Profesional Ethics

What are Ethics ?

Ethics can be defined broadly as a set of moral principles or values. Philosophers, religious
organizations, and other groups have defined in various ways ideal sets of moral principles or
values. E.g in figure 4.1 (Josephson Institute of Ethics)

Ethichal 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.

Most people define unethical behavior as conduct that differs from what they believe is
appropriate given the circumstances. It is important to understand what causes people to act
in a manner that we decide is unethical.
Ethical Dilemmas
An ethical dilemma is a situation a person faces in which a decision must be made about the
appropriate behaviour.

There are alternative ways to resolve ethical dilemmas. Rationalizing ethical behaviour:

Everybody Does It
If it’s Legal, It’s Ethical
Likelihood of Discovery and Consequences
Relevant Facts
Ethical Issue
Who Is Affected and How Is Each Affected ?
Available Alternatives
Consequences of Each Alternatives
Appropriate Action
Ethical Conduct In Profession
Our society has attached a special meaning to the term professional. Professionals are expected to conduct themselves at a
higher level than most other members of society.

For example, A CPA, as a professional, recognizes a responsibility to the public, to the client, and to fellow
practitioners, including honorable behavior, even if that means personal sacrifice.
The reason for an expectation of a high level of professional conduct by any profession is the need for public confidence in
the quality of service by the profession, regardless of the individual providing it.
Code Of Professional Conduct
The AICPA Code of Professional Conduct provides both general standards of ideal conduct and specific enforceable
rules of conduct. There are four parts to the code:
 Independence Rule of Conduct
 Independence (Rule 101)
CPA firms are required to be independent for certain services that they provide, but not for
others.
• Independence is impaired if certain financial relationships exist with a client,
e.g.:
• Direct or material financial interest in client’s business
• Jointly held material investments
• Loans to or from the client
• Officer, director, employee or underwriter of the client

 Integrity and objectivity (Rule 102)

• Services must be provided with objectivity and integrity and avoid conflicts
of interest
 Independence Rule of Conduct
 General standards (Rule 201)
• Professional Competence
• Due professional care
• Adequate Planning and supervision
• Obtain sufficient relevant data for conclusions or recommendations

 Compliance with standards (Rule 202) and accounting principles (Rule 203)
• No departures unless departure is described, its effect is described, and justification for
departure is disclosed
 Confidential client information (Rule 301)
• No disclosure without client consent
• Exceptions:
• Conflict with rules 202 and 203 ( technical standard)
• Subpoena or summons and compliance with laws and regulations
 Independence Rule of Conduct
 Contingent fees (Rule 302)
• Fees must not be contingent on findings of services (e.g., type of audit
opinion)
 Acts discreditable (Rule 501)
• Committing a felony
• Failing to return client records after a client request
• Signing a false concern
• Issuing a misleading audit opinion
 Advertising and solicitation (Rule 502)
• Cannot use false, misleading, or deceptive advertising/solicitation
 Independence Rule of Conduct
 Commissions and referral fees (Rule 503)
• Cannot receive a payment for referral of a product or service of a third
party to a client
• Accepting payment would create conflict of interest
• Exception: A CPA performing only tax work or other nonaudit work may
accept a commission

 Form of organization and name (Rule 505)

• Form
• Only those forms allowed by state law or regulation, usually a proprietorship,
partnership,or professional corporation
• Name
• Cannot use misleading name
• Acceptable to use past owners’ names
Failure to follow the rules of conduct can result in expulsion from the AICPA. This by itself
does not prevent a CPA from practicing public accounting, but it is an important social
sanction.