Chapter 4 Flashcards
What are ethics?
Ethics can be defined broadly as a set of moral principles or values.
What are unethical behavior?
Behavior as conduct that differs from what they believes is inappropriate.
What are the two reasons why people act unethically?
- The person’s ethical standards differ from general society’s.
- The person chooses to act selfishly.
What does the term professional mean?
The term implies a responsibility for conduct that extends beyond satisfying individual responsibilities and beyond the requirement of our society’s laws and regulations.
An ethical dilemma means what?
A situation a person faces in which a decision must be made about appropriate behavior.
What are the 4 common excuses for unethical behavior:
- Everyone does it.
- If it’s legal, it’s ethical.
- Likelihood of discovery and consequences (not getting caught).
- My boss told me to do it.
What are some ways to prevent these unethical behaviors?
- CPA exams
- Legal liability
- Standards
- Peer review
- PCAOB and SEC
The Code of Professional Conduct has what three parts?
- Principles
- Rules
- Interpretations
Principles are about what?
Ideal conduct for practitioners and are not enforceable.
Rules of conduct are about what?
They are rules that are enforceable and the independence rules only applies to attestation services.
Interpretations of Rules of conduct means what?
When there are frequent questions from practitioners concerning a specific rule.
What are the seven categories of threats?
- adverse interest
- advocacy
- familiarity
- management participation
- self-interest
- self-review
- undue influence
What are Audit committees?
special committee formed by the board of directors and made up of board members.
What does Sarbanes-Oxley Act require of audit committees?
That all the members of the audit committee be independent directors, and the committee should include at least one member who is a financial expert
The six principles of professional conducts?
- Responsibilities
- The Public Interest
- Integrity
- Objectivity and Independence
- Due Care
- Scope and Nature of Services.
Independence Rule?
A member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by council.
The two components of Independence?
- Independence of mind
2. Independence in appearance
The most significant interpretations of independence involves what
Financial interests and the code prohibits covered members (any person who is in a position to influence an attest engagement) from owning any stock or other direct investment in audit clients, regardless of materiality.
Examples of other relationships affected by independence.
- Loans, other than normal lending procedures
- Employment of immediate and close family members
- Joint closely held investments with clients
- Director, officer, management, or employee of a company
Sarbanes-Oxley rules for independence (5 total)
- Conflicts arising from employment relationships (e.g., one year “cooling off” period)
- Partner rotation
- Ownership interests
- Shopping for accounting principles (“opinion shopping”)
- Engagement and payment of audit fees by management
Technical Standards (list 3):
- General Standards Rule
- Compliance with Standards Rule
- Accounting Principles Rule
The following can do what to enforce rules of conduct?
- AICPA Professional Ethics Division—Has the authority to suspend or expel a member.
- State Board of Accountancy—Has the authority to rescind the CPA certificate and/or the license to practice.
- PCAOB—Has the authority to investigate and discipline firms and individuals for noncompliance with the Sarbanes-Oxley Act and impose sanctions, including suspension or revocation of the firm’s registration.
