Auditing Ethics Flashcards
AICPA Code of Professional Conduct: applicability
Applies to all members of AICPA when performing all professional services/responsibilities, not just auditing
If a member departs from Code, the burden of proof is on that CPA to justify the departure
AICPA Code of Professional Conduct: Article I - Responsibilities
In carrying out their responsibilities, as professionals, members should exercise sensitive, professional, and moral judgement.
AICPA Code of Professional Conduct: Article II - Public Interest
Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism.
AICPA Code of Professional Conduct: Article III - Integrity
To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.
- honesty
- fair dealings
AICPA Code of Professional Conduct: Article IV - Objectivity and Independence
A member CPA should maintain objectivity and be free of conflicts of interest (in fact and appearance)
A member in public practice who provides any assurance on financial information should be independent of the client
audit - provide reasonable positive assurance
review - provide limited assurance
compilation - provide no assurance (independence not required)
AICPA Code of Professional Conduct: Article V - Due Care
A member should exercise due professional care for any service
- act as a reasonably prudent, knowledgable CPA would act under similar circumstances
- no negligence
AICPA Code of Professional Conduct: Article VI - Scope/Nature of Services
A member in public practice should observe the principles of the AICPA’s Code of Professional Conduct in defining the scope and nature of any professional service.
The Rules
Clarify and amplify the articles
Rule 101
During the professional engagement:
CPA cannot, in the client, have:
- ANY direct financial interest
- be committed to acquire ANY direct financial interest
- have a material indirect financial interest
CPA was trustee or executor of estate that had or was committed to acquire any direct or material indirect financial interest in client, NOT INDEPENDENT
CPA had a material, jointly-held business investment with client, officer, shareholders holding 10%, independence is gone.
CPA had any loan to or from client, officer, shareholders holding 10%, independence is gone.
CPA’s immediate family (spouse, spousal equivalent, dependent (whether related or not) is subject to Rule 101.
Close relative (parent, sibling, nondependent child) has a key management position with client, or material financial interest in client, CPA is not independent
CPA cannot serve in any decision-making function of client or be involved in material litigation/threatened litigation
Mutual Fund Rule of Thumb
If CPA owns 5% of less of a diversified mutual fund, not material… still independent
(not be material to CPA’s net worth)
If CPA owns ANY shares in a NONDIVERSIFIED mutual fund, NOT INDEPENDENT
Rule 102
Integrity and Objectivity
Maintain objectivity (no conflicts of interest); integrity (honesty and fair dealings)
Rule 201
General Standards -in performance of any professional service, a CPA shall:
Exercise due professional care:
-no negligence
-adequately plan the engagement
-supervise all engagement work
Rule 301
Confidential Client Information
A member in public practice cannot disclose any confidential client information without the specific consent of the client
Exceptions:
- in response to subpoena
- comply with laws and regulations
- professional practice review
Rule 302
Contingent Fees
CPA cannot charge a fee based on
- a particular opinion or report (results) (even on compilation given to third party)
- tax return (can charge for complexity)
- examination of prospective financial information
Rule 501
Acts Discreditable
A member shall not commit an act discreditable to the entire profession
- Retention of client records
- Solicitation or disclosure of CPA exam questions or answers
