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Chapter 5
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Learning Objective 1
Distinguish ethical from unethical behavior in personal and professional contexts.
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Respect Fairness
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Citizenship
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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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5. Identify the likely consequence of each alternative 6. Decide the appropriate action
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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.
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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?
Learning Objective 3
Explain the importance of ethical conduct for the accounting profession.
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Quality control
Legal liability
Learning Objective 4
Describe the purpose and content of the AICPA Code of Professional Conduct.
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Ethical Principles
1. Responsibilities:
Professionals should exercise sensitive and moral judgments in all their activities.
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.
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Ethical Principles
5. Due care:
Members should observe the professions standards and strive to improve competence.
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Standards of Conduct
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Establishes five Describes how framework applies fundamental in certain situations principles Evaluate and Accountants in eliminate threats public practice Accountants in business
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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 AICPA and IESBA codes of ethics both define independence as consisting of two components Independence of mind
Independence in appearance
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Audit Committees
A selected number of members of a companys board who help auditors remain independent.
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Audit Committees
All members must be independent.
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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
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
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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
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End of Chapter 5
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