Chapter 3

• 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

• 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.

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

• Responsibilities
• The Public interest
• Integrity
• Objectivity and Independence
• Due Care
• Scope and Nature of Services

• Independence of mind (Actual Independence)
• Independence of appearance
• Both are required

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.

• Self Review
• Advocacy of client
• Adverse Interest
• Familiarity
• Undue Influence
• Financial Self-Interest of CPA
• Management Participation

CPA Firm Has Provided consulting services that relate to audit

CPA promotes client securities as part of an initial pubic offering

Litigation between client and CPA firm

Spouse holds a key position with client

Pressure from client to reduce audit procedures

CPA owns stock in the client

CPA serves as officer of client

• Created by profession, legislation or regulation
• Implemented by attest client
• Put in place by CPA firm

• 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

Has direct or material indirect financial interest, loan or joint busess investment; trustee or administrator of estate or trust that has such interest

• Owns 5% or more of client's outstanding equity or other ownership interest
• Simultaneously associated with client as director, officer, employee, etc.

• 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

• Applies to all members of the AICPA and to all services provided by CPA's
• Violations: makes, or permits another to commit fraud

• Apply to all CPA services
• Member shall comply with:
• _{Professional competence}
• Due professional care
• Planning and supervision
• Sufficient Relevant Data

• 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}

• Accounting Principles
• Designates GAAP

• 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

Allowable Contingent Fees

• 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.

• Integrity
• Objectivity
• Confidentiality
• Competency