What are professional ethics?
morally permissible standards of conduct that apply to memebers of a specific profession, they are expected to behave and held at a ahigher ethical standard than the general public
What about the auditor – client relationship creates a conflict of interest?
client pays the auditor for the auditor to have the best interest of the financial statement users, this means the auditor’s tension between serving the client and public interest arrises
What are the five fundamental principles that guide the ethical behaviors of a public
accountant?
professional behaviour
professional competence
integrity and due care
objectivity
confidentiality
What is an ethical dilemma?
when a PA faces a situation involving conflicting moral principles where no clear right or wrong choice exists and any decision may compromise one ethical value for another, requires professional judgement and choosing the most ethical course of action with the CPA code and public interest
Why is it important to have a structure to resolve ethical dilemmas?
helps auditors
- think systematically
- identify all relevant facts, principles, and affected parties
- ensure consistency with cpa code of professional conduct
- support deisions with clear reasoning
examples of tests a CPA can use to evaluate a potential course of action.
harm test - is this option less harmful than others
rights test - would this violate anyone’s rights
publicity test - would i want this choice to be published in the news
defensibility test - how could i defend my choice in front of others
virtue test - what does this say about my character
professional test - what would the provincial accounting body say
colleague test what would my colleagues say
firm test – what would my firm say
What is an ethical blind spot?
unconscious bias or judgement trap that prevents someone from recognizing the ethical aspects of a desicion
The professional code of conduct in Canada is both principles-based and compliance-
based. What does that mean?
principles based is the broad ethical values
compliance based is specific enforecable rules
What is independence in fact? What is independence in appearance? Why is independence
the auditor’s most critical characteristic?
fact is independece as a state of mind
appearance is how he looks to others
they must be both independent in fact and independence
most critical charact4eristic because it ensures auditor’r opinion is trusted and reliable
What are the five threats to independence that the public accountant must examine before
accepting an engagement? Why or how is each of these a threat to independence? What
is the responsibility of the public accountant if a threat exists?
self interest threat -auditor has financial or personal interest in client
self review threat when auditor must review their own previous work or that of their firm
advocacy threat - promotoes or defends clients positiong
familiarity threat - becoming too close or sympathetic to the client
intimidation threat auditor feels pressured or threated by the cleint
responsible for reducing to acceptable low level or fully eliminating these threats, if not possible then reject the engagenement
What are the three levels of safeguards to independence? What are some examples of
safeguards to independence (Table 3-3)?
Safeguards by profession, legislation, or regulation
- cpa
safeguards implemented by the client
- firm has audit committee, strong corporate governance, ethical company policies
safeguards within audit firm’s systems and procedures
- ethic or firm policies ensuring compliance, etc
What is an audit committee? What is its role/responsibility?
A group of members of a company’s board of directors who oversee the organization’s financial reporting and auditing processes
role:
act as liaison between auditor and the baord
hire and oversee external auditor
review financial statements
monitor internal controls and compliance
What is business failure? Audit failure? Audit risk? Fraud?
business failure - operation cannot meet its financial obligations, either from poor management, market shifts, or economic downturns
audit failure: auditor issues an incorrect audit opinion and financial statements are materially misstated
audit risk: the RISK that the auditor expresses an inappropriate audit opinon and financial statement are materially misstated
What is the risk to auditors if there is a business failure?
business failure can occur even if there was no audit failure, the auditor is at risk that the users will blame them for not detecting the failure
Explain the expectations gap.
difference ebtween what the public or financial statement users believe auditors are responsible for and what auditors are actually required to do under GAAS
thirteen rules for auditors for public protection
maintenance of good reputation of the profession
integrity, due care, objectivity
professional competence
independence
false and misleading documents and oral representations
compliance with professional standards
confidentiality of information
conflicts of interest
duty to report breaches of the CPA code
fee quotations and billings
contingent fees
advertising, solicitation, endorsements
retention of documentation and working papers
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Chap 4 reading guide17
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chapt 5 reading guide32
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chap 6 reading guide17
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Chapter 7 reading guide12
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Chapter 8 reading guide27
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Chapter 9 reading guide15
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Chapter 10 reading guide3
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Chapter 1 reading guide14
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Chapter 2 reading guide13
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Chapter 3 reading guide16
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Midterm review cards8
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Chapter 11 reading guide11
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Chapter 12 reading guide17
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Chapter 13 reading guide10
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Chapter 14 reading guide10
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Chapter 17 reading guide16
