Contents

Ethics Background. 10

Morals. 10

What is Ethics?. 10

The Relationship of Morals and Ethics. 11

Illustrative Examples of Ethics. 13

Professional Ethics. 14

Legal versus Ethical 14

Why Should We Study Professional Ethics?. 15

Accounting Ethics. 15

Ethical Core Foundations for CPAs. 16

Review Question. 18

Ethical Reasoning. 19

Case Studies – Threats and Safeguards. 20

Ethical Dilemmas. 22

Public Expectations of the CPA’s Responsibility. 23

Enron and Arthur Andersen. 23

Motivations of Ethical Lapses. 24

Review Question. 26

The Role of the Office of the Professions in New York. 27

Enforcement of Rules on Ethics. 27

The New York State Rules on Ethics – Rules of the Board of Regents. 28

Retention and Maintenance of Work Papers. 28

Competency Requirements for Attest and Compilation. 30

Failure to Maintain an Active Registration. 31

Reportable Events. 32

Commission and Referral Fees. 35

Comparison of NYS Laws, Rules and Regulations Concerning Commissions and Referral Fees to the AICPA Code of Professional Conduct (adopted by the NYSCPAS). 37

Contingent Fees. 38

Comparison of NYS Laws, Rules and Regulations Concerning Contingent Fees to the AICPA Code of Professional Conduct (adopted by the NYSCPAS). 39

Independence. 40

Comparison of NYS Laws, Rules and Regulations Concerning Independence to the AICPA Code of Professional Conduct (adopted by the NYSCPAS). 41

Advertising. 43

Comparison of NYS Laws, Rules and Regulations Concerning Advertising to the AICPA Code of Professional Conduct (adopted by the NYSCPAS). 45

Retention of Client Work Papers. 45

Comparison of NYS Laws, Rules and Regulations Concerning Retention of Client Work Papers to the AICPA Code of Professional Conduct (adopted by the NYSCPAS). 47

Confidential Information. 49

Comparison of NYS Laws, Rules and Regulations Concerning confidentiality to the AICPA Code of Professional Conduct (adopted by the NYSCPAS). 50

Income Sharing. 51

Other Unprofessional Conduct in the Practice of Public Accountancy. 52

Failures in expressing an opinion on financial statements. 52

Comparison of NYS Laws, Rules and Regulations Regarding Failures in Expressing an Opinion on Financial Statements to the AICPA Code of Professional Conduct (adopted by the NYSCPAS). 52

Use of Firm Name. 54

Comparison of NYS Laws, Rules and Regulations Regarding Use of Firm Name to the AICPA Code of Professional Conduct (adopted by the NYSCPAS). 54

Opinion and Examination Required. 55

Comparison of NYS Laws, Rules and Regulations Regarding Opinion and Examination to the AICPA Code of Professional Conduct (adopted by the NYSCPAS). 57

Admission of Guilt, Suspension, Failure to meet Federal Standards. 57

Other Applicable New York Regulatory Requirements – New York State Education Law.. 59

Firm Registration. 59

Continuing Professional Education. 59

Mandatory Quality Review.. 60

Case Studies. 62

Bernard Madoff Investment Securities LLC – Failures in Expressing an Opinion on Financial Statements  62

A Little Extra Income – Contingent Fees. 64

Audit Experts - Advertising and Audit Requirements. 65

Adjusting Journal Entries - Work Paper Retention. 66

Review Questions. 68

The New York State CPA Society Rules on Ethics. 69

The AICPA Code of Professional Conduct. 69

About the Code. 69

Preface. 69

Part 1 – Members in Public Practice. 71

Rule 1.100 Integrity and Objectivity. 73

Case Study – Married Tax Clients Divorcing. 74

1.130 Preparing and Reporting Information. 75

Case Study – Year End Adjustments and Loan Covenants. 76

1.200 - Independence. 76

Review Questions. 82

Rule 1.300—General Standards Rule. 83

Case Study – Audit Engagement with No Prior Experience. 84

1.310 Compliance with Standards Rule. 84

Case Study – Peer Review Discoveries. 84

1.320 Accounting Principles Rule. 85

1.400.001 Acts Discreditable Rule. 85

1.510.001 — Contingent Fees Rule. 87

1.520.001—Commissions and referral fees Rule. 88

1.600.001 —Advertising and other forms of solicitation. 89

1.700.001— Confidential client information rule. 90

1.800.001—Form of organization and name rule. 91

Review Questions. 93

Part 2 – Members in Business. 94

2.100.001 – Integrity and Objectivity Rule. 97

2.130.030 Obligation of a Member to His or Her Employer’s External Accountant. 99

2.170.010 – Pressure to Breach the Rules. 99

Case Study – Fair Finance. 99

2.300.001 — General standards rule. 100

2.310.001—Compliance with standards rule. 101

2.320.001—Accounting principles rule. 101

Case Study - The Company with Excess Reserves. 101

Case Study - The Company with Undisclosed/Unrecorded Contingencies. 102

2.400.001 Acts Discreditable Rule. 103

2.400.070 Confidential Information from employment or volunteer activities. 104

Part 3 – Other Members. 105

3.400.001 - Acts discreditable rule. 105

3.400.070 Confidential Information from employment or volunteer activities. 105

Joint Ethics Enforcement Program (JEEP). 107

Overview.. 107

Complaint Receipt. 107

Complaint Evaluation. 107

Investigation Procedures. 108

Automatic Discipline. 108

Review Question. 109

Glossary. 110

Index. 112

Answers to Review Questions. 113

CPE Exam.. 117

Appendix. 121

Regulations of the Commissioner, Part 70. 121

New York Code, Article 149, Sections 7400-7410. 148

Rules of the Board of Regents, Part 29.1. 165

Rules of the Board of Regents, Part 29.10. 169

CPASelfstudy.com Course Evaluation.. 185