1. Analysis of Some Rules of Professional Conduct
Section 7
Analysis of Some Rules of Professional Conduct

2. Introduction
Will look at several areas that have a major impact on public accounting and reporting.
Objectivity
Advertising and Tendering
Competence
Responsibility to the Public and Clients
Responsibilities to Colleagues
Independence and the CBCA
The CA as a Tax Adviser

3. Objectivity (Rule 204) Also called? Two distinct aspects:
Objectivity in fact
Objectivity in appearance

4. Objectivity in Fact
Public accountant’s ability to maintain
Not subject to objective measurement
How do you judge objectivity in fact?

5. Objectivity in Appearance
Public accountant’s ability to be
Reasonable observer
Objectivity in appearance has become very important in judging public accountants objectivity

6. Canada Business Corporations Act
No financial or management interest
This implies?

7. Investment or Financial Interest in Audit Clients
Shares, bonds, mortgages, notes
What influence can the auditor have in this situation?
Immediate family?
Audit staff?

8. Close relatives?
How about an audit partner?

9. Nonaudit Functions and Services
Some incompatible functions for the auditor
Immediate families and close relatives?
An audit partner?

10. Business Transactions and Relationships
An unreasonable expectation
Should avoid:
Special terms
Commissions for sales to clients

11. Economic Dependence
Financial well-being is dependent on
What could result from such a situation?

12. Other Conflict-of-Interest Situations
Three special situations:
Activities of retired partners
Client gifts
Litigation

13. Management Advisory Services
What is the key question?
Decision-making role
Pure advisory services

14. Objectivity – A Matter of Degree
Not absolute
Auditors work closely with clients
Recent developments
Audit Committee
Legislation

15. Shopping for accounting principles
Thus auditors who are consulted on a question of accounting or auditing

16. Advertising and Tendering (Rule 217)
All provincial institutes allow advertising
As long as the advertising is
Advertising should not be

17. Acceptable advertising includes
Unethical advertising
Tendering

18. Competence (Rule 203) Maintaining professional competence
Practice inspection
A report is issued

19. Areas to be documented:
Serious failure
Areas to be documented:
File and statement preparation
Objectivity
Maintenance of professional skills
Staff recruiting, advancement, supervision
Outside consultation
Office administration

20. Responsibility to Public and Clients
Auditing Standards and Accounting Principles(206)
Must comply with GAAS
Also with GAAP
The strengthening authority

21. Contingent Fees (215)
Not allowed
What is a contingent fee?
How could this affect the auditor?

22. Confidentiality (210)
Nature of CAs work
Confidentiality is never a justification for
Not privileged under common law

23. Illegal Acts by Clients (213)
A CA “ shall not knowingly lend himself or herself or his or her name or services to nay unlawful activity”.
Honourable behaviour
If CA has knowledge?

24. Responsibility to Colleagues (Rule 300’s)
Ensures goodwill and mutual cooperation
Solicitation and encroachment
Rules discourage

25. Canada Business Corporation Act
Act uses the term “independence”
Section 161
Considered a question of fact

26. What Constitutes Nonindependence?
Not independent if:
A business partner, director, an officer or employee
Beneficially owns or controls directly or indirectly, a material interest
Has been a receiver, receiver-manager, liquidator or trustee in bankruptcy

27. The CA as Tax Adviser Rules of Professional Conduct
CA may properly resolve questionable issues in favour of the client as long as
Objectivity?

28. Must adhere to same standards of truth and personal integrity
Information in tax returns must not be false or misleading
If information appears unreasonable or contradictory

29. Problem 3-27:
Marie Janes encounters the following situations in doing the audit of a large auto dealership. Janes is not a partner.
The sales manager tells her that there is a sale on new cars (at a substantial discount) that is limited to long-established customers of the dealership. Because her firm has been doing the audit for several years, the sales manager has decided that Janes should also be eligible for the discount.
The auto delaership has an executive lunchroom that is available free to employees above a certain level. The controler informs Janes that she can also eat there any time.
Janes is invited to and attends the company’s annual Christmas party. When presents are handed out, she is surprised to find herself included. The present has a value of approximately $200.
Required:
Assuming Janes accepts the offer or gift in each situation, has she violated the rules of conduct?
Discuss what Janes should do in each situation.

30. Problem 3-28:
The following are situations that may violate the general rules of conduct of professional accountants discussed in the chapter. Assume in each case that the public accountant is a partner.
Simone Able, public accountant, owns a substantial limited partnership interest in an apartment building. Juan Rodriquez is a 100 percent owner in Rodriquez Marine Ltd. Rodriquez also owns a substantial interest in the same limited partnership as Able. Able does the audit of Rodriquez marine Ltd.
Horst Baker, public accountant, approaches a new audit client and tells the president that he has an idea that could result in a substantial tax refund in the prior year’s tax return by application of a technical provision in a tax law that the client had overlooked. Baker adds that the fee will be 50 percent of the tax refund after it has been resolved by Revenue Canada. The client agrees to the proposal.
Chantal Contel, public accountant, advertises in the local paper that her firm does the audit of 14 of the 36 largest drugstores in the city. The advertisement also states that the average audit fee, as a percentage of total assets for the drugstores she audits, is lower than any other public accounting firm’s in the city.

31. Olaf Gustafson, public accountant, sets up small loan company specializing in loans to business executives and small companies. Gustafson does not spend much time in the business because he works full time with his public accounting practice. No employees of Gustafson’s public accounting firm are involved in the small loan company.
Louise Elbert, public accountant, owns a material amount of stock in a mutual fund investment company, which in turn owns stock in Elbert’s largest audit client. Reading the investment company’s most recent financial report, Elbert is surprised to learn that the company’s ownership in her client has increased dramatically.
Kerry Finigan, public accountant, does the audit, tax return, bookkeeping, and management services work for Gilligan Construction Company Limited. Before she makes any business decision, Mildred Gilligan follows the practice of calling Finigan to determine the effect on her company’s taxes and the financial statements. Finigan attends continuing education courses in the construction industry to make sure she is technically competent and knowledgeable about the industry. Finigan normally attends board of directors’ meetings and accompanies Gilligan when she is seeking loans. Mildred Gilligan often jokingly introduces Finigan with the statement, “I have

32. my three business partners – my banker, the government, and my public accountant, but Finny’s the only one that is on my side.”
Required:
Discuss whether the facts in any of the situations indicate violations of the rules of conduct for professional accountants. If so, identify the nature of the violation(s).