International Auditing Issues & Professional Responsibilities & Independence
Terms in this set (80)
What is the role of the International Federation of Accountants' (IFAC's) International Auditing and Assurance Standards Board (IAASB)?
*In general, to be the global standard-setting body related to auditing, review, other assurance services, and quality control, and to facilitate convergence of national and international standards;
*With respect to auditing specifically, to issue International Standards on Auditing (ISAs) applicable to the audit of historical financial information.
Who can be members of the International Federation of Accountants (IFAC)?
Accounting organizations such as the AICPA can be members of IFAC, but individual accountants cannot be members.
Who issues the International Financial Reporting Standards (IFRS)?
The International Accounting Standards Board (IASB), which is an independent accounting standard-setting body that is not affiliated with IFAC. IFAC is not an "accounting" standard-setting body.
What is the role of the International Federation of Accountants' (IFAC's) Public Interest Oversight Board (PIOB)?
The PIOB provides oversight to ensure that IFAC's standards, including auditing standards and ethical standards, are responsive to the public interest and to enhance investor confidence in these standards.
List the four standard-setting boards of the International Federation of Accountants (IFAC).
1.) The International Auditing and Assurance Standards Board (IAASB);
2.) The International Ethics Standards Board for Accountants (IESBA);
3.) The International Public Sector Accounting Standards Board (IPSASB); and
4.) The International Accounting Education Standards Board (IAESB).
Describe the Integrity article from the Principles of the Code of Professional Conduct.
"To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity."
List the services that can be performed by the auditor that do not require independence.
3.) Consulting services not banned by Sarbanes-Oxley.
What level of professional conduct is established by the Code?
Minimum levels have been established.
Integrity requires the observance of what principles?
3.) Due Care
List the Articles of the Principles of the Code of Professional Conduct.
2.) The Public Interest;
4.) Objectivity and Independence;
5.) Due Care;
6.) Scope and Nature of Services
Describe the Public Interest article from the Principles of the Code of Professional Conduct.
Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism.
How should the scope and nature of services to be provided be determined in relationship to the Principles of the Code of Professional Conduct?
A member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided.
Describe the Responsibilities article from the Principles of the Code of Professional Conduct.
In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.
List the features of objectivity.
2.) Intellectual honesty;
3.) Freedom from conflicts of interest.
Describe the objectivity and independence principles of integrity.
"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."
Describe the concept of due care as it relates to Principles of the Code of Professional Conduct.
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.
Describe an example of a conflict of interest according to the AICPA's Interpretation 102-2.
A CPA performing a professional service has a significant relationship with another person, entity, product, or service that could be viewed as impairing the CPA's objectivity.
Describe the provisions in Rule 102 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.
In the performance of any professional service, a member: shall maintain objectivity and integrity, shall be free of conflict of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others.
What must an auditor do to avoid subordinating judgment when disagreeing with a supervisor regarding proper audit procedures?
*Need do nothing further if upon reflection the member concludes that the F/S as proposed represent an acceptable alternative and don't misrepresent facts;
*Alert the appropriate level of management if upon reflection the member concludes that the F/S could be materially misstated; and
*Consider resigning and communicating with regulatory authorities if problem is not addressed.
Give an example of a potential conflict of interest.
Providing tax or financial planning services for several members of a family who may have opposing interests.
List the ways in which conflicts of interest can be resolved.
They can be solved by:
*Full disclosure, and
How do the provisions of the American Institute of Certified Public Accountants (AICPA) Standard of Planning and Supervision apply to practitioners performing professional services?
The American Institute of Certified Public Accountants (AICPA) Standard of Planning and Supervision requires the practitioner to adequately plan and supervise the performance of professional services.
List the general standards regarding audits that are promulgated by the American Institute of Certified Public Accountants (AICPA).
Due Professional Care;
Planning and Supervision;
Sufficient Relevant Data.
What does an agreement with a practitioner to perform professional services imply?
The member practitioner has the necessary competence to perform those services according to professional standards, applying his or her knowledge and skill with reasonable care and diligence, but the member does not assume a responsibility for infallibility of knowledge or judgment.
Describe the provisions in Interpretation 203-1 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.
CPAs are allowed departure from SFAS only when results of SFAS will be misleading.
What steps should be taken when departing from Generally Accepted Accounting Principles (GAAP)?
*Disclose approximate effects of departure; and
*Explain why GAAP compliance would mislead.
Under what two circumstances may an auditor depart from Generally Accepted Accounting Principles (GAAP)?
1.) New legislation;
2.) New form of business transaction.
List the features of "accountant-client privilege" in states where such privileges are recognized.
1.) Protects client, not CPA;
2.) Waivable by client;
3.) Waiver as to part is waiver as to all.
Define "variable fees".
Fees that may vary depending on various factors, including the complexity of services rendered.
Describe the public authority exception regarding contingent fees.
A fee is not regarded as contingent if fixed by the courts or other public authorities.
List the exceptions to which federal tax preparers' privileges are not honored as outlined in the Internal Revenue Code (IRC) Section 7525.
1.) Criminal matters;
2.) Matters not before the IRS or federal courts in cases brought by or against U.S.;
3.) Tax advice on state or local matters;
4.) Written tax shelter advice.
List the circumstances under which a CPA may disclose client confidences.
They may be disclosed when:
*GAAP requires disclosure
*Other members of firm "need to know."
Describe the provisions in Rule 301 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.
A member in public practice shall not disclose any confidential client information without the specific consent of the client.
Describe the provisions of Interpretation 501-6 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.
Soliciting or knowingly disclosing the May 1996 or later Uniform CPA Examination questions and/or answers without the written authorization of the AICPA is a discreditable act.
List the five discreditable acts outlined in Rule 501 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.
(1) Discrimination and Harassment in Employment Practices; (2) Failure to Follow Standards and/or Procedures or Other Requirements in Governmental Audits; (3) Negligence in the Preparation of Financial Statements or Records; (4) Failure to Follow Requirements of Governmental Bodies, Commissions, or Other Regulatory Agencies in Performing Attest or Similar Functions; (5) Solicitation or Disclosure of CPA Examination Questions.
Describe the provisions of Interpretation 501-2 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.
Discrimination (on basis of race, color, religion, sex, age, or national origin) and harassment (sexual and other forms) are discreditable acts.
List the actions that an auditor may take when a client requests a return of their records.
*Return client-provided records w/in 45 days;
*May keep client records prepared by CPA if bill not paid;
*May keep supporting records if bill not paid;
*CPA's working papers need not be turned over.
Describe the provisions of Interpretation 501-4 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.
Negligently making (or permitting or directing another to make) false or misleading journal entries is a discreditable act.
List some examples of false, misleading or deceptive acts.
*Creating false or unjustified expectation of favorable results;
*Implying the ability to influence a court or agency;
*Estimating a fee knowing that the amount charged will likely be much higher.
Describe the provisions of Interpretation 502-2 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.
CPAs may normally engage in accurate advertising ("commercial speech").
What action is prohibited by Rule 502 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct?
Solicitation by coercion, over-reaching or harassment.
Under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct, what actions should be taken by the member regarding commission or referral fees?
Accepting a permitted commission or referral fee must be disclosed to the client.
Under what circumstances are contingent fees prohibited?
Contingent fees are prohibited for performing:
1.) Any work for attest client;
2.) Preparation of tax return or refund;
3.) Correcting an omission in original return
Under what circumstances are commissions prohibited?
When member also performs:
1.) Audit or review of a financial statement; or
2.) Compilations to be used by third parties; or
3.) Examination of prospective financial information.
Describe the provisions of Interpretation 502-2 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.
1.) Member may own interest in separate business that performs nonaudit services for clients;
2.) If member controls the separate business, entity must comply with Code of Professional Conduct;
3.) If member does not control the separate business, Code applies to member but not to the entity.
Describe the provisions in Rule 505 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.
A member may practice public accounting only in a form of organization (proprietorship, partnership, professional corporation, limited liability company, limited liability partnership, etc.) permitted by state law whose characteristics conform to AICPA resolutions.
Describe the provisions of Interpretation 505-3 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.
1.) Majority of financial interests in attest firm must be owned by CPAs;
2.) If CPAs who own the attest firm remain financially responsible, public interest will be considered protected.
In the event the American Institute of Certified Public Accountants rules conflict with the Public Company Accounting Oversight Board rules, which rule should the practitioner follow?
The Public Company Accounting Oversight Board (PCAOB).
List the services that CPAs may not provide to public company audit clients.
Bookkeeping or other services related to the accounting records of financial statements;
Financial information systems design and implementations;
Appraisal or valuation services, fairness opinions, or contributions-in-kind reports;
Internal audit outsourcing services;
Management functions or human resources;
Broker or dealer, investment adviser, or investment banking services;
Legal services and expert services unrelated to audit.
What does the acronym PCAOB stand for?
Public Company Accounting Oversight Board.
Who must be rotated under Sarbanes Oxley?
*Lead audit partner and reviewing partner (5-on/5-off);
*Other partners playing a significant role (7-on/2-off).
Who hires, compensates, and fires auditors of public companies?
The audit committee (composed entirely of independent directors) performs these actions.
Is a public company required to rotate audit firms?
Sarbanes-Oxley does not require a public company to rotate audit firms.
For what type of service is compensation prohibited for auditors of public companies?
Compensation for selling nonaudit services is prohibited.
List the standards that the Public Company Accounting Oversight Board (PCAOB) is responsible for establishing.
2.) Quality Control
What governmental body oversees the Public Company Accounting Oversight Board (PCAOB)?
The Securities and Exchange Commission (SEC).
List the Public Company Accounting Oversight Board's basic functions.
1.) Registering public accounting firms;
2.) Setting up standards;
3.) Inspecting public accounting firms;
4.) Investigating violations;
5.) Enforcing compliance.
On what firms must the Public Company Accounting Oversight Board (PCAOB) perform annual audits?
Firms with 100 or more public company audits.
List the types of audit impairments that are the focus of the Government Accountability Office.
1.) Personal impairments;
2.) External impairments;
3.) Organizational impairments.
What audits do the Government Accountability Office guidelines apply to?
1.) Government entities;
2.) Entities that receive government grants.
What does the acronym AO stand for?
What general issues do the Government Accountability Office address?
*Ethical principles (Public interest; integrity; objectivity)
*Proper use of government information, resources & position
What does the acronym GAO stand for?
Government Accountability Office.
What requirements does the Government Accountability Office outline regarding the assessing of impact that nonaudit services have on the audit?
*Auditing Organizations (AOs) must not provide nonaudit services that involve performing management functions or making management decisions; and
*AOs must not audit their own work or provide nonaudit services in cases where the nonaudit services are significant to the subject matter of the audit.
What two primary independence concerns do the Department of Labor independence rules address?
1.) Financial ties
2.) Employment ties
What does the acronym DOL stand for?
Department of Labor.
What does the acronym ERISA stand for?
Employee Retirement Income Security Act.
What does the acronym EBSA stand for?
Employee Benefits Security Administration.
What does the acronym PABS stand for?
Professional Accountants in Business.
What is the role of the Professional Ethics Executive Committee (PEEC)?
The Professional Ethics Executive Committee monitors the International Federation of Accountants' activities and gives the U.S. input to International Ethics Standards Board for Accountants (IESBA).
List two types of safeguards against threats to Independence.
*Created by profession, legislation or regulation
*Present in the workplace (Firm-wide, engagement specific)
List the fundamental principles of the International Federation of Accountants (IFAC) code.
Is the International Federation of Accountants Code (IFAC) rules-based?
No, the International Federation of Accountants Code is principles-based.
What does the acronym IFAC stand for?
International Federation of Accountants.
What does the acronym PAPPS stand for?
Professional Accountants in Public Practice.
Define "clearly insignificant" as defined in the International Federation of Accountants (IFAC) code.
Trivial and Inconsequential.
List the categories of threats to independence outlined in the International Federation of Accountants (IFAC) code.
How many countries have adopted the International Federation of Accountants code?
Over 100 countries have adopted this code.
What is the role of the International Federation of Accountants?
It is the global voice for accounting profession.
What does the acronym IESBA stand for?
International Ethics Standards Board for Accountants.
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