Modern

Modern Auditing:
Auditing:
Assurance
Assurance Services
Services and
and the
the Integrity
Integrity
of
of Financial Reporting, 8th Edition
Financial Reporting, 8 th
Edition

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

Chapter 3 – Professional Ethics

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

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

• Ethics Enforcement

• Technical Inquiry Services

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

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

• The Public Interest

• Integrity

• Objectivity and Independence

• Due Care

• Scope and Nature of Services

 Study
Study Break
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
Study Break
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
Rule 101
101 -- Independence
Independence
 Engagement-Based
Engagement-Based Approach
Approach
• Covered Members

• Prohibited Activities

• Immediate Family Members

• Close Relatives

• Other Professionals and Their Immediate

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

• Employee seeks employment with

client
 Other
Other Independence
Independence Issues
Issues
• Nonattest Services

• Private Companies

• Litigation

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

• Audit Firms of Public Companies

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

• Joint Trial Board Procedures

– Admonishment
– Suspension
– Expulsion

• Automatic Disciplinary Provisions

 Study
Study Break
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
Study Break
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