American Institute of Certified Public Accountants (AICPA) Practice Exam

What action should a member in public practice take when a significant conflict of interest is identified?

1. Continue providing services and document the situation

2. Discontinue the professional services

3. Seek advice from the firm's ethics committee

4. Notify the client about the conflict

The correct answer is: Discontinue the professional services

When a significant conflict of interest is identified, the appropriate action is to discontinue the professional services. This is fundamental to maintaining the integrity of the profession and the trust of clients. A conflict of interest can compromise the objectivity and impartiality required for a CPA to perform their duties effectively. Continuing to provide services in the presence of a significant conflict could lead to ethical breaches, potential legal ramifications, and damage to the public's perception of the profession. Discontinuing services allows the member to uphold their ethical obligations and preserves the client’s ability to receive unbiased guidance. It is also important to communicate this decision clearly to the client, as transparency is key in maintaining professional relationships and trust. While seeking advice from an ethics committee or notifying the client about the conflict may also be part of appropriate actions in more complex situations, the immediate reaction should prioritize stepping back from the engagement to avoid further complications or ethical dilemmas. This approach exemplifies adherence to professional standards and reinforces the commitment to ethical practice in public accounting.