Contents

Ethics Background. 9

Morals. 9

What is Ethics?. 9

The Relationship of Morals and Ethics. 10

Illustrative Examples of Ethics. 12

Professional Ethics. 13

Legal versus Ethical 13

Why Should We Study Professional Ethics?. 14

Accounting Ethics. 14

Ethical Core Foundations for CPAs. 18

Review Questions. 20

Ethical Reasoning. 21

Case Studies – Threats and Safeguards. 22

Ethical Dilemmas. 24

Public Expectations of the CPA’s Responsibility. 25

Motivations of Ethical Lapses. 25

Review Question. 27

California Accountancy Statutes and Rules. 28

Recent New Statutes and Rules. 28

Trend in Recent California Board of Accountancy Enforcement Actions. 29

The California Accountancy Act and the California Board of Accountancy Regulations. 30

ARTICLE 3.5. Standards of Professional Conduct [5060 - 5063.10]. 31

Article 9- Rules of Professional Conduct. 37

Review Questions. 50

Case Studies. 51

A Little Extra Income – Contingent Fees. 51

Return of client provided records. 51

The AICPA Code of Professional Conduct. 53

About the Code. 53

Preface. 53

Part 1 – Members in Public Practice. 55

Rule 1.100 Integrity and Objectivity. 57

Case Study – Married Tax Clients Divorcing. 58

1.130 Preparing and Reporting Information. 59

Case Study – Year End Adjustments and Loan Covenants. 60

1.200 - Independence. 60

Review Questions. 66

Rule 1.300—General Standards Rule. 67

Case Study – Audit Engagement with No Prior Experience. 68

1.310 Compliance with Standards Rule. 68

Case Study – Peer Review Discoveries. 68

1.320 Accounting Principles Rule. 69

1.400.001 Acts Discreditable Rule. 69

1.510.001 — Contingent Fees Rule. 71

1.520.001—Commissions and referral fees Rule. 72

1.600.001 —Advertising and other forms of solicitation. 73

1.700.001— Confidential client information rule. 74

1.800.001—Form of organization and name rule. 75

Review Questions. 77

Part 2 – Members in Business. 78

2.100.001 – Integrity and Objectivity Rule. 81

2.130.030 Obligation of a Member to His or Her Employer’s External Accountant. 83

Case Study – Fair Finance. 83

2.300.001 — General standards rule. 84

2.310.001—Compliance with standards rule. 84

2.320.001—Accounting principles rule. 85

Case Study - The Company with Excess Reserves. 85

Case Study - The Company with Undisclosed/Unrecorded Contingencies. 86

2.400.001 Acts Discreditable Rule. 87

2.400.070 Confidential Information from employment or volunteer activities. 88

Part 3 – Other Members. 89

3.400.001 - Acts discreditable rule. 89

3.400.070 Confidential Information from employment or volunteer activities. 89

Review Question. 91

Glossary. 92

Index. 94

Exam Questions. 99

Answers to Review Questions. 95