American Institute of Certified Public Accountants (AICPA) Practice Exam

What happens if a member with authority fails to correct false financial statements?

1. They may face a minor reprimand.

2. They violate the Integrity and Objectivity Rule.

3. There is no violation of ethics.

4. They are only accountable if knowingly misleading.

The correct answer is: They violate the Integrity and Objectivity Rule.

When a member with authority fails to correct false financial statements, this action constitutes a violation of the Integrity and Objectivity Rule. This rule is one of the fundamental principles of the AICPA Code of Professional Conduct and it requires members to maintain integrity, eliminate conflicts of interest, and avoid misrepresentation in their professional endeavors. By allowing false financial statements to remain uncorrected, the member jeopardizes the reliability of the information provided to stakeholders, thus undermining the trust that is essential in the profession. Integrity implies honesty and fair dealing, while objectivity requires members to be free from any conflicts of interest or undue influence. Failure to correct such misstatements not only reflects a lack of these qualities but also poses risks of legal and reputational consequences for both the individual and the organization. The other concepts mentioned do not accurately depict the seriousness of the situation. Minor reprimands are unlikely responses to significant ethical violations. The statement regarding no violation of ethics is misleading, as the integrity and objectivity of financial reporting is a critical element of ethical accounting practices. Lastly, being only accountable if knowingly misleading misunderstands the collective responsibility of professionals to ensure accurate and truthful financial reporting, regardless of intent. Therefore, the clear breach of ethical responsibility in this context is best