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audit ch19

Professional Conduct, Independence and quality control

QuestionAnswer
Why do we need a code of professional conduct? Everyone has their price; my ethics could be different from your ethics
What does it mean to be independent? Be separate from client, unbiased, no financial interest, no inside company influence
Why is independence important? Reputation-leads to accuracy; Credibility
Independence in fact ...
Independence in appearance ...
Why is the provision of non-audit services to audit clients a significan concern? These services cost more than the actual audit. This may make the auditor less independent because his audit may depend on whether the client purchases other services or not
SEC's three basic principles of auditor objectivity and independence 1. an auditor should not audit his or her own work; 2. an auditor should not function in the role of management; 3. an auditor should not serve in a n advocacy role for his/her client
9 categories of prohibited nonaudit services bookkeeping; actuarial services; broker/dealer; Financial information systems/design; internal auditing outsourcing services; legal services; appraisal or valuation services; management functions or HR; Expert Services
SEC Independence Requirements for Audits of Public Companies Partners are limited to 5 consecutive years; A one year "cooling off" period is required for employees in a "financial reporting oversight role" who previously worked with the CPA firm performing the audit; compensation can't be based on services not audi
Two major situations with close relatives that can impair independence 1. relative has a financial interest in the client that is material to the close relative, and the cpa know this; 2. cpa has a close relative who could exercise significant influence over the financial or accounting policies of the client
are the issues of confidentiality different for public and private companies? public companies- cannot tell information before issue date; private companies- hiding information from competition; if in doubt-don't tell
Why are quality controls important in public accounting firms? ...
Elements of quality control Leadership:tone at the top; Relevant ethical requirements; clear acceptance and continuance; Human resources; engagement performance; monitoring
PCAOB if company audits >100-audit every year; if company audits <100- audit every 3 years
why public accounting, as a profession, promulgates ethical standards and establishes means for ensuring their observance ethical standards are established so that users of acct services know what to expect and acct professionals know whta behaviors are acceptable, and so that discipline can be applied when necessary
identified by the sec as generally impairing an auditor's independence some specific tax services
under the sec's rules regarding independence, the client must disclose fees for the external audit, audit-related fees, tax fees, and fees for other nonaudit services performed by the audit firm
The AICPA Code of professional conduct contains both general eghical principles that are aspirational in character and also a set of specific, manadatory rules describing minimum levels of conduct a cpa must maintain
in which of the following situations would a cpa's independence be considereed impaired according to the code of professional conduct the cpa has a direct financial interest in an audit client, but the interest is maintained in blind trust and the cpa owna a commercial building and leases it to an audit client. the rental income is material to the cpa
a client company has not paid its 2009 audit fees. according to the aicpa code of professional conduct, for the auditor to be considered independent with respect to the 2010 audit the 2009 fees must be paid before 2010 report is issued
legal situations would be considered to impair the auditor's independence actual litigation by the auditor against the present management, alleging management fraud or deceit
a violation of the profession's ethical standards is least likly to occus with a cpa purchases another cpa's acct practice and bases the price on a % of the fees accruing from clients over a 3yr period
rick, and independent cpa, must make an ethical justdment related to the audit of a client. if he primarily focuses on whether his decision might yield advantages for some at the expense of others, he is using a justice-based perspective
during the audit of moon co., the auditor disagrees with management's estimation of collectible AR. the possible misstatement amount is material. which of the statements below should weight more requiring an adjustment to the allowance for dobtful accts would give stockholders access to fair and adequate information
without the consent of the client, a cpa should not disclose confidential client information contained in working papers to an cpa firm that has been engaged to audit a former client
one of a cpa firm's basic objectives is to provide professional services that conform with professional standards. reasonable assurance of achieving this basic objectivve is provided through a system of quality control
in connectino with the element of engagement performance, a cpa firm's system of quality control should ordinarily include procedure covering engagement performance, supervision responsibilities, review responsibilities
Created by: Cindy Smith Cindy Smith on 2010-02-09



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