AUD 2 Flashcards
If a client has not paid fees from a previous year
the independence is considered impaired if the firm were to sign current year reports. The firm may not sign current year reports
Direct Finaicial Interests
impairs independence whether it is material or immaterial. A CPA can not invest in a clients corporation for a family member according to the AICPA Code of Professional Conduct. If indirect, doesn’t impair independence
For an auditor to maintain independence while auditing a brokerage firm in which they maintain a brokerage account
must ensure both that the Broker renders services to the auditor on the same terms and conditions as to other customers and that any assets the auditor has in the account that are subject to risk of loss are immaterial to their net worth.
Joint Investments
Create independence problems between the audit firm ant the attest client, from investing in a startup to investing in a sailboat.
Leases with attest clients that would create impairment of independence
capital leases (lease to own) and operating leases where the attest client gives a discount not given to other tenants
“Close Relative”
Parent, Sibling, or nondependent child
“Immediate Family Member”
member’s spouse, spousal equivalent, dependent child
Under SOX provisions, If external auditor is offered an “officer” or “director” position within attest client’s organization
the auditor must observe a one-year cooling-off period before going to work for the organization, entailing passage of full audit cycle
Non-audit Services (NAS)
- The Code of Professional Conduct governs provision of NAS to privately-held companies.
- Sarbanes-Oxley governs provision of NAS to public companies.
- Covered members should monitor the total amount of their NAS to ensure that their total involvement with the client does not become so extensive that it would constitute performing a separate service.
“other members” duty owed
does not have to be independent in fact and appearance but must avoid committing discreditable acts
Principles of Professional Conduct
Members must not only be competent in the provision of professional services; they must also cooperate with other members to improve the art of accounting.
Whether seeking an audit committee’s permission to provide permissible tax services or other non-audit services to a public company audit client or when preparing to take a public company on as a new audit client, three important steps are
- DESCRIBE in writing important issues surrounding the relationship
- DISCUSS those specifically with the audit committee
- DOCUMENT the discussion for posterity
A government internal audit function is presumed to be free from organizational independence impairments for reporting internally when the head of the organization
Is removed from political pressures to conduct audits objectively, without fear of political reprisal.
According to the guidelines of the Department of Labor (DOL), the selected auditor for a new auditing firm must be
Independent for purposes of examining financial information required to be filed annually with the DOL.
primary responsibility of an auditor
Provide regulators, creditors and investors with an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.
