I need help with the following review questions please!

Its related to ethics and accounting, should be straight forward please help. I need this by tomorrow.

Please let me know if you need any further details.

0ROFESSIONAL%THICS\u001a4HE !)#0!gS#OMPREHENSIVE #OURSE PROFESSIONAL ETHICS: THE AICPA'S COMPREHENSIVE COURSE BY CATHERINE R. ALLEN, CPA Notice to Readers Professional Ethics: The AICPA's Comprehensive Course is intended solely for use in continuing professional education and not as a reference. It does not represent an official position of the American Institute of Certified Public Accountants, and it is distributed with the understanding that the author and publisher are not rendering legal, accounting, or other professional services in the publication. This course is intended to be an overview of the topics discussed within, and the author has made every attempt to verify the completeness and accuracy of the information herein. However, neither the author nor publisher can guarantee the applicability of the information found herein. If legal advice or other expert assistance is required, the services of a competent professional should be sought. You can qualify to earn free CPE through our pilot testing program. If interested, please visit aicpa.org at http://apps.aicpa.org/secure/CPESurvey.aspx. 2015-2016 American Institute of Certified Public Accountants, Inc. All rights reserved. This work may not be copied or otherwise distributed without the express written permission of the AICPA. For information about the procedure for requesting permission to make copies of any part of this work, please email copyright@aicpa.org with your request. Otherwise, written requests should be mailed to the Permissions Department, AICPA, 220 Leigh Farm Road, Durham, NC 27707-8110. Course Code: 732319 PECOMP GS-0415-0B Revised: August 2015 Use of Materials This course manual accompanies all formats in which the course is offered, including self-study text, self-study online, group study, in-firm, and other formats, as applicable. Specific instructions for users of the various formats are included in this section. Continuing Professional Education (CPE) is required for CPAs to maintain their professional competence and provide quality professional services. CPAs are responsible for complying with all applicable CPE requirements, rules, and regulations of state licensing bodies, other governmental entities, membership associations, and other professional organizations or bodies. Professional standards for CPE programs are issued jointly by the American Institute of Certified Public Accountants (AICPA) and the National Association of State Boards of Accountancy (NASBA) to provide a framework for the development, presentation, measurement, and reporting of CPE programs. These standards are entitled Joint AICPA/NASBA Statement on Standards for Continuing Professional Education Programs (CPE standards), and are available as part of the AICPA's Professional Standards three-volume set, either in paperback or as on online subscription through the AICPA's Online Professional Library. Review Questions for Self-Study Participants The CPE standards require that self-study programs include review questions (also known as knowledge check questions) that provide feedback to both correct and incorrect responses. Note that these questions are provided only as learning aids and do not constitute a final examination. Requirements for Claiming and Receiving CPE Credit CPE standards place responsibility on both the individual participant and the program sponsor to maintain a record of attendance at a CPE program. CPAs who participate in only part of a CPE program should only claim CPE credit for the portion that they attended or completed. CPE participants must document their claims of CPE credit. Examples of acceptable evidence of completion include: x for group and independent study programs, a certificate or other verification supplied by the CPE program sponsor. x for self-study programs, a certificate supplied by the CPE program sponsor after satisfactory completion of an examination. Participants in group study and other live presentations will receive a completion certificate from the program sponsor. CPE program sponsors are required to keep documentation on programs for five years, including records of participation. All self-study participants must complete the exam within one year of date of course purchase in order to receive a certificate indicating satisfactory completion of the CPE program. When purchased as a self-study course in text format, the exam is located in the Examination section at the end of the course manual. The course code number for both the self-study exam and the self-study evaluation can be found in the Examination's introductory material. Participants may either complete the self-study exam and evaluation online at https://cpegrading.aicpa.org or use the paper answer sheet and evaluation forms included with the course materials. Participants must provide the unique serial number printed on the examination answer sheet. If using the paper forms, participants should mail the original answer sheet and course evaluation form in the pre-addressed envelope. Photocopies or faxes of the original forms are not acceptable. The paper grading process averages five to seven business days from date of receipt. During peak reporting periods (June, September, and December), the processing time may be 10 to 15 business days. Self-study participants must achieve a minimum passing grade of at least 70 percent to qualify for CPE credit. o Upon achieving a passing grade, participants receive a certificate displaying the number of CPE credits earned based on a 50-minute hour, in compliance with CPE standards. If the exam is completed online, the completion certificate is provided online, which may be printed or saved in .pdf format. Also, the grading system maintains a transcript of the participants' completed courses. If the answer key is mailed in, participants receive the completion certificate in the mail. o If a passing grade is not achieved, the participants are notified. If a passing grade is not achieved and the participant completed the exam online, the grading system provides immediate online notification of the score as well as instructions on how to re-take the exam. Participants who do not pass the online exam within three attempts must mail in the examination answer key. If a passing grade is not achieved and the participant mailed in the exam, the participant is mailed a notification of the exam score and an answer sheet so that the exam may be re-taken. Program Evaluations The information accumulated from participant evaluation forms is an important element in our continual efforts to provide high quality continuing education for the profession. Participants in group study and other live presentations should return their evaluation forms prior to departing their program sessions. Self-study participants should either mail the completed evaluation form along with the examination answer sheet in the envelope provided, or complete the course evaluation online. Your comments are very important to us. Customer Service For help and support, including information on refund claims and complaint resolutions, please call AICPA Member Service at 1-888-777-7077, or visit the online Help page of the AICPA Store at www.cpa2biz.com. TABLE OF CONTENTS Overview ................................................................................................................Overview 1\u0003 Appendix ..............................................................................................................Overview 13\u0003 AICPA Code of Professional Conduct Principles of Professional Conduct .........Overview 13\u0003 Chapter 1 ............................................................................................................................. 1-1\u0003 Professional Ethics............................................................................................................... 1-1\u0003 The AICPA Code of Professional Conduct .................................................................................... 1-2\u0003 Structure of the Code..................................................................................................................... 1-3\u0003 Principles ........................................................................................................................................ 1-4\u0003 Rules of Conduct ............................................................................................................................ 1-6\u0003 Interpretations ................................................................................................................................ 1-7\u0003 Professional Conduct: Integrity ...................................................................................................... 1-8\u0003 Helping Hands Case Study ............................................................................................................. 1-9\u0003 Conceptual Framework ................................................................................................................ 1-16\u0003 Conflicts of Interest ...................................................................................................................... 1-17\u0003 Conflict of Interests Case Study ................................................................................................... 1-19\u0003 Professional Conduct: Competence and Due Care ..................................................................... 1-22\u0003 Competence and Due Care: The Promotion Case Study ............................................................ 1-24\u0003 Confidential Client Information .................................................................................................... 1-27\u0003 Acts Discreditable to the Profession ............................................................................................ 1-33\u0003 CPAs in Public Practice ................................................................................................................ 1-39\u0003 CPAs in Public Practice: Case Study ............................................................................................ 1-40\u0003 Questions to Consider and Lessons Learned............................................................................... 1-45\u0003 Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Table of Contents 1 Appendix A ........................................................................................................................ 1-47\u0003 Conceptual Framework for Members in Public Practice .................................................. 1-47\u0003 Appendix A ................................................................................................................................... 1-49\u0003 Appendix B ........................................................................................................................ 1-57\u0003 Conceptual Framework for Members in Business ............................................................ 1-57\u0003 Appendix B ................................................................................................................................... 1-59\u0003 Chapter 2 ............................................................................................................................. 2-1\u0003 Independence ...................................................................................................................... 2-1\u0003 AICPA Independence Standards and the Conceptual Framework................................................ 2-2\u0003 Definition of a Covered Member ................................................................................................... 2-4\u0003 Family Relationships........................................................................................................................ 2-9\u0003 Key Positions ................................................................................................................................. 2-10\u0003 Close Relatives .............................................................................................................................. 2-12\u0003 Attest Engagements ..................................................................................................................... 2-13\u0003 Financial Interests ......................................................................................................................... 2-15\u0003 Former Association With a Client ................................................................................................. 2-17\u0003 Affiliates of Attest Clients ............................................................................................................. 2-19\u0003 Loans To and From Clients ........................................................................................................... 2-20\u0003 Joint Closely Held Investments .................................................................................................... 2-23\u0003 Networks and Network Firms ....................................................................................................... 2-24\u0003 Nonattest Services ........................................................................................................................ 2-25\u0003 Other Relationships With Attest Clients....................................................................................... 2-34\u0003 Employment or Business Relationships ........................................................................................ 2-36\u0003 Fee Arrangements ........................................................................................................................ 2-38\u0003 Questions to Consider and Lessons Learned ............................................................................... 2-42\u0003 2 Table of Contents Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Appendix ........................................................................................................................... 2-43\u0003 Conceptual Framework for Independence ....................................................................... 2-43\u0003 Chapter 3 ............................................................................................................................. 3-1\u0003 SEC and PCAOB Independence Rules ................................................................................ 3-1\u0003 Overview of SEC and PCAOB Independence Rules ...................................................................... 3-2\u0003 Employment Relationships ............................................................................................................. 3-5\u0003 Affiliate of an Audit Client .............................................................................................................. 3-6\u0003 Financial Relationships ................................................................................................................... 3-7\u0003 Non-Audit Services ......................................................................................................................... 3-8\u0003 Business Relationships .................................................................................................................. 3-13\u0003 Other Rules ................................................................................................................................... 3-14\u0003 Other Matters ............................................................................................................................... 3-15\u0003 Communicating Independence Matters ...................................................................................... 3-17\u0003 Maintain Your Independence ....................................................................................................... 3-18\u0003 Questions to Consider and Lessons Learned............................................................................... 3-19\u0003 Chapter 4 ............................................................................................................................. 4-1\u0003 Independence Rules of Other Regulators........................................................................... 4-1\u0003 GAO Independence Rules.............................................................................................................. 4-2\u0003 DOL Independence Rules ............................................................................................................ 4-11\u0003 Banking, Insurance and Other Regulators ................................................................................... 4-12\u0003 International Ethics Standards...................................................................................................... 4-14\u0003 Questions to Consider and Lessons Learned............................................................................... 4-17\u0003 Chapter 5 ............................................................................................................................. 5-1\u0003 Ethics Rules for Tax Practice ............................................................................................... 5-1\u0003 Standard-Setting Bodies and Regulators ....................................................................................... 5-2\u0003 Competence and Due Professional Care ....................................................................................... 5-5\u0003 Statements on Standards for Tax Services................................................................................... 5-11\u0003 Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Table of Contents 3 Training Session: Preparer Penalties ............................................................................................ 5-15\u0003 Training Session: Professional Judgment and Firm Resources .................................................... 5-18\u0003 Client Records Requests ............................................................................................................... 5-23\u0003 Discovery of Client Errors or Omissions ....................................................................................... 5-26\u0003 Questions to Consider and Lessons Learned ............................................................................... 5-33\u0003 Glossary ................................................................................................................... Glossary 1 Index ............................................................................................................................. Index 1 Solutions ................................................................................................................. Solutions 1 Overview ........................................................................................................................... Solutions 1 Chapter 1 ........................................................................................................................... Solutions 2 Chapter 2 ........................................................................................................................... Solutions 4 Chapter 3 ........................................................................................................................... Solutions 8 Chapter 4 ......................................................................................................................... Solutions 11 Chapter 5 ......................................................................................................................... Solutions 11 Users of this course material are encouraged to visit the AICPA website at www.aicpa.org/CPESupplements to access supplemental learning material reflecting recent developments that may be applicable to this course. The AICPA anticipates that supplemental materials will be made available on a quarterly basis. 4 Table of Contents Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Overview INTRODUCTION This course will teach you about the basic ethical requirements applicable to CPAs, including a methodology for analyzing ethical matters. COURSE OBJECTIVES After completing this course, you will be able to: Recognize the structure and content of the AICPA Ethics Codification, including the underlying principles. Recall the conceptual framework approach embedded in the codification. Apply AICPA rule interpretations on integrity, objectivity, confidentiality, and advertising, including where applicable, using the conceptual framework approach. Identify acts discreditable to the profession. Recall the obligations to exercise due professional care, comply with professional standards, and be competent in performing professional services. Recognize the importance of independence, when independence is required, and why you must be independent of an attest client both in fact and in appearance. Apply the independence rules to personal matters by identifying the financial, family, and employment relationships that threaten compliance with the independence rule. Analyze the nonattest services and business relationships, and other matters that threaten a firm's independence. Analyze fee issues and their effect on independence and objectivity. Recall the additional independence provisions applicable to attest clients subject to the SEC, the PCAOB, the U.S. Government Accountability Office (GAO), the U.S. Department of Labor (DOL). Recall the AICPA requirements applicable to tax services, including the Statements on Standards for Tax Practice (SSTS), IRS Circular No. 230, and IRS preparer penalty provisions. Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Overview 1 Because this is an introductory course, the content is general, but there is additional information available to you throughout the course, which should provide a comprehensive foundation for further research and inquiry. A BRIEF STORY Imagine you are the controller of Apex Corporation, a troubled company, whose one hope is a possible acquisition by Fire Corporation of America (FCA). Here is the background. Apex is a telecommunications company and is in serious trouble with less than six months of cash left and liabilities mounting. FCA is completing the final stages of its due diligence to acquire 100 percent of the stock of Apex and infuse $30 million in cash to keep the operations going. Surprisingly enough, FCA is very bullish on the prospects for Apex and seems ready to move ahead with the transaction and save Apex from certain bankruptcy. There is only one problem: FCA's consultants, Implus Partners, prepared and submitted pro forma financial projections to FCA based on information your boss provided to them . . . and you believe the revenues to be overstated. Something seems wrong. You remember your boss telling you and the other staff that should the acquisition go through, FCA would keep everyone at Apex on the staff. \"We must make the best possible impression on FCA,\" she said. \"Be optimistic, friendly, and supportive over the next few weeks. This is our last chance to avoid bankruptcy and save our jobs.\" What should you do? You want to be fair to FCA, but you also want to be fair to your employer and your colleagues, not to mention the company stockholders and lenders, who will surely suffer if the acquisition does not go through and the company is forced into bankruptcy. In matters of ethics, we often we do not have all the facts and must probe to uncover the \"right\" or best way to respond to a dilemma. Ethical dilemmas involve competing valuesfor example, fairness, loyalty, or keeping a confidencewhich force us to make a choice. Some values may be addressed in the profession's codes of conduct; others may not. There may be more than one \"right\" answer. As a professional, you cannot shy away from these gray areas, but instead must learn to work through them to determine the best possible answer in the situation. In this course, we will introduce you to an ethics decision-making model, which is a series of evaluative questions to help you analyze and determine the best possible solution to an ethical dilemma. Then we will apply the model to the short case study we just reviewed. However, before we get into the ethics decision-making model, we will discuss some key points about recognizing and handling an ethical matter. Overview 2 Copyright 2015-2016 AICPA Unauthorized Copying Prohibited RECOGNIZING ETHICAL MATTERS AND MAKING GOOD DECISIONS To address an ethical matter and make good judgments, you must first be able to recognize issues when they arise. This means being familiar with the profession's body of rules and regulations from the AICPA and your local state accountancy board, which issues your license to practice, among others. This also means staying attuned to potential ethical \"warning signs.\" You should understand the relevant rules, which may change over time. You can accomplish this by paying attention to rule-making initiatives and making ethics part of your continuing education plans. Many state accountancy boards require you to earn a certain number of educational hours in ethics each year or renewal period but even if your state has no such requirement, you'll want to stay up to date on ethics, and keep ethics as a part of your professional education. To be effective, you also need to know how to analyze a matter. You will practice working through a few matters in this course. Sometimes, especially when a matter is complex or highly sensitive, you may wish to allow others to help you evaluate it from different perspectives, keeping mindful of your obligations to maintain confidentiality. It is a good practice to consider possible people with whom you can consult before you encounter a situation. This should be someone whose judgment you trust and respecta colleague, friend, or relative who is fair and open-minded. You can contact the AICPA Ethics Hotline at 1.888.777.7077, Option 6, and then Option 1, or your state CPA society or board of accountancy for assistance. In some instances, where there are potential legal issues involved, consider consulting with an attorney before making a decision. And always, you must consider the sensitivity of the information to ensure that you do not inappropriately divulge confidential information. ETHICAL DECISION-MAKING MODEL Now let us look at a series of questions that can help you evaluate the brief story you heard at the beginning of this chapter. Step 1: Recognize the Ethical Issue First, we need to recognize the ethical issue in this situation. As controller, you are torn between helping your employer and ensuring that the company seeking to acquire your employer, FCA, has complete and accurate information. This is an ethical dilemma because you are experiencing a conflict in your values, that is, loyalty to your employer and fellow employees versus full and fair disclosure to FCA. Step 2: Gather the Critical Facts Next, you should gather the critical facts of the matter. Keep in mind that you may not have all of the factsthis can be very dangerous. While you may at times have to make decisions without the benefit of all the facts, you should not be making decisions without key pieces of information. In this case, whether the information is material to the Apex financial projection is a critical piece of data. You should determine this before proceeding. It is critical because if the financial projections are Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Overview 3 overstated by a miniscule amount, this will likely have little or no bearing on FCA's decision to buy Apex. In such a case, the ethical issue would probably vanish. Step 3: Identify the Stakeholders Let us assume you take further action and determine that the projection is overstated by a material amount. Next, you need to identify the stakeholdersthese are the people or organizations that will be affected either positively (benefited) or negatively (harmed) by your decision and actions. For example, this would include Apex and its owners and employees and FCA and its owners and employees. Owners include shareholders of both companies; you may also consider companies that have significant loans to Apex and FCA and both companies' primary customers and vendors. Another stakeholder is the consulting firm hired by FCA to prepare the financial projection. Generally, you should consider as many stakeholders as possible to get a comprehensive picture of who would be affected by your decision. Step 4: Consider Alternatives Once you have identified the stakeholders, you should consider the alternativesthe various approaches you could take to address this matter and resolve the ethical conflict. The following are just a few options: 1. Arrange a meeting with FCA to discuss your concerns. 2. Arrange a meeting with the Apex CFO to discuss your concerns. 3. Send an anonymous letter to FCA's consulting firm describing your concerns. 4. Take no action. Step 5: Consider the Effect on Stakeholders Now that you have identified the stakeholders and considered your alternatives, you need to consider how each of these approaches is likely to affect each stakeholder. Obviously, you must use your judgment to predict likely outcomes and this is far from an exact science. However, performing this analysis and applying your best judgment allows you to assess the potential ramifications of each option. For example, Option 1 involves bypassing your superior at Apex, which will very likely jeopardize or damage your employment situation. By avoiding discussion with the CFO of Apex, you do not allow her the chance to respond to your concerns. Because you were not directly involved in providing data to FCA, it is possible that she has additional information that will eliminate your concerns. In addition, your actions will likely cast a negative light on Apex. On the other hand, if the information is incorrect, as you suspect, you may help FCA to avoid a costly errortheir shareholders, creditors, and other stakeholders will likely benefit from your disclosure. It may also prevent future litigation against Apex principals for providing misleading information to FCA. However, without the acquisition, Apex will likely file for bankruptcy protection and you and your colleagues will be out of work. Overview 4 Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Option 2 allows you to air your concerns within Apex before deciding whether to go to anyone else. This gives your boss a chance to respond to your concerns. It is also possible that she can provide you additional information that will reduce or even eliminate your concerns. Assuming this outcome, no further action by you will be necessary. On the other hand, if your meeting with the CFO is unsatisfactory and you still believe FCA will be relying on inaccurate financial information, you will have delayed your disclosure to FCA and will need to consider further actions. Option 3 is similar to Option 1 because it involves reporting your concerns to a party outside of your organization. However, the information is provided anonymously, so the consultants will not know who is providing the information. Most likely, they will approach Apex management to obtain more information. This approach can also affect the transaction because it will raise concerns about a lack of integrity and cohesiveness at Apex. Finally, we have Option 4, which will maintain the status quoFCA may purchase Apex based on what they believe to be true and reliable information. If the information is in fact misleading, it is possible that FCA's purchase of Apex will cause its owners and employees to suffer financial loss, which will include the newly acquired Apex Corporation. This option can also result in litigation between the parties and between FCA and its consultants. Another possibility is that FCA or its consulting firm may bring ethics charges against you and the CFO of Apex Corporation with the AICPA, the state accountancy board, and/or the state CPA society. Step 6: Consider Your Comfort Level So far, we have identified the issues and stakeholders, gathered information, and evaluated possible approaches and how they would likely affect each stakeholder. Before you make a decision, you should ask yourself some questions: How comfortable are you with each option? If you had to discuss your decision in public, would you be concerned about how it reflects on your ethics? Regarding options 1 and 3, would you feel embarrassed that you failed to raise these concerns within Apex before going outside the organization? Are you uncomfortable with option 4doing nothing? Do you feel you could explain taking option 2? Does this feel like a correct decisionat least at this time? Remember: option 2 may be only a partial solution to the problem. Depending on your meeting with the CFO, you may need to take additional action. Step 7: Consider Rules, Regulations, and Laws Are these options consistent with applicable professional ethics rules, regulations, and laws? Obviously, this is an important question which you must be prepared to address. You may determine that the greatest benefit and least amount of harm would likely result if you take a particular course of action, but if that course of action is inconsistent with the profession's rules of conduct, you may not ignore those rules. You must weigh your ethical requirements against all of your proposed alternative actions. For example, would the professional ethics rules allow you to divulge information to outside parties in these circumstances? Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Overview 5 If you are uncertain of the professional, regulatory, or legal implications of your actions, you should seek appropriate counsel. You must weigh the applicable rules, regulations, and laws against all of your proposed alternative actions. Step 8: Make a Decision Once you have considered all of these things, you may be ready to make your decision. Perhaps you have discussed the matter with a trusted colleague and considered the matter from various perspectives. However, if you still feel that you cannot make your decision, you should seek further counsel from a colleague, or, if warranted, an attorney. But just rememberin the end, the decision is yours to make. Although you will not always have the luxury of time, whenever feasible, you should take the time you need to fully consider all of the issues. Hasty decisions may be regretted later. So, you make your decisionoption 2and you will meet with the CFO, explain your concerns to her, and see where that conversation leads. This decision was rather an obvious one. In these situations, you should exhaust all of your options and gain as much information as possible before you consider disclosing information to parties outside of your organization. Of course, if that meeting does not resolve the issue, you have some more thinking to do! Step 9: Document Your Efforts Once you have made a decision, and while it is fresh in your mind, you should consider documenting your understanding of the facts, the names of any people with whom you consulted, their professional affiliations (if relevant), and your decision. Step 10: Evaluate the Outcome Once time has passed, it may be constructive to re-evaluate the decision you made and consider whether, given the outcome of events, you would have done anything differently. KNOWLEDGE CHECK 1. Which step in the decision-making model is characterized by asking the question, \"Are these options consistent with applicable professional ethics rules, regulations, and laws?\"? a. b. c. d. Recognize ethical issues. Gather critical facts. Consider the effect on stakeholders. Consider rules, regulations, and laws. 2. Which step in the decision-making model is characterized by asking the question, \"If you had to discuss your decision in public, would you be concerned about how it reflects on your ethics?\"? a. b. c. d. Overview 6 Recognize ethical issues. Consider your comfort level. Consider the effect on stakeholders. Consider rules, regulations, and laws. Copyright 2015-2016 AICPA Unauthorized Copying Prohibited THE ACCOUNTING PROFESSION Numerous bodies set ethics standards and rules for members of the accounting profession, who work in various sectors of the profession: Many professionals are in public practice, working for public accounting firms, from one-person firms to the big four international accounting firms. These professionals provide a variety of services to clients and ultimately the public, from audits of financial statements to tax compliance to an array of consulting services. Other professionals are members in business, working or volunteering for organizations, whether commercial or not-for-profit, or they may be employed in the governmental sector and work for state, federal, or local agencies or for governmental entities, such as states, counties, or municipalities. These members are responsible for accounting, finance, and other areas of business, such as internal audit. Other members in business serve in teaching roles in vocational programs, high schools, colleges, and universities. ( Copyright by Catherine R. Allen, 2011, used with permission.) Here are the main professional and regulatory bodies that set rules and regulations for the accounting profession. Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Overview 7 State CPA Licensing Boards State CPA licensing boards are charged with issuing CPA licenses and overseeing the ethical conduct of CPAs in 55 jurisdictions in the United States. It is critically important for CPAs to know their state board's requirements. If you are licensed by more than one state board, you should familiarize yourself with each state's requirements. State board rules can vary significantly from one state to another. Some, like the Texas State Board of Public Accountancy, incorporate the rules of other bodies, such as the AICPA and the SEC \"by reference.\" This means that the board adopts the rules of these other bodies. Other boards have adopted versions of the AICPA rules, and still others have adopted their own rules. Boards generally post their rules and statutes to their websites. American Institute of Certified Public Accountants (AICPA) The AICPA is the national professional organization for all CPAs. Its mission is to provide members with the resources and information that enable them to offer valuable services in the highest professional manner to benefit the public, employers, and clients. In fulfilling its mission, the AICPA works with state CPA societies and boards, giving priority to those areas where public reliance on CPA skills is most significant. The AICPA Professional Ethics Executive Committee (PEEC) promulgates and enforces ethics and independence rules that apply to all members. We will discuss these rules extensively in this course. US SEC The SEC establishes and enforces accounting and auditing policy, including auditor independence. Its mission is to improve the professional performance of public company auditors to ensure that financial statements are presented fairly and have credibility. We will discuss the SEC independence rules in chapter 3 of this course. PCAOB The Sarbanes-Oxley Act of 2002 directed the PCAOB to establish auditing and related attestation, quality control, ethics, and independence standards for public company auditors. The SEC oversees the PCAOB's activities. In chapter 3, we will address the independence rules that apply to public company auditors, which include the PCAOB rules. US Government Accountability Office The Government Accountability Office (GAO) issues ethics and independence rules that apply to engagements performed under generally accepted government auditing standards (GAGAS). These governmental standards are commonly referred to as the \"Yellow Book.\" We will discuss these rules in chapter 4 of this course. US Department of Labor Auditors of employee benefit plans that file reports with the Department of Labor (DOL) should be aware of the DOL interpretive bulletin on independence. These rules will be addressed in chapter 4 of this course. Overview 8 Copyright 2015-2016 AICPA Unauthorized Copying Prohibited US Department of the Treasury IRS The IRS is a government agency under the U.S. Department of the Treasury. The Internal Revenue Code (IRC) authorizes the Secretary of the Treasury to set rules and regulations necessary to enforce the U.S. tax laws. Treasury Department Circular No. 230 governs federal tax practice before the IRS by CPAs, enrolled agents, attorneys, and actuaries and the IRS Office of Professional Responsibility (OPR) that enforces these regulations. Preparer penalty and confidentiality provisions appear in the IRC. We will discuss the ethics requirements for CPAs in tax practice in chapter 5 of this course. International Federation of Accountants The International Federation of Accountants (IFAC) develops standards for auditing, education, ethics, and public sector financial reporting in the accounting profession globally. It also promotes good ethical practices by encouraging professional accounting organizations throughout the world to adopt high ethical standards and helps foster meaningful debate on ethical issues that accountants face. The IFAC's International Ethics Standards Board for Accountants (IESBA) develops ethical standards and guidance for use by professional accountants. The IESBA ethical standards appear in the Code of Ethics for Professional Accountants (the IESBA Code), which serves as the foundation for codes of ethics developed and enforced by IESBA member bodies, such as the AICPA in the United States. Others In addition, there are banking and insurance regulators, such as the U.S. Federal Deposit Insurance Corporation (FDIC) and state insurance regulators, and, finally, state CPA societies, which have codes that their members agree to abide by. In some cases, you may be subject to rules of different bodies. For example, auditors of public companies need to comply with the independence rules of the AICPA, the SEC, and the PCAOB. If more than one rule applies to a situation, you should apply the most restrictive requirement. This course focuses (in large part) on your obligations under the AICPA Code. CODES OF CONDUCT In general, a code of professional conduct describes the basic tenets of ethical conduct in a profession, whether accounting, medicine, or engineering. A code of professional conduct requires you to assume responsibilities above and beyond those required by law. For example, no laws exist that limit the fee a lawyer may charge his or her client, but a member of the Association of Personal Injury Lawyers should not make \"excessive or unnecessary monetary charges to the client.\" Professions that serve the public interest adopt a code of conduct to help maintain public confidence in the profession as a whole. For example, we do not usually think of chemists as serving the public interest, but the Royal Society of Chemistry highlights service to the public as a primary duty of the professional chemist. Members of a profession are commonly called upon to act honorably, even at the sacrifice of personal advantage. For example, hockey coaches who are members of the American Hockey Coaches Association are admonished never to place the value of a win over instilling higher ideals and character traits in their players. As a member of the accounting profession, you should be aware of all the ethical requirements that apply to you. The specific rules that you need to follow will depend on which area in the profession you serve, for example, public practice or business (and in some cases, both). Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Overview 9 The AICPA's Code of Professional Conduct The AICPA's PEEC recently adopted a completely restructured AICPA Code of Professional Conduct so that one part of the Code applies to members in public practice, another to members in business, and a third to members falling into neither category (for example, retired, or between jobs). The AICPA's Code also reflects many of the ideas contained in these other professional codes that you just read about. Exhibit 0-1 contains the preamble to the Code. This course will describe the Code's structure, approach and content as well as its underlying requirements. KNOWLEDGE CHECK 3. CPAs must follow the rules and standards promulgated by which of the following bodies? a. b. c. d. AICPA. SEC. PCAOB. State CPA licensing board. Exhibit 0-1 Preamble .01 Membership in the American Institute of Certified Public Accountants is voluntary. By accepting membership, a member assumes an obligation of self-discipline above and beyond the requirements of laws and regulations. .02 The Principles of the Code of Professional Conduct of the American Institute of Certified Public Accountants express the profession's recognition of its responsibilities to the public, to clients, and to colleagues. They guide members in the performance of their professional responsibilities and express the basic tenets of ethical and professional conduct. The Principles call for an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage. PROFESSIONAL RESPONSIBILITIES AND THE PUBLIC INTEREST The preamble to the AICPA Code clearly states that \"Membership in the AICPA is voluntary, and a member assumes an obligation of self-discipline that may be in addition to the requirements of laws and regulations. These principles express the profession's recognition of its responsibilities to the public, to clients, and to colleagues. They guide members in the performance of their professional responsibilities and express the basic tenets of ethical and professional conduct. The principles call for an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage.\" Ethics may be defined as the rules or standards governing the conduct of the members of a profession, and more generally, as the study of the general nature of morals and of specific moral choices. When something is \"ethical,\" it is in accordance with the accepted principles that govern the conduct of a group, especially that of a profession (The American Heritage Dictionary, third edition). Overview 10 Copyright 2015-2016 AICPA Unauthorized Copying Prohibited The first two principles in the AICPA Code, \"Responsibilities\" and \"The Public Interest,\" say, in part, that \"Members of the AICPA have responsibilities to all those who use their professional services.\" It also notes that \"a distinguishing mark of a profession is acceptance of its responsibility to the public.\" The public interest is defined as \"the collective well-being of the community of people and institutions the profession serves.\" AICPA principles also indicate, in part, that \"Members should exercise sensitive professional and moral judgments in all their activities. They should also act in a manner that serves the public interest and honors the public trust that is bestowed upon them as a member of the accounting profession.\" AICPA CODE PRINCIPLES The following appendix contains the AICPA Code of Professional Conduct, Principles of Professional Conduct. Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Overview 11 Overview 12 Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Appendix AICPA CODE OF PROFESSIONAL CONDUCT PRINCIPLES OF PROFESSIONAL CONDUCT This Appendix is included for supplementary purposes only and is not required for CPE credit. Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Overview 13 Overview 14 Copyright 2015-2016 AICPA Unauthorized Copying Prohibited 0.300.010 Preamble .01 Membership in the American Institute of Certified Public Accountants is voluntary. By accepting membership, a member assumes an obligation of self-discipline above and beyond the requirements of laws and regulations. .02 These Principles of the Code of Professional Conduct of the American Institute of Certified Public Accountants express the profession's recognition of its responsibilities to the public, to clients, and to colleagues. They guide members in the performance of their professional responsibilities and express the basic tenets of ethical and professional conduct. The Principles call for an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage. 0.300.020 Responsibilities .01 Responsibilities principle. In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities. .02 As professionals, members perform an essential role in society. Consistent with that role, members of the American Institute of Certified Public Accountants have responsibilities to all those who use their professional services. Members also have a continuing responsibility to cooperate with each other to improve the art of accounting, maintain the public's confidence, and carry out the profession's special responsibilities for self-governance. The collective efforts of all members are required to maintain and enhance the traditions of the profession. 0.300.030 The Public Interest .01 The public interest principle. Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate a commitment to professionalism. .02 A distinguishing mark of a profession is acceptance of its responsibility to the public. The accounting profession's public consists of clients, credit grantors, governments, employers, investors, the business and financial community, and others who rely on the objectivity and integrity of members to maintain the orderly functioning of commerce. This reliance imposes a public interest responsibility on members. The public interest is defined as the collective well-being of the community of people and institutions that the profession serves. .03 In discharging their professional responsibilities, members may encounter conflicting pressures from each of those groups. In resolving those conflicts, members should act with integrity, guided by the precept that when members fulfill their responsibility to the public, clients' and employers' interests are best served. .04 Those who rely on members expect them to discharge their responsibilities with integrity, objectivity, due professional care, and a genuine interest in serving the public. They are expected to provide quality services, enter into fee arrangements, and offer a range of servicesall in a manner that demonstrates a level of professionalism consistent with these Principles of the Code of Professional Conduct. .05 All who accept membership in the American Institute of Certified Public Accountants commit themselves to honor the public trust. In return for the faith that the public reposes in them, members should seek to continually demonstrate their dedication to professional excellence. 0.300.040 Integrity .01 Integrity principle. To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity. Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Overview 15 .02 Integrity is an element of character fundamental to professional recognition. It is the quality from which the public trust derives and the benchmark against which a member must ultimately test all decisions. .03 Integrity requires a member to be, among other things, honest and candid within the constraints of client confidentiality. Service and the public trust should not be subordinated to personal gain and advantage. Integrity can accommodate the inadvertent error and honest difference of opinion; it cannot accommodate deceit or subordination of principle. .04 Integrity is measured in terms of what is right and just. In the absence of specific rules, standards, or guidance or in the face of conflicting opinions, a member should test decisions and deeds by asking: \"Am I doing what a person of integrity would do? Have I retained my integrity?\" Integrity requires a member to observe both the form and the spirit of technical and ethical standards; circumvention of those standards constitutes subordination of judgment. .05 Integrity also requires a member to observe the principles of objectivity and independence and of due care. 0.300.050 Objectivity and Independence .01 Objectivity and independence principle. A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services. .02 Objectivity is a state of mind, a quality that lends value to a member's services. It is a distinguishing feature of the profession. The principle of objectivity imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest. Independence precludes relationships that may appear to impair a member's objectivity in rendering attestation services. .03 Members often serve multiple interests in many different capacities and must demonstrate their objectivity in varying circumstances. Members in public practice render attest, tax, and management advisory services. Other members prepare financial statements in the employment of others, perform internal auditing services, and serve in financial and management capacities in industry, education, and government. They also educate and train those who aspire to admission into the profession. Regardless of service or capacity, members should protect the integrity of their work, maintain objectivity, and avoid any subordination of their judgment. .04 For a member in public practice, the maintenance of objectivity and independence requires a continuing assessment of client relationships and public responsibility. Such a member who provides auditing and other attestation services should be independent in fact and appearance. In providing all other services, a member should maintain objectivity and avoid conflicts of interest. .05 Although members not in public practice cannot maintain the appearance of independence, they nevertheless have the responsibility to maintain objectivity in rendering professional services. Members employed by others to prepare financial statements or to perform auditing, tax, or consulting services are charged with the same responsibility for objectivity as members in public practice and must be scrupulous in their application of generally accepted accounting principles and candid in all their dealings with members in public practice. 0.300.060 Due Care .01 Due care principle. A member should observe the profession's technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member's ability. Overview 16 Copyright 2015-2016 AICPA Unauthorized Copying Prohibited .02 The quest for excellence is the essence of due care. Due care requires a member to discharge professional responsibilities with competence and diligence. It imposes the obligation to perform professional services to the best of a member's ability, with concern for the best interest of those for whom the services are performed, and consistent with the profession's responsibility to the public. .03 Competence is derived from a synthesis of education and experience. It begins with a mastery of the common body of knowledge required for designation as a certified public accountant. The maintenance of competence requires a commitment to learning and professional improvement that must continue throughout a member's professional life. It is a member's individual responsibility. In all engagements and in all responsibilities, each member should undertake to achieve a level of competence that will assure that the quality of the member's services meets the high level of professionalism required by these Principles. .04 Competence represents the attainment and maintenance of a level of understanding and knowledge that enables a member to render services with facility and acumen. It also establishes the limitations of a member's capabilities by dictating that consultation or referral may be required when a professional engagement exceeds the personal competence of a member or a member's firm. Each member is responsible for assessing his or her own competence of evaluating whether education, experience, and judgment are adequate for the responsibility to be assumed. .05 Members should be diligent in discharging responsibilities to clients, employers, and the public. Diligence imposes the responsibility to render services promptly and carefully, to be thorough, and to observe applicable technical and ethical standards. .06 Due care requires a member to plan and supervise adequately any professional activity for which he or she is responsible. 0.300.070 Scope and Nature of Services .01 Scope and nature of services principle. A member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided. .02 The public interest aspect of members' services requires that such services be consistent with acceptable professional behavior for members. Integrity requires that service and the public trust not be subordinated to personal gain and advantage. Objectivity and independence require that members be free from conflicts of interest in discharging professional responsibilities. Due care requires that services be provided with competence and diligence. .03 Each of these Principles should be considered by members in determining whether or not to provide specific services in individual circumstances. In some instances, they may represent an overall constraint on the non-audit services that might be offered to a specific client. No hard-and-fast rules can be developed to help members reach these judgments, but they must be satisfied that they are meeting the spirit of the Principles in this regard. Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Overview 17 .04 In order to accomplish this, members should a. Practice in firms that have in place internal quality control procedures in place to ensure that services are competently delivered and adequately supervised. b. Determine, in their individual judgments, whether the scope and nature of other services provided to an audit client would create a conflict of interest in the performance of the audit function for that client. c. Assess, in their individual judgments, whether an activity is consistent with their role as professionals. Overview 18 Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Chapter 1 PROFESSIONAL ETHICS INTRODUCTION The AICPA Code of Professional Conduct (the Code) contains the rules that guide all AICPA members in the performance of their professional responsibilities. In this chapter, we will discuss in greater detail many of these rules. LEARNING OBJECTIVES After completing this chapter, you will be able to: Recognize the structure and content of the AICPA Code of Professional Conduct (code), including the underlying principles. Recall the conceptual framework approach embedded in the code. Apply AICPA rule interpretations on integrity, objectivity, confidentiality, and advertising, including where applicable, using the conceptual framework approach. Identify acts discreditable to the profession. Recall the obligations to exercise due professional care, comply with professional standards, and be competent in performing professional services. Copyright 2015-2016 AICPA Unauthorized Copying Prohibited 1-1 The AICPA Code of Professional Conduct In 2014, the AICPA's Professional Ethics Executive Committee (PEEC) released the restructured and recodified AICPA Code of Professional Conductalso referred to as the code. One purpose of the codification project was to present the code in a more logical and intuitive manner. The new code fully embodies the conceptual framework approach, which provides a methodology for assessing facts and circumstances not contemplated under the rules. (Previously, only independence rules incorporated this approach, which will be discussed in this chapter.) As a result, the code now appears as follows: PrefaceApplies to all members of the AICPA (provides an overview, the principles, structure and application of the code, and definitions) Part 1Rules and interpretations applicable to members in public practice, including a new conceptual framework applicable to rules other than independence, an independence conceptual framework, and guidance on ethical conflict resolution Part 2Rules and interpretations applicable to members in business, including a new conceptual framework applicable to all rules and guidance on ethical conflict resolution Part 3Rules and interpretation applicable to all other members (for example, retired or between jobs) PEEC made very few substantive changes to the rule interpretations, which make up the bulk of the code. For example, it is still prohibited under the independence rules for the firm to hold stock in an audit client. In restructuring the code, PEEC greatly improved the organization and flow of the code; the numbering scheme, layout, and provision titles are different than before. The code includes a glossary of terms, refers to relevant nonauthoritative guidance, when applicable, and provides a mapping document for those who want to link between the old and new codes. The revised code is effective December 15, 2014, and is available online. Members have until December 15, 2015, to implement the new conceptual frameworks in parts 1 and 2 of the code. 1-2 Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Structure of the Code As noted, the code has three parts that apply to a member depending on the type of work (if any) the member performs. The preface to the three parts of the code describes the principles that underlie the code. These principles, which have been part of the code for decades, are described in the following section. Copyright 2015-2016 AICPA Unauthorized Copying Prohibited 1-3 Principles Imagine a classic building such as the Parthenon. Anchored to the foundation are several large pillars. In turn, these pillars support the roof of the structure. The AICPA's code is structured in a similar manner. The Principles of Professional Conduct are the pillars of the code. The principles set forth the broad ethical standards and guidance for the profession. Upon these pillars rest the rules and detailed interpretations and rulings. THE PRINCIPLES In this chapter, we will focus on the detailed rules of conduct. However, it is important for you to understand the principles from which these rules are derived. 1-4 ResponsibilitiesIn carrying out your professional responsibilities, you should exercise sensitive professional and moral judgment. The public interestYou should act in a way that will serve the public interest, honor the public trust, and demonstrate your commitment to professionalism. IntegrityTo maintain and broaden public confidence, you should perform all professional responsibilities with the highest sense of integrity. Objectivity and independenceYou should maintain objectivity and be free of conflicts of interest in discharging your professional duties. If you work for a public accounting firm that provides audit and other attestation services, you should be independent in fact and appearance. Copyright 2015-2016 AICPA Unauthorized Copying Prohibited Due careYou should observe the profession's technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of your ability. Scope and nature of servicesAs a member in public practice, you should observe the principles of the Code of Professional Conduct in determining the scope and nature of services to be performed. KNOWLEDGE CHECK: THE CPA'S CREED Our profession does not require you to take an oath, but in this exercise, you will create one based on the Principles of Professional Conduct you just learned. Complete the oath by circling the appropriate word or phrase to fill in each blank. As a professional CPA, I willingly accept my responsibility . . . 1. To serve a. b. c. d. My clients. My best interest. The public interest. My superior's interest. 2. To maintain and broaden public confidence by performing all my responsibilities with a