AEB14_SM_CH05_v1_GE

5-1Chapter5EthicsandtheAuditProfessionReviewQuestions5-1ThesixcoreethicalvaluesdescribedbytheJosephsonInstituteare:1.Trustworthiness4.Fairness2.Respect5.Caring3.Responsibility6.CitizenshipTherearemanyotherpotentialsourcesofethicalvalues,includinglawsandregulations,churchdoctrines,codesofprofessionalethics,andindividualorganizations’codesofconduct.5-2Anethicaldilemmaisasituationthatapersonfacesinwhichadecisionmustbemadeabouttheappropriatebehavior.Therearemanypossibleethicaldilemmasthatonecanface,suchasfindingawalletcontainingmoneyordealingwithasupervisorwhoasksyoutoworkhourswithoutrecordingthem.Anethicaldilemmacanberesolvedusingthesix-stepapproachoutlinedonp.80ofthetext.Thesixstepsare:1.Obtaintherelevantfacts.2.Identifytheethicalissuesfromthefacts.3.Determinewhoisaffectedbytheoutcomeofthedilemmaandhoweachpersonorgroupisaffected.4.Identifythealternativesavailabletothepersonwhomustresolvethedilemma.5.Identifythelikelyconsequenceofeachalternative.6.Decidetheappropriateaction.5-3Thereisaspecialneedforethicalbehaviorbyprofessionalstomaintainpublicconfidenceintheprofession,andintheservicesprovidedbymembersofthatprofession.TheethicalrequirementsforCPAsaresimilartotheethicalrequirementsofotherprofessions.Allprofessionalsareexpectedtobecompetent,performserviceswithdueprofessionalcare,andrecognizetheirresponsibilitytoclients.ThemajordifferencebetweenotherprofessionalgroupsandCPAsisindependence.BecauseCPAshavearesponsibilitytofinancialstatementusers,itisessentialthatauditorsbeindependentinfactandappearance.Mostotherprofessionals,suchasattorneys,areexpectedtobeanadvocatefortheirclients.5-25-4PARTPURPOSE1.PrinciplesofProfessionalConduct1.ProvideidealstandardsofethicalconductandhelppractitionersunderstandtheidealconductofaCPA.2.Rulesofconduct2.Provideminimumstandardsofethicalconductstatedasspecificrules.3.Interpretationoftherulesofconduct3.Provideformalinterpretationsoftherulesofconducttoanswerquestionsthatfrequentlyariseabouttherulesofconduct.4.Ethicalrulings4.Providemoredetailedguidancetopractitionersaboutinterpretationoftherulesofconductforlesscommonlyraisedquestions.5-5Attheinternationallevel,theInternationalEthicsStandardsBoardforAccountants(IESBA)establishesethicalstandardsandguidanceandfostersinternationaldebateonethicalissuesfacedbyaccountantsthroughitsCodeofEthicsforProfessionalAccountants.Thisinternationalethicscodecontainsfivefundamentalprinciplesrelatedtointegrity,objectivity,professionalcompetenceandduecare,confidentiality,andprofessionalbehavior.5-6Independenceofmindexistswhentheauditorisactuallyabletomaintainanunbiasedattitudethroughouttheaudit,whereasindependenceinappearanceisdependentonothers'interpretationofthisindependenceandhencetheirfaithintheauditor.Activitieswhichmaynotaffectindependenceofmind,butwhicharelikelytoaffectindependenceinappearanceare:(NoticethatthefirsttwoareviolationsoftheCodeofProfessionalConduct.)1.Ownershipofafinancialinterestintheauditedclient.2.Directorshiporofficerofanauditclient.3.Performanceofmanagementadvisoryorbookkeepingoraccountingservicesandauditsforthesamecompany.4.Dependenceuponaclientforalargepercentageofauditfees.5.EngagementoftheCPAandpaymentofauditfeesbymanagement.5-7Independenceinauditingmeanstakinganunbiasedviewpoint.Usersoffinancialstatementswouldbeunlikelytorelyonthestatementsiftheybelievedauditorswerebiasedinissuingauditopinions.5-35-8Auditorsofpubliccompaniesareprohibitedfromperformingthefollowingnonauditservices:1.Bookkeepingandotheraccountingservices2.Financialinformationsystemsdesignandimplementation3.Appraisalorvaluationservices4.Actuarialservices5.Internalauditoutsourcing6.Managementorhumanresourcefunctions7.Brokerordealerorinvestmentadviser,orinvestmentbankerservices8.Legalandexpertservicesunrelatedtotheaudit9.AnyotherservicethatthePCAOBdeterminesbyregulationisimpermissibleNonauditservicesthatarenotprohibitedbytheSarbanes–OxleyActandtheSECrulesmustbepre-approvedbythecompany’sauditcommittee.Inaddition,anaccountantisnotindependentofanauditclientifanauditpartnerreceivedcompensationbasedonsellingengagementstothatclientforservicesotherthanaudit,reviewandattestservices.CompaniesarerequiredtodiscloseintheirproxystatementorannualfilingswiththeSECthetotalamountofauditandnonauditfeespaidtotheauditfirmforthetwomostrecentyears.Fourcategoriesoffeesaretobereported:(1)auditfees;(2)audit-relatedfees;(3)taxfees;and(4)allotherfees.Companiesarealsorequiredtoprovidefurtherbreakdownofthe“otherfees”category,andprovidequalitativeinformationonthenatureoftheservicesprovided.5-9Therulesconcerningstockownershipbypartnersandprofessionalstaff:Apartnerintheofficeofthepartnerresponsibleforanauditengagementcannotownstockinthatauditclient.Apartnercanownstockinanauditclient,aslongas(1)heorshecannotinfluencetheauditengagementand(2)heorsheisnotinthesameofficeasthepartnerresponsiblefortheauditengagement.Aprofessionalstaffmembercannotownstockinanauditclientifheorsheisassignedtotheengagementorifheorshebecomesapartnerintheofficeofthepartnerresponsiblefortheauditengagement.Aprofessionalstaffmemb