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Regulatory Enforcement of Accounting Ethics in Puerto Rico

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Abstract

This paper examines ethical violations committed by Certified Public Accountants (CPAs) in Puerto Rico (PR) in the 2002–2010 period and the related disciplinary actions taken by the local regulatory bodies. The institutional settings for the accounting profession in PR are different from those of the United States. Ethical complaints are investigated by the PR Society of CPAs and evaluated based on the Code of Professional Conduct of the American Institute of Certified Public Accountants (AICPA), although most CPAs in PR are not affiliated with the AICPA. Our study is based on data provided by the PR Society of CPAs that is not publicly available. We examine the association between the occurrence of the ethical violations and certain variables such as gender, type of practice performed by the CPA, and whether the CPA participates in a peer review program. Results of a multiple correspondence analysis (MCA) suggest that not being a member of the AICPA, practicing as a sole practitioner, and not participating in a peer review program seem to be more associated with the occurrences of ethical violations by CPAs. We compare our findings with prior research on ethical infractions committed by CPAs in the United States and find some differences attributable to the institutional settings in PR. Overall, our results suggest the importance of codes of conduct in the accounting profession and compliance with such ethical guidelines by practicing accountants.

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Data Availability

Data are provided by the Puerto Rico Society of Certified Public Accountants to one of the authors. Data are available upon request, but not publicly available and subject to certain restrictions to maintain confidentiality.

Notes

  1. Armitage and Moriarty (2016) consider substandard performance to include a lack of independence in an audit engagement, the failure to obtain proper evidence to support an audit report, failure to supervise staff, preparation of misleading financial statements and any other situation where there is a breach of a client’s expectations.

  2. After analyzing the results obtained for the 2002–2010 period, we subsequently examine a more recent time period to determine whether there were any changes in the nature of ethical violations and to validate our earlier results. We consider violations from October 1, 2014 to August 20, 2016 (the 2014–2016 period), and the disciplinary measures imposed by the regulatory bodies of the profession. As stated in section V, we find no significant differences in results between the two time periods (2002–2010 and 2014–2016).

  3. Many states in the United States require an Ethics exam, in addition to passing the CPA exam, as a requirement to obtain a CPA license. In addition, many states also require an Ethics CPE course to renew the CPA license.

  4. The CPA firms that audit Puerto Rico’s five public companies (three bank holding companies, a managed care company with subsidiaries in life, property and casualty insurance, and a company that provides payment and transaction processing services) are Big Four firms that are affiliated with the AICPA and registered with the PCAOB.

  5. Available at https://www.aicpa.org/interestareas/peerreview.html.

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Acknowledgements

The authors would like to thank Aníbal Báez-Díaz, Nidia S. Carrero, and Charles D. Bailey for their valuable comments and suggestions on earlier drafts of the manuscript. We also appreciate the recommendations received from the participants at the 2011 American Accounting Association Annual Meeting and Timothy J. Fogarty (Discussant). The authors also acknowledge Mrs. Edna Jiménez, CPA and Executive Director of the Puerto Rico (PR) Society of CPAs for providing access to the entity’s proprietary database of Ethical Complaints filed against CPAs on conditions of anonymity and confidentiality; Mrs. María T. Laboy, CPA, and Deputy Executive Director for Member Services and Administration of the PR Society of CPAs who provided us with the information related to the participants of the AICPA and the PR Peer Review Programs; Mr. Bernardo Bravo, CPA, and President of the 2018–2019 Professional Conduct Committee of the PR Society of CPAs.

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Correspondence to Rogelio J. Cardona.

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Rogelio J. Cardona was a member of the Professional Conduct (Ethics) Committee of the Puerto Rico Society of Certified Public Accountants from February 2004 to August 2011 and from September 2014 to August 2016. The other authors declare that they have no conflict of interest.

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Cardona, R.J., Rezaee, Z., Rivera-Ortiz, W. et al. Regulatory Enforcement of Accounting Ethics in Puerto Rico. J Bus Ethics 167, 63–76 (2020). https://doi.org/10.1007/s10551-019-04137-4

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