Professional Ethics,Chapter 3,Learning Objective 1,Distinguish ethical from unethical behavior in personal and professional contexts.,What are Ethics?,Ethics can be defined broadly as a set of moral principles or values.,Each of us has such a set of values.,We may or may not have considered them explicitly.,Need for Ethics,Ethical behavior is necessary for a society to function in an orderly manner.,The need for ethics in society is sufficiently important that many commonly held ethical values are incorporated into laws.,Why People Act Unethically,The persons ethical standards are different from those of society as a whole.,The person chooses to act selfishly.,In many instances, both reasons exist.,Prescribed Ethical Principles,Trustworthiness,Respect,Fairness,Responsibility,Caring,Citizenship,A Persons Ethical StandardsDiffer from General Society,Embezzlers,Con artists,Shoplifters,Most people who commit such acts feel no remorse when they are apprehended because their ethical standards differ from those of society as a whole.,A Person Chooses toAct Selfishly Example,Person A finds a briefcase containing important papers and $1,000.,He tosses the briefcase and keeps the money.,He brags to his friends about his good fortune.,This action probably differs from most of society.,A Person Chooses toAct Selfishly Example,Person B faces the same situation but responds differently.,He keeps the money but leaves the briefcase.,He tells nobody and spends the money.,He has violated his own ethical standards and chose to act selfishly.,Learning Objective 2,Resolve ethical dilemmas using an ethical framework.,Ethical Dilemmas,An ethical dilemma is a situation a person faces in which a decision must be made about appropriate behavior.,RationalizingUnethical Behavior,Everybody does it.,If its legal, its ethical.,Likelihood of discovery and consequences,Resolving Ethical Dilemmas,1. Obtain the relevant facts.,2. Identify the ethical issues from the facts.,3. Determine who is affected.,Resolving Ethical Dilemmas,4. Identify the alternatives available to the person who must resolve the dilemma.,5. Identify the likely consequence of each alternative.,6. Decide the appropriate action.,Ethical Dilemma,A staff person has been informed that he will work hours without recording them as hours worked.,Firm policy prohibits this practice.,Another staff person has stated that this is common practice in the firm.,Ethical Dilemma,Is it ethical for the staff person to work hours and not record them as hours worked in this situation?,Who is affected?,How are they affected?,What alternatives does the staff person have?,Learning Objective 3,Explain the importance of ethical conduct for the accounting profession.,Special Need for EthicalConduct in Professions,Our society has attached a special meaning to the term professional.,A professional is expected to conduct himself or herself at a higher level than most other members of society.,CPAs Encouraged to ConductThemselves at a High Level,CPAs Encouraged to ConductThemselves at a High Level,Conduct of CPA firm personnel,SEC,Peer review,Quality control,CPAs Encouraged to ConductThemselves at a High Level,Conduct of CPA firm personnel,Legal liability,Division of CPA firms,Code of Professional Conduct,Learning Objective 4,Describe the purpose and content of the AICPA Code of Professional Conduct.,Code of Professional Conduct,Code of Professional Conduct,Interpretation of the rules of conduct,Interpretation of the rules of conduct by the AICPA Division of Professional Ethics,They are not enforceable, but a practitioner must justify departure.,Code of Professional Conduct,Ethical rulings,Published explanations and answers to questions about the rules of conduct submitted to the AICPA by practitioners and others interested in ethical requirements,They are not enforceable, but a practitioner must justify departure.,Ethical Principles,Ethical Principles,3. Integrity,Members should perform all responsibilities with integrity to maintain public confidence.,Ethical Principles,5. Due Care,Members should observe the professions standards and strive to improve competence.,Standards of Conduct,Learning Objective 5,Describe factors that influence auditor independence.,Independence,Independence means taking an unbiased viewpoint in performing audit tests.,Independence in fact,Independence in appearance,Revision of SEC Auditor Independence Requirements,Revision of SEC Auditor Independence Requirements,Approval of auditors by stockholders,Engagement and payment of audit fees by management,Learning Objective 6,Apply the AICPA Code rules and interpretations on independence and explain their importance.,Independence,Financial Interests,Interpretations of Rule 101 prohibit covered members from owning any direct investments in audit clients.,Direct financial interest,Indirect financial interest,Material or immaterial,Related FinancialInterests Issues,Former practitioners,Normal lending procedures,Financial interest a