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Professional Ethics Legal Liability Sarbanes Oxley Act of 2002

Professional Ethics Legal Liability Sarbanes Oxley Act of 2002. Professional Ethics. What are Ethics?. Ethics can be defined broadly as a set of moral principles or values. Each of us has such a set of values. We may or may not have considered them explicitly. Need for Ethics.

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Professional Ethics Legal Liability Sarbanes Oxley Act of 2002

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  1. Professional EthicsLegal LiabilitySarbanes Oxley Act of 2002

  2. Professional Ethics

  3. What are Ethics? Ethics can be defined broadly as a set of moral principles or values. Each of us has such a set of values. We may or may not have considered them explicitly.

  4. Need for Ethics Ethical behavior is necessary for a society to function in an orderly manner. The need for ethics in society is sufficiently important that many commonly held ethical values are incorporated into laws.

  5. Why People Act Unethically The person’s ethical standards are different from those of society as a whole. The person chooses to act selfishly. In many instances, both reasons exist.

  6. Prescribed EthicalPrinciples Example Trustworthiness Dpt Dipercaya Fairness Keadilan Respect Penghargaan Caring Kepedulian Responsibility Tgjawab Citizenship Warga yg baik

  7. A Person Chooses toAct Selfishly – Example Person Afinds a briefcase containing important papers and $1,000. He tosses the briefcase and keeps the money. He brags to his friends about his good fortune. This action probably differs from most of society.

  8. A Person Chooses toAct Selfishly – Example Person Bfaces the same situation but responds differently. He keeps the money but leaves the briefcase. He tells nobody and spends the money. He has violated his own ethical standards and chose to act selfishly.

  9. Ethical Dilemmas An ethical dilemma is a situation a person faces in which a decision must be made about appropriate behavior.

  10. RationalizingUnethical Behavior Everybody does it. If it’s legal, it’s ethical. Likelihood of discovery and consequences

  11. Resolving Ethical Dilemmas 1. Obtain the relevant facts. 2. Identify the ethical issues from the facts. 3. Determine who is affected.

  12. Resolving Ethical Dilemmas 4. Identify the alternatives available to the person who must resolve the dilemma. 5. Identify the likely consequence of each alternative. 6. Decide the appropriate action.

  13. Ethical Dilemma A staff person has been informed that he will work hours without recording them as hours worked. Firm policy prohibits this practice. Another staff person has stated that this is common practice in the firm.

  14. Ethical Dilemma Is it ethical for the staff person to work hours and not record them as hours worked in this situation? Who is affected? How are they affected? What alternatives does the staff person have?

  15. Special Need for Ethical Conduct in Professions Our society has attached a special meaning to the term professional. A professional is expected to conduct himself or herself at a higher level than most other members of society.

  16. CPAs Encouraged to ConductThemselves at a High Level CPA examination GAAS and interpretations Conduct of CPA firm personnel Continuing education requirements

  17. CPAs Encouraged to ConductThemselves at a High Level SEC Peer review Conduct of CPA firm personnel Quality control

  18. CPAs Encouraged to ConductThemselves at a High Level Legal liability Division of CPA firms Conduct of CPA firm personnel Code of Professional Conduct

  19. Code of Professional Conduct Principles Ideal standards of ethical conduct in philosophical terms They are not enforceable. Rules of conduct Minimum standards of ethical conduct stated as specific rules They are enforceable.

  20. Code of Professional Conduct Interpretation of the rules of conduct Interpretation of the rules of conduct by the AICPA Division of Professional Ethics They are not enforceable, but a practitioner must justify departure.

  21. Code of Professional Conduct Ethical rulings Published explanations and answers to questions about the rules of conduct submitted to the AICPA by practitioners and others interested in ethical requirements They are not enforceable, but a practitioner must justify departure.

  22. Ethical Principles 1. Responsibilities Professionals should exercise sensitive and moral judgments in all their activities. 2. Public Interest Members should accept the obligation to act in a way that will serve and honor the public.

  23. Ethical Principles 3. Integrity Members should perform all responsibilities with integrity to maintain public confidence. 4. Objectivity and Independence Members should be objective, independent, and free of conflicts of interest.

  24. Ethical Principles 5. Due Care Members should observe the profession’s standards and strive to improve competence. 6. Scope and Nature of Services A member in public practice should observe the Code of Professional Conduct.

  25. Standards of Conduct Ideal conduct Principles Minimum Level Rules of conduct Substandard conduct

  26. Independence Independence means taking an unbiased viewpoint in performing audit tests. Independencein fact Independencein appearance

  27. Independence Rule 101 – Independence A member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by Council.

  28. Financial Interests Interpretations of Rule 101 prohibit covered members from owning any direct investments in audit clients. Direct financial interest Indirect financial interest Material or immaterial

  29. Related FinancialInterests Issues Former practitioners Normal lending procedures Financial interest and employment of immediate and close family Joint investor or investee relationship with client Director, officer, management, or employee of a company

  30. Related FinancialInterests Issues A lawsuit or intent to start a lawsuit between a CPA firm and its client is a violation of Rule 101 for the current audit. The interpretations permit a CPA firm to do both bookkeeping and auditing for the same client. The SEC prohibits performing bookkeeping and auditing services by the same CPA firm.

  31. Related FinancialInterests Issues Internal auditing and extended audit services Unpaid fees

  32. Rules of Conduct 101 Independence 102 Integrity and objectivity 201 General standards 202 Compliance with standards 203 Accounting principles 301 Confidential client information

  33. Rules of Conduct 302 Contingent fees 501 Acts discreditable 502 Advertising and other forms of solicitation 503 Commissions and referral fees 505 Form of organization and name

  34. Enforcement Action by AICPAProfessional Ethics Division Action by a State Board of Accountancy It’s all a matter of trust.

  35. Legal Liability Chapter 5

  36. Changed Legal Environment Audit professionals have a responsibility under common law to fulfill implied or expressed contracts with clients. They are liable to their clients for negligence and/or breach of contract should they fail to provide the services or not exercise due care in their performance.

  37. Business Failure, AuditFailure, and Audit Risk Audit Failure Business Failure Audit Risk

  38. Business Failure, AuditFailure, and Audit Risk Business failure It occurs when a business is unable to repay its lenders or meet the expectations of its investors because of economic or business conditions.

  39. Business Failure, AuditFailure, and Audit Risk Audit failure It occurs when the auditor issues an erroneous audit opinion as the result of an underlying failure to comply with the requirements of generally accepted auditing standards (GAAS).

  40. Business Failure, AuditFailure, and Audit Risk Audit risk It represents the risk that the auditor will conclude that the financial statements are fairly stated and an unqualified opinion can be issued when, in fact, they are materially misstated.

  41. Legal ConceptsAffecting Liability Prudent person concept Liability for the acts of others Lack of privileged communication

  42. Major Sources ofAuditor’s Legal Liability Client Federal securities laws Third party Criminal liability

  43. Liability to Clients The most common source of lawsuits against CPAs is from clients.

  44. Legal Terms AffectingCPAs’ Liability Terms related to negligence and fraud Ordinary negligence Constructive fraud Gross negligence Fraud

  45. Legal Terms AffectingCPAs’ Liability Terms related to contract law Breach of contract Third party beneficiary

  46. Auditor’s DefensesAgainst Client Suits Lack of duty Nonnegligent performance Contributory negligence Absence of causal connection

  47. Foreseen Users Credit alliance Restatement of torts Foreseeable users

  48. Criminal Liability CPAs can be held liable under criminal liability for accountants. CPAs can be found guilty for criminal action under both federal and state laws.

  49. The Profession’s Responseto Legal Liability Research in auditing Standard and rule setting Set requirements to protect auditors Establish peer review requirements

  50. The Profession’s Responseto Legal Liability Oppose law suits Education of users Sanction members for improper conduct and performance Lobby for changes in laws

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