Professional Ethics

1. Professional Ethics Independence is the big issue

2. p. 539-548 on ethics - read once p. 548-57 the good stuff p. 557 ISB No. 1 ISB No. 2ISB No. 3ISB 99-1 Gov't Ind Std p. 560-570 read the rule p. 570-73 read lightly – don’t study Handout interpretations 101-1 & 101-5

3. Darryn What is the second General Standard ?

4. 2nd general standard The auditor must maintain independence in mental attitude in all matters relating to the audit

5. Sources AICPA SEC PCAOB

6. SEC guiding principles Independence in fact Independence in appearance

7. Patrick What four principles does the SEC use to determine whether an auditor is independent?

8. SEC guiding principles Independence in fact Independence in appearance Auditors are not independent if relationships Create mutual or conflicting interests with client Audit their own work Act as management or employee of the client Is an advocate for the client page 555

9. AICPA Principles v Rules

10. Jason G Conceptually, what is the difference between rules and principles ?

11. AICPA principles and rulesp. 546-47 from AICPA’s Code of Professional Conduct principles express the basic tenets of ethical conduct and provide a framework for the rules expressions of ideals of professional conduct, principles are not enforceable standards rules of conduct establish minimum standards of acceptable conduct rules are enforceable

12. Alysia What are the six principles of professional conduct?

15. Page 547

16. responsibilities in carrying out their responsibilities as professional, members should exercise sensitive professional and moral judgments in all their activities in addition members should cooperate with other members • to improve the art of accounting • to maintain the public’s confidence • carry out self regulatory activities

17. public interest 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 integrity tomaintain and broaden public confidence, members should perform all professional responsibilitieswith the highest sense of integrity objectivity and independence 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.

18. due care A member should observe the profession’s technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibilities to the best of the member’s ability scope and nature of services observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided • practice only in a firm the has implemented quality control standards • will the scope & nature of the services requested by the client create a conflict of interest in auditing the client • are the requested services consistent with the role of a professional

19. Rules of Conduct

22. rules of conductblue box - page 547 101 independence 102 integrity and objectivity 201 general standards 202 compliance with standards 203 accounting principles 301 confidential client information 302 contingent fees 501 acts discreditable 502 advertising and other forms of solicitation 503 commissions and referral fees 505 forms of practice and name

23. auditorsINDEPENDENCEDAY

29. Interpretation of Rule 101-1 handout • .. Covered member • Direct financial interest in the audit client • Indirect financial interest in the client, if material • Joint investments with the client (or client’s Mgmt) • Loans to or from the client • Prof Employee - Member of group owning > 5% • Prof Employee - Director or any capacity equivalent to management

30. rule 101 independence handout A covered member period of engagement • Direct or Material Indirect financial interest • Trustee or Executor • Jointly held investment with the client • Loans (some exceptions 101-5 p.553) Bgroup of prof employees, partners, immediate families period of engagement Own 5% of client’s equity securities C professional employee, partner, firm period of engagement period covered by financial statements Any capacity equivalent to management Covered members Group of Prof Emp Prof Employees

31. rule 101 independence handouts A covered member • Direct or Material Indirect financial interest • Trustee of Executor • Jointly held investment with • Loans (some exceptions 101-5 p.553) Bgroup of prof employees, partners, immediate families Own 5% of client’s equity securities C period covered by financial statements professional employee, partner, firm Any capacity equivalent to management Period of the engagement and Period covered by Fin State

32. rule 101 independence handout A covered member period of engagement • Direct or Material Indirect financial interest • Trustee or Executor • Jointly held investment with the client • Loans (some exceptions 101-5 p.553) Bgroup of prof employees, partners, immediate families period of engagement Own 5% of client’s equity securities C professional employee, partner, firm period of engagement period covered by financial statements Any capacity equivalent to management

33. 1/1/09 12/31/09 1/28/10 3/11/10 3/15/10 period covered by financial stateengagementopinion

34. covered member

35. Craig which members of the accounting firm are included in the phrase covered member ?

36. Covered member p. 550 • Individuals on engagement • Individuals in the chain of command • Manager who has provided > 10 hours non-audit work • Partner who has provided > 10 hours non-audit work • Partners in same office as engagement partner

37. Chain of command p. 550 • Supervisor through firms Managing Partner • Anyone who evaluates the engagement partner • Provides Quality Control for engagement

38. Covered member p. 550 Individuals on engagement Individuals in the chain of command Manager who has provided > 10 hours non-audit work Partner who has provided > 10 hours non-audit work Partners in same office as engagement partner And their Immediate Family members

39. David Who is included in the phrase Immediate Family ?

40. Immediate family p. 550 spouse or spousal equivalent dependents

41. Jason C what is a direct financial interest ? what is an indirect financial interest ?

42. indirect financial interest investments in mutual funds investments by Close Relatives – if material

43. Nick Who is included in the phrase Close Relative ?

44. Close Relative p. 550 Spouse or spousal equivalent Dependents Parent Non dependent child Sibling

45. Exhibit B.1 is an excellent summary

46. Exhibit B.1 p 549 interpretation 101-1

47. let’s talk about audit staff

48. Rob F are all staff in the SLO office prohibited from owning stock in the client ? what about their spouses ?

49. Rachel what about their parents ?

50. Jesun are all staff assigned to the engagement prohibited from investing in a mutual fund that owns a significant amount of stock in the client ?