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    Adnan Khurshid Tanoli
    Ethics can be defined broadly as a set of moral principles or values. A person's ethical standards are different from those of society as a whole. Ethical dilemmas are situations a person faces in which a decision must be made.

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    Ehhics

    Uploaded by

    Adnan Khurshid Tanoli
    88 views33 pages
    Ethics can be defined broadly as a set of moral principles or values. A person's ethical standards are different from those of society as a whole. Ethical dilemmas are situations a person faces in which a decision must be made.

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    ehhics

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    Ethics can be defined broadly as a set of moral principles or values. A person's ethical standards are different from those of society as a whole. Ethical dilemmas are situations a person faces in which a decision must be made.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    88 views33 pages

    Ehhics

    Uploaded by

    Adnan Khurshid Tanoli
    Ethics can be defined broadly as a set of moral principles or values. A person's ethical standards are different from those of society as a whole. Ethical dilemmas are situations a person faces in which a decision must be made.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 33

    Professional Ethics Chapter 4

    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley

    4-1

    What are Ethics?


    Ethics can be defined broadly as a set of moral principles or values. Each of us has such a set of values.
    We may or may not have considered them explicitly.

    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley

    4-2

    Why People Act Unethically


    The persons ethical standards are different from those of society as a whole. The person chooses to act selfishly.

    In many instances, both reasons exist.


    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4-3

    A Persons Ethical Standards Differ from General Society


    Embezzlers Con artists Shoplifters

    Most people who commit such acts feel no remorse when they are apprehended because their ethical standards differ from those of society as a whole.

    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley

    4-4

    A Person Chooses to Act Selfishly Example


    Person A finds a briefcase containing important papers and $1,000. He tosses the briefcase and keeps the money.
    He brags to his friends about his good fortune. This action probably differs from most of society.

    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley

    4-5

    Rationalizing Unethical Behavior


    Everybody does it.

    If its legal, its ethical. Likelihood of discovery and consequences


    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4-6

    Ethical Dilemmas
    An ethical dilemma is a situation a person faces in which a decision must be made about appropriate behavior.

    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley

    4-7

    Resolving Ethical Dilemmas


    1. Obtain the relevant facts.

    2. Identify the ethical issues from the facts. 3. Determine who is affected.
    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4-8

    Resolving Ethical Dilemmas


    4. Identify the alternatives available to the person who must resolve the dilemma.

    5. Identify the likely consequence of each alternative. 6. Decide the appropriate action.
    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4-9

    Ethical Dilemma
    A staff person has been informed that he will work hours without recording them as hours worked. Firm policy prohibits this practice.
    Another staff person has stated that this is common practice in the firm.

    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley

    4 - 10

    Resolving the Ethical Dilemma


    Is it ethical for the staff person to work hours and not record them as hours worked in this situation? Who is affected?
    How are they affected? What alternatives does the staff person have?
    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4 - 11

    Other Ethical Dilemmas


    A supervisor asks you to initial certain audit procedures as performed when they were not. You conclude that you cannot be promoted to manager unless you persuade assistants to work hours that they do not record. Management informs you, now a partner, that either the company gets an unqualified opinion for a $40,000 audit fee or the company will change auditors. Management informs you that the audit fee will be increased $25,000 if you can find a plausible way to increase earnings by $1 million.
    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4 - 12

    Special Need for Ethical Conduct in Professions


    Our society has attached a special meaning to the term professional. A professional is expected to conduct himself or herself at a higher level than most other members of society.

    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley

    4 - 13

    CPAs Encouraged to Conduct Themselves at a High Level


    CPA examination GAAS and interpretations

    Conduct of CPA firm personnel Continuing education requirements


    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4 - 14

    CPAs Encouraged to Conduct Themselves at a High Level


    SEC

    Peer review

    Conduct of CPA firm personnel

    Quality control
    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4 - 15

    CPAs Encouraged to Conduct Themselves at a High Level


    Legal liability Division of CPA firms

    Conduct of CPA firm personnel

    Code of Professional Conduct


    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4 - 16

    AICPA Code of Professional Conduct


    Four parts to the Code:
    Principles Interpretation of the rules of conduct Ethical rulings
    4 - 17

    Rules of conduct

    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley

    Code of Professional Conduct


    Ideal standards of ethical Principles conduct in philosophical terms They are not enforceable.
    Rules of conduct Minimum standards of ethical conduct stated as specific rules They are enforceable.
    4 - 18

    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley

    Code of Professional Conduct

    Interpretation of the rules of Interpretation conduct by the AICPA Division of Professional Ethics of the rules of conduct They are not enforceable, but a practitioner must justify departure.

    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley

    4 - 19

    Code of Professional Conduct


    Published explanations and answers to questions about the rules of conduct submitted to the AICPA by practitioners Ethical rulings and others interested in ethical requirements They are not enforceable, but a practitioner must justify departure.

    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley

    4 - 20

    Ethical Principles
    1. Responsibilities
    Professionals should exercise sensitive and moral judgments in all their activities. 2. Public Interest Members should accept the obligation to act in a way that will serve and honor the public.
    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4 - 21

    Ethical Principles
    3. Integrity
    Members should perform all responsibilities with integrity to maintain public confidence. 4. Objectivity and Independence Members should be objective, independent, and free of conflicts of interest.
    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4 - 22

    Ethical Principles
    5. Due Care
    Members should observe the professions standards and strive to improve competence. 6. Scope and Nature of Services A member in public practice should observe the Code of Professional Conduct.
    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4 - 23

    Independence
    Independence means taking an unbiased viewpoint in performing audit tests. Independence in fact
    Independence in appearance

    Other sources of independence include:


    SEC (revised in 2000), Sarbanes-Oxley Act 2002, Independence Standards Board (1997-2001), State Boards of Accountancy (rules of conduct)
    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4 - 24

    Rules of Conduct: Independence


    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.

    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley

    4 - 25

    Interpretations: Financial Interests


    Interpretations of Rule 101 prohibit covered members from owning any direct investments in audit clients. Direct financial interest
    Indirect financial interest Material or immaterial
    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4 - 26

    Related Financial Interests Issues


    Former practitioners (permit) Normal lending procedures (some permitted)
    Financial interest and employment of immediate (prohibited) and close family (permit)

    Joint investor or investee relationship with client (prohibited) Director, officer, management, or employee of a company (prohibited)
    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4 - 27

    Related Financial Interests Issues


    A lawsuit or intent to start a lawsuit between a CPA firm and its client is a violation of Rule 101 for the current audit. The interpretations permit a CPA firm to do both bookkeeping and auditing for the same client. The SEC prohibits performing bookkeeping and auditing services by the same CPA firm.
    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4 - 28

    Related Financial Interests Issues


    Internal auditing and extended audit services
    (ok if not appear or act as management Or employee)

    Unpaid fees (prohibit)

    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley

    4 - 29

    Rules of Conduct
    101 Independence
    102 Integrity and objectivity 201 General standards 202 Compliance with standards 203 Accounting principles

    301 Confidential client information


    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4 - 30

    Rules of Conduct
    302 Contingent fees
    501 Acts discreditable 502 Advertising and other forms of solicitation 503 Commissions and referral fees 505 Form of organization and name See Table 4-1 for complete definitions
    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4 - 31

    Enforcement
    Action by AICPA Professional Ethics Division

    Action by a State Board of Accountancy Its all a matter of trust.


    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 4 - 32

    End of Chapter 4

    2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley

    4 - 33

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