Professional Documents
Culture Documents
Chapter 4
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Learning Objective 1
Distinguish ethical from unethical
behavior in personal and
professional contexts.
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Illustrative Prescribed
Ethical Principles
Trustworthiness
Respect
Responsibility
Fairness
Caring
Citizenship
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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.
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A Person Chooses to
Act Selfishly Example
Person B faces the same situation but
responds differently.
He keeps the money but leaves the briefcase.
He tells nobody and spends the money.
He has violated his own ethical standards
and chose to act selfishly.
2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley
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Learning Objective 2
Resolve ethical dilemmas using
an ethical framework.
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Ethical Dilemmas
An ethical dilemma is a situation a person
faces in which a decision must be made
about appropriate behavior.
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Rationalizing
Unethical Behavior
Everybody does it
If its legal, its ethical
Likelihood of discovery and consequences
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Relevant Facts
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.
2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley
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Ethical Issue
Is it ethical for the staff person to work hours and
not record them as hours worked in this situation?
Who is affected?
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Learning Objective 3
Explain the importance of ethical
conduct for the accounting
profession.
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Quality control
GAAS and
interpretations
Continuing
education
requirements
Conduct of
CPA firm
personnel
Legal liability
AICPA
practice and
quality centers
Peer review
PCAOB
and SEC
Code of
Professional
Conduct
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Learning Objective 4
Describe the purpose and
content of the AICPA
Code of Professional Conduct.
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Rules of
conduct
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Ethical
rulings
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Ethical Principles
1. Responsibilities:
Professionals should exercise sensitive and
moral judgments in all their activities.
2. The public interest:
Members should accept the obligation to act
in a way that will serve and honor the public.
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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.
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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.
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Standards of Conduct
Ideal conduct
by practitioners
Principles
Minimum level
of conduct by
practitioners
Rules of
conduct
Substandard
conduct
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Learning Objective 5
Understand Sarbanes-Oxley Act
and other SEC and PCAOB
independence requirements
and additional factors that
influence auditor independence.
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Independence
The value of auditing depends heavily
on the publics perception of the
independence of auditors.
Independence in fact
Independence in appearance
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Audit Committees
An audit committee is a selected number
of members of a companys board of directors
whose responsibilities include helping
auditors remain independent of management.
Most audit committees are made up of three
to five or sometimes as many as seven
directors who are not a part of company
management.
2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley
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Audit Committees
The Sarbanes-Oxley Act requires that all
members of the audit committee
be independent.
Companies must disclose whether or not
the audit committee includes at least
one financial expert.
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Partner Rotation
The Sarbanes-Oxley Act requires that
the lead and concurring audit partner
rotate off the audit engagement
after a period of five years.
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Ownership Interests
SEC rules on financial relationships
take an engagement perspective.
SEC rules prohibit ownership in
audit clients by those persons
who can influence the audit.
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Other Issues
Shopping for accounting principles
Engagement and payment of
audit fees by management
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Learning Objective 6
Apply the AICPA Code rules and
interpretations on independence
and explain their importance.
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Rules of Conduct
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.
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Financial Interests
Interpretations of Rule 101 prohibit
covered members from owning any
direct investments in audit clients.
Covered members
Direct versus indirect financial interest
Material or immaterial
2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley
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Related Financial
Interests Issues
Former practitioners
Normal lending procedures
Financial interests and employment
of immediate and close family members
Joint investor or investee relationship
with client
Director, officer, management,
or employee of a company
2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley
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Learning Objective 7
Understand the requirements of
other rules under the AICPA Code.
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Learning Objective 8
Describe the enforcement
mechanisms for the rules
of conduct.
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Enforcement
Action by AICPA Professional Ethics Division
Action by a state Board of Accountancy
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End of Chapter 4
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