Accy 360 ch 19 essay questions – Flashcards

The AICPA ethical standards are compromised of principles, rules of conduct, interpretations of these rules, and ethics rulings. The principles of the standards guide members in the performance of their professional responsibilities and express the basic tenets of ethical and professional conduct. The Rules of Conduct are required rules members are required to abide by. The interpretation of these riles are set to detail each rule in the Rules of Conduct. The ethics rulings are published answers to specific questions about rules of conduct.

Services provided by certified public accountants must be consistent with acceptable professional behavior and must not violate the public trust for personal gain. The public accounting profession is defined as including auditing and accounting, tax and consulting. Accordingly, someone who is licensed as a CPA but who does not perform one of these services would not be considered to be a CPA in public practice. Additionally, someone who is licensed as a CPA who acts as an employee of a company that is not organized as a CPA firm would not be considered to be in public practice. For example, a CPA who worked for a tax preparation firm such as H&R Block or the consulting firm Accenture, LLC would not be considered to be in public practice.

The AICPA Rule 101 in the Code of Conduct is related to independence issues regarding the members. This rule focuses on many different aspects of independence. However, the main ones are financial interest which prohibits any direct or material indirect relations to financials of the company, and employment relationships that link employees to management, clients, or the board which they are subordinate of. These relationships that are prohibited protect a company for effects on families, actual or threatened litigations, and also the ability to or not to provide nonaudit services.

Rule 102 of the AICPA code of conduct is about Integrity and objectivity. If a manager is to ask a member of the engagement team to commit an act that is of misconduct, the member should use their own judgment to make sure the act is not completed. The member should also notify management of the situation. If this situation is not addressed, the member should consider leaving the engagement and communicating with a third party if desired. These third parties would include regulatory agencies or the employer's external auditors.

Rule 101 of the Code of Conduct is structured around independence of members. There are two types of independence that need to be distinguished. Those are the engagement team independence and the firm-wide independence. The engagement team independence involves independence of members from financial interests and employment relationships. These are independence standards set by the AICPA and the PCAOB that an engagement team must follow when dealing with a client. In addition, some firms may also have their independence rules. These are called firm-wide independence. These rules are typically stricter than that set by the AICPA and the PCAOB. Although the later must be followed by all CPA firms, firms do have the ability to place addition independence rules.

Rule 301 of the Code of Conduct states that a member in public practice shall not disclose confidential client information without the consent of the client. However, there are five situations where that information can be disclosed without the client's permission. Those situations include to meet disclosure and performance requirements that are covered under GAAP and GAAS, to comply with a valid subpoena, to allow a review of a member's professional practice under the authority of the AICPA, a state CPA society, or a state board of accountancy, to comply with an investigative or disciplinary proceeding, and to allow review of a CPA's professional practice in conjunction with the purchase, sale, or merger of the practice.

A system of quality control is a requirement for a CPA firm to have for its accounting and auditing services to provide reasonable assurance that engagement are performed in accordance with professional standards and regulatory/legal requirements and that the issuance of reports are appropriate in the circumstances. A system of quality control consists of six elements that must be included. The first is leadership responsibility that lists the policies and procedures that promote an internal culture that emphasizes a commitment to quality and control consciousness. The second is relevant ethical requirements that list policies and procedures that address the independence of personnel as necessary. Next is an acceptance and continuance of client and engagements that specifies the policies and procedures that assesses the risks associated with each engagement and only to take engagements that can be completed with professional competence. Human resources are also included which specifies the policies and procedures that address important personnel issues. Engagement performance must specify the policies and procedures that focus on compliance with applicable professional standards and regulatory requirements; should encourage personnel to consult as necessary with appropriate resources within or outside the firm for guidance. Lastly the system should include monitoring which includes the policies and procedures that provide on-going assessment of the adequacy of the design and operating effectiveness of the system of quality control.