Professional Ethics

GROUP 3
ATIKAH GALUH W (1210534013)
SITI OKTARINA N (1210534014)
M. IRHAS ERVAN (1210534027)

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4-1

Learning Objective 1 : Distinguish ethical

from unethical behavior in personal and
professional contexts

What Are Ethics?

Ethics can be defined broadly as
a set of moral principles or values.

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4-2

Need for Ethics

Ethical behavior is necessary for a society
to function in an orderly manner.

Why People Act Unethically

The persons ethical standards are different
from those of society as a whole.
The person chooses to act selfishly.
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4-3

Learning Objective 2: Resolve ethical

dilemmas using an ethical framework.

Ethical Dilemmas

An ethical dilemma is a situation a person

faces in which a decision must be made
about appropriate behavior.
Rationalizing Unethical Behavior
Everybody does it
If its legal, its ethical
Likelihood of discovery and
consequences
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4-4

Resolving Ethical Dilemmas

1.
2.
3.
4.

Obtain the relevant facts

Identify the ethical issues from the facts
Determine who is affected
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

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4-5

Learning Objective 3: Explain the

importance of ethical conduct for the
accounting profession.
Special Need for Ethical
. Conduct in
Professions
Our society has attached a special
meaning to the term professional.

Professionals are expected to conduct

themselves at a higher level than most other
members of society.

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4-6

Difference Between CPA

Firms and Other
Professionals

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4-7

Learning Objective 4: Describe the purpose

and content of the AICPA Code of
Code
of Professional
Conduct
Professional
Conduct.

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4-8

Ethical Principles
1. Responsibilities:
Professionals should exercise sensitive and moral
judgments in all their activities.

2. The public interest:

Members should accept the obligation to act in a way th
will serve and honor the public.
3. Integrity:
Members should perform all responsibilities with integrit
maintain public confidence.
4. Objectivity and independence:
Members should be objective, independent, and free of
conflicts of interest.

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4-9

Ethical Principles
5. Due care:
Members should observe the professions standards
and strive to improve competence.

6. Scope and nature of services:

A member in public practice should observe the
Code of Professional Conduct.

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4 - 10

Learning Objective 5: Understand Sarbanes-Oxley

Act and other SEC and PCAOB independence
requirements
and additional factors that influence
Independence
auditor independence.
The AICPA and IESBA codes of ethics both define
independence as consisting of two components

Independence of mind
Independence in appearance

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4 - 11

Sarbanes-Oxley Act and SEC Provisions

Addressing Auditor Independence

SEC auditor independence rules strengthened in 2003

consistent with the Sarbanes-Oxley Act.

The Sarbanes-Oxley Act and revised SEC rules further restr

the type of non audit services that can be provided by audi

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4 - 12

Sarbanes-Oxley Act and SEC

Provisions Addressing Auditor
Independence
Prohibited Services
1.
2.
3.
4.
5.
6.
7.

Bookkeeping and other accounting services

Financial information systems design and implementation
Appraisal or valuation services
Actuarial services
Internal audit outsourcing
Management of human resource functions
Broker, dealer, or investment adviser or investment bank
services
8. Legal and expert services unrelated to the audit
9. Any other service that the PCAOB determines by regulati
impermissible
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4 - 13

Audit Committees
A selected number of members of a companys
board who help auditors remain independent.

Comprised of three to five independent directors.

All members must be independent.
At least one audit committee member must be a
financial expert.
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4 - 14

Conflicts Arising from Employment

Relationships

A one year cooling off period must occur before a

member of the audit engagement team can accept
key management position at a client.

Partner Rotation
The Sarbanes-Oxley Act requires that the lead and
concurring audit partner rotate off the audit
engagement after a period of five years.

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4 - 15

Ownership Interests

SEC rules on financial relationships take an engageme

perspective.
SEC rules prohibit ownership in audit clients by those
persons who can influence the audit.

Other Issues
Shopping for accounting principles

Engagement and payment of audit fees by

management
Can the auditor be truly independent if
payment depends on company management?
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4 - 16

Learning
Objective 6: Apply the AICPA Code
Rules of Conduct
rules
Ruleand
101interpretations
Independence on independence and
explain their importance.

A member in public practice shall be independent in th

performance of professional services as required by
standards promulgated by bodies designated by Coun

Financial Interests
Covered members
Direct versus indirect financial interest
Material or immaterial
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4 - 17

Related Financial Interests Issues

Former practitioners

Normal lending procedures

Financial interests and employment of immediate and c
family members
Joint investor or investee relationship with client
Director, officer, management, or employee of a compa

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4 - 18

Bookkeeping and Other Services

The AICPA Code permits a CPA firm to do both
bookkeeping and auditing for a nonpublic client.

1. Client must accept full responsibility for the finan

statements.
2. The CPA must not assume the role of employee o
of management.
3. The audit must conform to use of auditing standa

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4 - 19

Learning Objective 7: Understand the

Other Rules ofof
Conduct
requirements
other rules under the AICPA
102 Integrity and objectivity
Code.
201
202
203
301

General standards
Compliance with standards
Accounting principles
Confidential client information

102
201
202
203
301

Integrity and objectivity

General standards
Compliance with standards
Accounting principles
Confidential client information

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4 - 20

302
501
502
503
505

Contingent fees
Acts discreditable
Advertising and other forms of solicitation
Commissions and referral fees
Form of organization and name

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4 - 21

Learning Objective 8: Describe the

Enforcement
enforcement mechanisms for the rules of
conduct.
AICPA
Professional
Ethics Division

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

State Board of
Accountancy

4 - 22

End of Chapter 4
Thankyou

2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

4 - 23