Table of Contents

Chapter 1 - Ethics and Professional Conduct for Texas CPAs - Section 1. 7

Ethics Background. 7

Morals. 7

What is Ethics?. 7

The Relationship of Morals and Ethics. 8

Illustrative Examples of Ethics. 10

Professional Ethics. 11

Legal versus Ethical 12

Why Should We Study Professional Ethics?. 12

Accounting Ethics. 12

Ethical Core Foundations for CPAs. 13

Other Ethical Foundations of the CPA Profession. 14

Ethical Reasoning. 17

Case Studies – Ethical Reasoning. 17

Ethical Dilemmas. 22

Preventative Measures to Avoid Ethical Violations. 23

Case Studies of Notable Ethical Lapses. 24

Bernard Madoff Investment Securities’ Auditor. 24

Phar-Mor. 27

Enron. 28

Case Studies of Other Ethical Lapses. 30

The Travel Expense Department 30

The Company with Excess Reserves. 31

The Company with Undisclosed/Unrecorded Contingencies. 32

The IRS Audit 32

Motivations of Ethical Lapses. 33

The Texas State Board of Public Accountancy Rules of Professional Conduct 36

General Provisions. 36

501.51 – Preamble and General Principles. 36

501.52 – Definitions. 36

501.53 – Applicability of Rules of Professional Conduct 36

Professional Standards. 37

501.60 – Auditing Standards. 37

501.61 – Accounting Principles. 37

501.62 – Other Professional Standards. 37

501.63 – Reporting Standards. 38

Responsibilities to Clients. 38

501.70 - Independence. 38

501.71 – Receipt of Commission, Compensation or Other Benefit 39

501.72 – Contingency Fees. 39

501.73 – Integrity and Objectivity. 40

501.74 – Competence. 40

501.75 – Confidential Client Communication. 40

501.76 – Records and Work Papers. 41

501.77 – Acting through Others. 43

501.78 – Withdrawal or Resignation. 43

Responsibilities to the Public. 45

501.80 – Practice of Public Accountancy. 45

501.81 – Firm License Requirements. 45

501.82 - Advertising. 45

501.83 – Firm Names. 45

501.85 – Complaint Notice. 46

Responsibilities to the Board/Profession. 46

501.90 – Discreditable Acts. 46

501.91 – Reportable Events. 46

501.93 – Responses. 47

501.94 – Mandatory Continuing Professional Education. 47

Accountants Confidential Assistance Network. 48

Glossary. 58

Index. 59

Final Examination. 61