Ethical Decision-Making

Concept

The Ethical Conflict Resolution Framework

When facing an ethical dilemma: (1) Identify the ethical issue, (2) Determine affected parties, (3) Identify alternatives, (4) Evaluate consequences of each alternative, (5) Make your decision, (6) Take action. Document everything.

Key Point

Confidentiality

CPAs must not disclose confidential client information without consent. Exceptions: response to a valid subpoena, peer review, ethics investigation, or compliance with standards (like reporting illegal acts). Tax return information has additional IRS protections.

Concept

Conflicts of Interest

A conflict of interest occurs when a CPA has competing interests that could impair objectivity. Examples: providing services to two competing clients, having a business relationship with a client vendor. Disclosure and consent are key — inform all affected parties.

Example

Whistleblowing

An auditor discovers their client is committing fraud. After informing management and the audit committee (those charged with governance), if they refuse to act, the auditor should consider: modifying the audit opinion, withdrawing from the engagement, and in some cases, reporting to the SEC under the Sarbanes-Oxley Act.

SEC Independence Requirements

Sarbanes-Oxley & PCAOB

Ready to test your knowledge?

Practice questions from this module to reinforce what you learned.

Practice Questions