L.J. Brooks, Business & Professional Ethics for Directors, Executives, & Accountants, 3e, Thompson, South-Western, TABLE 4.1 WHAT MAKES A PROFESSION Essential Features(Bayles)  Extensive training  Provision of important services to society  Training and skills largely intellectual in character Typical Features  Generally licensed or certified  Represented by organisations, associations, or institutes  Autonomy Foundation of Ethical Values(Behrman)  Significantly delineated by and founded on ethical considerations rather than techniques or tools

L.J. Brooks, Business & Professional Ethics for Directors, Executives, & Accountants, 3e, Thompson, South-Western, TABLE 4.2 FEATURES, DUTIES, RIGHTS, AND VALUES OF THE ACCOUNTING PROFESSION Features  Provision of important fiduciary services to society  Extensive knowledge and skill are required  Training and skills required are largely intellectual in character  Overseen by self-regulating membership organisations  Accountable to governmental authority Duties essential to a fiduciary relationship  Continuing attention to the needs of clients and other stakeholders  Development and maintenance of required knowledge and skills  Maintenance of the trust inherent in a fiduciary relationship by behaviour exhibiting responsible values  Maintenance of an acceptable personal reputation  Maintenance of a credible reputation as a profession Rights permitted in most jurisdictions  Ability to hold oneself out as a designated professional to render important fiduciary services  Ability to set entrance standards and examine candidates  Self-regulation and discipline based on codes of conduct  Participation in the development of accounting and audit practice  Access to some or all fields of accounting and audit endeavour Values necessary to discharge duties and maintain rights  Honesty  Integrity  Objectivity, based on independent judgement  Desire to exercise due care  Competence  Confidentiality  Commitment to place the needs of the public, the client, the profession, and the employer or firm before the professional's own self-interest

L.J. Brooks, Business & Professional Ethics for Directors, Executives, & Accountants, 3e, Thompson, South-Western, TABLE 4.3 MOTIVES INFLUENCING PEOPLE AT KOHLBERG’S SIX STAGES OF MORAL REASONING STAGE DESCRIPTIONMOTIVE FOR DOING RIGHT PreconventionalSelf-interest 1. ObedienceFear of punishment and authorities 2. Egotism–instrumental and social exchange Self-gratification, concern only for oneself “Let’s make a deal” ConventionalConformity 3. Interpersonal concordanceRole expectation or approval from others 4. Law and duty (social order)Adherence to moral codes, or to codes of law and order Post-conventional, Autonomous or PrincipledInterests of Others 5. General individual rights and standards agreed upon by society Concern for others, and broader social welfare 6. Self-chosen principlesConcern for moral or ethical principle

L.J. Brooks, Business & Professional Ethics for Directors, Executives, & Accountants, 3e, Thompson, South-Western, TABLE 4.4 NATIONAL AND INTERNATIONAL ACCOUNTING ORGANISATIONS OPERATING IN NORTH AMERICA NAMEDESIGNATIONPRIME MANDATE(S)LOCATION American Institute of Certified Public Accountants (AICPA) CPAAuditing, management accounting United States, some Canadian provinces Institute of Management Accountants (IMA) CMAManagement accounting United States Canadian Institute of Chartered Accountants (CICA) CAAuditing, management accounting Canada Society of Management Accountants of Canada (SMAC) CMAManagement accounting Canada Certified General Accountants Association of Canada (CGAAC) CGAManagement accounting, auditing Canada, some provinces

L.J. Brooks, Business & Professional Ethics for Directors, Executives, & Accountants, 3e, Thompson, South-Western, TABLE 4.5 CONTRIBUTIONS TO THE NORTH AMERICAN REGULATORY FRAMEWORK FOR PROFESSIONAL ACCOUNTANTS ORGANIZATIONCONTRIBUTION GOVERNING ORGANISATION’S MEMBERS/USERS AICPAStatements of Auditing Standards (SAS), research studies, journal articles, code of conduct IMAStatements of accounting practice, research studies, journal articles, code of conduct Financial Accounting Standards Board (FASB)Financial Accounting Standards (FAS) CICAAccounting and auditing standards in Canada research studies, journal articles, code of conduct SMACStatements of accounting practice, research studies, journal articles, code of conduct CGAACStatements of accounting practice, research studies, journal articles, code of conduct U.S. Securities and Exchange Commission (SEC) Regulations related to U.S. public securities markets including corporate disclosure and governance, GAAP, GAAS, behaviour of auditors and other professionals practising before the SEC. Regulation in respect to disclosure for companies raising funds in the USA. Standards of independence for CPAs auditing SEC companies. Ontario Securities Commission (OSC)Regulations related to financial disclosure in Canada's principal securities market (Ontario), whose regulations are accepted by the SEC. US and Canadian courtsCommon law decisions affecting legal liability International Federation of Accountants (IFAC) and the International Accounting Standards Board (IASB) International Code of Ethics, and accounting and auditing standards that may facilitate international harmonisation Public Accounting Oversight BoardsOversight in the U.S. and Canada

L.J. Brooks, Business & Professional Ethics for Directors, Executives, & Accountants, 3e, Thompson, South-Western, TABLE 4.6 TYPICAL FRAMEWORK FOR A CODE OF CONDUCT FOR PROFESSIONAL ACCOUNTANTS Introduction and purpose Fundamental principles and standards General rules Specific rules Discipline Interpretations of rules

L.J. Brooks, Business & Professional Ethics for Directors, Executives, & Accountants, 3e, Thompson, South-Western, TABLE 4.7 FUNDAMENTAL PRINCIPLES IN CODES OF CONDUCT FOR PROFESSIONAL ACCOUNTANTS Members should:  at all times maintain the good reputation of the profession and its ability to serve the public interest,  perform with:  integrity  due care  professional competence  independence  objectivity  confidentiality, and  not be associated with any misleading information or misrepresentation.

L.J. Brooks, Business & Professional Ethics for Directors, Executives, & Accountants, 3e, Thompson, South-Western, TABLE 4.8 POSSIBLE SANCTIONS FOR UNETHICAL BEHAVIOUR UNDER PROFESSIONAL ACCOUNTING CODES OF CONDUCT AND REGULATORY AUTHORITIES LEVIABLE ON THE PROFESSIONALACCOUNTING FIRM CautionYes ReprimandYes Review by peerYes Requirement to complete coursesYesNo Suspension:  for a specified period  for an indefinite period  until specific requirements are completed  from appearing before regulatory agencies (SEC, OSC)  from auditing SEC or OSC registrant companies Yes No Yes Expulsion from membershipYesNo Compensation for damageYes FineYes Costs of hearingYes Ancillary orders  for community work  financial support, etc. Yes No Yes SOURCE: Distillation of discipline cases from the professional accounting and regulatory bodies in the United States and Canada.

L.J. Brooks, Business & Professional Ethics for Directors, Executives, & Accountants, 3e, Thompson, South-Western, TABLE 4.9 THE MACDONALD COMMISSION: OVERVIEW OF PRINCIPAL RECOMMENDATIONS Recommendations to strengthen auditor independence/integrity:  Improvement of auditor relationships (#11)  Strengthen professional standards (7)  Strengthen professional code of conduct (3) Recommendations to strengthen auditor professionalism:  Increase responsiveness to public concerns (6)  Emphasise vital role of professional judgement (4)  Improve self-regulation (2) Recommendations to improve financial disclosure:  Expand accounting standards and improve financial disclosures (13)  Greater auditor responsibility for those disclosures (2) Recommendations to lessen public misunderstanding of the auditor's role:  Publish a statement of management responsibility (24)  Expand audit report to clarify auditor's role and the level of assurance the audit provides (25)  Audit committee to report annually to shareholders (3) SOURCE: The Macdonald Commission: Report of the Commission to Study the Public's Expectation of Audits, CICA, Toronto, June 1988.

L.J. Brooks, Business & Professional Ethics for Directors, Executives, & Accountants, 3e, Thompson, South-Western, FIGURE 4.1 IFAC CODE OF ETHICS VALUES FRAMEWORK Duty to Society, Serve the Public Interest Objectives Meet Expectations for Professionalism, Performance, Public Interest Basic Needs Credibility, Professionalism, Highest Quality Services, Confidence Fundamental Principles Integrity, Objectivity, Professional Competence and Due Care, Confidentiality, Professional Behavior, Technical Standards Source: IFAC, November, 2001.

L.J. Brooks, Business & Professional Ethics for Directors, Executives, & Accountants, 3e, Thompson, South-Western, FIGURE 4.2 IFAC CODE’S FRAMEWORK FOR PROPER JUDGMENT 1. Protect the Public Interest 2. Professional Service to Clients Judgement IntegrityObjectivity Independence of Mind & Appearance Professional Skepticism

L.J. Brooks, Business & Professional Ethics for Directors, Executives, & Accountants, 3e, Thompson, South-Western, FIGURE 4.3 ASSURING INDEPENDENCE OF MIND AND APPEARANCE Identify and Evaluate Circumstances and Relationships that Create Threats To Independence Self-Interest Self-review Advocacy Familiarity Intimidation Eliminate Threats Or reduce to an Acceptable Level by Applying Safeguards Profession Legislation Regulation Within Client Within Firm

L.J. Brooks, Business & Professional Ethics for Directors, Executives, & Accountants, 3e, Thompson, South-Western, TABLE 4.10 SAFEGUARDS REDUCING THE RISK OF CONFLICT OF INTEREST SITUATIONS Safeguards Created by the Profession, Legislation or Regulation  Education, training, experience requirement for entry  Continuing education  Professional standards, monitoring, and disciplinary processes  External review of firm’s quality control system  Legislation governing independence requirements of the firm IFAC Code, 8.37 Safeguards Within a Client  Appointment of auditors ratified/approved by other than management  Client has competent staff to make managerial decisions  Policies and procedures emphasizing client’s commitment to fair financial reporting  Internal procedures to ensure objective choices in commissioning non-assurance engagements  A corporate governance structure, such as the audit committee, that provide appropriate oversight and communications regarding a firm’s services IFAC Code, 8.38 Safeguards Within a Professional Accounting Firm’s Own Systems and Procedures  Leadership stressing importance of independence, and expectation of service/action in the public interest  Policies and procedures to implement and monitor control of assurance engagements  Documented independence policies regarding the identification and evaluation of threats to independence, applications of safeguards to eliminate or reduce those threats to an acceptable level  Policies and procedures to monitor and manage the reliance on revenue from a single assurance client  Using partners with separate reporting lines for the provision of non-assurance services to an assurance client  6 other firm-wide and 9 other specific items IFAC Code, 8.41,2

L.J. Brooks, Business & Professional Ethics for Directors, Executives, & Accountants, 3e, Thompson, South-Western, TABLE 4.11 CONFLICTS OF INTEREST FOR PROFESSIONAL ACCOUNTANTS: CATEGORIES, SPHERES OF ACTIVITY AFFECTED AND EXAMPLES STAKEHOLDER CATEGORY SPHERE OF ACTIVITY AFFECTEDEXAMPLES Self vs. othersServices offered Improper use of influence Misuse of information Conflicting services, shaving quality Improper purchases of client goods Improper investments by relatives Self & others vs. others Services offeredOver-involvement with management or Directors erodes objectivity Client vs. client Employer vs. employer Services offeredServing competing clients at the same time Stakeholder vs. stakeholder Misuse of information (confidentiality) Whistle-blowing, reporting to government or regulators