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