Ethics

What are 6 core values?

• Trustworthiness

• Respect

• Responsibility

• Fairness

• Caring

• Citizenship

What are the 6 basic AICPA tenets of ethical conduct

• Responsibilities: Exercise sensitive professional and moral judgment.

• Public Interest: Honor the public trust.

• Integrity: Perform responsibilities with the highest sense of integrity.

• Objectivity: Impartial, unbiased, and independent; free of conflicts of interest and independent in fact and appearance.

• Due care: Diligence, competence, thorough, prompt.

• Scope and nature of services: Observe the principles when considering the scope and nature of services provided.

AICPA Code of Prof Conduct

CPAs In Public Practice

• Independence

• Fees and Other Types of Remuneration

• Advertising and Other Forms of Solicitation

• Confidential Information

• Form of Organization and Name

CPAs In Business

• Integrity and Objectivity

• General Standards

• Compliance with Standards

• Accounting Principles

ALL CPAs (including unemployed and retired)

• Acts Discreditable

What is the Acts Discreditable Rule

A member shall not commit an act discreditable to the profession, including but not limited to:

• Making false or misleading journal entries.

• Failure to meet requirements of a Governmental body, commission, or regulatory body.

• Being found guilty of violating employment antidiscrimination laws.

• Failure to file personal income tax return.

• Disclosure of CPA examination questions or answers.

• Failure to return records to a client after the client makes a demand.

How does CPA maintain integrity and objectivity?

In the performance of any professional service, a member shall

maintain objectivity and integrity:

• be free of conflicts of interest

• not knowingly misrepresent facts (including false or

misleading entries)

• not subordinate his or her judgment to others

How should they handle disagreements?

If disagreements exist concerning the preparation of

financial statements or the recording of transactions

a) Accept the supervisor’s position if acceptable

– After having the supervisor explain the position

b) If supervisor’s position is not acceptable,

– Report to higher level if supervisor’s position is not

acceptable.

– Consider resigning if upper management will not take

appropriate action.

• Only after considering appropriate safeguards

• Does not alleviate all responsibilities, including those to 3rd

parties

What are the 4 factors of general stds rule

• Perform only those services that can be completed

with professional competence.

• Exercise due professional care.

• Adequately plan and supervise all engagements.

• Obtain sufficient relevant data to afford a

reasonable basis for all conclusions and

recommendations.

What is Rule 1.200 Independence

a member in public practice shall be

independent in the performance of

professional services as required by

standards promulgated by bodies

designated by Council.

What are 2 independence considerations?

• Independence in fact

– A mental state of objectivity and lack of bias

• Independence in appearance

– depends on whether a reasonable investor, with

knowledge of all relevant facts and circumstances, can

conclude that the auditor is not capable of exercising

objective and impartial judgment.

What are 7 threats to auditor independence?

1. Familiarity threat

– CPAs having a close or longstanding relationship with a client.

2. Adverse interest threat

– CPAs acting in opposition to clients (e.g., through litigation)

3. Undue influence threat

– Attempts to coerce or otherwise influence the CPA (e.g., significant gifts or

threats to replace the auditor over an accounting principles disagreement).

4. Self-review threat

– CPAs reviewing their own work.

5. Financial self-interest threat

– CPAs having a financial relationship with a client.

6. Management participation threat

– CPAs taking on the role of client management or performing mgmt functions

7. Advocacy threat

– CPAs promoting a client’s interests or position.

What are safeguards?

May partially or completely eliminate a threat or diminish the potential influence of a threat.

The nature and extent of the safeguards applied will depend on many factors

Safeguards by members of business or public practice

Members in Business

a. Created by the profession, legislation, or regulation

b. Implemented by the employing organization

Public Practice

a) Created by the profession, legislation, or regulation.

b) Implemented by the client. It is not possible to rely solely on safeguards implemented by the client to eliminate or reduce significant threats to an acceptable level.

c) Implemented by the firm, including policies and procedures to implement professional and regulatory requirements.

Examples of Safeguards by professions, client, firm

Profession

• Education and training requirements

• Continuing education requirements

• Professional standards and the threat of discipline

Client

• The client has suitable personnel

• The tone at the top emphasizes the commitment to fair financial reporting and compliance with the rules

• Policies and procedures are in place

• A governance structure is in place to ensure appropriate decision regarding a firm’s services.

Firm

• A disciplinary mechanism that is designed to promote compliance

• Rotation of senior personnel who are part of the engagement team.

• Preclude audit partners from being compensated for selling nonattest services to attest clients.

• Informing staff of attest clients and related entities from which they must be independent.