Professional Ethics

1
Professional Ethics

• Module B

2
Moral

• Relating to, dealing with, or capable of making
  the distinction between, right and wrong in
  conduct. (Websters Dictionary)

3
Ethics

• the study of standards of conduct and moral
  judgment moral philosophy. (Websters
  Dictionary)

4
Profession

• A vocation or occupation requiring advanced
  education and training, and involving
  intellectual skills, as medicine, law, theology,
  engineering, teaching, etc. (Websters
  Dictionary)

5
Ethical Theories

• Imperative Principle
• act in accordance with a rule (Kant).
• Principle of Utilitarianism
• balance of good over evil, consequences
• Generalization Argument
• What would happen if everyone acted this way?

6
Independence Standards

• AICPA
• Professional Ethics Executive Committee
• Independence Standards Board (in the SEC Practice
  Section of the AICPA)
• SEC
• Note that the Sarbanes-Oxley Act of 2002 is
  changing the rules.

7
AICPA Code of Professional Conduct

• Module B

8
Authority

• The Code derives its authority from the bylaws of
  the AICPA
• Enforcement
• Joint Ethics Enforcement Program
• Penalties
• Membership terminated or suspended
• Complete CPE and/or practice review
• Warnings or no action

9
AICPA Code Sections

• Principles of Professional Conduct
• Rules of Conduct
• Interpretations of the Rules
• Ethics Rulings

10
Rule 101 Independence

• A member in public practice shall be independent
  in the performance of professional services as
  required by standards promulgated by bodies
  designated by Council.

11
Independence shall be impaired if during the
engagement a member

• Had or was committed to acquire any direct or
  material indirect interest in the client.
• Was a trustee or executor as above.
• Had jointly held investment, (material)
• Had a loan except as permitted

12
Independence impaired if during F.S. period or
engagement he/she

• Was a promoter, underwriter, trustee, director,
  or officer
• Was a trustee for any pension or profit sharing
  trust of the enterprise

13
Independence Issues

• Former practitioner and firm independence
• Accounting services
• client must accept responsibility for F.S.
• Member cannot assume role of management or
  employee of the organization
• Member must comply with all standards
• Honorary directorships and trusteeships of
  not-for-profit organizations

14
Independence Issues

• Loans from financial institution clients
• Permitted
• Auto loans collateralized by automobile
• Surrender value under life insurance policy
• Borrowings fully collateralized by cash deposits
  at same institution
• Credit cards with balance less than 5,000
• Grandfathered (prior to January 1, 1992)
• Home mortgages and other secured loans
• Loans immaterial to members net worth

15
Independence Issues

• Litigation between client and member

16
Rule 102 Integrity and Objectivity

• In the performance of any professional service,
  a member shall maintain objectivity and
  integrity, shall be free of conflict of interest,
  and shall not knowingly misrepresent facts of
  subordinate his or her judgment to others.

17
Rule 102 Integrity and Objectivity

• Objectivity
• Without bias
• Integrity
• Of sound moral principle, upright, honest,
  sincere.
• Free of Conflicts of Interest
• Not knowingly misrepresent facts
• Not subordinate judgement to others

18
Rule 201 General Standards

• A member shall comply with the following
  standards and with any interpretations thereof by
  bodies designated by Council.
• A. Professional Competence
• B. Due Professional Care
• C. Planning and Supervision
• D. Sufficient Relevant Data

19
Rule 202 Compliance With Standards

• A member who performs auditing, review,
  compilation, management consulting, tax or other
  professional services shall comply with standards
  promulgated by bodies designated by Council.

20
Bodies Designated By Council

• FASB
• GASB
• AICPA Committees and Boards
• Accounting and Review Services Committee
• Auditing Standards Board
• Management Advisory Services Executive Committee

21
Rule 203 Accounting Principles

• GAAP must be followed by client
• Exception Rule 203 Opinion for departures from
  GAAP when auditor agrees

22
Rule 301 Confidential Client Information

• Cannot disclose confidential information without
  specific consent of client.

23
Rule 302 Contingent Fees

• Cannot receive contingent fees from audit,
  review, examination, or compilation engagements.
• Cannot receive contingent fees on tax return
  preparation.

24
ET Section 400 Responsibilities to Colleagues

• Reserved.

25
Rule 501 Acts Discreditable

• Retention of client records
• Discrimination in employment
• Failure to follow standards in Government
  audits
• Negligence in preparation of FS or records
• Failure to follow Government requirements
• Disclosure of CPA Exam questions

26
Rule 502 Advertising

• False, Misleading, or Deceptive Acts
• Engagements obtained through others

27
Rule 503 Commissions and Referral Fees

• Prohibited from audit clients
• Disclosure required for other clients

28
Rule 504

• Deleted.

29
Rule 505 Form of Org. Name

• As permitted by State Law Council.
• Misleading names
• two year wording has been deleted.
• Members of the AICPA