1. Professional Conduct, Independence, and Quality Control
Chapter 19
Professional Conduct, Independence, and Quality Control
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Ethics and Professional Conduct
LO# 1
Ethics and Professional Conduct
Refers to a system or code of conduct based on moral duties and obligations that indicate how an individual should interact with others in society
Ethics
Refers to the conduct, aims, or qualities that characterize or mark a profession or professional person
Professionalism
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3. Theories of Ethical Behavior
LO# 2
Theories of Ethical Behavior
Utilitarianism
Recognizes that decision making involves trade-offs between the benefits and burdens of alternative actions and focuses on consequences and on individuals affected
Rights-Based Approach
Assumes that individuals have certain rights and other individuals have a duty to respect those rights when making decisions
Justice-Based Approach
Is concerned with issues such as equity, fairness, and impartiality
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4. Standards for Auditor Professionalism
LO# 4
Standards for Auditor Professionalism
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5. LO# 5
The AICPA Code of Professional Conduct: A Comprehensive Framework for Auditors
Principles of Professional Conduct
Rules of Conduct
Interpretations of Rules of Conduct
Rulings by the Professional Ethics Executive Committee (PEEC)
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6. Principles of Professional Conduct
LO# 6
Principles of Professional Conduct
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7. Rules of Conduct
LO# 7
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8. “Covered members” must be independent.
Independence
LO# 8
Rule 101
A member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by Council.
Financial Statement Audits
Financial Statement Reviews
Other Attest Services as defined by SSAEs
Interpretation 101-1
“Covered members” must be independent.
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9. SEC and PCAOB Independence Requirements for Audits of Public Companies
LO# 9
SEC and PCAOB Independence Requirements for Audits of Public Companies
The SEC’s rules are predicated on three basic principles of auditor objectivity and independence:
An auditor should not audit his or her own work.
An auditor should not function in the role of management.
An auditor should not serve in an advocacy role for his or her client.
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10. General Standards and Compliance with Standards
LO# 10
General Standards and Compliance with Standards
Rule 201
A member shall comply with the following standards and with any interpretations thereof by bodies designated by Council.
✔ Professional Competence ✔ Due Professional Care
✔ Planning and Supervision ✔Sufficient Relevant Data
Rule 202
A member who performs auditing, review, compilation, management consulting, tax, or other professional services shall comply with standards promulgated by bodies designated by Council.
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11. Confidential Client Information
LO# 11
Rule 301
A member in public practice shall not disclose any confidential client information without the specific consent of the client.
Rule 302
A member shall not
(1) Perform for a contingent fee any professional service for, or receive such a fee from, a client for whom the member or the member’s firm performs (a) an audit or review of financial statements, (b) a compilation of financial statements expected to be used by a third party if the compilation report does not disclose a lack of independence, or (c) an examination of prospective financial information, or
(2) Prepare an original or amended tax return or claim for refund for a contingent fee for any client.
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12. LO# 12
Disciplinary Actions
The Professional Ethics Executive Committee (PEEC) can direct a member to take remedial or corrective actions.
Termination of AICPA Membership
AICPA Trial Board Actions
Suspend AICPA Membership
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13. Quality Control Standards
LO# 13
Quality Control Standards
CPA firms are required to implement policies and procedures to monitor the firms’ practices and ensure that professional standards are being followed.
In 2004, PCAOB assumed the AICPA’s responsibilities relating to firms that audit public clients and instituted a mandatory quality inspection program for those firms.
The AICPA continues to administer a quality review system in order to enable firms to meet their state licensing, federal regulatory, and AICPA membership requirements and to serve firms that audit only privately held clients.
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14. Elements of Quality Control
LO# 14
Elements of Quality Control
Leadership: Tone at the Top
Relevant Ethical Requirements
Client Acceptance and Continuance
Human Resources
Engagement Performance
Monitoring
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15. PCAOB Inspections of Registered Public Accounting Firms
LO# 15
PCAOB Inspections of Registered Public Accounting Firms
The PCAOB conducts regular inspections of public accounting firms that are required to register with the Board.
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16. End of Chapter 19
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