Professional Ethics, Major Problems
The Chapter under consideration discusses the problems of professional ethics. Arens et al. provide several definitions and theoretical frameworks explaining the importance of professional code and rules of conduct in the working environment (76). In the sub-points 4-10, the chapter provides information about the Code of Professional Conduct consisting of four parts. The rest of the information presented in the chapter discloses the meaning and essence of those components of the professional code.
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In the Code of Professional Conduct, the authors explain the purposes and the main scope of the AICPA Code of Professional Conduct. To begin with, the issue introduces the basic terms and their definitions for readers to have a better understanding of why it is important to be aware of professional ethics. The authors also present six important ethical principles that should be observed in the professional environment (Arens, Elder, and Beasley 76).
The researcher considers it crucial to follow those ethical concepts, which is specifically important for accountants. The problem is that the negligence of those rules can lead to more serious consequences and create ethical conflicts. Finally, Arens et al. present some legal considerations concerning such rules as Independence and Accounting Principles where the violation is unacceptable because “a member is also responsible for compliance with the rule by employers, partners, and shareholders” (84).
In firth issues, the author pays sufficient attention to Independence, which is the first principle to observe. The problems highlighted in the paragraph are reduced to the fact that all auditors should independent in fact and appearance to avoid the biased situation when dealing with their clients (Arens, Elder, and Beasley 87). More importantly, the issue is focused on the consideration of factors influencing the auditors’ independence.
The chapter is also dedicated to the consideration of actions and services that are prohibited by the Professional Rule of Conduct. The area is considered to be quite problematic because most of the points are not subject to a detailed analysis. Finally, the authors discuss the problem connected with following the rules of independence. In particular, he pays attention to the cases when independence can be lost as well as situations when independence can be preserved. The issue, therefore, questions where auditors can remain truly independent.
In the sixth issue about Independence rules and conduct interpretations, the authors raise the question about audit impossibility to remain independent because many company managers discourage auditors to provide them with advice concerning difficult accounting. In general, the author refers to the nuances of the auditor’s responsibilities and duties that ought to accomplish.
In the sixth passes, the author discusses the problem of confidentiality of clients’ information and the necessity not to disclose it under any circumstances. Therefore, the auditor needs to know the situation when he/she is allowed to reveal confidential information. Finally, the issue also discloses the problems that might occur if the auditor does not follow the main rules and principles of the professional code in terms of confidentiality of information.
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In the subsequent issues, the authors disclose the methods for enforcing the accomplishment and consideration of major rules and principles of the code of professional conduct. They find it necessary to provide further discussion of some points and rules which seem to be quite ambiguous in a concrete situation. More importantly, the authors highlight the importance to refer to the AICPA and State Board of Accountancy for a more detailed analysis of professional ethics.
Legal Liabilities, Major Problems
While analyzing the problem presented in Chapter 5, it is necessary to focus on such aspects accountants’ obligations to third parties about common law and related defenses, accountants’ civil liability as provided in federal securities laws, accountants’ criminal liability, and the scope of CPA profession about the problem of reduced litigation.
While analyzing the problem of accountants’ liabilities and their relation to the third party, the authors rely on the consideration of the case, which discloses that negligence is not appropriate for liability to a third party (Arens, Elder, and Beasley 119). Further, the authors present other cases when they discuss the same issues under consideration in terms of ordinary negligence. This problem is carefully discussed by the researchers because it is the main cornerstone of the relation between the accountants and their clients.
In the subsequent issues, the authors pay attention to the problem of strict policies imposed on CPA firms and the rise of lawsuits connected with negative outcomes of the CPA firm, which have recently been eliminated due to the introduction of tort reform legislation. To prove this idea, the authors provide a range of Acts that either highlight the disadvantage of the established rules.
Further on, the chapter considers the cases constituting criminal liability for accountants. Arens et al emphasize the case that there were man serious cases involving CPA firms, which have led to integrity failure (111). Hence, in the seventh passage, the scholars provide several critical lessons for the accountant to learn. First of all, management integrity is of great importance for auditors to consider while establishing relations with their clients. Second, the auditors can be pleaded as guilty in conducting an audit even if even their personal and professional life indicates integrity. Finally, the final lesson highlights the importance of independence in fact and appearance, particularly in the case of defense including criminal actions.
The final issues presented in Chapter 5 can be considered as a kind of response to the previous statements and considerations. Here, the authors analyze CPA’s policies aimed at reducing and preventing cases of criminal liabilities. They present several measures taken by this organization and specific actions performed by them. A brief overview of their strategies reveals that most of their actions are connected with improving the ethical standards and specifying the problems of maintaining independence. What is more important is that CPA firms strive to improve the quality of accounting and auditing believing that this measure will reduce friction and lawsuits between an auditor and a client.
According to the authors, it is paramount to determine a reasonable compromise between the responsibilities that auditors should take and objective presentation of the audit cost to the community. The problem is that the court CPAs and the SEC have a major influence on the audit conduct in presenting the final solutions. Despite the existing problem, certain successful steps have been made in this direction. Hence, a particular consideration deserves recent litigation reform that has greatly contributed to restricting abusive securities against the CPA firm’s policies. In general, the chapter is dedicated to the analysis of legal issues and litigations and their negative impact on CPA’s policies.
Arens, Alvin A., Elder Randal J., and Beasley, Mark S. Auditing and Assurance Services: an Integrated Approach. US: Prentice Hall, 2008.