审计英语课件第3章

1、Chapter 3 Professional Ethics and Legal Liability 3.1 Professional Ethics 3.2 Legal Liabilities Learning Objectives After studying this chapter, you should be able to 1. Understand the meaning of five fundamental principles in the code of professional conduct.2. Distinguish between independence in f

2、act and independence in appearance.3. Comprehend the factors that influence auditor independence.4. Learn the definition of contingent fees.5. Understand several important professional words, such as business failure, audit failure and audit risk. 3.1 Professional Ethics 3.1.1 Special Needs for Ethi

3、cal Conduct in Profession 3.1.2 Code of Professional Conduct 3.1.3 Fundamental Principles 3.1.4 Independence 3.1.5 Factors that Influence Auditor Independence 3.1.6 Audit Fees 3.1.7 Advertising and Solicitation Glossarycode of professional conduct 职业道德规范职业道德规范integrity 正直正直objectivity 客观客观profession

4、al behavior 职业行为职业行为confidentiality 保密性保密性independence 独立性独立性independence in fact 实质上的独立性实质上的独立性independence in appearance 形式上的独立性形式上的独立性contingent fees 或有收费或有收费advertising and solicitation 广告和招揽广告和招揽 3. 1.1 Special Needs for Ethical Conduct in Profession The term professional means a responsibility

5、 for conduct that extends beyond satisfying individual responsibilities and beyond the requirements of our societys laws and regulations. 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

6、personal sacrifice. For the CPA, it is essential that the client and external financial statement users have confidence in the duality of audits and other services. If the users believe that CPA firms do not perform a valuable service, the value of CPA firms audit and other attestation reports is re

7、duced and the demand for audits will thereby also be reduced. Therefore, there is considerable incentive for CPA firms to conduct themselves at a high professional level. 3.1.2 Code of Professional Conduct The Code of Professional Conduct provides both general standards of ideal conduct and specific

8、 enforceable rules of conduct. 3.1.3 Fundamental Principles Integrity Objectivity Professional Competence and Due Care Confidentiality Professional Behavior Integrity A professional accountant should be straightforward and honest in all professional and business relationships. Objectivity A professi

9、onal accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgments. Professional Competence and Due Care A professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure t

10、hat a client or employer receives competent professional service based on current developments in practice, legislation and techniques. A professional accountant should act diligently and in accordance with applicable technical and professional standards when providing professional services. Confide

11、ntiality A professional accountant should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority unless there is a legal or professional right or du

12、ty to disclose. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of the professional accountant or third parties. Professional Behavior A professional accountant should comply with relevant laws andregulations and

13、should avoid any action that discredits the profession. 3.1.4 Independence The value of auditing depends heavily on the publics perception of the independence of auditors. Independence must certainly be regarded as the auditors most critical characteristic. Independence in auditing means taking an u

14、nbiased viewpoint in the performance of audit tests, the evaluation of the results，and the issuance of the audit report. Not only is it essential for auditors to maintain an independent attitude in fulfilling their responsibilities, but it is also important that the users of financial statements hav

15、e confidence in that independence. These two objectives are often identified as independence in fact and independence in appearance. Independence in fact exists when the auditor is actually able to maintain an unbiased attitude throughout the audit, whereas independence in appearance is the result o

16、f others interpretations of this independence. If auditors are independent in fact, but users believe them to be advocated for the client, mast of the value of the audit function will be lost. 3.1.5 Factors that Influence Auditor Independence Financial Interests Former Practitioners Director，Officer

17、, Management，or Employee of a Company Long association of senior personnel with clients Financial Interests The Code of Professional Conduct prohibits professional accountants in public practice from owning any stock or other direct investment in audit clients because it is potentially damaging actu

18、al audit independence, and it certainly is likely to affect the users perceptions of the auditors independence. An indirect financial interest exists when there is a close, but not direct, ownership relationship between the auditor and the client. An example of indirect ownership occurs when a CPA f

19、irm audits a mutual fund which owns stock that an audit partner also has in his or her personal portfolio. Another example is the ownership of a stock by an auditors grandparent. Materiality affects whether indirect financial interest has effect on independence. However, materiality must be consider

20、ed in relation to the auditors wealth and income. Former Practitioners If the former partner was held out as an associate of the firm or took part in activities that are likely to cause other parties to believe the person was still active in the firm, the independence will be influenced. Examples in

21、clude participation in the CPA firms business activities, the use of the CPA firms office space when the former partner has significant influence over a client of the firm, or the receipt of benefits from the former CPA firm that dependent on the firms profitability. Director，Officer, Management，or

22、Employee of a Company If a professional accountant in public practice is a member of the board of directors or an officer of a client company, his ability to make independent evaluations of the fair presentation of financial statements would be affected. Similarly, the auditor cannot be an underwrit

23、er, voting trustee, promoter, or trustee of a clients pension fund, or act in any other capacity of management, or be an employee of the company. Long association of senior personnel with clients Independence may be threatened significantly if senior members of staff in the audit firm have a long as

24、sociation with a client. All firms should therefore monitor the relationship between staff and established clients, and then use safeguards such as rotating senior staff, obtaining second partner reviews and independence quality control reviews. 3.1.6 Audit Fees When entering into negotiations regar

25、ding professional services, a professional accountant in public practice may quote whatever fee deemed to be appropriate. The fact that one professional accountant in public practice may quote a fee lower than another is not in itself unethical. Nevertheless, there may be threats to compliance with

26、the fundamental principles arising from the level of fees quoted. For example, a self-interest threat to professional competence and due care is created if the fee quoted is so low that it may be difficult to perform the engagement ire accordance with applicable technical and professional standards

27、for that price. Contingent fees are fees calculated on a predetermined basis relating to the outcome or result of a transaction or the result of the work performed. To help CPAs maintain objectivity in conducting audits or other attestation services, basing fees on the outcome of the engagement is p

28、rohibited. Because contingent fees may give rise to threats to compliance with the fundamental principles in certain circumstances, they may give rise to a self-interest threat to objectivity. The significance of such threats will depend on factors including the nature of the engagement, the range o

29、f possible fee amounts, the basis for determining the fee, and whether the outcome or result of the transaction is to be reviewed by an independent third party. 3.1.7 Advertising and Solicitation When a professional accountant in public practice solicits new work through advertising or other forms o

30、f marketing, there may be potential threats to compliance with the fundamental principles. For example, a self-interest threat to compliance with the principle of professional behavior is created if services, achievements or products are marketed in a way that is inconsistent with that principle. A

31、professional accountant in public practice should not bring the profession into disrepute when marketing professional services. The professional accountant in public practice should be honest and truthful and should not seek to obtain clients by advertising or other forms of solicitation in a manner

32、 that is false, misleading, or deceptive. Solicitation by the use of coercion, overreaching, or harassing conduct is prohibited. If the professional accountant in public practice is in doubt whether a proposed form of advertising or marketing is appropriate, the professional accountant in public pra

33、ctice should consult with the relevant professional body. 3.2 Legal Liabilities 3.2.1 Changed Legal Environment 3.2.2 Legal Terms affecting CPAs Liability 3.2.3 Approaches to Mitigating Liabilities Exposure Glossary absence of Causal Connection 无因果关系无因果关系audit Failure 审计失败审计失败audit Risk 审计风险审计风险brea

34、ch of Contract 违约违约business Failure 经营失败经营失败fraud 舞弊舞弊gross Negligence 重大过失重大过失legal Liability 法律责任法律责任non-negligent Performance 无过失行为无过失行为ordinary Negligence 普通过失普通过失 Even though most audits are properly performed, a significant percentage of the gross revenues of CPA firms are being spent on legal

35、 liability Insurance and litigation costs. Litigation costs and settlements caused Laventhol & Horwath, one of the largest CPA firms, to declare bankruptcy. In todays litigious environment, it extremely important that auditors use due professional care to minimize such costs. But, even when due prof

36、essional care is used, the government, investors, and clients may still sue auditors. 3.2.1 Changed Legal Environment Despite efforts to address legal liability of CPAs, both the number of lawsuits and size of awards to plaintiffs remain high, including suits involving third parties under both commo

37、n law and the federal securities acts. There are no simple reasons for this trend, but the following are major factors: There is growing awareness of the responsibilities of public accountants by users of financial statements. There is an increased consciousness on the part of the Securities and Exc

38、hange Commission regarding its responsibility for protecting investors interests。 Auditing and accounting are more complex because of factors such as the increasing size of business, the globalization of business, and the intricacies of business operations. Society accepts lawsuits by injured partie

39、s against anyone who might be able to provide compensation, regardless of who was at fault. This is often called the deep-pocket concepts of liability. Large civil court judgments against CPA firms have been awarded in a few cases, which have encouraged attorneys to provide legal services on a conti

40、ngent-fee basis. Many CPA firms are willing to settle their legal problems out of court in an attempt to avoid costly legal fees and adverse publicly rather than resolving them through the judicial process. Courts have difficulty in understanding and interpreting technical accounting and auditing ma

41、tters. Many accounting and legal professionals believe that a major cause of lawsuits against CPA firms is the lack of understanding by financial statement users of the difference between a business failure and an audit failure and between an audit failure and audit risks. Business failureBusiness f

42、ailure occurs when a business is unable to repay its lenders or meet the expectations of its investors because of economic or business conditions, such as a recession, poor management decisions, or unexpected competition in the industry. The extreme case of business failure is filing for bankruptcy.

43、 Audit failureAudit failure occurs when the auditor issues an erroneous audit opinion as the result of an underlying failure to comply with the requirements of generally accepted auditing standards. An example is assigning unqualified assistants to perform audit tasks who then fail to find material

44、misstatements that qualified auditors would discover. Audit riskAudit risk represents the risk that the auditor will conclude that the financial statements are fairly stated and an unqualified opinion can be issued when, in fact, they are materially misstated. Because auditors are able to gather evi

45、dences only on a test basis and detecting well-concealed frauds can be extremely difficult, there is always some risks that the auditor will not uncover a material fraud even though the auditor complied with GAAP. 3.2.2 Legal Terms affecting CPAs Liability Breach of Contract Negligence and Fraud Bre

46、ach of Contract Breach of contract means failure of one or both parties in a contract to fulfill the requirements of the contract. An example is the failure of a CPA firm to deliver a tax return on the agreed-upon date. Parties who have a relationship that is established by a contract are said to ha

47、ve privity of contract. Negligence and Fraud Auditors should exercise due professional care in the planning and performance of the audit and the preparation of the report. The auditing standards require that audits fee conducted in accordance with GAAP, thus a failure to meet GAAP requirements could

48、 be constructed as an act of negligence on the part of the auditor. Therefore, negligence means absence of due professional rare, including ordinary negligence and gross negligence depended on the level of severity. Ordinary negligenceOrdinary negligence means absence of reasonable care that can be

49、expected of a person in a. set of circumstances. For auditors, it is in terms of what other competent auditors would have done in the same situation. If an auditor, for example, did not detect an employee fraud because of a failure to fallow up on evidence that would have brought it to light, but a

50、prudent auditor would have performed such follow-up, the auditor is negligent. Gross negligenceGross negligence means lack of even slight care. Expressing an opinion on a set of financial statements with careless disregard of GAAP is an example of gross negligence. Gross negligence is more than fail

51、ing to comply with professional standards. It is such a complete disregard for due care that fudges and furies are allowed to infer constructive fraud, or intent to deceive even though there may be no direct evidence of intent to deceive. FraudFraud is very different from negligence, fraud occurs wh

52、en a misstatement is made and there is both the knowledge of its falsity and the intent to deceive. An auditor for has perpetrated a fraud on investors, for example, by expressing an unqualified opinion on financial statements that the auditor knows are, in reality, not fairly presented .The purpose

53、 of the fraud is to deceive. 3.2.3 Approaches to Mitigating Liabilities Exposure 3.2.3.1 The Professions Response to Legal Liabilities 3.2.3.2 Protecting Individual CPAs from Legal Liabilities Several ingredients help mitigate the exposure of CPA firms and partners to lawsuits. The AICPA and the pro

54、fession as a whole has taken several steps to help improve the reputation of the public accounting profession and reduce the incidents of defective audits and lawsuits. 3.2.3.1 The Professions Response to Legal LiabilitiesResearch in Auditing Standards and Rule Setting Set Requirements to Protect Au

55、ditors Establish Peer Review Requirements Oppose Lawsuits Education of users Sanction Members for Improper Conduct and Performance Lobby for Changes in Laws Research in Auditing Continued research is important in finding better ways to do such things as uncover unintentional material misstatements o

56、r fraud, communicate audit results to statement users，and make sure that auditors are independent. Standards and Rule Setting The AICPA must constantly set standards and revise them to meet the changing needs of auditing. New statements on auditing standards，revisions of the Code of Professional Con

57、duct, and other pronouncements must be issued as societys needs change and as new technology arises from experience and research. Set Requirements to Protect Auditors The AICPA can help protect its members by setting certain requirements that better practitioners already follow. Naturally, these req

58、uirements should not be in conflict with meeting users reeds. Establish Peer Review Requirements She periodic examination of a firms practices and procedures is a way to educate practitioners and identify firms not meeting the standards of the profession. Oppose Lawsuits CPA firms must continue to o

59、ppose unwarranted lawsuits even if, in the short run，the costs of winning are greater than the costs of settling. Education of users Investors and ethers who read financial statements must be educated as to the meaning of the auditors opinion and the extent and nature of the auditors work. Users mus

60、t be educated to understand that auditors do not test 100 percent of all records and do not guarantee the accuracy of the financial records or the future prosperity of the company. It is also important to educate users to understand that accounting and auditing are arts, not sciences, and that perfe