Specific example, If a CPA is an employee of a company and makes false and misleading journal entires that is reflected in the financial statements then this is a violation of the ___ ___ ___ rule. 4-6 (OBJECTIVE 4-5) Why is an auditor's independence so essential? Why is independence such an important standard for auditors? The Accounting Principles Rule - Old Rule 203 - if in rare circumstances GAAP produces misleading results that entity should follow whatever ___ ___ is necessary to produce fare results and it should be disclosed to the reader. Quality controls are therefore established for the entire CPA firm as opposed to individual engagements. The ownership is an insignificant part of his total wealth. A ___ ___ ___ is a program under the auditor's control that has the functionally that auditors need. You have to keep up with your payments. If it does then you have an independence problem. 2 Answers. Token gifts are ___. Compare the importance of independence of CPAs with that of other professionals, such as attorneys. Which of the following best describes what is meant by U.S. auditing standards? Compare the importance of independence of CPAs with that of other professionals, such as attorneys. Public confidence. • Assurance provided by Auditors is a key quality control on the reliability of information. Independence is essential for an auditor because users of financialstatement expect an unbiased viewpoint in the auditor’s attestation to thetruth and fairness of the financial statements. f. Which of (1) through (7) are prohibited by the AICPA Code of Professional Conduct? direct, unlikely, appearance, controversy. Information system design and implementation is explicitly ____ by the Sarbanes-Oxley act, bookkeeping, design, implementation, valuation, actuarial, outsourcing, human, broker, legal, PCAOB, Nonaudit Services The Sarbanes-Oxley Act and SEC rules restrict, but do not completely. c. Explain the difference between independence in appearance and of mind. Auditor’s independence refers to the independent working style of the auditor being unbiased, unfettered, uninfluenced, and being fully objective in performing audit responsibilities. If you are in public accounting and your firm just does tax services, the independence rule ___ ___ apply to you. For any service. Independence. The audit committee is responsible for the appointment, compensation, and oversight of the work of the auditor. What is professional scepticism and why is it important to auditors? Independent auditors are often used—or even mandated—to protect shareholders and potential investors from the occasional fraudulent or unrepresentative financial … They must maintain independent in appearance and independent in fact. The auditors are expected to give an unbiased and honest professional opinion on the financial statements to the … The latter part, A member in public practice who is not prohibited by this rule from performing services for or receiving a commission and who is paid or expects to be paid a commission shall ___ that fact to any person or entity to whom the member recommends or refers a product or service to which the commission relates, If you are allowed a commission then ___ ___. The principles are designed to guide members in the performance of their professional responsibilities and meet the basic requirements of ethical and professional conduct, Explain the conceptual framework for the rules of conduct and how it should be applied, The conceptual framework for the rules of conduct is designed to assist members in situations where the interpretations of the rules do not address a threat to compliance with the rules. What is a violation of AICPA rules or SEC rules including Sarbanes-Oxley requirements on independence? US standards coverage with international standards. An auditor who fulfills these criteria is regarded as independent. audit services, as well as accounting & bookkeeping, tax, and management consulting and risk advisory services, Public Company Accounting Oversight Board (PCAOB), provides oversight for auditors of public companies, establishes auditing, attestation, and quality control standards for public company audits, and performs inspections of audit engagements as well as the quality controls at audit firms performing those audits. in a mutual fund. The auditor should be independent from the client company, so that the audit opinion will not be influenced by any relationship between them. Under the AICPA's code of ethics you can do the external audit as long as __ general requirements fulfilled. Why is an auditor's independence so essential? c. Explain the difference between independence in appearance and of mind. 4-10 (OBJECTIVE 4-7) After accepting an engagement, a CPA discovers that the client's industry is more technical than he realized and that he is not competent in certain areas of the operation. Why is an auditor’s independence so essential? 1. What are the purposes of the AICPA Statements on Standards for Attestation Engagements? The AICPA goes on to talk about a number of things. 19 c. Which of the following is not a provision of the Sarbanes-Oxley Act of 2002? Several audit committee activities help maintain auditor independence. Measures of the quality of the auditor's performance, The Responsibilities principle underlying AICPA auditing standards includes a requirement that, professional judgment be exercised by the auditor. Peer review is a review, by CPAs, of a CPA firm's compliance with its quality control system. The audit committee; therefore, can work with the auditor in a less biased manner than management. Expert Answer . (1) Reliability of financial information • Reliability of financial information is a key aspect of Corporate Governance. What provides authoritative guidance for the auditor of a nonpublic company? If you audit a company and your brother is the CEO or the Chairman you would be perceived to not be independent. NO vacations or trip on a client's lear jet. According to the profession's ethical standards, which of the following events may justify a departure from GAAP? I.e., we have a firm, the city of Tampa comes to us, so we refer to another firm, they send us a fee. Independence Rule - A ___ in public practice ___ ___ independent in the performance of ___ ___ as required by standards promulgated by bodies designated by Council. Can we do tax returns for an audit client? Audit Evidence - what constitutes audit evidence and establishes requirements regarding designing and performing audit procedures to OBTIAN SUFFICIENT APPROPRIATE AUDIT EVIDENCE, commonly employed that can easily result in UNETHICAL CONDUCT: everybody does it; it its legal, Its ethical; Likelihood of discovery and consequences, recognizes the responsibility to the public, to the client, and to fellow practitioners, including honorable behavior, even if that means personal sacrifice, essential that the client and external financial statements users have CONFIDENCE in the quality of audits and other services, -meant to provide a standard of conduct for all members of the AICPA, Responsibilities, the public interest, Integrity, objectivity and independence, Due care, and scope and nature of services, -the value of auditing is dependent on the public's perception of the independence of auditors, reflects the auditors state of mind that permits the audit to be performed with an unbiased attitude. b. We have three general requirements that must be met. The Public Company Accounting Oversight Board (PCAOB) has the duty to, Conduct investigations concerning registered public accounting firms. Investigative Forensic Accounting doesn't involve a ___ ___. If there's a rule against it, you're aware of it and do it anyway, then there's a problem. A staff auditor not assigned to the audit is not covered. Any ___ that is in the office has to be independent. The auditor is responsible for obtaining reasonable assurance that material misstatements in the financial statements are detected, whether those misstatements are due to errors or fraud. The concept of independence means that the auditor is working independently carrying out the objectivity of his audit performance. Unpaid Fees - if the client owes you money can that affect your independence? Two exception to close relatives not affecting your independence: If you are a professional employee of the CPA firm you cannot also be working for any ___ ___. According to the ___ code of Ethics It's ok to perform auditing services as well as bookkeeping services for the same clients. Why is an auditor's independence so essential? b. c. Explain the difference between independence in appearance and in fact. The answer is, "___", they allow it. Describe the relations among international auditing standards, AICPA auditing standards, and PCAOB auditing standards. The Public Company Accounting Oversight Board (PCAOB) was established by the Sarbanes-Oxley Act of 2002 in the wake of multiple accounting scandals and alleged audit failures. Students also viewed these Auditing questions. Statements on Standards for Attestation Engagements provide a framework for attest engagements, including detailed standards for specific types of attestation engagements. We have to be independent in both ___ and in ___.. Other loans and leases - Automobile loans and leases, if you're a covered member auditing bank of America can you go to B of A and get an automobile loan. the independence of the auditor is very essential since it brings with it the following benefits. There can't be any sweetheart deals. Advertising and Other Forms of Solicitation Rule -A member in public practice shall not seek to obtain clients by advertising or other forms of solicitation in a manner that is ___, misleading, or deceptive. Our profession has always taken the position that we should be able to ___ for audit clients. Any member accepts a referral fee shall ___ such payments ot the client, you can accept referral fees for any types of services you provide. Which of the following services can be offered to public company audit clients under SEC requirements and the Sarbanes-Oxley Act? the Responsibilities principle requires that auditors be responsible for having appropriate competence and capabilities to perform the audit. What roles are played by the American Institute of Certified Public Accountants for its members? In most instances public companies must have an independent ___ ___. Covered members and their immediate family ___ have loans. An engagement to report on compliance with statutory requirements. The CPA firm that does the audit has to be ____ by this independent audit committee. d. Assume that a partner of a CPA firm owns two shares of stock of a large audit client on which he serves as the engagement partner. Independence in appearance is what third parties would perceive as being independence so you are perceived by others to be independent. 3. You can't have any ___ or ___ ___ financial interest in a client or else you have lost your independence. Under AICPA rules there is ___ cooling off period. Which of the following engagements is most likely to be considered an operational audit? Violation of the ___ rule. How can judgment traps affect auditors' independence? When compaines plan to issue new securities to the public, Filed to report SIGNIFICANT EVENTS that are of interest to public investors Ex: acquisition or sale of subsidiary, change in officers of directors, new product line), Filed ANNUALLY within 60 to 90 days after the close of fiscal year, includes audited financial statements, Filed QUARTERLY for all publicly held companies, requires auditor review, American Institute of Certified Public Accountants (AICPA), Sets professional requirements for CPA's, conducts research, and publishes material on many different subjects related to accounting, auditing, attestation and assurance services, management consulting services, and taxes. In addition, audit committee members, in order to be independent, are barred from accepting any consulting, advisory or other compensatory fee, excluding board member capacity. Which of the following situations would a CPA be in violation of the AICPA Code of Professional Conduct in determining the audit fee? Explain. 1 decade ago. Explain your answer as necessary. misstatements, personal wealth, perceive, minor. What are the various ways in which auditors can fulfill this principle? International Standards on Auditing (ISAs) are issued by the International Auditing and Assurance Standards Board and are designed to improve the uniformity of auditing practices and related services throughout the world. What is the general character of the responsibilities characterized by the Performance principles? b. It has two facets – the fact of independence (also called actual independence) and the appearance of independence (also called perceived independence). Why is independence so essential for auditors? The PCAOB provides oversight for auditors of public companies, including establishing auditing and quality control standards for public company audits, and performing inspections of the quality controls at audit firms performing those audits. This ensures that they provide timely and appropriate … b. International Standards on Auditing (ISA). The General Standards Rule - A member shall comply with the following standards and with any interpretations thereof by bodies designated by Council. Explain how the rules concerning stock ownership apply to partners and professional staff. Provide two examples from current events where independence was an issue in an audit of a public company. OBTAIN SUFFICIENT APPROPRIATE AUDIT EVIDENCE, 1. If responsible for audit appointment - cannot own stock in that audit client 1. Distinguish between the terms errors and fraud. You cannot accept a contingent fee for ___ because auditing taints the client. ___ ___ ___ __ - In the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others. What is meant by the term quality control as it relates to a CPA firm? Using the conceptual framework, the member identifies threats, evaluates the significance of the threat, and identities and applies safeguards to eliminate the threat or reduce it to an acceptable level, Distinguish between independence of mind and independence in appearance, Independence of mind exists when the auditor is actually able to maintain an unbiased attitude throughout the audit, whereas independence in appearance is dependent on others' interpretation of this independence and hence their faith in the auditor, What is an activity that may not affect independence of mind but is likely to affect independence in appearance, Dependence upon a client for a large percentage of audit fees, Explain the role of the audit committee in enhancing auditor independence. The concept of materiality would be least important to an auditor when considering the. What is an attribute that is unique to the audit work of CPA's as compared to the work performed by practitioners of other professions? There's no independence ___. 1. If you're covered then you're prohibited from having ___ ____ ___ investments with the client. Independence Rule - A member in public practice shall be independent in the performance of professional services as required by standards promulgated ___ ___ ___ ___ ___. 2. A non cpa product or services is recommended to the client and the supplier gives a commission. Auditors need to be familiar with Generalized Auditing Software such as ___. Reasonable under the circumstances. Why is an auditor's independence so essential? There are a number of ___ to your independence when you are consulting for a client. The principles indicate the profession's responsibilities to the public, clients, and professional colleagues. As well as an audit or review of a financial statement and an examination of prospective financial information. 1 Answer to (Objective 4-5) Why is an auditor’s independence so essential? How does the Chartered Professional Accountant’s need for independence differ from that of other professions? Certain loans are permitted: Home mortgages - If you already have the mortgage ___ being placed on the audit then it's ___, but you cannot get a mortgage with Bank of America if they were your attest client ___. Recommending tax shelters is ___ ___ as long as the service does not meet the characteristics of an abusive tax avoidance strategy and does not have the potential to impair ___. If you have to be independent and are prohibited from doing something than neither can your immediate family. Any individual who can ___ the audit is covered. 4-16 (OBJECTIVE 4-8) What types of disciplinary action may be taken if a member has violated. Why is an independent auditor is asked an opinion on the fair presentation of financial statements? They are not the same. What are some other sources of ethical values? Users of financial statements would be unlikely to rely on the statements if they believed auditors were biased in issuing audit opinions What is the relationship between International Standards on Auditing and U.S. auditing standards? A member shall not practice public accounting under a firm name that is misleading. The risk that information upon which a business decision is made is inaccurate, An individual who is independent and competent. First, consulting increases the financial ___ on clients. 1. How can judgment traps affect auditors' independence? Auditor Independence Independence is the cornerstone of auditing. Who is responsible for establishing auditing standards for audits of U.S. public companies? The audit committee must preapprove all audit and nonaudit services, and is responsible for oversight of the work of the auditor, including resolution of disagreements involving resolution of disagreements involving financial reporting between management and the auditor. What other restrictions and requirements apply to auditors when providing nonaudit services to public companies? Immediate Family members: ____, ___ ___ or ___ (doesn't have to be a relative). How does auditor independence relate to the agency relationship between owners and managers discussed in Chapter 1? 1. a fee based on whether the CPA's report on the client's financial statements results in the approval of a bank loan. Why is the contingent fees rule is necessary? d. Assume that a partner of a CPA firm owns two shares of stock of a large audit client on which he serves as the engagement partner. ACC640 - Why is an auditor's independence so essential ; katetutor. Prior to the creation of the PCAOB, the ASB had responsibility for establishing auditing standards for both public and private companies. Independence requires integrity and an objective approach to the audit process. Public companies have to disclose the ___ that they are paying their public accounting firm. Answer to Why is an auditor's independence so essential? Compare the importance of independence of professional public accountants with that of other professionals, such as lawyers or physicians. b. Buy an investment in a client, i.e. Give an example of when stock ownership would be prohibited for each. Each of the following situations involves a possible violation of the AICPA Code of Professional Conduct. In the ___ in the ___ section you look for those terms. You can own it as long as your share is __% or less. All members of the audit committee are required to be independent. Users of financial statements would be unlikely to rely on the statements if they believed auditors were biased in issuing audit opinions. why is an auditor's independence so essential? The audit committee serves as a liaison between the independent auditor and the board of directors. Indicate whether providing the service is a violation of AICPA rules or SEC rules including Sarbanes-Oxley requirements on independence. Median response time is 34 minutes and may be longer for new subjects. c. Explain the difference between independence in appearance and independence of mind. However, this could affect the reported earnings and disclosures in the financial statements. What is the meaning of the rule that requires the auditor be independent? ___ ___ ___ and Name Rule - A member may practice public accounting only in a form of organization permitted by state law or regulation whose characteristics conform to resolutions of Council. 2. If a covered member owns __% or less of the outstanding shares of a diversified mutual fund the investment is considered immaterial. An error is an unintentional misstatement of the financial statements. d. Assume that a partner of a CPA firm owns two shares of stock of a large audit client on which he serves as the engagement partner. a. Which of the following best describes the operational audit? A firm may not designate itself as "Members of the American Institute of Certified Public Accountants" unless all of its CPA owners are members of the Institute. Quality controls are the procedures used by a CPA firm that help it meet its professional responsibilities to clients. Which of the following professional services is an attestation engagement? In which one of the following situations would disclosure by a CPA be in violation of the Code? In the first part if you perform any of those listed services the first part refers to commissions, the client is ___ with respect to commissions. 18 b. > Disclaimer: I am not a CA, or involved in this profession. For each situation, state the applicable rule of conduct and whether it is a violation. Commissions are talking about a situation where a CPA gets paid for ___ someone else to a client. The auditor must be without bias with respect to the client under audit. Under the AICPA code of ethics there is not a ___ __ period. The new revised rule on providing non audit services for audit clients - if you're auditing a client that is subject to some regulations of a regulatory party like the SEC or statutory law you have to ___ by those laws or else you're going to be in violation of our code of ethics in addition to being in violation of those laws, but if not then you follow our much more lax rules on consulting. Independence Rule - A member in public practice ___ ___ independent in the ___ of professional services as ___ by standards promulgated by bodies designated by Council. What risk does an effective audit help to reduce? -prohibit any ownership by covered persons and their immediate family including: -the ethics division is responsible for investigating violations of the code and deciding disciplinary action, has authority to suspend or expel members from the AICPA, can result in the loss of the CPA certificate and the license to practice, member has key financial role with client, -comes in at end reviews documents and then agrees, have to contact previous auditor as to see why they left. What are the fundamental principles of the international ethics standards? Disclosing confidential information to another accountant interested in purchasing the CPA's practice, A CPA's retention of client records as a means of enforcing payment of an overdue audit fee is an action that is, Prohibited under the AICPA rules of conduct, The concept of materiality would be least important to an auditor when considering the, effects of a direct financial interest in the client on the CPA's independence. Why is an auditor’s independence so essential? If users believe that auditorsare not independent, the value of the audit function is eliminated. What services can be offered to public company audit clients under SEC requirements and the Sarbanes-Oxley Act? Independence in auditing means taking an unbiased viewpoint. 4-4 (OBJECTIVE 4-4) What are the three categories of members under the AICPA Code of Professional Conduct? 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