MODERN AUDITING 7th Edition Developed by: Gregory K. Lowry, MBA, CPA Saint Paul’s College John Wiley & Sons, Inc. William C. Boynton California Polytechnic State University at San Luis Obispo Raymond N. Johnson Portland State University Walter G. Kell University of Michigan

CHAPTER 3 PROFESSIONAL ETHICS u Ethics and Morality u AICPA Code of Professional Conduct u Rules of Conduct  Rule 101 — Independence  Rule 102 — Integrity and Objectivity  Rule 201 — General Standards  Rule 202 — Compliance with Standards  Rule 203 — Accounting Principles  Rule 301 — Confidential Client Information

CHAPTER 3 PROFESSIONAL ETHICS  Rule 302 — Contingent Fees  Rule 501 — Acts Discreditable  Rule 502 — Advertising and Other Forms of Solicitation  Rule 503 — Commissions and Referral Fees  Rule 505 — Form of Organization and Name u Enforcement of the Rules

Ethics and Morality General Ethics attempts to deal with ethical questions by defining what is good for the individual and society, and by trying to establish the nature of obligations or duties that individuals owe themselves and each other. Professional Ethics must extend beyond moral principles. They include standards of behavior for a professional person that are designed for both practical and idealistic purposes.

AICPA Code of Professional Conduct AICPA Professional Ethics Team 1. Standard Setting 2. Ethics Enforcement 3. Technical Inquiry Services

Code Sections and Related Pronouncements Figure 3-1

Code Definitions Client Any person or entity, other than the member’s employer, that engages a member or a member’s firm to perform professional services or a person or entity with respect to which professional services are performed. Council The Council of the AICPA. Enterprise Synonymous with the term “client.”

Code Definitions Firm A form of organization permitted by state law or regulation whose characteristics conform to resolutions of Council that is engaged in the practice of public accounting, including the individual owners thereof. Holding out Any action initiated by a member that informs others of his or her status as a CPA or AICPA accredited specialist. Institute The AICPA.

Code Definitions Member A member, associate member, or international associate of the AICPA. Practice of public accounting Performance for a client, by a member or a member’s firm, while holding out as CPA(s), of the professional services of accounting, tax, personal financial planning, litigation support services, and those professional services for which standards are promulgated by bodies designated by Council. Professional Services All services performed by a CPA while holding out as a CPA.

PrinciplesPrinciples In the Code, the 6 principles are identified as follows: 1. Responsibilities 2. The Public Interest 3. Integrity 4. Objectivity and Independence 5. Due Care 6. Scope and Nature of Services

Rules of Conduct Figure 3-2

Enforcement of the Rules 1. Joint Ethics Enforcement Procedures 2. Joint Trial Board Procedures a. Admonish the member. b. Suspend the member for a period of no more than 2 years. c. Expel the member. 3. Automatic Disciplinary Provisions

CHAPTER 3 PROFESSIONAL ETHICS

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