Audit & Assurance: Rules of Professional Conduct

Question 1

5 key principles of the rules of professional conduct

Answer 1

1. objectivity
2. integrity and due care
3. professional competence
4. confidentiality
5. professional behaviour

Question 2

5 threats to a practitioner’s independdence

Answer 2

1. self-interest
2. self-review
3. advocacy
4. familiarity
5. intimidation

Question 3

Examples of self-interest threat

Answer 3

1. shares owned
2. loans between practitioner & client (either direction)
3. client fee is proportionally large part of auditor income

Question 4

Examples of self-review threat

Answer 4

practitioner was recently employee or contractor of client & has prepared some of the data being reviewed

Question 5

Examples of advocacy threat

Answer 5

1. practitioner/firm promotes, sells, and/or receives a commission for the shares of the client
2. practitioner/firm represents client in legal dispute
3. practitioner/firm represents client in credit negotiation

Question 6

Examples of familiarity threat

Answer 6

1. practitioner/firm has long standing association with client
2. former partner of firm now holds senior position with client
3. practitioner/team member has accepted gifts or hospitality from client

Question 7

Examples of intimidation threat

Answer 7

1. client threatens to replace practitioner next year

2. client pressures to reduce hours in effort to reduce fees owing

Question 8

Which of the following best describes safeguards to independence?

(a) safeguards cannot minimize the risk that a threat to independence will develop
(b) safeguards reduce the impact of a threat to independence once they have been developed
(c) safeguards are only created by the profession
(d) safeguards are only created by the practitioner and the client

Answer 8

(B) safeguards reduce the impact of a threat to independence once they have been developed

Question 9

A client has asked the practitioner performing an audit engagement for them for assistance in preparing month end JE’s. Which safeguard must be implemented by the CPA to avoid violating rules of professional conduct related to independence?

(a) She must refuse to assist with JEs
(b) She must prepare the JEs in accordance with direction from mgt
(c) She must ensure that the client mgt approves any JEs prepared

Answer 9

(c)She must ensure that the client mgt approves any JEs prepared

Question 10

Is the following a breach of a rule of professional conduct?
The Snow White Ski Club, a NFP organization has approached M&L, a small CPA firm, for advice and assistance in preparing a business plan for the bank. The ski club has been asked that it be charged $500 unless the loan is approved. If the loan is approved, Snow White has agreed to pay M&L the fair value of the service. M&L has accepted the engagement.

Answer 10

No. This is not an assurance engagement and thus is not subject to the same rules about contingent fees.

Question 11

Is the following a breach of a rule of professional conduct?
Jeremy has been in public practice for over 40 years and is winding down for retirement. He has not taken any professional development courses in the last three years, since he has extensive experience and his CPA students keep him up to date with any new technical information.

Answer 11

Yes. Jeremy has not maintained professional competence.