Chapter 4 Professional Ethics
Review Questions The six core ethical values described by the Josephson Institute are: 1. Trustworthiness 2. Respect 3. Responsibility 4. Fairness 5. Caring 6. Citizenship
There are many other potential sources of ethical values, including laws and regulations, church doctrines, codes of professional ethics, and individual organizations’ codes of conduct. 4-2 An ethical dilemma is a situation that a person faces in which a decision must be made about the appropriate behavior. There are many possible ethical dilemmas that one can face, such as finding a wallet containing money, or dealing with a supervisor who asks you to work hours without recording them. An ethical dilemma can be resolved using the six-step approach outlined on p. 80 of the text. The six steps are: 1. 2. 3. 4. 5. 6. Obtain the relevant facts. Identify the ethical issues from the facts. Determine who is affected by the outcome of the dilemma and how each person or group is affected. Identify the alternatives available to the person who must resolve the dilemma. Identify the likely consequence of each alternative. Decide the appropriate action.
4-3 There is a special need for ethical behavior by professionals to maintain public confidence in the profession, and in the services provided by members of that profession. The ethical requirements for CPAs are similar to the ethical requirements of other professions. All professionals are expected to be competent, perform services with due professional care, and recognize their responsibility to clients. The major difference between other professional groups and CPAs is independence. Because CPAs have a responsibility to financial statement users, it is essential that auditors be independent in fact and appearance. Most other professionals, such as attorneys, are expected to be an advocate for their clients.
4-4 PART 1. Principles of Professional Conduct Rules of conduct Interpretation of the rules of conduct 1. PURPOSE Provide ideal standards of ethical conduct and help practitioners understand the ideal conduct of a CPA. Provide minimum standards of ethical conduct stated as specific rules. Provide formal interpretations of the rules of conduct to answer questions that frequently arise about the rules of conduct. Provide more detailed guidance to practitioners about interpretation of the rules of conduct for less commonly raised questions.
4-5 Independence in fact exists when the auditor is actually able to maintain an unbiased attitude throughout the audit, whereas independence in appearance is dependent on others' interpretation of this independence and hence their faith in the auditor. Activities which may not affect independence in fact, but which are likely to affect independence in appearance are: (Notice that the first two are violations of the Code of Professional Conduct.) 1. 2. 3. 4. 5. Ownership of a financial interest in the audited client. Directorship or officer of an audit client. Performance of management advisory or bookkeeping or accounting services and audits for the same company. Dependence upon a client for a large percentage of audit fees. Engagement of the CPA and payment of audit fees by management.
4-6 Independence in auditing means taking an unbiased viewpoint. Users of financial statements would be unlikely to rely on the statements if they believed auditors were biased in issuing audit opinions. 4-7 Auditors of public companies are prohibited from performing the following nonaudit services: 1. 2. 3. 4. 5. 6. Bookkeeping and other accounting services Financial information systems design and implementation Appraisal or valuation services Actuarial services Internal audit outsourcing Management or human resource functions
4-7 (continued) 7. 8. 9. Broker or dealer or investment adviser, or investment banker services Legal and expert services unrelated to the audit...
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