chapter 4 independence rule Flashcards
value of auditing is dependent on the publics perception of what?
the independence of auditor
idependence impaired when former member of audit frim leaves and is employed by the client in a key posiion unless what conditions are met?
modify audit procedures to reduce risk former employees has kknowledge of audit plan. and need to evaluate if members of the engagemen can maintain an effective level of professional skepticism when evaluating audit info provided by former firm member
what is the interpreation of independece rule regarding financial interests?
code prohibits covered members (anyone who can influence an attest engagement) from owning any stock or other investment in audit clients no matter the amount . indirect investments (not immediate family) is alos prohibitied but only if amount material to auditor.
what are the 6 most significatnt interpretations of the rule of independence?
- financial interests 2. related financial interest issues 3. consulting, bookkeeping , and other nonattestation services 4. litigation between CPA firm and client 5. unpaid fees 6. network of firms
what are the 3 distinctions in rules of independence as related to stock ownership
- direct vs indirect fianncial interest (stock vs mutual fund) 2. material or immaterial (only apply to indirect) 3. financial interst of close relatives-Ownership by a close relative is usually not a violation of independence unless the ownership is material to the relative, or enables the relative to exericise significant influence over the attest client.
what are the related finanical interest issues . any of these relationships between CPA and client could affect independece
- loans- 2. employement of immediate or close family members 3. joint closely hel investments with clients 4. director, officier, management, of employee of a company
a member in a public practice shall be independent in the performance of professional services as required by the standards promulgated by bodies designated by Council. this is what rule?
the independence rule
ownership in client by close relatives (parent, sibling , nondepend child). is this a violation of independence rule?
only if ownership is material to the relative or enables relative to exercise significatnt influence over attest client
T/F auditors are required to be independent for certain services they provide but not for others
T
joint closely held investments with a client is prohibited if?
the closely held investment is an investment by member and client that enables them to control the entity. if it is material to covered member
Independence is required for what?
- audits 2. other types of attestations like review services and audits of prospective financial statements
what is the independence rule?
a member in a public practice shall be independent in the performance of professional services as required by the standards promulgated by bodies designated by Council.
loans are prohited unless
except cars, loans collaterized by cash deposits at same finanical institution, and unpaid cc not more 10,000…all if loans made under normal lending terms, prodedures, and requirements. no new loans permitted. home mortgages , collaterlai secured loans, immaterial loans.
materiality for stock and independence rule affects whether ownership is violation only for?
indirect ownerssship (mutual fund)(if you have a large part of wealth in mutual fund and that fund has alot in the client could be violation
independence consists of what 2 componenets?
- independence of mind (independence in fact) 2. indepenendence in appearance
