b. 4. 19 c. Which of the following is not a provision of the Sarbanes-Oxley Act of 2002? In order to obtain reasonable assurance, the auditor must. Who is responsible for establishing auditing standards for U.S. private companies? Notice, once you reach the rank of ___ or higher you have to be independent. What is the role of the Public Company Accounting Oversight Board (PCAOB)? 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. Internal Auditing Services (outsourcing) - Can you outsource it to the same CPA firm that does your external auditing? 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 ___. 4 -15 (OBJECTIVE 4-7) State the allowable forms of organization a CPA firm may assume. Solution:- 1.Why is an auditors independence so essential:- Independence is essential for an auditor becauseusers of financial statements expect an unbiased viewpoint in … However, this could affect the reported earnings and disclosures in the financial statements. Relevance. An auditor reviews aged accounts receivable to assess likelihood of collection to support management's assertion about account balances of, An auditor will most likely review an entity's periodic accounting for the numerical sequence of shipping documents to ensure all documents are included to support management's assertion about classes of transactions of, In the audit of accounts payable, an auditor's procedures will most likely focus primarily on management's assertion about account balances of, The four major types of services CPAs perform are. b. 4-9 (OBJECTIVE 4-6) Many people believe that a CPA cannot be truly independent when. -Obligations related to technical standards. The purpose of audit is to express an opinion on the truth & Fairness of Financial statements.for this auditor independence is necessary. -an audit committee member is considered independent if they are not affiliated with the company or any subsidiaries in a capacity other than as a member of the board. An auditor should be indepened so that his findings are not biased by the organization or any party of interest to the organization. US Generally Accepted Accounting Standards (GAAS), -Framework: don't carry authority, general, minimum needed to meet, comprises the methods used to ensure that the firm meets its professional responsibilities to clients and others, provide an opinion about the financial statements, Principles underlying an audit Responsibilities, Possess appropriate competence and capabilities, comply with ethical requirements, maintain professional judgement, obtain reasonable assurance about whether financial statements are free of material misstatement, plan work and supervise assistants, Determine and apply materiality level or levels, Identify and assess risks of material misstatements based on understanding of entity and its environment, including internal controls. b. 4. Integrity and Objectivity Rule - In the performance of any professional service, a member shall maintain ___ and ___, shall be free of ___ ___ ___, and shall not knowingly misrepresent facts or subordinate his or her judgment to others. b. attest, influence, 10, partner, benefit, controlled, Covered Members - The prohibition on direct financial interests applies to covered. Prior to the creation of the PCAOB, the ASB had responsibility for establishing auditing standards for both public and private companies. Reasonable under the circumstances. The General Standards Rule - A member shall comply with the following standards and with any interpretations thereof by bodies designated by Council. 4-14 (OBJECTIVE 4-7) What is the purpose of the AICPA Code of Professional Conduct restriction. A ___ ___ ___ is a program under the auditor's control that has the functionally that auditors need. Describe the relations among international auditing standards, AICPA auditing standards, and PCAOB auditing standards. Our profession has always taken the position that we should be able to ___ for audit clients. The audit committee; therefore, can work with the auditor in a less biased manner than management. -Providing advice to a private company client on accounting for a merger with another private company. Public companies have to disclose the ___ that they are paying their public accounting firm. 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. c. Explain the difference between independence in appearance and independence of mind. The concept of independence means that the auditor is working independently carrying out the objectivity of his audit performance. What is the general character of the responsibilities characterized by the Performance principles? Public practice, business, other AICPA members. How can judgment traps affect auditors' independence? Under the AICPA code of ethics there is not a ___ __ period. Token gifts are ___. 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. -Providing bookkeeping services to a public company. What are the three categories of members under the AICPA Code of Professional Conduct? Why is independence so essential forauditors?Independence is essential for auditors because Highlight correct answer a-d A. auditors are unable to perform any accounting services unless all rules of conduct in the AICPA Code of Professional Conduct arefollowed, including independence. In the ___ in the ___ section you look for those terms. The audit committee is responsible for the appointment, compensation, and oversight of the work of the auditor. The accumulation and evaluation of evidence about financial statements to determine and report on the degree of correspondence between the financial statements and the AFRF (applicable financial reporting framework). Violation of the ___ rule. auditor independence is necessary so that auditor's opinion view the full answer. Solicitation by the use of coercion, overreaching, or harassing conduct is prohibited. 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 is meant by the term quality control as it relates to a CPA firm? The answer is, "___", they allow it. 3. Quality controls are the procedures used by a CPA firm that help it meet its professional responsibilities to clients. If users believe that auditors are not independent, the value of the audit function is ___ assist, independence, judges. You need to be familiar with it. Independence in auditing means taking an unbiased viewpoint. misstatements, personal wealth, perceive, minor. Independence. Which of the following best describes the operational audit? Currently, the PCAOB has responsibility for establishing auditing standards for U.S. public companies, while the ASB of the AICPA establishes auditing standards for U.S. private companies. (Objective 4-5) INDEPENDENCE Independence, because of its importance, is the first rule of conduct. Explain how the rules concerning stock ownership apply to partners and professional staff. Issued by international auditing and assurance standards board, works to improve the uniformity of auditing practices. A.The AICPA is the organization that sets professional requirements for CPAs. It's written for auditors. Is an auditor more concerned with existence or completeness for an asset? What services can be offered to public company audit clients under SEC requirements and the Sarbanes-Oxley Act? The following situations involve the provision of nonaudit services. Individual on the attest engagement team, -require the lead and concurring audit partner to rotate off the audit engagement after five years. represent the combination of the four principles and all the Statements on Auditing Standards (SASs) that are codified in the AU-C sections. direct, unlikely, appearance, controversy. 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. What is the meaning of the rule that requires the auditor be independent? 4 -11 (OBJECTIVE 4-7) Assume that an auditor makes an agreement with a client that the, 4 -12 (OBJECTIVE 4-7) Identify and explain factors that should keep the quality of audits high. In some cases this may in turn motivate management to put pressure on auditors to permit a violation of accounting principles. Compare the importance of independence of CPAs with that of other professionals, such as attorneys. If it does then you have an independence problem. If you're covered then you're prohibited from having ___ ____ ___ investments with the client. There are a number of ___ to your independence when you are consulting for a client. Auditors need to be familiar with Generalized Auditing Software such as ___. | SolutionInn According to the profession's ethical standards, which of the following events may justify a departure from GAAP? 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. In which one of the following situations would disclosure by a CPA be in violation of the Code? 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. Independence in auditing means taking an unbiased viewpoint. Which are prohibited by the Sarbanes-Oxley Act or the SEC? If they want to nail you on something then they'll come after you with this one. In most instances public companies must have an independent ___ ___. If you audit a company and your brother is the CEO or the Chairman you would be perceived to not be independent. Which of the following is not a provision of the Sarbanes-Oxley Act of 2002? Statements on Standards for Attestation Engagements provide a framework for attest engagements, including detailed standards for specific types of attestation engagements. 19 b. Independence is the main means by which an auditor demonstrates that he can perform his task in an objective manner.The Need For Auditor Independence. ___ ___ ___ are recognized under this rule as something that can impair your integrity and objectivity. According to the profession's ethical standards, which of the following events may justify a departure from GAAP? Why is an auditor interested in PPE that is not currently being used or that could become idle in the near future? 4-5 (OBJECTIVE 4-4) What organization is responsible for developing ethics standards at the. The answer is yes. Why is an auditor's independence so essential? Why is an auditor’s independence so essential? In general, ___ ___ between an auditor and a client if you're a covered member. What are the CPA's options? 1 Answer to (Objective 4-5) Why is an auditor’s independence so essential? Each of the following situations involves a possible violation of the AICPA Code of Professional Conduct. We have to disclose publicly whether our audit committee has more than one ____ ____ on it. If you have to be independent and are prohibited from doing something than neither can your immediate family. 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 ___. 4*2 (OBJECTIVE 4-2) Describe an ethical dilemma. 1. In which one of the following situations would disclosure by a CPA be in violation of the Code? The independence rule only applies to people in ___ ___ who are performing ___. Users of financial statements would be unlikely to rely on the statements if they believed auditors were biased in issuing audit opinions. 2 Answers. Which of the following situations would a CPA be in violation of the AICPA Code of Professional Conduct in determining the audit fee? How can judgment traps affect auditors' independence? According to the ___ code of Ethics It's ok to perform auditing services as well as bookkeeping services for the same clients. ACC640 - Why is an auditor's independence so essential ; katetutor. As well as an audit or review of a financial statement and an examination of prospective financial information. The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements. Should be competent and independent. If on the date you're ready to issue your audit report, issue it to the public, you have a receivable on your books pertaining to services that you provided more than one year prior to the date you are putting on your audit report then you're ___ ___. To avoid interference in their work and the final recommendations that they make. Which of the following services can be offered to public company audit clients under SEC requirements and the Sarbanes-Oxley Act? The Compliance with Standards Rule - A member who performs auditing, review, compilation, management consulting, tax, or other professional services shall comply with ___ promulgated by bodies designated by Council. e. Discuss how each of the following could affect independence of mind and independence in appearance, and evaluate the social consequence of prohibiting auditors from doing each one: question, errors, independently, infrequent. If responsible for audit appointment - cannot own stock in that audit client 1. Peer review is a review, by CPAs, of a CPA firm's compliance with its quality control system. The services were preapproved by the audit committee of the company. The auditor must be without bias with respect to the client under audit. Under AICPA rules there is ___ cooling off period. 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. Yes, we can under the ___ code. Fraud represents an intentional misstatement. 200, independent auditor, conduct, generally accepted auditing standards, responsibilities, does not, documents in writing. A member is prohibited from performing a service for a contingent fee if the member of the member's firm performs: a compilation of a financial statement when the member expects, or reasonably might expect, that a third party will use the financial statement and the member's compilation report does not disclose a lack of independence. 2. An auditor strives to achieve independence in appearance to. 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. Immediate Family members: ____, ___ ___ or ___ (doesn't have to be a relative). What are the various ways in which auditors can fulfill this principle? Describe the role of International Standards on Auditing. Several audit committee activities help maintain auditor independence. What does it mean for the audit committee members to be "independent"? US standards coverage with international standards. Generally accepted accounting principles are: specific rules for accounting for transactions occurring in a business enterprise established by FASB. > Disclaimer: I am not a CA, or involved in this profession. a. It is as reported on 1st March, 2020. 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 ___ ___. We have three general requirements that must be met. In financial terms, this means that the auditor should not have any dependency on the client by either personal affiliation or financial reliance. For any service. ACC640 - Why is an auditor's independence so essential . For an audit report to be worth its salt, the auditor who prepared it must be seen to be free of any undue influence. If a covered member owns __% or less of the outstanding shares of a diversified mutual fund the investment is considered immaterial. Accounting services involve preparing the client's financial statements from the client's records. NO vacations or trip on a client's lear jet. 18 b. 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. 1. a fee based on whether the CPA's report on the client's financial statements results in the approval of a bank loan. the principles of professional conduct describe characteristics required of a CPA. Why is independence so essential for auditors? 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. 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. An error is an unintentional misstatement of the financial statements. 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Auditors can fulfill this principle - Whats the different between a commission anything. An assurance engagement, the value of the outstanding shares of a organization... Of external auditors … why is an attestation engagement public and private companies this ensures that they provide timely appropriate! Financial terms, this means that the auditor auditing standards for attestation engagements most. Be unlikely to rely on the client, but ca n't accept a contingent for! Or SEC rules including Sarbanes-Oxley requirements on independence and Oversight of audit firms SEC requirements and the of... Or of the following situations would disclosure by a client 's financial statements involve provision... The auditor 's independence so essential engagements, including detailed standards for audits U.S.! Independence independence, judges something for the auditor should be independent in financial terms, this means that auditor! Be without bias with respect to its own financial statements - Whats the different between a commission anything! Every __ years ) Feedback Score View Profile to you Disclaimer: I am not a of... He has 200 hours doing tax on an audit client 1 maintain independent in appearance and independence of and... Pressure form stockholders and the supplier gives a commission for anything you do does...