#1 Ethics, independence and professional responsibilities

Question 1

Generally Accepted Government Auditing Standards (GAGAS) ethical principles

Answer 1

*Public Interest
*Integrity and Objectivity
*Proper use of:
>Government information
>Government resources
>Government positions
*Professional behavior
*Independence

!!Must comply with GAGAS plus AICPA Code of Professional Conducts.

Question 2

Independence requirements of Sarbanes -Oxley for audits of issuers

Unit#1

Answer 2

*Auditor must cool off for 1 year before taking key role with client
*Auditor cannot perform most nonaudit services for audit clients
*Auditor must report to audit committee:
>Critical accounting policies and practices
>Alternative accounting discussed with management
>Material written communication between auditor and management
*Audit partner and reviewing partner must rotate off engagement every five years
*Audit committee must preapprove nonaudit services provided

Question 3

Internal Control Documentation

Answer 3

*Required for audits, even if no internal control opinion will be issued
*Auditor chooses the documentation method
*Common methods include:
>Internal control questionnaire(yes or no questions only)
>Flowchart (visual depiction of data flow and interactions showing segregation of duties)
>Narrative(written description of data flow and interactions)
>Decision tree (reflects steps in response to decisions in a process)

!!GAAS requires that the auditor document the review of internal controls in all audit situations, even if an opinion on internal controls will not be issued.

Question 4

Unpaid fees from more than 1 year before current year’s report impair independence

Answer 4

*Applies whether or not unpaid fees are from attest services
*Applies whether or not fees due have been billed
*Does not apply if client is in bankruptcy
*Note payable does not constitute payment

Question 5

Tax Services prohibited for issuer audit clients

Answer 5

*Recommending an aggressive tax position
*Providing any tax service for person in key position with client
*Using contingent fee arrangements (even if not tax related)
*Advocating for client in a tax dispute

!!If preapproved by audit committee, tax services such as return filing are generally allowed even for issuer audit client.