Chapter 3

  1. Steps to resolve ethical dilemma
    • Identify:
    • The Problem
    • Possible course of action
    • Any contraints relating to the decesion
    • Analyse the likely effects of the possible courses of action
    • Select the best course of action
  2. Need for Professional Ethics
    • Responsibility to serve the public, CPA is representative of public
    • Complex body of knowledge
    • Standards of Admission to the Profession, min standards for education and experience
    • Need for Public confidence, CPA product is credibiliity.
  3. AICPA Professional Ethics
    Two Sections:

    • Code of Professional Conduct
    • Principles- provide overall framework
    • Rules- Govern performance of professional services

    • Additional Guidance
    • Interpretations-Provide guidelines as to the scopeand application of Rules
    • Ethics Rulings- Summarize application of rules and interpretations
  4. Pic of AICPA Professional Ethics
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  5. Principles of the Code of Conduct
    • Responsibilities
    • The Public interest
    • Integrity
    • Objectivity and Independence
    • Due Care
    • Scope and Nature of Services
  6. AICPA Rule Codes
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  7. Independence
    • Independence of mind (Actual Independence)
    • Independence of appearance
    • Both are required
  8. AICPA Conceptual Framework for Independence
    The Approach Considers

    Whether the code directly addresses the threat

    If threat code no good, the auditor considers whether adequate safeguards exist to eliminate the threat to independence

    Big one: whether a reasonable person, aware of all the relevant facts would coclude that an unacceptable risk of non-indpendence exists.
  9. Threats to Independence
    • Self Review
    • Advocacy of client
    • Adverse Interest
    • Familiarity
    • Undue Influence
    • Financial Self-Interest of CPA
    • Management Participation
  10. Threats to Independence- Self Review
    CPA Firm Has Provided consulting services that relate to audit
  11. Threats to Independence-Advocacy of client
    CPA promotes client securities as part of an initial pubic offering
  12. Threats to Independence-Adverse Interest
    Litigation between client and CPA firm
  13. Threats to Independence-Familiarity
    Spouse holds a key position with client
  14. Threats to Independence-Undue Influence
    Pressure from client to reduce audit procedures
  15. Threats to Independence-Financial Self-Interest of CPA
    CPA owns stock in the client
  16. Threats to Independence-Management Participation
    CPA serves as officer of client
  17. Independence Safeguards
    • Created by profession, legislation or regulation
    • Implemented by attest client
    • Put in place by CPA firm
  18. Pic of Summary of Conceptual FW approach for Eval Threats
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  19. Covered Members
    • Interpretation 1 of Rule 101
    • Covered Members Include:
    • Staff working on the attest engagement
    • An individual who may influence the attest engagement
    • A partner in the office in which the partner in charge of the attest engagement primarily practices
    • Partners or managers that provie a specifie amount of non-attest services to client.
    • The public accounting firm and its emplyee benfit plan
    • Any entity controlled by one or more of the above
  20. Rule 101-1 States that independenc is impaired if a Member-Applies to Covered Members
    Has direct or material indirect financial interest, loan or joint busess investment; trustee or administrator of estate or trust that has such interest
  21. Interpretation 101-1 Indpendence for All Partners and Professional Staff is impaired if a member:
    • Owns 5% or more of client's outstanding equity or other ownership interest
    • Simultaneously associated with client as director, officer, employee, etc.
  22. Effects of partner and professional staff relationships on fimr Independence PIC
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  23. Effects of interest of Family and Friends-Pic fig 3.6
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  24. Consulting Service Prohibited by SOX
    • Bookkeeping
    • Financial systems design and implementation
    • Appraisal or valuation services
    • Actuarial services
    • Internal audit outsourcing
    • Mangement functions or Human Resource services
    • Investment services
    • Legal services and expert services
    • Cetain tax services
  25. Rule 102-Integrity and Objectivity
    • Applies to all members of the AICPA and to all services provided by CPA's
    • Violations: makes, or permits another to commit fraud
  26. Rule 201-General Standards
    • Apply to all CPA services
    • Member shall comply with:
    • Professional competence
    • Due professional care
    • Planning and supervision
    • Sufficient Relevant Data
  27. Rule 202 Standards
    • Auditing Standards Board (ASB)
    • statement on auditing standards
    • Managment Consulting Serives Executive Committee (MCSEC)
    • statments on standards for consulting services
    • Accounitng and Review services Commitee (ARSC)
    • statments on standards for Accounting and review services
  28. Rule 203
    • Accounting Principles
    • Designates GAAP
  29. Rule 301
    • Confidential Client Information
    • A member can not disclose any confidential client information without the specified consent of client
    • Auditors can disclose illegal acts by the client unless they have a legal duty to do so
    • Confidential but not privileged communications with client
  30. Rule 302
    Allowable Contingent Fees
  31. Rule 501
    • Retaining client records may be considered an act discreditable to the profession
    • Rules
    • Client prepared records-always returned to client
    • Client records prepared by CPA- may be withheld if they are incomplete or fees are due for them
    • Supporting records-may be withheld if they are incomplete or fees are due for them
    • CPA working papers- CPA's property and need not be provided to client, unless required by law.
  32. IIA Code of Ethics- Principles
    • Integrity
    • Objectivity
    • Confidentiality
    • Competency
Card Set
Chapter 3
Midterm 1