Code of Professional Conduct 175
Ethics Reflection 175 The Public Interest in Accounting: An International Perspective 177 Investigations of the Profession: Where Were the Auditors? 178
Metcalf Committee and Cohen Commission: 1977–1978 179 House Subcommittee on Oversight and Investigations: 1986 180 Savings and Loan Industry Failures: Late 1980s–Early 1990s 181
Treadway Commission Report: 1985; COSO: 1992; and Enterprise Risk Management: 2004 181 The Role of the Accounting Profession in the Financial Crisis of 2007–2008 183 AICPA Code of Professional Conduct and State Board Requirements 186
National Association of State Boards of Accountancy 187 Professional Services of CPAs 188
AICPA and IFAC Principles of Professional Conduct 190 Conceptual Framework for AICPA Independence Standards 191
Threats to Independence 191 Safeguards to Counteract Threats 193 Financial Relationships That Impair Independence 193 Providing Nonattest Services to an Attest Client 194
SEC Position on Auditor Independence 195 SEC Actions Against Auditing Firms 195 The PeopleSoft Case 196
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Insider Trading Scandals Damage the Reputation of the Accounting Profession: Former KPMG Audit Partner, Scott London 196 Former Deloitte & Touche Management Advisory Partner, Thomas Flannigan 197
SOX Provisions 198 Restrictions on Nonattest Services 198
Integrity and Objectivity 200 Principles of Professional Practice 201 Responsibilities to Clients 203 Other Responsibilities and Practices 206
Commissions and Referral Fees 206 Advertising and Solicitation 207 Form of Organization and Name 208 Acts Discreditable—Client Books and Records; CPA Workpapers 210 Acts Discreditable—Negligence in the Preparation of Financial Statements or Records 212
Ethics and Tax Services 213 Rule 101—Independence 213 Rule 102—Integrity and Objectivity 214 Rule 201—Professional Competence and Due Care 214 Rule 202—Compliance with Professional Standards 214 Tax Compliance Services 214 Statements on Standards for Tax Services (SSTS) 214 Substantial Authority 216 Realistic Possibility of Success 216 Reasonable Basis 216 Tax Shelters 218
PCAOB Rules 219 Rule 3520—Auditor Independence 219 Rule 3521—Contingent Fees 219 Rule 3522—Tax Transactions 219 Rule 3523—Tax Services for Persons in Financial Reporting Oversight Roles 220 Rule 3524—Audit Committee Pre-Approval of Certain Tax Services 220 Rule 3525—Audit Committee Pre-Approval of Nonauditing Services Related to Internal Control over Financial Reporting 221 Rule 3526—Communication with Audit Committees Concerning Independence 221
Concluding Thoughts 221 Discussion Questions 222 Endnotes 225 Chapter 4 Cases 229
Case 4-1: America Online (AOL) 230 Case 4-2: Beauda Medical Center 233 Case 4-3: Family Games, Inc. 234
Case 4-4: First Community Church 235 Case 4-5: Lee & Han, LLC 236 Case 4-6: Gee Wiz 237 Case 4-7: Family Outreach 238 Case 4-8: HealthSouth Corporation 239 Case 4-9: Healthcare Fraud and Accountants’ Ethical Obligations 242 Case 4-10: Independence Violations at PwC 243