ACC 411 Lecture 4: 4

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12 Feb 2017
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Auditing Lecture Notes-
Chapter Four
Professional Ethics
15e
Opening Vignette Discussion-
Auditor wants to buy stock in his own successful client! Not allowed. Great privacy with
the client.
Discussion Topic
Staff accountant is told by a senior not to record time worked Eating Time; to keep it
within the budget. Knowing you worked, not recording the time. Bad all the way around.
Bad for the same company at your CPA firm that you are trying to protect. Reason is off-
budget for the upcoming year. Does the CPA firm know how to bill more?? What is the
typical cause of eating time? –yourself. Don’t want to feel like you are underperforming.
Self-conflicted. Externally pushed upon you. Ethical issues.
Discussion Topic
Signing off on uncompleted procedures should be instant dismissal
Tick mark all the way to 18 files, and assume the rest. Don’t ever do it. This can come
back and get you fired easily.
Code of Professional Conduct
Establishes right and wrong behavior for CPA’s. tell why is it wrong or right
Why is it needed? To control actions, behaviors of member for good of society; help us to
be better. Try to remove some of the grey, fuzzy area. Societal expectation. (Grey Area)
What makes a CPA a professional? Holding self to high standard than society requires
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Earning 150 credits and grant CPA does not make you professionals. Things you done
will make you internally professional.
So, once again, why is it needed?
Most financial statement users do not fully understand professional services due
to their complexity, so they rely on professionals (CPA’s) to ensure everything is
operating properly.
“Not everyone can analyze financial statements, but they can look at an
unmodified opinion report and assume the auditor could”
4 Parts of AICPA Code of Professional Conduct:
1. Principle not enforceable. Ideal standards of ethical conduct stated in philosophical
terms
2. Rules of conduct enforceable. Minimum standards of ethical conduct stated as
specific rules
3. Interpretations of the rules of conduct not enforceable, justify departure.
Interpretation of the rules of conduct by the AICPA division of professional ethics.
4. Ethical rulings not enforceable, justify departure. Published explanations and
answers to the questions about the rules of conduct submitted to the AICPA by
practitioners and others interested in ethical requirements.
(Look at Figure 4-1……. pg. 85 )
Principles of Professional Conduct
(Table 4-2……pg. 86)
Must know all six
*responsibility carrying out professional responsibility, member should exercise
sensitive professionalism and moral judgement
*the public interest - act in public interest, honor public trust, demonstrate commitment
to professionalism
*integrity maintain and broaden public confidence, exercise responsibility with high
level of integrity
*objectivity and independence maintain objectivity when discharging professional
responsibility/maintain independent in fact and appearance in all aspects when providing
professional service
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*due care observe profession’s technical and ethical standards, improve competence,
quality of services and discharge professional service to the best of their ability
*scope and nature of service a member in public practice, observe principle of
professional code of conduct, determine scope and nature of service to provide
Must Know the Basic Threats to Compliance of the Code of Professional Conduct.
(Table 4-3…..p. 87)
Must know all seven
*adverse interest member not act with objectivity, b/c they have opposite interest of
client
*advocacy independence and objectivity has compromised, promote client’s interest
*familiarity due to long and close relationship, member became too sympathetic to
client’s interest
*management participation threats that member will take on management
responsibility of the client
*self-interest member will have direct benefit and financial interest related with client.
Violate independence
*self-review review the service previous worked and judgement performed which
service in forming part to form judgment to another service
*undue influence client’s reputation/expertise and aggressive personality exercise
excessive influence over the member
Rules of Conduct - they are enforceable. Focus.
(Look at Table 4-4……..pg. 104) remember everything; understand the basics of the rule.
Be very familiar and spend more time with it.
Rule 200 is so large, complex, and important, this will be the primary focus of this
class………but do not underestimate the importance of the other rules.
You must understand the meaning of “all” of these rules.
Organizations that Support these rules
AICPA
State Society’s of CPA’s
State Board of Accountancy
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