Search
31 March 2020: Coronavirus Update. The situation is fast moving and we are continuing to monitor the global situation and its impact on our members, staff, exam candidates, students and the profession. More information for Members and Students in My CIMA.

Section 260: General standards / Professional competence and due care

Introduction

R260.1         Members are required to comply with the General Standards Rule (AICPA) and the fundamental principle of Professional Competence and Due Care (CIMA) and apply the conceptual framework set out in Section 200 to identify, evaluate and address threats.

Requirements and application material

General

R260.2         A member shall not intentionally mislead an employing organisation as to the level of expertise or experience possessed.

General Standards Rule (AICPA)

R260.3         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.

Professional Competence and Due Care Principle (CIMA)

R260.4         A member shall comply with the fundamental principle of Professional Competence and Due Care, which imposes the following obligations on all members:

(a)   To attain and maintain professional knowledge and skill at the level required to ensure that a client or employing organisation receives competent professional service, based on current technical and professional standards and relevant legislation; and

(b)   To act diligently and in accordance with applicable technical and professional standards.

Interpretations under the “General Standards Rule” and “Professional Competence and Due Care Principle”

Application of the Conceptual Framework for Members in Business and Ethical Conflicts

260.5 A1      In the absence of an interpretation of the “General Standards Rule” and “Professional Competence and Due Care Principle” that addresses a particular relationship or circumstance, a member should apply the “Conceptual Framework for Members in Business” (200.3 – 200.4).

260.5 A2      A member would be considered in violation of the “General Standards Rule” and “Professional Competence and Due Care Principle” if the member cannot demonstrate that safeguards were applied that eliminated or reduced significant threats to an acceptable level.

260.5 A3      A member should consider the guidance in the “Ethical Conflicts” interpretation (210.1) when addressing ethical conflicts that may arise when the member encounters obstacles to following an appropriate course of action. Such obstacles may be due to internal or external pressures or to conflicts in applying relevant professional and legal standards, or both.

Professional competence and due care

260.6 A4      Competence, in this context, means that the member or member’s staff possesses the appropriate technical qualifications to perform professional services and, as required, supervises and evaluates the quality of work performed. Competence encompasses knowledge of the profession’s standards, the techniques and technical subject matter involved, and the ability to exercise sound judgment in applying such knowledge in the performance of professional services.

260.6 A5      A member’s agreement to perform professional services implies that the member has the necessary competence to complete those services according to professional standards and to apply the member’s knowledge and skill with reasonable care and diligence. However, the member does not assume a responsibility for infallibility of knowledge or judgment.

260.6 A6      The member may have the knowledge required to complete the services in accordance with professional standards prior to performance. A normal part of providing professional services involves performing additional research or consulting with others to gain sufficient competence.

260.6 A7      Threats to the member’s compliance with the “General Standards Rule” and “Professional Competence and Due Care Principle” may exist if the member is performing professional services and the member has:

  • Insufficient time for properly performing or completing the relevant duties;
  • Incomplete, restricted or otherwise inadequate information for performing the duties properly;
  • Insufficient experience, training or education, or both; or
  • Inadequate resources for the proper performance of the duties.

260.6 A8      The significance of the threats will depend on factors such as the extent to which the member is working with others, relative seniority in the business, and the level of supervision and review applied to the work. The member should evaluate the significance of any threats and apply safeguards, when necessary, to eliminate or reduce the threats to an acceptable level. Examples of such safeguards include:

  • Performing additional research or obtaining additional advice or training.
  • Ensuring that there is adequate time available for performing the relevant duties.
  • Obtaining assistance from someone with the necessary expertise.
  • Consulting, where appropriate, with:
    • Superiors within the employing organisation;
    • Independent experts; or
    • A relevant professional body.

260.6 A9      If the member determines that the threats are so significant that no safeguards could eliminate or reduce the threats to an acceptable level, and therefore the member is unable to gain sufficient competence, the member should suggest the involvement of a competent person to perform the needed professional service, either independently or as an associate. 

Submission of financial statements

R260.7         When a member is a stockholder, a partner, a director, an officer, or an employee of an entity and, in this capacity, prepares or submits the entity’s financial statements to third parties, the member should clearly communicate, preferably in writing, the member’s relationship to the entity and should not imply that the member is independent of the entity. In addition, if the communication states affirmatively that the financial statements are presented in conformity with the applicable financial reporting framework, the member should comply with the “Accounting Principles Rule” and the “Professional Competence and Due Care Principle”.

260.7 A1      AICPA members should refer to the “Use of CPA Credential” interpretation (370.26) for additional guidance.

Compliance with standards / Professional competence and due care

Compliance with Standards Rule (AICPA)

R260.8         A member who performs auditing, review, compilation, management consulting, tax, or other professional services shall comply with standards promulgated by bodies designated by Council.

Professional Competence and Due Care Principle (CIMA)

R260.9         A member shall comply with the fundamental principle of Professional Competence and Due Care, which imposes the following obligations on all members:

(a)   To attain and maintain professional knowledge and skill at the level required to ensure that a client or employing organisation receives competent professional service, based on current technical and professional standards and relevant legislation; and

(b)   To act diligently and in accordance with applicable technical and professional standards.

Interpretations under the Compliance with Standards Rule and the Professional Competence and Due Care Principle

Application of the conceptual framework for members in business and ethical conflicts

260.10 A1    In the absence of an interpretation of the “Compliance with Standards Rule” and the “Professional Competence and Due Care Principle” that addresses a particular relationship or circumstance, a member should apply the “Conceptual Framework for Members in Business” (300.2-300.3).

260.10 A2    A member would be considered in violation of the “Compliance with Standards Rule” and the “Professional Competence and Due Care Principle” if the member cannot demonstrate that safeguards were applied that eliminated or reduced significant threats to an acceptable level.

260.10 A3    A member should consider the guidance in the “Ethical Conflicts” interpretation (310.1) when addressing ethical conflicts that may arise when the member encounters obstacles to following an appropriate course of action. Such obstacles may be due to internal or external pressures or to conflicts in applying relevant professional or legal standards, or both.

Accounting principles

Accounting Principles Rule (AICPA)

R260.11       A member shall not:

(1)   Express an opinion or state affirmatively that the financial statements or other financial data of any entity are presented in conformity with generally accepted accounting principles; or

(2)   State that they is not aware of any material modifications that should be made to such statements or data in order for them to be in conformity with generally accepted accounting principles, if such statements or data contain any departure from an accounting principle promulgated by bodies designated by Council to establish such principles that has a material effect on the statements or data taken as a whole.

If, however, the statements or data contain such a departure and the member can demonstrate that due to unusual circumstances the financial statements or data would otherwise have been misleading, the member can comply with the rule by describing the departure, its approximate effects, if practicable, and the reasons why compliance with the principle would result in a misleading statement.

Professional Competence and Due Care Principle (CIMA)

R260.12       A member shall comply with the fundamental principle of Professional Competence and Due Care, which imposes the following obligations on all members:

(a)   To attain and maintain professional knowledge and skill at the level required to ensure that a client or employing organisation receives competent professional service, based on current technical and professional standards and relevant legislation; and

(b)   To act diligently and in accordance with applicable technical and professional standards.

Interpretations under the Accounting Principles Rule and the Professional Competence and Due Care Principles

Application of the conceptual framework for members in business and ethical conflicts

260.13 A1    In the absence of an interpretation of the “Accounting Principles Rule” and the “Professional Competence and Due Care Principle” that addresses a particular relationship or circumstance, a member should apply the “Conceptual Framework for Members in Business” (200.3 – 200.4).

260.13 A2    A member would be considered in violation of the “Accounting Principles Rule” and the “Professional Competence and Due Care Principle” if the member cannot demonstrate that safeguards were applied that eliminated or reduced significant threats to an acceptable level.

260.13 A3    A member should consider the guidance in the “Ethical Conflicts” interpretation (210.1) when addressing ethical conflicts that may arise when the member encounters obstacles to following an appropriate course of action. Such obstacles may be due to internal or external pressures or to conflicts in applying relevant professional or legal standards, or both.

Responsibility for affirming that financial statements are in conformity with the applicable financial reporting framework (AICPA)

R260.14       A member shall not state affirmatively that an entity’s financial statements or other financial data are presented in conformity with generally accepted accounting principles (GAAP) if such statements or data contain any departure from an accounting principle promulgated by a body designated by Council to establish such principles. Members who affirm that financial statements or other financial data are presented in conformity with GAAP should comply with “Accounting Principles Rule”. A member’s representation in a letter or other communication that an entity’s financial statements are in conformity with GAAP may be considered an affirmative statement within the meaning of this rule with respect to the member who signed the letter or other communication (for example, the member signed a report to a regulatory authority, a creditor, or an auditor).

Responsibility for affirming that financial statements are in conformity with the applicable financial reporting framework (CIMA)

R260.15       A member of CIMA who has responsibility for the preparation or approval of the general purpose financial statements of an employing organisation shall be satisfied that those financial statements are presented in accordance with the applicable financial reporting standards.

Status of Financial Accounting Standards Board, Governmental Accounting Standards Board, Federal Accounting Standards Advisory Board, and International Accounting Standards Board Interpretations (AICPA)

260.16 A1    The “Accounting Principles Rule” authorises Council to designate bodies to establish accounting principles. Council has designated the U.S. Financial Accounting Standards Board (FASB) as such a body and has resolved that FASB Accounting Standards Codification® (ASC) constitutes accounting principles as contemplated in the rule. Council designated the U.S. Governmental Accounting Standards Board (GASB), with respect to Statements of Governmental Accounting Standards issued in July 1984 and thereafter, as the body to establish financial accounting principles for state and local governmental entities, pursuant to the “Accounting Principles Rule”. Council designated the U.S. Federal Accounting Standards Advisory Board (FASAB), with respect to Statements of Federal Accounting Standards adopted and issued in March 1993 and subsequently, as the body to establish accounting principles for federal government entities, pursuant to the “Accounting Principles Rule”. Council designated the International Accounting Standards Board (IASB) as an accounting body for purposes of establishing international financial accounting and reporting principles.

260.16 A2    Reference to GAAP in the “Accounting Principles Rule” means those accounting principles promulgated by bodies designated by Council, which are listed in paragraph .01 “Council Resolution Designating Bodies to Promulgate Technical Standards”.

260.16 A3    The AICPA Professional Ethics Division will look to the codification or statements and any interpretations thereof issued by FASB, GASB, FASAB, or IASB in determining whether a member of the AICPA has departed from an accounting principle established by a designated accounting standard-setter in FASB ASC, a Statement of Governmental Accounting Standards, a Statement of Federal Accounting Standards, or International Financial Reporting Standards (IFRS).

Departures from Generally Accepted Accounting Principles (AICPA)

260.17 A1    It is difficult to anticipate all the circumstances in which accounting principles may be applied. However, there is a strong presumption that adherence to GAAP would, in nearly all instances, result in financial statements that are not misleading. The “Accounting Principles Rule” recognises that, upon occasion, there may be unusual circumstances when the literal application of GAAP would have the effect of rendering financial statements misleading. In such cases, the proper accounting treatment to apply is that which will not render the financial statements misleading.

260.17 A2    The question of what constitutes unusual circumstances, as referred to in the “Accounting Principles Rule” is a matter of professional judgment involving the ability to support the position that adherence to a promulgated principle within GAAP would be regarded generally by reasonable persons as producing misleading financial statements.

260.17 A3    Examples of circumstances that may justify a departure from GAAP include new legislation or evolution of a new form of business transaction. Examples of circumstances that would not justify departures from GAAP include an unusual degree of materiality or conflicting industry practices.

260.17 A4    If the statements or data contain such departures, see the “Accounting Principles Rule” for further guidance.

Financial statements prepared pursuant to financial reporting frameworks other than GAAP (AICPA)

260.18 A1    Reference to GAAP in the “Accounting Principles Rule” means those accounting principles promulgated by bodies designated by Council. The bodies designed by Council to promulgate accounting principles are

  • FASAB,
  • FASB,
  • GASB, and
  • IASB.

260.18 A2    Financial statements prepared pursuant to other accounting principles would be considered financial reporting frameworks other than GAAP within the context of the “Accounting Principles Rule”.

260.18 A3    However, the “Accounting Principles Rule” does not preclude a member from preparing or reporting on financial statements that have been prepared pursuant to financial reporting frameworks other than GAAP, such as:

(a)   financial reporting frameworks generally accepted in another country, including jurisdictional variations of IFRS such that the entity’s financial statements do not meet the requirements for full compliance with IFRS, as promulgated by the IASB;

(b)   financial reporting frameworks prescribed by an agreement or a contract; or

(c)   other special purpose frameworks, including statutory financial reporting provisions required by law or a U.S. or foreign governmental regulatory body to whose jurisdiction the entity is subject.

In such circumstances, however, the financial statements or member’s reports thereon should not purport that the financial statements are in accordance with GAAP and the financial statements or reports on those financial statements, or both, should clarify the financial reporting framework(s) used.