Ethical Obligations and Decision-Making in Accounting 2nd Edition by Steven Mintz, Roselyn Morris

Exercise 2

In a lawsuit brought by a plaintiff against a defendant (auditor) in West Virginia, the court stated its interpretation of the relevant legal principle as follows: “In order to establish a prima facie case of negligence…, it must be shown that the defendant has been guilty of some act or omission in violation of a duty owed to the plaintiff.  No action for negligence will lie without a duty broken.”  Using the AICPA Code of Professional Conduct and generally accepted auditing standards as your guide, interpret this statement in the context of auditor (CPA) ethical obligations to clients.

Step 1 of 2

AICPA

AICPA stands for the American Institute of Certified Public Accountants. It is founded in 1887. AICPA is set up in the United States and it is the national professional organization of Certified Public Accountant.

Role of AICPA

1. It set a standard of ethics for the best practice for accounting.

2. Create guidelines with the new legislation.

3. In relation to accepted accounting practice (CPA) its monitors service quality.

AICPA is designed to resolve the issue related to the audit and preparation of an audit report by the CPA. The AICPA’s provide a higher professional manner benefits to the public, employers, and clients. There are more than 40,000 members in 128 countries in AICPA including government, industries, and international associates.

The ethical standard in the CPA is,

Responsibility:

According to the AICPA Code of Professional Conduct, accountants should use his professional knowledge and he is responsible for moral judgment in all activates done by his in the course of action.

Serve the public interest:

Accountant work for an individual or a company must act in the way to serve the public interest.

Integrity:

 

An accountant should not work for his gain. He should not manipulate the accounts. He should work with a high sense of integrity and know what is right and just.

Due care:

An accountant has knowledge of an accounting standard. Due care explains the accountant should observe all professional technical or ethical accounting standards to improve the quality of service.

Objectivity and independence:

An accountant is an independent person maintain objective and cannot get to close to a client with the interest of conflict. They must also remain independent to their client with strives to maintain public confidence in this profession.

An auditor is hired by the shareholders and board of directors. He is independent from the management and uses his professional knowledge and provides professional service to their client. He is responsible for moral judgment in all his activities done in the course of action.

An auditor can be sued in a court by a client and outsiders who believe he violated the law and suffered harm from the materially misstated financial statement.