CHAPTER 3 Professional Ethics Copyright 2003 Pearson Education

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CHAPTER 3 Professional Ethics Copyright 2003 Pearson Education Canada Inc. 3 -1

CHAPTER 3 Professional Ethics Copyright 2003 Pearson Education Canada Inc. 3 -1

professional ethics = personal morals ? Copyright 2003 Pearson Education Canada Inc. 3 -2

professional ethics = personal morals ? Copyright 2003 Pearson Education Canada Inc. 3 -2

professional ethics = personal morals Copyright 2003 Pearson Education Canada Inc. 3 -3

professional ethics = personal morals Copyright 2003 Pearson Education Canada Inc. 3 -3

professional ethics = personal morals function of ? Copyright 2003 Pearson Education Canada Inc.

professional ethics = personal morals function of ? Copyright 2003 Pearson Education Canada Inc. 3 -4

professional ethics = personal morals function of: - nature of the profession - collective

professional ethics = personal morals function of: - nature of the profession - collective morals - regulatory & legal constraints Copyright 2003 Pearson Education Canada Inc. 3 -5

professional ethics function of: - nature of the profession - collective morals - regulatory

professional ethics function of: - nature of the profession - collective morals - regulatory & legal constraints = personal morals function of: ? Copyright 2003 Pearson Education Canada Inc. 3 -6

professional ethics function of: - nature of the profession - collective morals - regulatory

professional ethics function of: - nature of the profession - collective morals - regulatory & legal constraints = personal morals function of: - religious faith - family’s values - morals of peers - experiences - personality: selfish/altruistic Copyright 2003 Pearson Education Canada Inc. 3 -7

The profession hopes that individual practitioners will absorb the profession’s ethics into their personal

The profession hopes that individual practitioners will absorb the profession’s ethics into their personal morals professional ethics Copyright 2003 Pearson Education Canada Inc. 3 -8

Basic ethics principles are universal, regardless of religious affiliation, culture, background, etc. Copyright 2003

Basic ethics principles are universal, regardless of religious affiliation, culture, background, etc. Copyright 2003 Pearson Education Canada Inc. 3 -9

Basic ethics principles EXAMPLE: Our class finds itself on a desert island with no

Basic ethics principles EXAMPLE: Our class finds itself on a desert island with no hope of escape. What societal rules do we need? Copyright 2003 Pearson Education Canada Inc. 3 - 10

Basic ethics principles - be honest - have integrity - keep your promises -

Basic ethics principles - be honest - have integrity - keep your promises - be faithful and loyal - be fair - care for others - respect others - be a responsible citizen - pursue excellence - be accountable Copyright 2003 Pearson Education Canada Inc. 3 - 11

Why do people obey rules? Copyright 2003 Pearson Education Canada Inc. 3 - 12

Why do people obey rules? Copyright 2003 Pearson Education Canada Inc. 3 - 12

Why do people obey rules? - personal integrity “I said I would obey the

Why do people obey rules? - personal integrity “I said I would obey the rules, and I will. ” Copyright 2003 Pearson Education Canada Inc. 3 - 13

Why do people obey rules? - personal integrity “I said I would obey the

Why do people obey rules? - personal integrity “I said I would obey the rules, And I will. ” - utilitarianism “If we all obey the rules, we will all benefit. ” Copyright 2003 Pearson Education Canada Inc. 3 - 14

Why do people obey rules? - personal integrity “I said I would obey the

Why do people obey rules? - personal integrity “I said I would obey the rules, and I will. ” - utilitarianism “If we all obey the rules, we will all benefit. ” - fear of consequences “If I break the rules, I may be punished. ” Copyright 2003 Pearson Education Canada Inc. 3 - 15

Why do people fail to obey rules? Copyright 2003 Pearson Education Canada Inc. 3

Why do people fail to obey rules? Copyright 2003 Pearson Education Canada Inc. 3 - 16

Why do people fail to obey rules? - lack of personal integrity Copyright 2003

Why do people fail to obey rules? - lack of personal integrity Copyright 2003 Pearson Education Canada Inc. 3 - 17

Why do people fail to obey rules? - lack of personal integrity - selfishness

Why do people fail to obey rules? - lack of personal integrity - selfishness Copyright 2003 Pearson Education Canada Inc. 3 - 18

Why do people fail to obey rules? - lack of personal integrity - selfishness

Why do people fail to obey rules? - lack of personal integrity - selfishness - rationalization “everyone does it” “it’s not illegal” “I won’t get caught” Copyright 2003 Pearson Education Canada Inc. 3 - 19

What do you do when confronted with an ethical dilemma? Copyright 2003 Pearson Education

What do you do when confronted with an ethical dilemma? Copyright 2003 Pearson Education Canada Inc. 3 - 20

What do you do when confronted with an ethical dilemma? - obtain relevant facts

What do you do when confronted with an ethical dilemma? - obtain relevant facts Copyright 2003 Pearson Education Canada Inc. 3 - 21

What do you do when confronted with an ethical dilemma? - obtain relevant facts

What do you do when confronted with an ethical dilemma? - obtain relevant facts - identify ethical issues Copyright 2003 Pearson Education Canada Inc. 3 - 22

What do you do when confronted with an ethics dilemma? - obtain relevant facts

What do you do when confronted with an ethics dilemma? - obtain relevant facts - identify ethical issues - determine stakeholders Copyright 2003 Pearson Education Canada Inc. 3 - 23

What do you do when confronted with an ethics dilemma? - obtain relevant facts

What do you do when confronted with an ethics dilemma? - obtain relevant facts - identify ethical issues - determine stakeholders - identify alternatives Copyright 2003 Pearson Education Canada Inc. 3 - 24

What do you do when confronted with an ethics dilemma? - obtain relevant facts

What do you do when confronted with an ethics dilemma? - obtain relevant facts - identify ethical issues - determine stakeholders - identify alternatives - identify consequences of alternatives on stakeholders Copyright 2003 Pearson Education Canada Inc. 3 - 25

What do you do when confronted with an ethics dilemma? - obtain relevant facts

What do you do when confronted with an ethics dilemma? - obtain relevant facts - identify ethical issues - determine stakeholders - identify alternatives - identify consequences of alternatives on stakeholders - decide Copyright 2003 Pearson Education Canada Inc. 3 - 26

Rules of Professional Conduct principles ideal standards of ethical conduct (unenforceable) Copyright 2003 Pearson

Rules of Professional Conduct principles ideal standards of ethical conduct (unenforceable) Copyright 2003 Pearson Education Canada Inc. 3 - 27

Rules of Professional Conduct principles rules of conduct ideal standards of ethical conduct (unenforceable)

Rules of Professional Conduct principles rules of conduct ideal standards of ethical conduct (unenforceable) enforceable minimum standards Copyright 2003 Pearson Education Canada Inc. 3 - 28

Rules of Professional Conduct principles rules of conduct ideal standards of ethical conduct (unenforceable)

Rules of Professional Conduct principles rules of conduct ideal standards of ethical conduct (unenforceable) enforceable minimum standards issued by provincial institutes interpretations (not technically enforceable) Copyright 2003 Pearson Education Canada Inc. 3 - 29

Rules of Professional Conduct Independence A member in public accounting must be independent in

Rules of Professional Conduct Independence A member in public accounting must be independent in the performance of certain professional services (audits, reviews, other attestation functions; not tax returns, compilations, management consulting). Copyright 2003 Pearson Education Canada Inc. 3 - 30

Facets of Independence 1. Financial independence - not having a financial interest in the

Facets of Independence 1. Financial independence - not having a financial interest in the client Copyright 2003 Pearson Education Canada Inc. 3 - 31

Facets of Independence 1. Financial independence 2. Independence of mental attitude - professional skepticism

Facets of Independence 1. Financial independence 2. Independence of mental attitude - professional skepticism Copyright 2003 Pearson Education Canada Inc. 3 - 32

Facets of Independence 1. Financial independence 2. Independence of mental attitude 3. Investigative independence

Facets of Independence 1. Financial independence 2. Independence of mental attitude 3. Investigative independence - fee is adequate, staffing is appropriate To obtain sufficient appropriate audit evidence - access to all evidence Toreachproper To opinion Copyright 2003 Pearson Education Canada Inc. 3 - 33

Facets of Independence 1. Financial independence 2. Independence of mental attitude 3. Investigative independence

Facets of Independence 1. Financial independence 2. Independence of mental attitude 3. Investigative independence 4. Reporting independence Ensures report is acted on Copyright 2003 Pearson Education Canada Inc. 3 - 34

Confidential Client Information A member in public practice shall not disclose any confidential client

Confidential Client Information A member in public practice shall not disclose any confidential client (or employer) information without the specific consent of the client (or employer). Confidential / inside information can’t be used to benefit the member. Copyright 2003 Pearson Education Canada Inc. 3 - 35

Confidential Client Information A member in public practice shall not disclose any confidential client

Confidential Client Information A member in public practice shall not disclose any confidential client information without the specific consent of the client. What are the exceptions? Copyright 2003 Pearson Education Canada Inc. 3 - 36

Confidential Client Information A member in public practice shall not disclose any confidential client

Confidential Client Information A member in public practice shall not disclose any confidential client information without the specific consent of the client. . . What are the exceptions? - subpoena or summons (court) Copyright 2003 Pearson Education Canada Inc. 3 - 37

Confidential Client Information A member in public practice shall not disclose any confidential client

Confidential Client Information A member in public practice shall not disclose any confidential client information without the specific consent of the client. . . What are the exceptions? - subpoena or summons (court) - disciplinary proceedings Copyright 2003 Pearson Education Canada Inc. 3 - 38

Confidential Client Information A member in public practice shall not disclose any confidential client

Confidential Client Information A member in public practice shall not disclose any confidential client information without the specific consent of the client. . . What are the exceptions? - subpoena or summons (court) - disciplinary hearings - practice inspections Copyright 2003 Pearson Education Canada Inc. 3 - 39

Integrity and Due Care In the performance of any professional service, a member shall

Integrity and Due Care In the performance of any professional service, a member shall maintain integrity (reputation for honesty) and use due care (application of appropriate level of care and skill for comparable trained professional). Copyright 2003 Pearson Education Canada Inc. 3 - 40

Competence A member shall maintain his / her professional competence. Undertake only those professional

Competence A member shall maintain his / her professional competence. Undertake only those professional services that the member or the member’s firm can reasonably expect to be completed with professional competence. Copyright 2003 Pearson Education Canada Inc. 3 - 41

Adherence to GAAS & GAAP - A member shall comply with the professional standards

Adherence to GAAS & GAAP - A member shall comply with the professional standards in the CICA Handbook. Copyright 2003 Pearson Education Canada Inc. 3 - 42

Adherence to GAAS & GAAP - A member shall comply with the professional standards

Adherence to GAAS & GAAP - A member shall comply with the professional standards in the CICA Handbook. - A member shall not be associated with false or misleading financial information. Copyright 2003 Pearson Education Canada Inc. 3 - 43

Advertising & Solicitation - Solicitation of another’s client is prohibited. Copyright 2003 Pearson Education

Advertising & Solicitation - Solicitation of another’s client is prohibited. Copyright 2003 Pearson Education Canada Inc. 3 - 44

Advertising & Solicitation - Solicitation of another’s client is prohibited. - Advertising which is

Advertising & Solicitation - Solicitation of another’s client is prohibited. - Advertising which is not in good taste is prohibited. Copyright 2003 Pearson Education Canada Inc. 3 - 45

Breaches of Rules of Professional Conduct A member who is aware of a breach

Breaches of Rules of Professional Conduct A member who is aware of a breach by another member must report the breach to the disciplinary committee after advising the member of the intent to make a report. Copyright 2003 Pearson Education Canada Inc. 3 - 46

Contingent Fees A member in public practice shall not charge a fee contingent on

Contingent Fees A member in public practice shall not charge a fee contingent on the outcome of an audit, review or compilation. Copyright 2003 Pearson Education Canada Inc. 3 - 47

Contingent Fees For what types of engagements may contingent fees be permitted? Copyright 2003

Contingent Fees For what types of engagements may contingent fees be permitted? Copyright 2003 Pearson Education Canada Inc. 3 - 48

Contingent Fees For what types of engagements may contingent fees be permitted? business and

Contingent Fees For what types of engagements may contingent fees be permitted? business and consulting services Copyright 2003 Pearson Education Canada Inc. 3 - 49

Communication with Predecessor Auditor A member shall communicate with the predecessor auditor prior to

Communication with Predecessor Auditor A member shall communicate with the predecessor auditor prior to accepting an appointment. Any circumstances which should prevent successor from accepting? Copyright 2003 Pearson Education Canada Inc. 3 - 50

If public accountants comply with all of the Rules of Conduct, are they assured

If public accountants comply with all of the Rules of Conduct, are they assured that they have not violated any accounting ethics rules? Copyright 2003 Pearson Education Canada Inc. 3 - 51

If public accountants comply with all of the Rules of Conduct, are they assured

If public accountants comply with all of the Rules of Conduct, are they assured that they have not violated any accounting ethics rules? YES! Copyright 2003 Pearson Education Canada Inc. 3 - 52

Who must comply with the Rules of Professional Conduct? all accountants? all public accountants?

Who must comply with the Rules of Professional Conduct? all accountants? all public accountants? Copyright 2003 Pearson Education Canada Inc. 3 - 53

Who must comply with the Rules of Professional Conduct? all members Not all rules

Who must comply with the Rules of Professional Conduct? all members Not all rules are applicable for members not in public practice. Copyright 2003 Pearson Education Canada Inc. 3 - 54

What happens if a member violates the Rules of Professional Conduct? ROPC Copyright 2003

What happens if a member violates the Rules of Professional Conduct? ROPC Copyright 2003 Pearson Education Canada Inc. 3 - 55

What happens if a member violates the Rules of Professional Conduct? - someone may

What happens if a member violates the Rules of Professional Conduct? - someone may know of the violation and report it to the Institute VIOLATION! Copyright 2003 Pearson Education Canada Inc. 3 - 56

What happens if a member violates the Rules of Professional Conduct? - someone may

What happens if a member violates the Rules of Professional Conduct? - someone may know of the violation and report it to the Institute - the Institute may investigate and may prescribe discipline; possible sanctions include required CPE, publication, fines, suspension, or expulsion Copyright 2003 Pearson Education Canada Inc. 3 - 57