CPA Exam — AUDEthics, Professional Responsibilities, and General PrinciplesHard
A CPA firm has recently lost a major client due to a disagreement over audit fees. The audit engagement partner, feeling the financial pressure, instructs the audit team on a new engagement to minimize audit testing to keep costs down and ensure client retention. This action primarily compromises which fundamental principle of professional ethics?
- AProfessional behavior.
- BIntegrity and objectivity.
- CConfidentiality.
- DDue care.
Show answer & explanationAnswer & explanation
Correct answer: B. Integrity and objectivity.
Minimizing audit testing due to financial pressure directly compromises the fundamental principles of integrity (being honest and straightforward) and objectivity (not allowing bias, conflict of interest, or undue influence to override professional or business judgments). It introduces bias into the audit process.
Why the other options are wrong
- A. Professional behavior relates to compliance with laws and regulations and avoiding discredit to the profession, which is a broader concept, but integrity and objectivity are more specific and directly violated.
- C. Confidentiality relates to protecting client information, which is not directly at issue here.
- D. Due care relates to competence and diligence; while compromised, the underlying issue is the lack of integrity/objectivity driving the decision.
Integrity and Objectivity
Fundamental principles of professional ethics requiring CPAs to be straightforward and honest in all professional and business relationships, and to not compromise professional or business judgment because of bias, conflict of interest, or undue influence.
- Applies to all professional activities.
- Requires freedom from bias and conflicts of interest.
- Essential for maintaining public trust in the profession.
Memory trick: PICDO, a CPA's guiding light, through every ethical fight.