Modern Auditing:

Assurance Services and the Integrity

of Financial Reporting, 8th Edition

William C. Boynton
California Polytechnic State
University at San Luis Obispo
Raymond N. Johnson
Portland State University

Chapter 3 – Professional Ethics

Chapter 3 Overview
 Ethics and Morality
• General Ethics
– Ethical Dilemma
– Ethical Absolutists
– Ethical Relativists

• Professional Ethics
– Commitment by profession
– Ethical Principles and Rules of Conduct
 AICPA Professional Ethics
Division
• Standard Setting

• Ethics Enforcement

• Technical Inquiry Services

 Composition of The Code
• Two Sections
– Principles
– Rules of Conduct

• Pronouncements
– Interpretations of the Rules of Conduct
– Ethical Rulings
 Ethical Principles
• Responsibilities

• The Public Interest

• Integrity

• Objectivity and Independence

• Due Care

• Scope and Nature of Services

 Study Break
1. Which two of the following
elements are member-adopted
sections of the Code:
A. Principles
B. Ethical Rulings
C. Interpretations
D. Rules of Conduct

A. Principles and D. Rules of Conduct

 Study Break
2. Which ethical principle states that
members should honor the public trust
and demonstrate a commitment to
professionalism?
A. Integrity
B. Public Interest
C. Due Care
D. Responsibilities

B. Public Interest
Rule 101 - Independence
 Engagement-Based Approach
• Covered Members

• Prohibited Activities

• Immediate Family Members

• Close Relatives

• Other Professionals and Their Immediate

Family Members
 Employment with an Attest
Client
• Employee becomes employed by
client
– Public Companies
– Private Companies

• Employee seeks employment with

client
 Other Independence Issues
• Nonattest Services

• Private Companies

• Litigation

• Unpaid Fees
AICPA Rules of Conduct
AICPA Rules of Conduct (cont.)
 State Boards and PCAOB
• State Accountancy Statutes and
Laws

• Audit Firms of Public Companies

 Enforcement of the Rules
• Joint Ethics Enforcement
Procedures (JEEP)

• Joint Trial Board Procedures

– Admonishment
– Suspension
– Expulsion

• Automatic Disciplinary Provisions

 Study Break
3. Which of the following is subject to
enforcement under the Rules of
Conduct?
A. Independence in Fact
B. Independence in Appearance

B. Independence in Appearance
 Study Break
4. Under the joint trial board procedures,
which of the following is not a possible
disciplinary action that could be taken:
A. Admonishment
B. Suspension for five years
C. Expulsion
D. Suspension for two years or less

B. Suspension for five years