Reporting Income and Subordination of Judgment Flashcards
Sally’s manager seems to be incredibly eager to please their firm’s audit client. Sally is thinking seriously about the Code of Professional Conduct and trying to remember where she must draw the line. Which of the following is permissible?
Signing a document that she knows is misleading.
Failing to correct a misstatement that she has the authority to correct.
Making a misleading entry in the client’s financial records when her manager instructs her to do so.
Failing to correct a misstatement that she lacks the authority to correct.
Failing to correct a misstatement that she lacks the authority to correct.
Correct! Failing to correct a misstatement that one lacks the authority to correct is not admirable, but neither is it a violation.
Winstead has clashed with his manager regarding the proper treatment of an audit client’s significant transaction. The manager says that the audit firm should approve the client’s proposed treatment. Winstead’s research tells him that the proposed treatment violates important accounting conventions. Which of the following is true regarding how Winstead should handle this situation?
Because his manager has more experience, Winstead should simply defer to the manager’s judgment.
If Winstead concludes that the manager is wrong, he must take action, such as reporting to the PCAOB, even if the threat of a material misrepresentation or legal violation is not significant.
If after significant research, Winstead still believes that he is right and the firm and client are wrong, he must resign from his firm.
If after significant research, Winstead still believes that he is right and the firm and client are wrong, he should consider resigning from his firm if the threat of a material misrepresentation or legal violation is significant.
If after significant research, Winstead still believes that he is right and the firm and client are wrong, he should consider resigning from his firm if the threat of a material misrepresentation or legal violation is significant.
Correct! If Winstead still believes that he is right, he should consider resigning from his firm, but is not required to do so.
Which of the following is (are) true regarding auditors who disagree with their supervisors regarding the proper handling of an important transaction for financial statement purposes?
The auditor should always defer to the superior who, after all, has superior experience.
The auditor should always quit on the spot rather than compromise her integrity.
The auditor should always discuss the matter with the superior if it appears that there is a significant threat that the financial statements will be inaccurate.
All of the choices provided.
The auditor should always discuss the matter with the superior if it appears that there is a significant threat that the financial statements will be inaccurate.
Communication is critical in determining the responsibilities of auditors when they have disagreements with their superiors over serious matters.
Son is a junior auditor from ABC Accounting Firm’s audit team at client Mammoth Corporation. Son believes that Mammoth’s CFO is mischaracterizing some important transactions. Mammoth’s CFO is adamant about the treatment of these transactions. After doing substantial research and consulting with his supervisor, who supports Mammoth’s view, Son believes that following Mammoth’s preferred treatment would produce inaccurate financial statements that would materially mislead investors. What should Son do at this stage?
Make his concerns known to higher levels of his firm and/or the client.
Resign from ABC.
Inform the SEC.
Make his concerns known to higher levels of his firm and/or the client, resign from ABC, and inform the SEC.
Make his concerns known to higher levels of his firm and/or the client.
At this stage, Son should keep things in-house. The AICPA rules recommend that he go to the “appropriate level of management,” such as his supervisor’s superior, the client’s audit committee, etc. However, if that does not produce satisfaction and Son is convinced that the financials are about to be materially misstated, he should consider resigning and contacting regulatory authorities.
Which of the following would violate the Code of Professional Conduct?
Auditor Sam instructed an underling, Todd, to make a materially false entry in an audit client’s financial statements.
Sam’s superior, Sarah, knew what Sam had done and did not correct it.
Sarah signed the firm’s audit report, knowing that the error had not been corrected.
All of the choices provided.
All of the choices provided.
Because the answers provided are all correct, this is the best answer.
