Chapter 3 - Professional Ethics and Legal Liability Flashcards
What is a professional according to the Center for Study of Professional Ethics?
A member of an occupation group who:
- Sees other members, including those employed elsewhere, as peers / colleagues.
- Exercises judgement when performing specialized tasks and following relevant professional standards.
- Accepts the professions agreement to work in a morally permissible way (set out in the professions code of conduct) as an obligation of their role.
What are ethics?
A set of moral principles or values that guide us on how we should act in certain situations.
What are professional ethics?
Morally acceptable standards of conduct that apply to members of a particular profession.
What are the five fundamental principles that guide the ethical behaviour of Professional Accountants?
- Professional Behavior
- Professional competence and due care
- Confidentiality
- Objectivity
- Integrity.
What is professional behaviour?
To comply with relevant laws and regulations. Avoid conduct that a public accountant knows or should know could discredit the profession.
What is integrity?
To be straightforward, honest, and fair in all professional relationships.
What is objectivity?
Do not compromise professional judgement or business judgement due to bias, conflict of interest, or undue influence of others.
What is professional competence?
To maintain professional skill and competence to provide professional services in accordance with current technical and professional standards.
What is due care?
Act diligently, in accordance with technical and professional standards, when providing professional services.
What is confidentiality?
To respect the information acquired through business relationships, employment, or professional and to not disclose to any third party without specific authority or caused, such to avoid the exploitation of information for personal use or third parties.
What is an Ethical Dilemma?
A situation where a decision must be made about the appropriate behaviour. They are rarely black and white.
What does it mean to behave ethically?
- Avoid harm to people, organizations, or other stakeholders.
- Be viewed as right or good.
What are the steps in the ethical decision making framework?
- Gather relevant facts and identify the problem.
- Identify fundamental principles involved.
- Identify the ethical issues involved.
- Identify the relevant parties.
- Consider and evaluate courses of action
- Determine the course of action to take.
What steps should be taken if the dilemma cannot be resolved?
Consult with other appropriate persons within the firm in obtaining a resolution.
What are the three key questions when resolving an ethical dilemma?
- What fundamental principles are affected?
- What would be your key consideration in your approach to resolving the dilemma?
- What course of action would you take to resolve the dilemma.
What three things makes ethical decisions challenging?
- Recognizing you are faced with an ethical issue.
- Deciding which values matter the most to you.
- Putting the ethical decision into action, called moral courage.
What must the ethical reasoning process consist of for CPA’s?
- Professions values and standards
- Stakeholder focus
- Adheres to laws
- Firms policies
What are constraints to evaluating alternatives?
- Ethical constraints
- Organizational policies.
- Applicable laws and regulations
- Rules of professional conduct.
- Universal values and principles.
Describe considering the consequences of each alternative.
It is essential to evaluate both eh long term and short term effects, and while the long term effects may be difficult to visualize, it should be considered in a broad context from time perspective and various stakeholder perspectives. There is a tendency to hyper focus on the short term consequences, as the consequences will happen quickly.
Describe potential rationalizations.
While there are many different ways to resolve an ethical dilemma, one must attempt to avoid rationalizing unethical behaviour. DO not attempt to justify it and ignore the ethical issue.
What are the two tests that assess the appropriateness of a course of action. What do these two tests mean?
- Universal test - Would a similar action be taken in a similar situation?
- Peer Test - Would the action stand up to the scrutiny of people?
What is the harms test?
Would this option do less harm than any other alternative?
What is the rights test?
Would this option violate anyone’s rights, especially a human right.
What is the publicity test?
Would I want my choice published in the newspaper?
What is the defensibility test?
Could I defend my choice of this option before a judge, a committee of my peers, or my parents.
What is a virtue test?
What does this say about my character if I choose this option often?
What is the professional test?
What would my provincial accounting body’s disciplinary committee say about this option?
What is the colleague test?
What would my colleagues say when I describe my problem and suggest this option as my solution.
What is the firm test
- What would the firms quality control partner or legal counsel say about this
What is ethical blind spot?
unconscious judgemental tendencies that can hinder the ethical decision making process or cause the decision maker to fail to recognize the ethical dimension of a choice.
Why are ethical blindspots worse than rationalizations?
The decision maker is unaware of the blind spot and it can stop them from recognizing an ethical dilemma to begin with.
According to Max Bozeman and Ann Tenbrunsel, why does unethical behaviour occur?
People are unconsciously fooling themselves, which is an ethical blindspot.
What is ethical fading? Describe.
Eliminates ethics from the decision. For example, if we frame an issue as law vs financial costs, the concerns of other are higher than others. Therefore it is no longer an ethical dilemma, but a legal or economic issue.
What is motivated blindness? Why do many audits fails?
Fail to see our ethical blindspots because we are self interested not to see it. Failures arise due to the auditors having a strong bias to their clients interest, thus not seeing an ethical dilemma.
Who determines the rules of professional conduct? What have the provincial bodies done with regard to these rules?
The provincial accounting bodies determine the rules of professional conduct for members and students. Harmonize them such that the rules applies to all public accountants in Canada.
What is the professional code of conduct based on? Explain
Compliance and principles. The code will indicate to follow the ethical decision making framework to resolve a conflict by applying the fundamental ethical principles or if there is a specific rule abide by the code.
What is the advantage of compliance based approach?
Accounting body can enforce minimum behaviour and performance standards,.
What are the disadvantages of the compliance based approach? What does the code emphasize?
- The tendency of some practitioners to define the rules as a maximum rather than a minimum.
- Practitioners may view the code as the law and conclude that if some action is not prohibited, it must be legal.
The broader principles and values of the profession must be considered when deciding on whether a particular action is acceptable or not.
What is section 200 of the code of professional conduct?
The standards of conduct that ensure the protection of the public interest and maintenance of the professions reputation.
What is rule 201 of the code of conduct? What are three some aspects of the rule?
Maintenance of good reputation of the profession.
- Members behave in the best interest of their profession and the public interest, do not take advantage.
- An accountant should not be publicly critical of a colleague (to the body or client) without allowing them to explain their actions first.
- Do not resign from an engagement underway without good reason
What are some reasons that an auditor may resign from an engagement while it is underway?
- Auditor losses confidence in the client.
- Situations where the auditors independence or objectivity could be reasonably question
- Client pressures auditor to perform illegal, unjust, or fraudulent acts.
What is section 202 of the professional code of conduct?
Integrity, due care, and objectivity.
In accordance to the code, what is the difference between objectivity and independence?
Objectivity is a state of mind, whereas independence is a state of mind and the appearance of independence
What is a reasonable observer?
A hypothetical individual who has the knowledge of the facts which the member of the firm knew or ought to have known, and who applies judgement objectively with integrity and care.
What is rule 203?
Professional competence
Describe professional competence?
- The need to have adequate training and technical competence
- Keep up with the latest techniques and methodologies
- Attend a certain number of courses for continuing professional education
- Knowledge of the business, industry, and technical aspects.
What is rule 204? What does it mean?
Independence. Any public accountant who engages in an audit engagement must be free of bias, interest, influence, or relationships that can impede professional judgement and objectivity.
What is independence? What are the two dimensions of independence?
Impartiality in performing professional services. Independence in fact and appearance.
What is independence in fact?
The auditors ability to take an unbiased viewpoint in the performance of professional services.
What is independence in appearance? Why is this important?
The auditors appearance of being unbiased from the viewpoint of others. If they have an unbiased attitude when performing it, but the client does not see them as unbiased, than the audit function fails.
What is rule 205? What does this mean?
False and misleading documents and oral representations. No members can sign off or associate with documents that mislead or fail to reveal material omissions. Public accountants may lose faith if info is withheld, and users of the statement must have all available information.
What is rule 206? What does it mean?
Compliance with the professional standards. Comply with the professional standards when auditing financial statements. Particularly the GAAS and accounting standards.
What is rule 208? Describe it.
Confidentiality of information. Management provides auditors with lots of confidential information like salaries, product costing, advertising, etc. Thus you must speak of any financial data to outsiders or client employees who are not permitted to have this info, as it can cause harm.
What is rule 208.1?
It explains the disclosure of confidential information. Under normal circumstances, this data must not be shared with anyone, both past and present clients.
What situations under rule 208.1 can information be disclosed?
- Carrying out their professional duties.
- Lawfully required or allowed to do so.
- Defendant in a legal proceeding, defending against professional misconduct complaints, and plaintiff to recover professional fees.
- Past or current client / employer provides permission.
Describe the treatment of confidentiality rules with working paper.
The working paper may only be provided to some else if the client permits it. Even if one firms gets bought out by another, or a successor auditor takes place, the client must permit the new individual to look at it.
When can confidentiality rules of working papers be broken?
They are subpoenaed by a court, used as part of a practice inspection, or in connection with a disciplinary hearing. However, you must inform the client immediately if it is a subpoena.
What is rule 208.2?
Concerns the use of confidential information, both of past and current clients without their consent, for the advantage of the auditor, a third party, or to disadvantage the client of the employer.
What is rule 208.3?
Requires the members to take appropriate measures to protect the confidential information of present and former clients and employers. Protect the confidential information such that it is only accessible to those for a legitimate purpose. If using the cloud ensure that the standards are set and can protect the information.
