Learning ObjectivesLO1 Explain the practical importance of professional ethics in audit decision making.LO2 Analyze whether a PA’s conduct conforms to provincial rules of professional ethics.LO3 Explain the major problematic sections of professional rules and their impact on auditors and PAs.LO4 Outline the types of penalties that various provincial associations and government agencies can impose on PAs when enforcing rules of professional conduct.LO5 Apply and integrate the chapter topics to analyze a practical auditing situation/case/scenario.

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Regulation and Quality Controls

A public accountant will be expected to observe rules of conduct published in several codes of ethics.

Determined by the nature of the services provided, by membership in accounting associations, and by the nature of the client.

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Self-Regulatory DisciplineAccounting firms and individuals are subject to the rules of an association by choice.

Only by choosing to belong do they become subject to the rules.

The institutes have a responsibility to investigate all complaints. Three conclusions are possible: The member did not breach the rules. The member did breach the rules, but the infraction

is not serious. Issue a written admonishment. The breach is serious, charges are laid, and the

matter is brought before the disciplinary committee.

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Self-Regulatory DisciplineThe disciplinary committee can reach a decision of guilty or not guilty.If guilty, penalties may include one or more actions.

The member could be: reprimanded or suspended, struck off student registry or expelled, assigned professional development course, required to complete a period of supervised practice, reinvestigated, charged costs or fines, and the decision and member’s name may be publicized.

The institutes provide for an appeal process.

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Public Regulation DisciplineThe traditional self-regulatory system is now supplemented by the Canadian Public Accountability Board (CPAB).

This is a national body that reviews public company audits and the auditors’ quality control systems.

The PCAOB performs a comparable function in the U.S.

Both bodies are to act as preventive controls to problems of audits of public companies.

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Public Regulation DisciplineSecurities exchanges have some disciplinary powers.

The U.S. SEC conducts public regulation disciplinary actions and can deny the privilege to practice before the SEC. This effectively removes the PA from audits of

public companies. The OSC in Canada is seeking some of the

same powers.

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Consequences of Unethical/ Illegal ActsConforming to the rules is not always easy due to conflicts between the various rules.Deficiencies in the codes of conduct:

No or insufficient prioritization is put forward. Consultation on ethical matters is inhibited for some

members. Fair hearing process is not indicated, members are

uncertain whether to come forward. There is no protection for “whistle blowers.” Sanctions are unclear; applicability is not defined. Conflict resolution mechanisms are deficient.

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