a.
State the reason for which independence is essential for auditors.
b.
Compare the significance of independence of CPA’s with that of other professionals such as attorneys.
c.
Explain the difference between independence of CPA’s with that of other professionals such as attorneys.
d.1
Identify whether the partner has violated the AICPA code of professional conduct.
d.2
State whether the ownership is probable to affect the partners’ independence of mind.
d.3
State the reason for which the strict requirements about stock ownership in the rules of conduct.
e.
Explain the manner in which the situations given affect the independence of mind and independence in appearance and evaluate the social consequence of prohibiting auditors.
f.
Explain the manner in which the situations given affect the independence of mind and independence in appearance and evaluate the social consequence of prohibiting auditors.
Want to see the full answer?
Check out a sample textbook solutionChapter 4 Solutions
Auditing And Assurance Services
- Mr. Bader is leaving his Auditing Firm to become the Finance Director of his client company. The ethical dilemma that he is most likely to face would be conflict in: a. Confidentiality b. Due Care c. Professional Competence d. Professional Behaviorarrow_forwardb) The IESBA Code of Ethics for Professional Accountants highlights a number of areas in which threats might arise to independence and objectivity. Required; i. Explain what is meant by an advocacy threat and give an example of a situation which may create an advocacy threat. ii. State the category of threat that arises from an inappropriately close business relationship with a client and give two examples of close business relationships that would cause such a threat. c) An audit is one type of assurance engagement, but practitioners may carry out other assurance engagements, such as review engagements. Required; Describe a review engagement and explain the level of assurance given in such an engagement. d) Explain the terms `accountancy', `stewardship' and `agency' and explain how they can be applied to the relationship between directors and shareholders.arrow_forwardChoose the correct.Which of the following is not a way by which the Sarbanes–Oxley Act attempts to ensure auditor independence from an audit client?a. The auditing firm must be appointed by the client’s audit committee.b. Audit fees must be approved by the Public Company Accounting Oversight Board.c. The audit committee must be composed of members of the client’s board of directors who are independent of the management.d. The external auditor cannot also perform financial information system design and implementation work.arrow_forward
- 1: What problems do you see when an auditor relies extensively on management’s representations on the financial statements? 2: Do you believe that a CPA should be able to advertise? What guidelines would you recommend? Are there any areas you believe should be avoided?arrow_forwardAccording to the standards of the profession, which of the following circumstances will prevent an auditor performing audit engagements from being independent? a.The auditor's brother is the Operations Manager of the firm's client being audited by a team of which the said auditor is not a part of. b.The auditor obtained an automobile loan from a bank which is a client of another auditing firm. c.The auditor's spouse is employed as the Director of finance department of the company the said auditor is currently auditing. d.The auditor's auditing firm is involved in litigation with a previous client relating to billing for consulting services for which the amount involved is insignificant to the firm and to the client company.arrow_forwardBarbara Wells is a first-year auditor for a large public accounting firm. She was assigned to audit Larson Brothers; the CEO of Larson is her brother. She discussed some of her findings with family members. What is the relevant requirement (s) for the ethical behavior of an auditor? a. Qualified to carry out the scope of service b. Confidential c. All of those listed d. Independencearrow_forward
- Auditors are important because they are able to provide assurance of an organization's financial statements from an objective and independent opinion. It benefits the company in several ways, such as maintaining consistency, finding errors in their processing, or detecting fraud. While performing work , the auditors may face situations when they will not be able to fulfill ethical requirements. Which threat may occur as a result of the financial or other interests of a professional accountant or of an immediate or close family member? Self-interest threats Familiarity threats Advocacy threats Self-review threatsarrow_forwardCertified Public Accountants (CPA) have imposed a rigorous code of conduct on themselves. A CPA engaged in the practice of public accounting can be a stockholder/shareholder of the company he is auditing. Select one: True Falsearrow_forwardFor each situation below identify the threat and one fundamental principle that is comprised.a) An auditor has shares in a company which is an audit client of theirs.b) An accountant has compiled the financial statements for a client and was requested to also audit the statements.c) The financial director of Baboo Ltd is very aggressive and dismissive of the audit function and audit teamd) A chartered accountant values a client’s shares and then leads the negotiations on the sale of the client’s companye) The chartered accountant fails to report a fraud at a client because the perpetrator is a close friend and he issympathetic to the interest of his friend.arrow_forward
- Assume that a CPA serves as an audit client’s business consultant and performs each of the following services for the client. Identify the threats to independence. Do you believe any safeguards can be employed to reduce the threat to an acceptable level? Explain.a. Advising on how to structure its business transactions to obtain specific accounting treatment under GAAP.b.Advising and directing the client in the accounting treatment that the client employed for numerous complex accounting, apart from its audit of the client’s financial statements.c. Selecting the audit client’s most senior accounting personnel by directly interviewing applicants for those positions.arrow_forwardPickens and Perkins, CPAS, decide to incorporate their practice of accountancy. According to the AICPA Code of Professional Conduct: Select one: O a. This is not an acceptable form of organization. O b. This is an acceptable form of organization. O C. This is only an acteptable form of organization if the firm performs no audits. O d. This is an acceptable form of organization if a minority interest of public shareholders is established. Clear my choicearrow_forwardIn an attestation engagement, a CPA practitioner is engaged toa. Compile a company’s financial forecast based on management’s assumptions without expressing any form of assurance.b. Prepare a written report containing a conclusion about the reliability of a management assertion.c. Prepare a tax return using information the CPA has not audited or reviewed.d. Give expert testimony in court on particular facts in a corporate income tax controversy.arrow_forward
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningAuditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub