Chapter 4 - Chapter 4 Professional Ethics Review Questions...

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1 Chapter 4 Professional Ethics Review Questions 4-1 The six core ethical values described by the Josephson Institute are: 1. Trustworthiness 4. Fairness 2. Respect 5. Caring 3. Responsibility 6. Citizenship There are many other potential sources of ethical values, including laws and regulations, church doctrines, codes of professional ethics, and individual organizations’ codes of conduct. 4-2 An ethical dilemma is a situation that a person faces in which a decision must be made about the appropriate behavior. There are many possible ethical dilemmas that one can face, such as finding a wallet containing money, or dealing with a supervisor who asks you to work hours without recording them. An ethical dilemma can be resolved using the six-step approach. The six steps are: 1. Obtain the relevant facts. 2. Identify the ethical issues from the facts. 3. Determine who is affected by the outcome of the dilemma and how each person or group is affected. 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. 4-4 PART PURPOSE 1. Principles of Professional Conduct 1. Provide ideal standards of ethical conduct and help practitioners understand the ideal conduct of a CPA. 2. Rules of conduct 2. Provide minimum standards of ethical conduct stated as specific rules. 3. Interpretation of the rules of conduct 3. Provide formal interpretations of the rules of conduct to answer questions that frequently arise about the rules of conduct. 4. Ethical rulings 4. Provide more detailed guidance to practitioners about interpretation of the rules of conduct for less commonly raised questions. 4-5 Independence in fact exists when the auditor is actually able to maintain an unbiased attitude throughout the audit, whereas independence in appearance is dependent on others' interpretation of this independence and hence their faith in the auditor. Activities which may not affect independence in fact, but which are likely to affect independence in appearance are: (Notice that the first two are violations of the Code of Professional Conduct .) 1. Ownership of a financial interest in the audited client. 2. Directorship or officer of an audit client. 3. Performance of management advisory or bookkeeping or accounting services and audits for the same company. 4. Dependence upon a client for a large percentage of audit fees. 5. Engagement of the CPA and payment of audit fees by management. 4-7 Auditors of public companies are prohibited from performing the following nonaudit services: 1. Bookkeeping and other accounting services 2. Financial information systems design and implementation 3. Appraisal or valuation services 4. Actuarial services 5. Internal audit outsourcing 6. Management or human resource functions 7. Broker or dealer or investment adviser, or investment banker services 8. Legal and expert services unrelated to the audit 9. Any other service that the PCAOB determines by regulation is impermissible
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Chapter 4 - Chapter 4 Professional Ethics Review Questions...

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