Week 2 Flashcards
Rules of Professional Conduct
Independence Confidentiality Mtc of Reputation Integrity & Due Care Competence Adhere to Standards Advertising & Solicitation Other
Rules of Professional Conduct: Independence
Most critical characteristic
Unbiased viewpoint; serve public
Rules of Professional Conduct: Confidentiality
Need permission to disclose
Cannot profit from this information
Rules of Professional Conduct: Mtc of Reputation
You represent the profession
Give colleague opp. to explain actions
Rules of Professional Conduct: Integrity & Due Care
Open, honest and fair
Don’t take responsibilities lightly
Rules of Professional Conduct: Competence
Keep current – knowledge & skill
Match activities with skill set & knowledge
Rules of Professional Conduct: Adhere to Standards
Comply with GAAP & CAS
Rules of Professional Conduct: Advertising & Solicitation
Must be in good taste.
Cannot be false or misleading.
Rules of Professional Conduct: Other
Report breaches
No Contingent fees
Communicate with Predecessor Auditor
Independence – in mind & in appearance
Mind:
Objective Manner
No Benefit
Appearance:
Their confidence
What other’s See
The 5 Threats of Independence
Self-interest Self-review Advocacy Familiarity Intimidation
The 5 Threats of Independence
Self-interest
Interest in the financial condition or results of a client.
Ex. Own shares or substantial % of your revenue
The 5 Threats of Independence
Self-review
Can’t be objective when reviewing your own work.
Ex. Prepared the financial data being audited or designed the AIS
The 5 Threats of Independence
Advocacy
Perceived or actually is promoting the client’s position.
Ex. Assisting client with resolving major dispute with creditor
The 5 Threats of Independence
Familiarity
Difficult to behave with professional skepticism
Ex. Worked with client for 10 years or former co-worker is CFO
The 5 Threats of Independence
Intimidation
Threats re the conduct of the audit or the content of the F/S
Ex. Client puts a max. audit fee that is unrealistic or threatens to change auditors over a disclosure
Safeguards to promote Independence
By Profession:
Education / Code of conduct
Report of independence to client
By Client:
Audit committee
Independent Board Members
By Accounting Firms:
Policy & procedures re relationships with clients
Education & supervision of staff
Avoidance of fee dependence
Independence - Conclusion
PA’s face, sometimes frequent, pressure re. their integrity & independence
Long term success of the profession demands PAs to resist these pressures
Stages of an Audit
Risk Assess
Risk Response
Report
Risk Assess
Planning
Understand the client
Risk identification
Risk and materiality assessment
Risk Response
Preforming
Test of Controls
Analytical Procedures
Test of Details
Report
Conclusion
Evaluate Results
Determine type & publish report
Client Acceptance or Continuance
Meet with the client
Review records
Assess Risk & Independence
Interview prior auditor
Need to answer 2 key questions:
Do we want to work with this business?
Do you have the right resources to perform a high quality audit?
If accept: Obtain Engagement Letter
Clear understanding of terms in writing
It is the contract, detailing the duties & obligations of each side
Topics Covered in Engagement Letter
Objective & scope of the audit
Responsibilities of Management
Responsibilities of Auditors
Identification of financial reporting framework
Reference to expected report & fact that outcome may differ
