Ethics 4-18

  1. What two things does independence require?
    • Independence of Mind
    • Independence in Appearance
  2. Independence of Mind
    The state of mind that permits the expression of a conclusion without being affected by influences that compromise professional judgement.
  3. Independence in Appearance
    The avoidance of facts and circumstances that are so significant that a reasonable and informed third party would reasonably conclude that a person's integrity, objectivity, or professional skepticism had been compromised.
  4. Threats to Noncompliance/Independence
    • Self-interest
    • Self-Review
    • Advocacy
    • Familiarity
    • Intimidation
  5. Safeguards created by the profession, legislation, or regulation
    • Education, training, experience requirements for entry
    • Continuing education
    • Professional standards, monitoring, discipline
    • External review
    • External review of firm's quality control
    • Legislation
  6. Safeguards within a client
    • Appointment of auditors, approved by others than management
    • Client has competent staff
    • Internal procedures to ensure objective choices
    • Corporate governance structure
  7. Safeguards within a professional accounting firm
    • Leadership stressing independence and public interest
    • Policies to implement and monitor assurance engagements
    • Documented independence policies
    • Policies to monitor reliance on revenue from a single client
    • Using partners with separate reporting lines
  8. Most common conflicts of interest for accountants
    • Self-interest versus interests of other stakeholders
    • Self-interest and interest of stakeholder versus other stakeholder interest
    • Interest of one client over another
    • Interest of one or more stakeholders over other stakeholder(s)
  9. Caution should be exercised in the application of legal standards to ethical problems because...
    • Law is always changing and lags behind society
    • What is legal is not always ethical
    • Legal interpretations are not relevant when sued
  10. Private Securities Reform Act
    Changes auditor liability from having to share equally with the partners to having to bear a portion allocated by the jury.
  11. Haig v Bamford
    An accountant will be found liable to a third party where the accountant had actual knowledge of the limited class of which the third party is a member, and that third party will use and rely on the statement.
  12. Caparo foreseeability test
    A duty is said to arise only where the auditor knew the purpose for which the financial statements were to be used by the person relying on them.
  13. Ultramares
    An immediate legal relationship (contract) must exist between the parties in order for one to be liable to another.
  14. Five defenses and proactive measures for auditors
    • Due diligence and due care
    • Contributory negligence
    • Engagement letter provisions
    • Documentation and record keeping
    • Legal counsel
Card Set
Ethics 4-18
Ethics Quiz