
• "Why did you complete a proof of cash analysis?"
If the forensic accountant can’t answer every question in simple terms, you may end up dominating that deposition. Even if the forensic accountant can adequately and in easy-to-understand terms answer the questions, you’re still getting valuable information that you and your client’s expert can use at trial. You can’t lose when questioning forensic accountants about Due Professional Care.
Rule 201’s Planning and Supervision requirements aren’t all that different from Due Professional Care. The forensic accountant must be able to explain who, what, when, and how the planning progressed and explain the supervision of staff assistants.
Rule 201’s requirement to obtain sufficient relevant data is one of the trickier areas for both forensic accountants and family lawyers. What is "sufficient"? Sufficiency is a matter of professional judgment. There is no objective standard.
This article is an excerpt from The Forensic Accounting Deskbook: A Practical Guide to Financial Investigation and Analysis for Family Lawyers. Reprinted by permission. Copyright © 2011 American Bar Association. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Footnotes may be omitted from the original text.