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CHAPTER 19AICPA Professional Ethics DivisionSix Principles (not enforceable)Page 654, Table 19-1Rules of Conduct (ROC) (are enforceable)11 rules, Table 19-2, page 656Interpretations of ROCEthics Rulings – summary of ROC applied to specificsituationsPunishment- Expel from membership- Suspend from membership for no more than 2 yearsFigure 19-1, page 652 – SEC/PCAOB have additional ethics requirements for public co. auditors1AICPA Rules of ConductRuleTitle and Description ApplicabilityPersonal in Nature101 Independence (pg. 656-669) In fact and in appearance Litigation between client and auditor Financial interests in client Family relationships Honorary directorshipsAdditional SEC independence rules for public co. audits (see next page)All audits and other attest services by AICPA members102 Integrity and Objectivity All services provided by anAICPA memberTechnical in Nature201 General Standards Professional competence (CPE) Due professional care Planning and supervision Sufficient relevant data (documentation)All services provided by anAICPA member202 Compliance with Standards – Comply with standards relevant to the service being renderedAll services provided by anAICPA member203 Accounting Principles – Financial information must comply with GAAP All engagements in which an AICPA member reports on FS or other financial dataClient-Oriented in Nature301 Confidential Client InformationConfidential vs. PrivilegedAll services provided by anAICPA member302 Contingent Fees – Prohibits fee arrangements with audit and tax clients that are contingent on a particular outcomeException for some non-traditional tax servicesAll audits (and other attestservices) and original and amended tax return services provided by AICPAmembersProfession-Oriented in Nature501 Acts Discreditable All AICPA members502 Advertising and Other Forms of Solicitation All AICPA members503 Commissions and Referral Fees – Auditors cannotearn commissions by recommending products to audit clients. Some referral fees okay, but must be disclosed.All AICPA members who provide audit and other attest services505 Form of Practice and Name – Can organize in anymanner permitted by state lawAll AICPA members301 Confidential (Arrow from there to here)1. Must comply with subpoena and summons2. Must comply with review by AICPA or state society3. Must cooperate with investigative/disciplinary body4. To meet disclosure requirement for GAAP/GAAS5. To allow a review of a CPA’s professional practice in conjunction with the purchase, sale, or merger of the practice2PCAOB/SEC – Additional IndependenceGuidelines3 basic principles. Auditor should not:1. Audit own work2. Function in the role of management3. Serve in advocacy role for clientPg. 667 – services an auditor cannot provideAudit partner rotation – lead and review partner must rotate off client after 5 years. “Stay off” for 5 years, and then rotate back on.Employment – if former member of audit team is now employed by client in a “financial reporting oversight role,” then auditing firm cannot audit client for 1 year (“cooling-off period”)Client must publicly disclose audit fees and other fees paid to the auditors.3Who Audits the Auditors?Monitoring of public accounting firms is achieved at three levels:1. Individual firms – AICPA requires all firms providing auditing and attestation services to comply with quality control standards issued by the ASB.Six elements of Quality Control H Human resources- Relates to hiring, CPE requirements, work assignments, advancementE Engagement/client acceptance and continuance- Ensure that firm accepts engagements it can perform - Minimize association with clients that lack integrity L Leadership responsibilities- Firms leadership should exhibit a commitment to quality- Resources devoted to improving quality P Performance of the engagement- Policies should be in place to ensure a high level of performance on engagements (proper supervision, training, staffing, etc.) M Monitoring- QC system should be monitored - Changes needed, operating effectively- Partner should be responsible for monitoring E Ethical requirements- Independence includes SOX requirements - Integrity and objectivity in all you doWho Audits the Auditors?2. PCAOB – Inspections to ensure audit firm is in compliance with SOX, SEC rules, and PCAOB rules.4 Regular inspections – every year if audit > 100 public companies per year Special inspections – once every three years if audit < 100 public companies per year3. AICPA Peer Review Program (PRP) – reviews areas of firms not subject to PCAOB inspections (auditors audit each other)[Member firms must be reviewed every three years]Deficiencies in quality controls can lead to fines, suspensions, expulsion from membership, or other actionsagainst the reviewed firm. (More CPE)Who has the most power when there is a violation?AICPA – responsible for enforcing the code of conductState Societies – enforce state code of conduct^^ AICPA and State Societies have Joint Ethics Enforcement Program (JEEP)  Joint Trial Board Hearing *State Board of Accounting – enforces licensing issuesGAAS – relate to performance of each individual audit engagement VS.QC Standards – relate to conduct of all professional activitiesof firms practices


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LSU ACCT 2001 - CHAPTER 19

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