The Public Company Accounting Oversight Board (PCAOB) has the duty to, Conduct investigations concerning registered public accounting firms. Independence requires integrity and an objective approach to the audit process. auditor independence is necessary so that auditor's opinion view the full answer. 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. What is a violation of AICPA rules or SEC rules including Sarbanes-Oxley requirements on independence? What is the meaning of the rule that requires the auditor be independent? What are the fundamental principles of the international ethics standards? Answer to Why is an auditor's independence so essential? The services were preapproved by the audit committee of the company. ___ requires that we inform the audit committee of all the services we are providing this company. Which of the following services can be offered to public company audit clients under SEC requirements and the Sarbanes-Oxley Act? Integrity and Objectivity Rule - In the ___ of any professional service, a member shall ___ objectivity and integrity, shall be ___ of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her ___ to others. Compare the importance of independence of CPAs with that of other professionals, such as attorneys. 19 b. Covered members and their immediate family ___ have loans. b. Independence. The ownership is an insignificant part of his total wealth. 4-9 (OBJECTIVE 4-6) Many people believe that a CPA cannot be truly independent when. If you are a partner or a manager and you provide ___ or more hours of non audit services to the client in fiscal year. 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. • S/H and other stakeholders need a trustworthy record of directors’ stewardship to be able to take decision about company. For each situation, state the applicable rule of conduct and whether it is a violation. 4. 18 c. A CPA's retention of client records as a means of enforcing payment of an overdue audit fee is an action that is, 19 a. 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 AICPA's position is that if you're doing any non audit work for an audit client in order for you maintain your independence. 2. Why is independence so essential for auditors? The auditor must be without bias with respect to the client under audit. 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. ___ ___ - A member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by Council. 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. They must maintain independent in appearance and independent in fact. *Response times vary by subject and question complexity. No new mortgages and no sweetheart deals. You cannot accept a contingent fee for ___ because auditing taints the client. The answer is, "___", they allow it. Get me a ___, I will rush those papers right over to you. Under the AICPA code of ethics there is not a ___ __ period. decision, appropriate behavior, relevant facts, ethical issues, who, affected, outcome, alternatives, consequence, appropriate action. 4-4 (OBJECTIVE 4-4) What are the three categories of members under the AICPA Code of Professional Conduct? Our profession has always taken the position that we should be able to ___ for audit clients. In general, close relatives ___ ___ affect your independence. Several audit committee activities help maintain auditor independence. The commission and referral fee rule - Whats the different between a commission and a referral fee rule? What other restrictions and requirements apply to auditors when providing nonaudit services to public companies? You cannot audit a company that covers the ___ ___ when you were working for the client. Why is an auditor's independence so essential? Auditor’s independence refers to the independent working style of the auditor being unbiased, unfettered, uninfluenced, and being fully objective in performing audit responsibilities. Commissions are talking about a situation where a CPA gets paid for ___ someone else to a client. Why is an independent auditor is asked an opinion on the fair presentation of financial statements? Operational audits generally have been conducted by internal auditors and governmental audit agencies but may be performed by certified public accountants. How can judgment traps affect auditors' independence? A referral fee is when you ___ or ___ something for the referral of CPA firm business. A non cpa product or services is recommended to the client and the supplier gives a commission. State what is meant by the term peer review. Issued by international auditing and assurance standards board, works to improve the uniformity of auditing practices. Why is an auditor's independence so essential? Public companies have to disclose the ___ that they are paying their public accounting firm. Why is an auditor’s independence so essential? | SolutionInn 4-1 (OBJECTIVE 4-1) What are the six core ethical values described by the Josephson Institute? US GAAP, for example. 1. an agency of federal government ASSISTS in providing investors with reliable INFORMATION upon which to make investments DECISIONS. 90632 Questions; 91307 Tutorials; 96% (4274 ratings) Feedback Score View Profile. Confidential Client Information Rule - You cannot disclose ___ client information without the client's permission unless you are legally obligated to do so. What are some other sources of ethical values? Quality controls are the procedures used by a CPA firm that help it meet its professional responsibilities to clients. An External auditor is an audit professional who performs an audit on the financial statements of a company, government, individual, or any other legal entity or organization, and who is independent of the entity being audited. in a mutual fund. It concentrates on seeking aspects of operations in which waste could be reduced by the introduction of controls, Compliance auditing often extends beyond audits leading to the expression of opinions on the fairness of financial presentation and includes audits of efficiency, economy, effectiveness, as well as, Adherence to specific rules or procedures. The concept of independence means that the auditor is working independently carrying out the objectivity of his audit performance. 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 ___. The primary role of external auditors … No sweetheart deals. A primary purpose of an operational audit is to provide, a measure of management performance in meeting organizational goals. What is the role of the Public Company Accounting Oversight Board (PCAOB)? A member shall not practice public accounting under a firm name that is misleading. attest, influence, 10, partner, benefit, controlled, Covered Members - The prohibition on direct financial interests applies to covered. Auditors in violation of the Code immediately lose their license to practice. 17 b. What services can be offered to public company audit clients under SEC requirements and the Sarbanes-Oxley Act? 200, independent auditor, conduct, generally accepted auditing standards, responsibilities, does not, documents in writing. Auditing standards has board (ASB) of the AICPA responsible for issuing pronouncements on auditing matters in the US for ALL ENTITIES OTHER THAN publicly traded companies. Notice, once you reach the rank of ___ or higher you have to be independent. Violation of the ___ rule. Firms must rotate partner in charge off of audit every __ years. ___ ___ ___ __ - 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. Need more help! We have three general requirements that must be met. There can't be any sweetheart deals. In which one of the following situations would disclosure by a CPA be in violation of the Code? Indicate whether providing the service is a violation of AICPA rules or SEC rules including Sarbanes-Oxley requirements on independence. This article is purely for educational purposes, with information collated from multiple news reports, journals and interviews with my CA friends. Auditor independence refers to the independence of the internal auditor or of the external auditor from parties that may have a financial interest in the business being audited. You would go to the ___ section to find what is immediate family members. Audit documentation must be maintained for five years. I.e., we have a firm, the city of Tampa comes to us, so we refer to another firm, they send us a fee. ACC640 - Why is an auditor's independence so essential . Names of one or more past owners may be included in the firm name of a successor organization. -Providing advice to a private company client on accounting for a merger with another private company. What is the meaning of the rule that requires the auditor be independent? Under SOX and the SEC if you're auditing a public company and you to work and one of those key positions there's a ___ ___ cooling off period before your old CPA firm can be the auditor. Compare the importance of independence of CPAs with that of other professionals, such as attorneys. Investigative Forensic Accounting doesn't involve a ___ ___. Token gifts are ___. Outside directors have less responsibility for high reported earnings. Staff auditor does not have to be ___ even if he has 200 hours doing tax on an audit client. Is an auditor more concerned with existence or completeness for an asset? The CPA firm that does the audit has to be ____ by this independent audit committee. An error is an unintentional misstatement of the financial statements. Solicitation by the use of coercion, overreaching, or harassing conduct is prohibited. Threats to Independence Public confidence. The AICPA Code of Professional Conduct states that a CPA shall not disclose any confidential client information obtained in the course of a professional engagement except with the consent of the client. The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements. According to the ___ code of Ethics It's ok to perform auditing services as well as bookkeeping services for the same clients. 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. 3. The concept requires the auditor to carry out his or her work freely and in an objective manner. 2. ___ under the Sarbanes-Oxley law, one of the 9 outlawed. Auditors need to be familiar with Generalized Auditing Software such as ___. -Obligations related to technical standards. Which of the following situations would a CPA be in violation of the AICPA Code of Professional Conduct in determining the audit fee? What are the three categories of members under the AICPA Code of Professional Conduct? The auditor evaluates the organization's efficiency in processing payments, In a financial statement audit, the auditor obtains a reasonable level of assurance about whether the financial statements are free of material misstatement in order to express an opinion. Each of the following situations involves a possible violation of the AICPA Code of Professional Conduct. Reasonable under the circumstances. In financial terms, this means that the auditor should not have any dependency on the client by either personal affiliation or financial reliance. -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 is NOT a violation of AICPA rules or SEC rules including Sarbanes-Oxley requirements on independence? 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 are prohibited by the Sarbanes-Oxley Act or the SEC? Compare the importance of independence of CPAs with that of other professionals, such as attorneys. why is an auditor's independence so essential? c. Explain the difference between independence in appearance and independence of mind. 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. 19 c. Which of the following is not a provision of the Sarbanes-Oxley Act of 2002? 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. Unpaid Fees - if the client owes you money can that affect your independence? If you have to be independent and are prohibited from doing something than neither can your immediate family. a. Solution:- 1.Why is an auditors independence so essential:- Independence is essential for an auditor becauseusers of financial statements expect an unbiased viewpoint in … c. Explain the difference between independence in appearance and of mind. 4*2 (OBJECTIVE 4-2) Describe an ethical dilemma. Immediate Family members: ____, ___ ___ or ___ (doesn't have to be a relative). What is meant by the term quality control as it relates to a CPA firm? If it does then you have an independence problem. If you're covered then you're prohibited from having ___ ____ ___ investments with the client. -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. Who is responsible for establishing auditing standards for audits of U.S. public companies? The following situations involve the provision of nonaudit services. Under AICPA rules there is ___ cooling off period. Directors are therefore less likely to put pressure on auditors to deviate form high professional standards. Litigation services - hired to do something that is related to ___, might be asked to be an expert witness. Why is independence so essential for auditors? 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. Why is an auditor interested in PPE that is not currently being used or that could become idle in the near future? Independence Rule - A member in public practice ___ ___ independent in the ___ of professional services as ___ by standards promulgated by bodies designated by Council. the principles of professional conduct describe characteristics required of a CPA. Describe the relations among international auditing standards, AICPA auditing standards, and PCAOB auditing standards. Credit cards - if you're covered with B of A can you have a B of A visa? 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. A.Auditors develop their competency and capabilities for performing an audit through formal education in auditing and accounting, adequate practical experience, and continuing professional education. Integrity and Objectivity Rule - In the performance of any ___ ___, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly ___ facts or subordinate his or her judgment to others.