Ethics Show
Study of moral principals and values that govern the actions and decisions of an individual or group. Ethical dilemas Mental conflict between differing moral requirements, in which to obey one requirement will result in disobeying another; AICPA Code of Professional Conduct refers to these as ethical conflicts.
Steps to make a decision: 1. Identify the problem Most important characteristics of professions: 1. Responsibility to serve the public AICPA Code of Professional Conduct (Triangle) Priciples (Top) - Provide overall framework Rules (Middle) - Govern performance of professional service Interpretations (Bottom) - Provide guidelines as to the scope and application of the rules Sections of the AICPA Code of Professional Conduct Preface AICPA Code of Professional Conduct: Preface Code overview of information
AICPA Code of Professional Conduct Principles: Responsibilities Members should exercise sensitive professional and moral judgements in all their activities AICPA Code of Professional Conduct Principles: Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism AICPA Code of Professional Conduct Principles: Integrity To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity AICPA Code of Professional Conduct Principles: A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact, and appearance when providing auditing and other attestation services AICPA Code of Professional Conduct Principles: Members should observe the professions technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibilities to the best of the member's ability AICPA Code of Professional Conduct Principles: Member in public practice should observe the Code of Professional Conduct in determining the scope and nature of services to be provided AICPA Code of Professional Conduct: Principles
Statements that provide the overall framework of profession's responsibilities AICPA Code of Professional Conduct: Rules Requirements that are enforceable under AICPA's bylaws AICPA Code of Professional Conduct: Interpretations Issued by the AICPA to provide guidelines for the scope and application of the rules Two types of conceptual frameworks for the Code 1. Regarding Independence Threats to Compliance w/Rules: Accountant will not act with objectivity because of interests opposed to the client's interests Threats to
Compliance w/Rules: Accountant will promote a client's interests or position and compromise objectivity or independence Threats to Compliance w/Rules: Accountant will become too sympathetic to the client's interests or too accepting of the client's work or product due to a long or close relationship Threats
to Compliance w/Rules: Accountant will take on the role of client management or otherwise assume management responsibilities Threats to Compliance w/Rules: Accountant could benefit, financially or otherwise, from an interest in, or relationship with client Threats to Compliance
w/Rules: Accountant will not appropriately evaluate results of a previous judgement made or service performed or supervised by the accountant or the accountant's firm Threats to Compliance w/Rules: Accountant will subordinate judgement to that of an individual associated with a client due to client's reputation, expertise, dominant personality, or attempts to coerce or excessively influence the accountant Safeguards Controls that mitigate or eliminate threats to independence 3 Broad Categories of Safeguards Safeguards created by the profession, legislation, or regulation Safeguards implemented by the attest client Safeguards put in place by the CPA firm, including policies and procedures for implementing professional and regulatory clients Code of Professional Conduct suggests CPAs facing ethical conflicts should document: 1. Substance of the conflict Covered Member An individual, firm, or entity that is capable of influencing an attest engagement Individual on the attest engagement team Direct financial interest Owning capital stock in a client Indirect Financial interest Owning shares of a mutual fund that owns shares of stock in a client Financial interest Owning equity or debt security in a client, directly or indirectly Independence standards for public companies are currently a combination of pronouncements by ____________ and ___________, and legal requirements of ______________, as enforced and interpreted by ______________ AICPA & the SEC Integrity and Objectivity Rule In the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgement to others Independence requirements for entities that receive federal financial assistance are developed by the: PCAOB GAO FASB's authority to issue GAAP for nongovernmental entities GASB's authority to issue GAAP for state and local governmental entities FASAB's authority to issue GAAP for federal governmental entities IASB's authority to issue GAAP for international financial accounting and reporting principles The concept of materiality would be least important to an auditor when considering the: Decision whether to use positive or negative confirmations of accounts receivable. Adequacy of disclosure of a client's illegal act. Discovery of weaknesses in a client's internal control. Decision whether to use positive or negative confirmations of accounts receivable. Adequacy of disclosure of a client's illegal act. Discovery of weaknesses in a client's internal control. Correct Effects of a direct financial interest in the client upon the CPA's independence. Effects of a direct financial interest in the client upon the CPA's independence. An audit independence issue might be raised by the auditor's participation in consulting services engagements. Which of the following statements is most consistent with the profession's attitude toward this issue? Information obtained as a result of a consulting services engagement is confidential to that specific engagement and should not influence performance of the attest function. The decision as to loss of independence must be made by the client based on the facts of the particular case. The auditor should not make management decisions for an audit client. The auditor who is asked to review management decisions, is also competent to make these decisions and can do so without loss of independence. The auditor should not make management decisions for an audit client. Jones & Company CPAs has one office. Which of the following is least likely to impair independence with respect to an audit client? The client owes the firm for two prior years' audit fees. A partner in the CPA firm is the son of the president of the client. The wife of a partner in the firm has a small direct financial interest in the client. A partner in the firm has an investment in a mutual fund that has a direct interest in the client. A partner in the firm has an investment in a mutual fund that has a direct interest in the client. Independence is required of a CPA performing: Audits, but not any other professional services. All attestation services, but not other professional services. All attestation and tax services, but not other professional services. All professional services. All attestation services, but not other professional services. An accounting association established a code of ethics for all members. The most likely primary purpose for establishing the code of ethics was to: Outline criteria for professional behavior to maintain standards of competence, morality, honesty, and dignity within the association. Establish standards to follow for effective accounting practice. Provide a framework within which accounting policies could be effectively developed and executed. Outline criteria that can be utilized in conducting interviews of potential new accountants. Outline criteria for professional behavior to maintain standards of competence, morality, honesty, and dignity within the association. Which of the following acts by a CPA would be most likely to be a violation of the AICPA Code of Professional Conduct? Assisting a client in preparing a financial forecast. Forming a professional corporation to practice as a CPA. Accepting a fee in a tax matter relating to an administrative proceeding. A "covered member" owns an immaterial amount of stock in an audit client. A "covered member" owns an immaterial amount of stock in an audit client. If a CPA violates the AICPA Code of Professional Conduct, the AICPA Trial Board may do all of the following, except: Admonish the offending member. Suspend the offending member. Expel the offending member. Revoke the offending member's CPA certificate. Revoke the offending member's CPA certificate. Which of the following family relationships is most likely to impair a CPA's independence with respect to a particular audit client on which the CPA works as a "covered member"? A close relative has a material investment in that client of which the CPA is not aware. A cousin has an immaterial investment in the client of which the CPA is aware. The CPA's father is president of the audit client. The CPA's spouse participates in a savings plan sponsored by the client. The CPA's father is president of the audit client. Which of the following is not a broad category of threat to auditor independence? Familiarity. Safeguards implemented by the client. Financial self interest. Undue Influence. Safeguards implemented by the client. Which of the following is least likely to impair a CPA firm's independence with respect to a nonissuer audit client in the Oklahoma City office of a national CPA firm? A partner in the Oklahoma City office owns an immaterial amount of stock in the client. A partner in the Jersey City office owns 7% of the client's stock. A partner in the Oklahoma City office, who does not work on the audit, previously served as controller for the audit client. A partner in the Chicago office is also the vice president of finance for the audit client. A partner in the Oklahoma City office, who does not work on the audit, previously served as controller for the audit client. Which of the following is not a covered member for an attest engagement under the Independence Rule of the AICPA Code of Professional Conduct? An individual assigned to the attest engagement. A partner in the national office of the firm that performs marketing services. Which of the following is not prohibited by the AICPA Code of Professional Conduct? Advertising in newspapers. Advertising in newspapers. In which of the following situations would a public accounting firm have violated the AICPA Code of Professional Conduct in determining its fee? A fee is based on whether or not the public accounting firm's audit report leads to the approval of the client's application for bank financing. A fee is to be established at a later date by the Bankruptcy Court. A fee is based upon the nature of the engagement rather than upon the actual time spent on the engagement. A fee is based on the fee charged by the client's former auditors. A fee is based on whether or not the public accounting firm's audit report leads to the approval of the client's application for bank financing. A public accounting firm would least likely be considered in violation of the AICPA independence rules in which of the following instances? A partner's checking account, which is fully insured by the Federal Deposit Insurance Corporation, is held at a financial institution for which the public accounting firm performs attest services. A manager of the firm donates services as vice president of a charitable organization that is an audit client of the firm. An attest client owes the firm fees for this and last year's annual engagements. A covered member's dependent son owns stock in an attest client. A partner's checking account, which is fully insured by the Federal Deposit Insurance Corporation, is held at a financial institution for which the public accounting firm performs attest services. Which of the following is implied when a CPA signs the preparer's declaration on a federal income tax return? The return is not misleading based on all information of which the CPA has knowledge. The return is prepared in accordance with generally accepted accounting principles. The CPA has audited the return. The CPA maintained an impartial mental attitude while preparing the return. The return is not misleading based on all information of which the CPA has knowledge. The AICPA Code of Professional Conduct states that a CPA shall not disclose any confidential information obtained in the course of a professional engagement except with the consent of the client. This rule may preclude a CPA from responding to an inquiry made by: An investigative body of a state CPA society. A CPA-shareholder of the client corporation. Which of the following is most likely to be a violation of the AICPA rules of conduct by Bill Jones, a sole practitioner with no other employees? Jones performs consulting services for a percentage of the client's savings; these are the only services provided for the client. Jones names his firm Jones and Smith, CPAs. Jones advertises the services he provides in an Internet set of telephone "yellow pages." Jones, without client consent, makes available working papers for purposes of a peer review of his practice. Jones names his firm Jones and Smith, CPAs. Bill Adams, CPA, accepted the audit engagement of Kelly Company. During the audit, Adams became aware of his lack of competence required for the engagement. What should Adams do? Disclaim an opinion. Suggest that Kelly Company engage another CPA to perform the audit. Which of the following nonattest services may be performed by the auditors of a public company? Internal audit outsourcing. Preparation of the company's tax return. In providing nonattest services to an attest client, a CPA is allowed to perform which of the following functions? Maintaining custody of the client's securities. Training client employees. The Compliance with Standard Rule requires CPAs to adhere to all of the following applicable standards, except: Statements on Standards for Consulting Services. Statements on Auditing Standards. Statements on Standards for Attestation Engagements. Statements on Responsibilities for Assurance Services. Statements on Responsibilities for Assurance Services. Which of the following provisions is not included in The Institute of Internal Auditors Code of Ethics? Performance of work with honesty, diligence, and responsibility. Prudence in the use and protection of information acquired in the course of their duties. Use of appropriate sampling methods to select areas for audit. Continual improvement in proficiency and effectiveness and the quality of services provided. Use of appropriate sampling methods to select areas for audit. A CPA ethically could: perform an audit of Tombstone, Arizona for less than 1/2 of normal audit billing rates. base her audit fee on the proceeds of her client's stock issue. own preferred stock in a corporation that is an audit client. perform a review on a contingent fee basis. perform an audit of Tombstone, Arizona for less than 1/2 of normal audit billing rates. The Code of Professional Conduct requires independence for all: audit and other accounting engagements. financial statement audits. Which of the following is (are) required when a CPA is performing only consulting services for a client? Independence Objectivity No, Yes Current auditing standards do not allow which of the following types of loans from a financial institution audit client? Credit card loans up to a specified limit. Home mortgage loans. A professional corporation form of organization: may ultimately decrease liability of all partners of a CPA firm. offers certain tax advantages as compared to partnerships. eliminates personal liability for selected partners. has similar liability requirements to that of a limited liability company form. offers certain tax advantages as compared to partnerships. In which of the following circumstances is it most likely that a CPA has violated the Code of Professional Conduct? He has placed an ad in a newspaper in which he compares his audit firm personnel's experience with that of the personnel of several competing firms. He has started an audit of a nonissuer (nonpublic company) for which last year's fees have not yet been received. He audits a company in which he previously owned stock. He serves as trustee of an audit client's profit-sharing trust. He serves as trustee of an audit client's profit-sharing trust. The AICPA Code of Professional Conduct: does not apply to CPAs who function as tax advisors only. does not apply to CPAs whose work is limited to consulting services. does not apply to CPAs who hold positions below the rank of partner, manager, or senior in a national CPA firm. applies to all of the above categories. applies to all of the above categories. Mavis, CPA, has audited the financial statements of South Bay Sales Incorporated for several years and had always been paid promptly for services rendered. Last year's audit invoices have not been paid because South Bay is experiencing cash flow difficulties, and the current year's audit is scheduled to commence in one week. With respect to the past-due audit fees, Mavis should: perform the scheduled audit and allow South Bay to pay when the cash flow difficulties are alleviated. perform the scheduled audit only after arranging a definite payment schedule and securing notes signed by South Bay. inform South Bay's management that the past-due audit fees are considered an impairment of auditor independence; therefore, it must be paid prior to the issuance of the auditors' report. inform South Bay's management that the past-due audit fees may be considered a loan on which interest must be imputed for financial statement purposes. inform South Bay's management that the past-due audit fees are considered an impairment of auditor independence; therefore, it must be paid prior to the issuance of the auditors' report. Which of the following individuals is least likely to be considered a covered member by the independence standard? Staff assistant who works on the audit. Manager who does not work on the audit. For a CPA firm with one office, which of the following individuals is most likely to impair the firm's independence with respect to an audit client? A partner owns 50 shares of stock in the client (the total value is immaterial to both the partner and to the audit client). A manager on the audit has a cousin who has a summer internship with the audit client. The partner in charge of the firm does not work on the audit client, but does provide input into remuneration decisions for all partners and professionals involved with the audit. A friend of a staff member who does not work on the audit owns approximately 10 percent of the client's outstanding stock. A partner owns 50 shares of stock in the client (the total value is immaterial to both the partner and to the audit client). In which of the following circumstances would a CPA be bound by ethics to refrain from disclosing any confidential information obtained during the course of a professional engagement? The CPA is issued a summons enforceable by a court order that orders the CPA to present confidential information. A major stockholder of a client company seeks accounting information from the CPA after management declined to disclose the requested information. Confidential client information is made available as part of a quality review of the CPA's practice by a review team authorized by the AICPA. An inquiry by a disciplinary body of a state CPA society requests confidential client information. A major stockholder of a client company seeks accounting information from the CPA after management declined to disclose the requested information. Mary Troutt, CPA, has been asked by an audit client to prepare income tax returns and serve as a tax advisor. She is obliged to maintain the same standards of objectivity and freedom from bias in tax work as in auditing. She may accept a fee for her tax services in the form of shares of common stock in the client company without impairing her independence as an auditor. She could properly agree to a combined fee for her audit and tax work based on a percentage of the client's after tax income. She would be free to resolve questionable issues in favor of the client in preparing the tax return. She would be free to resolve questionable issues in favor of the client in preparing the tax return. Which of the following fee arrangements for an audit would constitute a violation of the AICPA Code of Professional Conduct? A fixed fee. A fee that is computed as a percentage of audited net income. Advertising by CPAs: is presently prohibited by the Code of Professional Conduct. is permissible as long as it is not false, misleading, or deceptive. may include statements that the CPA is able to influence decisions by tax courts and other official bodies as long as names of officials are not used. must not mention fees for services. is permissible as long as it is not false, misleading, or deceptive. Which of the following is most likely to violate the AICPA Code of Professional Conduct?Which of the following is most likely to violate the AICPA Code of Professional Conduct? Issuing the current year audit report when fees for the past year audit remain uncollected.
Which of the following is prohibited by the AICPA Code of Professional Conduct?The AICPA Code of Professional Conduct prohibits direct solicitation of clients by CPAs.
Which of the following fee arrangements is in violation of the AICPA Code of Professional Conduct?Which of the following fee arrangements for an audit would constitute a violation of the AICPA Code of Professional Conduct? A fixed fee. A fee that is based on the number of hours spent on the engagement.
What are the 7 threats in the AICPA Code of Professional Conduct?Paragraphs . 12–. 18 of the framework identify the following threats to independence: adverse interest, advocacy, familiarity, management participation, self-interest, self-review and undue influence.
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Which of the following is most likely to violate the aicpa code of professional conduct quizlet?
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