MODERN AUDITING MODERN AUDITING 7th Edition7th Edition

MODERN AUDITING MODERN AUDITING 7th Edition7th Edition

Developed by:Gregory K. Lowry, MBA, CPASaint Paul’s College

John Wiley & Sons, Inc.

William C. BoyntonWilliam C. BoyntonCalifornia Polytechnic State California Polytechnic State University at San Luis ObispoUniversity at San Luis Obispo

Raymond N. JohnsonRaymond N. JohnsonPortland State UniversityPortland State University

Walter G. KellWalter G. KellUniversity of MichiganUniversity of Michigan

CHAPTER 3CHAPTER 3PROFESSIONAL ETHICSPROFESSIONAL ETHICS

CHAPTER 3CHAPTER 3PROFESSIONAL ETHICSPROFESSIONAL ETHICS

Ethics and Morality AICPA Code of Professional Conduct Rules of Conduct

Rule 101 — Independence Rule 102 — Integrity and Objectivity Rule 201 — General Standards Rule 202 — Compliance with Standards Rule 203 — Accounting Principles Rule 301 — Confidential Client Information

CHAPTER 3CHAPTER 3PROFESSIONAL ETHICSPROFESSIONAL ETHICS

CHAPTER 3CHAPTER 3PROFESSIONAL ETHICSPROFESSIONAL ETHICS

Rule 302 — Contingent Fees Rule 501 — Acts Discreditable Rule 502 — Advertising and Other

Forms of Solicitation Rule 503 — Commissions and Referral Fees Rule 505 — Form of Organization and Name

Enforcement of the Rules

Ethics and MoralityEthics and MoralityEthics and MoralityEthics and Morality

General Ethics attempts to deal with ethical questions by defining what is good for the individual and society, and by trying to establish the nature of obligations or duties that individuals owe themselves and each other.Professional Ethics must extend beyond moral principles. They include standards of behavior for a professional person that are designed for both practical and idealistic purposes.

AICPA Code of AICPA Code of Professional ConductProfessional ConductAICPA Code of AICPA Code of

Professional ConductProfessional Conduct

AICPA Professional Ethics Team1. Standard Setting2. Ethics Enforcement3. Technical Inquiry Services

Code Sections and Related Code Sections and Related PronouncementsPronouncements

Figure 3-1Figure 3-1

Code Sections and Related Code Sections and Related PronouncementsPronouncements

Figure 3-1Figure 3-1

Code DefinitionsCode DefinitionsCode DefinitionsCode Definitions

Client Any person or entity, other than the member’s employer, that engages a member or a member’s firm to perform professional services or a person or entity with respect to which professional services are performed.Council The Council of the AICPA.Enterprise Synonymous with the term “client.”

Code DefinitionsCode DefinitionsCode DefinitionsCode Definitions

Firm A form of organization permitted by state law or regulation whose characteristics conform to resolutions of Council that is engaged in the practice of public accounting, including the individual owners thereof.

Holding out Any action initiated by a member that informs others of his or her status as a CPA or AICPA accredited specialist.

Institute The AICPA.

Code DefinitionsCode DefinitionsCode DefinitionsCode Definitions

Member A member, associate member, or international associate of the AICPA.Practice of public accounting Performance for a client, by a member or a member’s firm, while holding out as CPA(s), of the professional services of accounting, tax, personal financial planning, litigation support services, and those professional services for which standards are promulgated by bodies designated by Council.Professional Services All services performed by a CPA while holding out as a CPA.

PrinciplesPrinciplesPrinciplesPrinciples

In the Code, the 6 principles are identified as follows:1. Responsibilities2. The Public Interest3. Integrity4. Objectivity and Independence5. Due Care6. Scope and Nature of Services

Rules of Conduct Rules of Conduct Figure 3-2Figure 3-2

Rules of Conduct Rules of Conduct Figure 3-2Figure 3-2

ApplicabilityAll Members in

Section/ Rule Members Public Practice

Section 100 Independence, Integrity, andObjectivity

101 Independence 102 Integrity and Objectivity

Section 200 General Standards and AccountingPrinciples

201 General Standards 202 Compliance with Standards 203 Accounting Principles

Rules of Conduct Rules of Conduct Figure 3-2Figure 3-2

Rules of Conduct Rules of Conduct Figure 3-2Figure 3-2

ApplicabilityAll Members in

Section/ Rule Members Public Practice

Section 300 Responsibilities to Clients 301 Confidential Client Information 302 Contingent Fees

Section 400 Responsibilities to Colleagues(No currently effective rules in thissection.)

Section 500 Other Responsibilities and Practices 501 Acts Discreditable 502 Advertising and Other Forms of

Solicitation 503 Commissions and Referral Fees 504 Form of Organization and Name

Enforcement of the RulesEnforcement of the RulesEnforcement of the RulesEnforcement of the Rules

1. Joint Ethics Enforcement Procedures

2. Joint Trial Board Proceduresa. Admonish the member.b. Suspend the member for a

period of no more than 2 years.c. Expel the member.

3. Automatic Disciplinary Provisions

CHAPTER 3CHAPTER 3PROFESSIONAL ETHICSPROFESSIONAL ETHICS

CHAPTER 3CHAPTER 3PROFESSIONAL ETHICSPROFESSIONAL ETHICS

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