Professional Ethics “Ethics are statements of moral principles and values that guide the action of auditors”. The independence, powers and responsibilities.

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Presentation transcript:

Professional Ethics “Ethics are statements of moral principles and values that guide the action of auditors”. The independence, powers and responsibilities that auditors enjoy place high ethical demand on them.

Ethical Dilemma Ethical dilemma is a situation that an auditor faces involving a decision about appropriate behavior. Auditor finds some irregularities and they can report or avoid reporting. Auditors go through decision making process about ethical dilemmas.

Needs for Professional Ethics All established professions need and have ethics. These include: Responsibility to Serve Public Complex Body of Knowledge Need for Public Confidence Standard of Admission

Responsibility to Serve Public CPAs are representative of public- stockholders, creditors, customers, employees- in financial reporting. Their role and responsibility is that fair information goes to public—not biased to the benefit of one group to the advantage of the other. They need to have motivation to serve public and they can do it by maintaining independence from all parties.

Complex Body of Knowledge Abundance of authoritative statements governing financial reports constitute complex body of knowledge. Changes in accounting knowledge reflect what is taking place in the complex business environment. The changing business environment has mandated continuing education for CPAs.

Need for Public Confidence CPA and all other professions need public confidence. CPAs’ product is creditability, they depend more on public confidence. Without public confidence attest, audit and assurance function of auditors have no value.

Standard of Admission To act as CPA one has to meet minimum standard of education, training and experience. To become CPA one has to pass exams to demonstrate mastery of knowledge and meet training requirements. To keep abreast of changes in the field one has to continuously update himself with new developments.

Professional Ethics in Public Accounting Careless acts of individual auditors may lead public to negative view towards the entire profession. To circumvent this the profession has devised a code of conduct for its members. This code guides members to maintain professional attitude. It provides assurance to all parties concerned that the profession maintains high standards and enforce compliance to these. Public accounting willingness to accept standards of code voluntarily rather than enforced by law give standing of established profession. These standards set forth responsibilities of auditors to public, client and fellow auditors.

Code of Professional Conduct It consists of two section: 1.Principles; statement of profession of responsibility to client, public and fellow practitioners. These are framework for the rules; 2.Rules; are enforceable application of principles. These define acceptable behavior and identify sources of authority for performance standards. 3.Interpretations; these are guidelines issued for scope and application of rules. 4.Ethics rulings; are application of rules and interpretations to specific factual circumstances involving professional ethics.

Code of Ethics Independence Integrity and Objectivity Trust, Confidence and Confidentiality Political neutrality Conflict of Interest Professional Secrecy Competence Professional Development

Integrity and Objectivity Auditors have to adhere to high standards of honesty and candidness. To maintain public confidence auditors have to be above suspicion and reproach. Integrity is measured in terms of what is right and just. It requires auditors to be honest, independent, objective and make decisions with public interest in mind. Not be influenced by or misrepresent facts knowingly.

Trust, Confidence and Confidentiality All parties expect auditors’ conduct above suspicion and reproach and worthy of trust and respect. It results form cumulative efforts of auditors. All parties should be assured of impartiality and fairness.

Independence Auditors need to perform professional services independently. Independence gives impartial and objective mental attitude. It should not be impaired by: External influence; Prejudice of auditors about individuals, entities or clients; Previous of future employment; or Interests in entity of vested interests.

Political Neutrality Auditors have to maintain actual and perceived neutrality. It is only possible with independence and impartiality. Involvement in politics may impair their neutrality. Auditors must keep away themselves from politics or political influences.

Conflict of Interest Other services for fee for the audited clients may lead to conflict of interest. Auditors must avoid management duties. They must not accept gifts and gratuities these affect independence and impartiality. Avoid relationship with parties involved, this impair independence. Not use official position for private purposes.

Professional Secrecy Not disclose information obtained to their or for the benefit of others. No divulge unfair information or undue advantage to others.

Competence Take assignments that can be completed with competence. Know and follow applicable auditing, accounting and financial management standards, policies and procedures. Possess good understanding of constitutional, legal and institutional principles and standards that govern the operations of the audited body.

Professional Development Exercise due professional care in conducting, supervising audit and making report. Use methods and procedures and methods of highest quality. Adhere to GAAS and other postulate. Obligated to continuously update and improve the skills required to discharge their professional responsibilities.