Accounting Scandals
Corporate accounting scandals are political and business scandals which arise with the disclosure of misdeeds by trusted executives of large public corporations. Such misdeeds typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets or underreporting the existence of liabilities. In public companies, this type of "creative accounting" can amount to fraud and investigations are typically launched by government oversight agencies, such as the Securities and Exchange Commission (SEC) in the United States.
In 2002, a wave of separate but often related accounting scandals became known to the public in the U.S. Several leading public accounting firms Arthur Andersen, Deloitte & Touche, Ernst & Young, KPMG, PricewaterhouseCoopers, and others have admitted to or have been charged with negligence in the execution of their duty as auditors to identify and prevent the publication of falsified financial reports by their corporate clients which had the effect of giving a misleading impression of their client companies' financial status. In several cases, the monetary amounts of the fraud involved are in the billions of dollars USD.
3. Scan the text again and find the English equivalents of the following Russian collocations.
Разоблачение преступлений; злоупотребление денежными фондами; завышать доходы; занижать расходы, занижение сведений об обязательствах; манипуляции с бухгалтерской отчетностью; мошенничество; начать расследование; надзорный орган; предъявлять обвинение в халатности; давать искаженное представление; финансовое положение.
4. Work with a partner. Put the events in Enron's history into the correct order. Start with D.
The Rise and Fall of Enron
A Ken Lay, boss of Houston Natural Gas, was immediately appointed CEO of the newly-formed company.
В When it didn't receive answers, the regulator launched a formal investigation into Enron's investments. As a result, Enron's Chief Financial Officer resigned.
С During the 1990's Enron continued to expand and diversify at an incredible rate, it invested $2 billion in a power plant in India, bought a water company in the UK and acquired an electricity company in Portland, Oregon.
D Enron was founded in 1985 when two-gas companies, Houston Natural Gas and InterNorth, merged to create the first national natural gas pipe network.
E Finally, the company was declared bankrupt, but the directors had already sold their shares and walked away with the profits.
F Three years after its creation, Enron opened its first offices abroad as part of a strategy to take advantage of newly-privatized markets.
G By the end of 2000, annual revenues had readied $100 billion, making Enron the sixth-largest energy company in the world. Most of this was from trading activities.
H However, Enron was not satisfied with revenue just from gas trading, so it also moved into electricity trading, establishing a trading centre in London. This became the company's most profitable activity.
I The first evidence of false accounting came in the first few months of 2001 when Enron admitted it had lost $570 million. Its share price fell, causing a cash and credit crisis.
J In July, the regulator started asking Enron to give more details about its financial performance.
K At the same time as opening offices overseas, Enron began trading natural gas in North America.
L By the turn of the century, a highly competitive work culture had developed. Each year 15% of Enron's employees were sacked and replaced with younger, ambitious graduates.
M The investigation found that the company and its accountants had lied to its shareholders and employees about $2 billion of debt.
5. Give a brief account of the rise and fall of Enron: explain the reasons for its fall.
LANGUAGE
1. Practise reading the following international words, give their Russian equivalents.
standard, privatized, audit, auditor, scandal, ambitious, client, balance, total, transaction, certified, licensed, potential, execute, execution, control, controller, record v, keep records.
2. Practise saying the numbers from Figure 1 and 2 on p.
3. Read the following numbers and expressions in English.
0.4 2.5 3.6 0.5 4.867
7/8 2/5 ¼ 27/38 3/10
305 4,057 25,478 1,946 925,046,305
5 x 7 = 35 249 x 35 = 8,715
15 : 3 = 5 756 : 6 = 126
16 – 10 = 6 7056 – 250 = 6806
Assets = Liabilities + Owner’s Equity
4. Complete the sentences by forming adjectives from the verbs on the right according to the given pattern, work out the Russian equivalents of the derivatives obtained.
v + -able a 'that can be v-ed', e.g.
manage + -able manageable 'that can be managed' – 1) поддающийся управлению, легко управляемый; 2) выполнимый, осуществимый
market-able securities = 'that can be easily marketed (sold)' - рыночные (легкореализуемые) ценные бумаги,
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1. The page had so many corrections and comments that the original text was virtually un……. . 2. The proposals must be …… to the shareholders. 3. The new bank building is the most …… structure in the city. 4. This section of law is only …… to businesses. 5. Her help made an …… difference. 6. A good manager must be able to adjust easily to …… environment. 7. A large international meeting was held with the aim of promoting ……development in all countries. 8. This is a highly …… product. 9. The recent tax reforms have made government more …… for its spending. 10. A cheque that is not …… cannot be exchanged for cash and must be paid into a bank account. 11. The price of the car is …… in 12 monthly installments. 12. Accounts …… are classed as current assets on a balance sheet. 13. Accounts …… are the amounts owed by a business to suppliers. 14. The two of them are in …… financial situation. |
read accept recognize apply appreciate change
sustain market account
negotiate
pay receive pay compare
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5. Add an appropriate negative prefix to italicized words, choose from the list given.
ir- un- in- dis- ab- under- mis- de-
1. Low demand for their products has made production very …profitable.
2. You must make everything clear now in order to avoid any …understandings later.
3. Four Season Ltd have been ... successful in marketing the new product.
4. The report showed that moving the production to a new site was …desirable.
5. We don't have a detailed cost analysis yet, so the management are …decided about future investment.
6. The management think that the policy of expanding sales is …correct.
7. Since …regulation, telephone companies have been able to set their own prices.
8. They …estimated the effect of the competitor's products on sale in this market sector.
9. Lots of the documentation which was lost in the fire is …replaceable.
10. Prices for raw material are …normally high at the moment.
11. They have decided to …continue the production of Product P because sales have fallen.
12. They were accused of …using their power to keep prices artificially high.
13. He was accused of …appropriating $30,000.
6. Make word partnerships and use them in the sentences of your own.
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1. supply 2. keep 3. evaluate 4. overstate 5. prepare 6. adhere to 7. audit 8. make 9. cook |
a. performance b. a balance sheet c. accounting reports d. books e. information f. standards g. records h. decisions i. revenues
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7. Identify which term of those on the right describes each mathematical expression.
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1 75% 2 E = mc2 3
4 1,623 + 3,004 =4,627 5 9,260 – 1,111 = 8,149
6. 87 x 25 = 2175 7. 1,505 = 301 5 8. Direct costs 724 Indirect costs 200 Costs Direct : Indirect = 3.62
9. $12,24/hour |
a. formula
b. multiplication
c. division
d. average
e. addition
f. ratio
g. rate
h. subtraction
i. percentage
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8. Match the words on the left to the right definitions, then use them to complete the sentences that follow.
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1. Accountancy |
a. record of money received and spent |
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2. Accounting |
b. theory of keeping financial records |
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3. Account |
c. a person who keeps and works with financial records. |
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4. Accountant |
d. activity of keeping financial records |
1. He's at university studying _________ .
2. A bookkeeper writes details of financial transaction in the _________ .
3. A business manager needs some __________ knowledge in order to understand what he reads in the company's ___________.
4. Most people in the profession read __________ magazines and journals to stay informed.
5. The chief __________ has completed the draft ___________ for the year.
6. Can you check that the figures have been entered correctly in the bank _________?
7. The directors of the company approve the ___________ at the end of the __________ year.
8. Each branch maintains its own full ____________ system.
9. The management of the company have not yet decided on their ___________
policies.
10. He's been working as an _____________ with this firm for several years now.
9. Identify the meanings of the 'account' phrases in bold in the sentences below and give their Russian equivalents. Choose the correct definition from the list on the right.
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1. How do you account for the sudden fall in the stock value? 2. Agents buy and sell goods on their own account. 3. They gave the solicitor a detailed account of the customer's business deals in the last year. 4. The draft accounts had to be adjusted on account of the discovery that a major debtor had gone bankrupt. 5. Raw materials account for 30% of the manufacturing cost. 6. They are regular customers in this shop and are now able to buy on account. 7. On no account should these figures be released before the board meeting. 8. When making decision for the future the managers have to take this year's poor performance into account. 9. By all accounts, they will benefit greatly if the deal goes through. 10. The advertising company has won two new accounts in South Africa |
a. people say b. report c. under no circumstances d. consider e. explain f. big customers g. for themselves h. because of i. on credit j. represent
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10. Translate the following sentences into English using 'account' phrases from Activity 9.
1. Эти товары были приобретены в кредит.
2. Вы должны представить нам детальный отчет о Ваших расходах за данный период.
3. По общему мнению, к концу года произойдет слияние этих двух компаний.
4. Ни в коем случае нельзя прекращать работу предприятия.
5. При принятии решений менеджеры должны учитывать информацию, предоставляемую бухгалтерами.
6. Оплата за отопление составила 30% накладных расходов.
7. Мы должны скорректировать бюджет из-за происшедших изменений на рынке.
8. Моя функция – искать новых заказчиков.
9. Ему приходится покупать канцелярские принадлежности за свой счет.
10. Как можно объяснить рост дефицита федерального бюджета в США в начале 90-х годов?
11. Identify accounting terms defined on the left, some prompts are given.
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1. all objects, tangible or intangible, that are of value to its possessor, such as buildings, machinery, money in the bank, money owed by customers, etc. |
a_ _ _ _ s |
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2. a financial plan for the future |
b_ _ _ _ t |
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3. the loss of value of the things that have been consumed |
d_ _ _ _ _ _ _ _ _ _n |
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4. a statement of the financial position of the company |
b_ _ _ _ _ e s_ _ _ t |
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5. official books for keeping accounts |
l_ _ _ _ _ s |
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6. goods which are bought by the company |
p_ _ _ _ _ _ _ s |
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7. goods which the company has available to sell |
s_ _ _ k |
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8. customers who have received goods but not paid for them yet |
d_ _ _ _ _ s |
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9. the company that has supplied goods but has not received any money for them yet |
c _ _ _ _ _ _ r |
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10. companies make this when they sell their goods for more than it costs them to make them |
p_ _ _ _ t |
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11. money which is borrowed |
l _ _ n |
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12. an official examination of accounts |
a_ _ _ t |
12. Match the English accounting terms to their Russian equivalents.
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a. accounts receivable (US), or debtors (GB) b. liabilities c. profit and loss account d. stock taking e. income statement f. double entry bookkeeping g. ledger h. inventory i. balance sheet j. accounts payable (US) or creditors (GB) k. intangible assets l. cash flow m. accounting transaction |
1. инвентаризация, переучет 2. дебиторская задолженность, счета дебиторов 3. отчет о доходах и расходах 4. баланс, балансовый отчет 5. материально-производственные запасы, наличные товары 6. кредиторская задолженность, счета к оплате, счета кредиторов 7. задолженность, обязательства, пассивы 8. нематериальные активы 9. движение денежной наличности 10. проводка 11. система двойной записи 12. главная книга, гроссбух 13. счет прибылей и убытков |
13. Render the following Russian text into English, use some of the active vocabulary from activity 12:
Согласно международным бухгалтерским стандартам (МБС), финансовая отчетность охватывает балансы, отчеты о доходах (счета прибылей и убытков), отчет о движении денежных средств и другие материалы. Обычно финансовые отчеты готовятся или публикуются один раз в год и являются объектом аудиторского заключения.
Баланс предприятия отражает финансовое положение предприятия на определенную дату. В соответствии с МБС баланс раскрывает содержание трех важнейших категорий: актива, обязательств и капитала. Активы, характеризующие хозяйственные средства предприятия, представлены в активе баланса, а обязательства, а также собственный капитал фиксируется в пассиве баланса. Несмотря на то, что во всех странах баланс принципиально понимается одинаково, расположение его статей отличается многообразием.
Отчет о доходах, или отчет о прибыли, представляет собой описание отдельных обстоятельств, которые обусловили тот или иной результат деятельности предприятия за определенный период.
В некоторых странах, например, в США, придается большое значение отчету о движении денежных средств.
14. During a job interview Alan is talking about his previous jobs. Complete what he says with the best form of the verb in brackets. Choose between past simple, past continuous or past perfect, the first has been done for you.
INTERVIEWER: So, Alan, why did you quit your last job?
ALAN: Well at the time I (1) was working (work) as a financial officer for an International Accountancy firm in London. I (2) ………. (be) in the same company for three years.
INTERVIEWER: How (3) ……… (you/get) the job?
ALAN: Just after I (4) ……… (finish) university I (5) ………. (go) to a job fair. I still (6) ……… (decide) what I wanted to do and I was interested to see what kind if jobs there (7) ……… (be) at the fair. While I (8) ………. (look) at information on one of the stands for a large international accountancy firm, someone (9) ………. (give) me an application form to fill in. I thought this might be a good career opportunity for me as I (10) ………. (already/take) some accountancy exams for my degree. So I (11) ……… (complete) the form and (12) ………(send0 it off. They (13) ………. (interview) me the following week and got job. At first, I (14) ……… (feel) satisfied with the job, but as time went by, things (15) ………. (change) and I began to hate working there.
INTERVIEWER: So what (16) ……… (go) wrong?
ALAN: Well the situation was this: I (17) ……… (work) for a person who was very difficult, er …very demanding … never satisfied. What's more, my job (18) ………. (become) too repetitive and really wanted to do something more creative. So, that's why I resigned … I (19) ………. (not have) another job to go to, but I knew I (20) ………. (have) to make a change.
15. Study the figures in the table describing the changes in three oil companies' performance and then complete the presentation extract analyzing these changes with phrases of comparison given below; the first has been done for you.
in comparison with twice as much a lot a little different
similar by far considerably more roughly the same
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Sales $ mil. |
% change |
Profit $ mil. |
% change |
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Chevron |
50,000 |
42 |
5,000 |
150 |
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Texaco |
52,000 |
43 |
3,000 |
116 |
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Exxon Mobil |
210,000 |
29 |
16,000 |
102 |
"If we look at the figures for the oil sector last year, you can see that the three largest US companies all did very well (1) in comparison with the previous year.
Let's start by comparing Chevron and Texaco. Their sales were (2) ………., although Chevron made (3) ………. profit. Looking at the year-on-year trend you can see that the percentage change in sales was very (4) ………. between the two companies, whereas the change in profits was quite (5) ……… . In fact, Chevron's profits grew (6) ……… faster – 150% compared to 116%.
Now let's look at Exxon Mobil, the market leader. The table shows that Exxon is (7) ……… the largest company, with more than (8) ……… sales as Chevron and Texaco combined, and (9) .……… profit. In terms of percentage growth, Exxon's figures were (10) ……… .
16. Complete the sentences using the verb in brackets in the form of either Participle I or Participle II; translate the sentences into Russian with the focus on Participles.
1. A company’s managers, investors, and creditors use information … in its income statement and balance sheet to measure financial success. (represent)
2. The cash receipts and payments for operating activities, such as products … or services …, are summarized in the cash flows from operating activities section of the statement. (sell, perform)
3. Accounting is considered to be less … worldwide than in the United States. (standardize)
4. Individuals … and … a business by themselves do not have to worry about control, because the individual is both the owner and only employee. (own, operate)
5. This exhibit shows how to calculate a company’s cash … from customers. (collect)
6. Depreciation is the part of the cost of a physical asset … as an expense to each time period in which the asset is used. (allocate)
7. Multinational companies must comply with different sets of regulations … on where the factories and offices are located. (depend)
8. Today virtually all businesses have … accounting systems. (computerize)
9. The people … the real decisions are all at Head Office (make).
10. The stock market crash of 1929 … by the Depression of the 1930s, led to federal regulation of the securities market. (follow)
11. A code of professional conduct … by the members of AICPA guides them in their professional work. (adopt)
12. The abbreviation GAAP stands for ‘generally … accounting principles’ that all US accountants have to follow in measuring, recording, and reporting transactions. (accept)
17. Rewrite the sentences using appropriate participial clauses; the number of required transformations is given in brackets.
1. When you compare one company’s return on total assets with that of another company, you should consider the age of the assets of each company (1).
2. After the team coordinators determined the goals, they supplied the upper-level managers with the information about the resources that were required to meet these goals (2).
3. As he had a good working knowledge of accountancy, he could hope to pass his CPA exam in the nearest future (1).
4. I went over to him as I thought he was the manager, but he said he was a sales assistant.
5. The woman who is talking to Robert Wilkinson is the Chief Finance Officer at Accor (1).
6. We invested 5,000 in a China fund because we hoped that the market would go up (1).
7. I resigned the next week and didn’t regret my actions any moment (1).
8. When the management accountant is faced with an ethical dilemma, s/he should determine how stakeholders are affected (1).
9. As it was explained in Chapter 5, although a business makes no cash payment when it records depreciation, this expense still reduces taxable income (2).
10. When companies expand their operations they frequently become involved in transactions with customers and suppliers in other countries (1).
11. As he is a Chartered Accountant and has 5 years post qualification experience he obviously has a very good chance of obtaining this position (2).
12. If Mr. Brown is found guilty of accounting fraud and misleading the public, he will be barred from ever serving as chief accounting officer for a publicly held company (1).
SPEAKING
1. Communication Situation: Calling a Financial Consultancy
a. Read the following telephone conversation between a company’s managing director and a financial consultant. Find out the reason for the call.
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Brown: Berg:
Brown: Berg:
Brown: Berg:
Brown:
Berg: Brown:
Berg: Brown:
Berg: Brown:
Berg:
Berg: Brown: |
John Brown. Hello. My name is Anders Berg. I'm Managing Director of Woodtech Ltd, a wood machinery manufacturer. Oh, yes. How can I help you? Well, an associate in the industry recommended you. You helped raise finance for Bill Wylde a few years ago. Yes. That's right. Well, Woodtech Ltd now wants to expand into new markets with a new product. Up till now we have served specialists in the wood industry but our new product is aimed at the small manufacturer. What we need is finance. Right! First of all, I'll need some background information. Can you let me have a copy of your balance sheet and profit and loss figures for the past three years? Of course. I'd also like a letter outlining your ideas and a cash flow forecast for the new product. Fine. If you let me have these by the beginning of next week, we can arrange a meeting for the week after. That will give me enough time to look through the figures. Good. Can I suggest a meeting on Monday 16th at 9 o'clock. That's fine. I look forward to receiving your letter and accounts in the next few days. I'll post them first thing tomorrow. I look forward to meeting you on Monday 16th. Goodbye. Goodbye. |
b. Act out a similar conversation of your own, modifying the names of people and companies; make sure you use financial and accounting terms appropriately and preserve the italicized functional phrases.
2. Explain the metaphor "Accounting is a language of business".
3. Describe the importance of accounting to managers, investors, creditors, and government.
4. Explain the difference in the subject matter of managerial and financial accounting.
5. Describe the difference in bookkeepers' and accountants' job functions.
6. Characterize major types of financial reports.
7. Suppose you are to participate in a university seminar on accounting professional ethics. Get ready to give a brief account of American corporate scandals involving accounting fraud.
WRITING
1. Imagine that you have just started your first job as an accountant in a medium-size company. Write an e-mail to your former schoolmate and share your impressions of the first month in the job.
2. You saw an advertisement about a vacancy for an accountant in Minsk subsidiary of Delloite & Touch, prepare your CV and write a cover letter to apply for the position.
KEY VOCABULARY
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account n accounting n accountant n certified public accountant chartered accountant bookkeeping n bookkeeper n auditor n auditing n management accounting financial accounting cost accounting record v keep records transaction n
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assets n (pl) liabilities n (pl) intangible assets profit and loss account balance sheet income statement accounts receivable accounts payable double entry system ratio n cash flow costs n debtor n creditor n bottom line
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ledger n depreciation n goodwill n allocate costs creative accounting fraud n misappropriation n understate v overstate v generally accepted accounting principles (GAAP) integrity n evaluate v add v subtract v divide v multiply v |
SUPPLEMENTARY READING
Deloitte, Touche, Tohmatsu
The name of this world-known auditing company Deloitte, Touche, Tohmatsu owes its existence to its founders who, from the very start of their careers, realized the importance of world-wide practice. The history of the company can be traced through their names; Deloitte, Touche, Tohmatsu.
Deloitte
William Welch Deloitte was one of the fathers of accountancy. He came from a rich French family who had to leave France during the Revolution. He began learning business at the age of 15 working as an assistant to the Official Assignee at the Bankruptcy Court in the City of London. At that time accountancy profession grew from its early days in the business of sorting out the affairs of bankrupts. At the age of 25 Deloitte opened his own office opposite the Bankruptcy Court in London. He was the first independent auditor in Britain. He made his name with the industry of the day – the railways. In 1849 he discovered frauds on the Great North Railway and invented a system of accounts to protect investors from mismanagement of their funds. His reputation as a professional accountant was rather high. Some years later he became president of the newly created Institute of Chartered Accountants in Britain. In 1893 he opened offices in the United States and began to audit different businesses.
Touche
George Touche came from Scotland, and when he qualified as an accountant in Edinburgh, there was no e at the end of his name. It was Touch and was pronounced in the same way as the Scottish loch. But since it was often mispronounced he decided to change it later.
In 1883 he graduated from Edinburgh University and set off to the south to seek his fortune. Investment trust business was experiencing a boom, and that gave him a chance for making a career in this field. He took up saving businesses, from financial disasters which were very gre3quent in those days because investment trust business was quite new. George Touch had a lot of clients and had to work very hard. Soon he earned a very good reputation for a true flair for his business and honesty. In 1899 he started his own business 'George A.Touch and Co'. In 1900, he and John Niven set up the firm of Touch, Niven and Co in New York. Many large companies of both in the US and Britain became his clients. His company enjoyed high reputation and popularity among businessmen.
Tohmatsu
The Japanese company of Tohmatsu owes its origin to Admiral Nobuzo Tohmatsu. He started his career as a naval attaché at the London Embassy. At that time he was also an instructor at the Naval Academy. Many of his students were talented people taking interest in economics. Tohmatsu took an interest for accounting. He qualified as a certified public accountant at the age of 57. After that he became president of the Japanese Institute of CPAs. At that time Japanese government wanted to establish national audit firms. Tohmatsu, together with one his student decided to respond to the challenge. So in 1968, Tohmatsu and Co was incorporated. From the very beginning this company was internationally focused. It was not surprising, that it merged with another globally focused company Deloitte Touch.
Today Deloitte Touch Tohmatsu is one if the largest auditing companies of the world. It provides their clients with efficient consultative services wherever they are.
AICPA Code of Professional Conduct
51 Preamble
1. Membership in the American Institute of Certified Public Accountants is voluntary. By accepting membership, a certified public accountant assumes an obligation of self-discipline above and beyond the requirements of laws and regulations.
2. These Principles of the Code of Professional Conduct of the American Institute of Certified Public Accountants express the profession's recognition of its responsibilities to the public, to clients, and to colleagues. They guide members in the performance of their professional responsibilities and express the basic tenets of ethical and professional conduct. The Principles call for an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage.
Section 54 - Article III: Integrity
To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.
1. Integrity is an element of character fundamental to professional recognition. It is the quality from which the public trust derives and the benchmark against which a member must ultimately test all decisions.
2. Integrity requires a member to be, among other things, honest and candid within the constraints of client confidentiality. Service and the public trust should not be subordinated to personal gain and advantage. Integrity can accommodate the inadvertent error and the honest difference of opinion; it cannot accommodate deceit or subordination of principle.
3. Integrity is measured in terms of what is right and just. In the absence of specific rules, standards, or guidance, or in the face of conflicting opinions, a member should test decisions and deeds by asking: "Am I doing what a person of integrity would do? Have I retained my integrity?" Integrity requires a member to observe both the form and the spirit of technical and ethical standards; circumvention of those standards constitutes subordination of judgment.
4. Integrity also requires a member to observe the principles of objectivity and independence and of due care.
Section 56 - Article V: Due Care
A member should observe the profession's technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member's ability.
1. The quest for excellence is the essence of due care. Due care requires a member to discharge professional responsibilities with competence and diligence. It imposes the obligation to perform professional services to the best of a member's ability with concern for the best interest of those for whom the services are performed and consistent with the profession's responsibility to the public.
2. Competence is derived from a synthesis of education and experience. It begins with a mastery of the common body of knowledge required for designation as a certified public accountant. The maintenance of competence requires a commitment to learning and professional improvement that must continue throughout a member's professional life. It is a member's individual responsibility. In all engagements and in all responsibilities, each member should undertake to achieve a level of competence that will assure that the quality of the member's services meets the high level of professionalism required by these Principles.
3. Competence represents the attainment and maintenance of a level of understanding and knowledge that enables a member to render services with facility and acumen. It also establishes the limitations of a member's capabilities by dictating that consultation or referral may be required when a professional engagement exceeds the personal competence of a member or a member's firm. Each member is responsible for assessing his or her own competence of evaluating whether education, experience, and judgment are adequate for the responsibility to be assumed.
4. Members should be diligent in discharging responsibilities to clients, employers, and the public. Diligence imposes the responsibility to render services promptly and carefully, to be thorough, and to observe applicable technical and ethical standards.
5. Due care requires a member to plan and supervise adequately any
professional activity for which he or she is responsible.
Section 55 - Article IV: Objectivity and Independence
A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services.
1. Objectivity is a state of mind, a quality that lends value to a member's services. It is a distinguishing feature of the profession. The principle of objectivity imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest. Independence precludes relationships that may appear to impair a member's objectivity in rendering attestation services.
2. Members often serve multiple interests in many different capacities and must demonstrate their objectivity in varying circumstances. Members in public practice render attest, tax, and management advisory services. Other members prepare financial statements in the employment of others, perform internal auditing services, and serve in financial and management capacities in industry, education, and government. They also educate and train those who aspire to admission into the profession. Regardless of service or capacity, members should protect the integrity of their work, maintain objectivity, and avoid any subordination of their judgment.
3. For a member in public practice, the maintenance of objectivity and independence requires a continuing assessment of client relationships and public responsibility. Such a member who provides auditing and other attestation services should be independent in fact and appearance. In providing all other services, a member should maintain objectivity and avoid conflicts of interest.
4. Although members not in public practice cannot maintain the appearance of independence, they nevertheless have the responsibility to maintain objectivity in rendering professional services. Members employed by others to prepare financial statements or to perform auditing, tax, or consulting services are charged with the same responsibility for objectivity as members in public practice and must be scrupulous in their application of generally accepted accounting principles and candid in all their dealings with members in public practice.