AFM202 Study Guide - Fall 2018, Comprehensive Midterm Notes - Financial Statement, Audit, Accounting
12 Oct 2018
School
Department
Course
Professor
AFM202
MIDTERM EXAM
STUDY GUIDE
Fall 2018
Enabling Competences - sets accountant apart from a professional accountant
• Professional & ethical behaviour
o Honesty
o Integrity
o Coping with ambiguity and protecting the public interest
• Problem solving & decision making
• Communication
• Self-management
• Teamwork & leadership
CPA Code of Professional Conduct
• Characteristics of a professional
o Intellectual skill
• Responsibility for compliance with the CPA Code
• Fundamental principles governing conduct
• Serving others and the public
o Other is more important than the self
• Acceptance for being governed by professional peers
o You are a member of the institute
o Adhere to the Code of the Professional Conduct
o Institute will discipline wrongdoings
Are Accountants expected to be more ethical than other professions?
• Accountants have a set of
o Moral
o Professional
o Legal responsibilities to society
• Auditors unlike other professionals have a 3 party accountability relationship
o Work for a client
• Client is responsible to the user
o Auditor works to give a conclusion for the user
Five Basic Principles Governing Conduct - Fundamental Principles
1. Professional behaviour (201)
a. Maintain the good reputation of the profession and serve the public interest
b. Avoid illegal acts
i. Can not have a criminal record
2. Integrity and due care (202)
a. Reputation for honesty
b. To the best ability that we have
3. Objectivity (203)
a. Do not allow their professional or business judgement to be compromised by bias, conflict
of interest or the undue influence to others
b. State of mind
c. Quality is not compromised
i. Act in the best interest of others
4. Professional competence (203)
a. Continuing education
find more resources at oneclass.com
find more resources at oneclass.com
i. Courses
ii. Hours of professional development
b. Keeping informed of, and complying with, developments in their area of professional service
c. Not allowed to take in engagements for which you are not competent
5. Confidentiality (208)
a. Protect confidential information
i. Do not disclose information for our own advantage or for a third party
b. May seek legal help if the company is doing something illegal
Three sets of rules
• All accountants
• All auditors
• All auditors for listed companies
Independence (204)
• Member, firm, etc. must remain free of any influence, interest or relationship that impairs the
professional judgement of objectivity
Independence
• Must be independent in fact and appear independent
o Independence in fact is a mental state and is difficult to prove
• How you act in a situation
o Independence in appearance is governed by legislation and rules of professional conduct
• How a third-party views you
Five Threats to Independence
1. Self-review threat
a. When the PA is placed in the position having to audit his or own work
b. PA prepared original data or records for the client as part of a bookkeeping engagement
c. PA designed and implemented an accounting information system used to process client
records
i. Consulting services
d. Not allowed to do any work for a client that we audit
2. Self-interest threat
a. Member has a financial interest in the client or in the financial results of the client
b. Auditor's independence is deemed to be impaired if they borrow from a client
c. Member of the firm owns shares in the client
d. The client fees are significant in relation to the total fee base of the PA or of the firm
3. Advocacy threat
a. When the firm or member is perceived to promote (or actually promotes) the client's
position
i. Seen as getting a bonus
b. PA is acting as an advocate in resolving a dispute with a major creditor of the client
c. Firm or PA is promoting the sale of shares or other securities for the client or is receiving a
commission for such sales
4. Familiarity threat
a. Difficult to behave with skepticism during the engagement
b. Long association of senior staff with the client
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Enabling competences - sets accountant apart from a professional accountant: professional & ethical behaviour, honesty. Integrity: coping with ambiguity and protecting the public interest, problem solving & decision making, communication, teamwork & leadership. Cpa code of professional conduct: characteristics of a professional. Intellectual skill: responsibility for compliance with the cpa code. Serving others and the public: other is more important than the self, acceptance for being governed by professional peers, you are a member of the institute, adhere to the code of the professional conduct. Five basic principles governing conduct - fundamental principles: professional behaviour (201, maintain the good reputation of the profession and serve the public interest, avoid illegal acts. Act in the best interest of others: professional competence (203, continuing education. Hours of professional development: keeping informed of, and complying with, developments in their area of professional service, not allowed to take in engagements for which you are not competent, confidentiality (208, protect confidential information.
