...110 contributes to the ability of the auditor to discharge the duty to act in the public interest. The fundamental ethical principles that apply to all members of the professional bodies are to act with integrity, objectivity, professional competence and due care, confidentiality and professional behaviour (APES 110, 100.4). The requirement to act in the public interest means that auditors should consider how their actions impact the client and their employer. They must also consider the impact of their actions on others such as the client’s employees, investors, credit providers, and those without direct financial interests in the client such as the broader business and financial community and members of the public. All these people could be reliant on the quality of the auditor’s work, even though they are not party to the contract between the client and the audit firm. The reliability of the financial reports and the audit report is potentially damaged if the auditor does not act with integrity (honesty), objectivity (being independent), with professional competence and due care (executing the work with the required level of skill and attention), confidentiality (discussing the client’s affairs with others inappropriately), and professional behaviour (protecting their reputation and the profession’s reputation). A dishonest auditor could knowingly help publish a materially false, misleading, or reckless financial report. Auditors...
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...could an auditor typically speak to about the client? When accepting a new client that previously had another auditor, is the successor auditor required to communicate with the predecessor auditor? Which party does the burden of initiated contact rest with? Does the predecessor auditor have to get permission from the client before speaking to the successor auditor? What is the purpose of the successor and predecessor communicating? The successor auditor could speak to the predecessor auditor, local attorneys, other CPAs, banks, and other businesses. For prospective clients that have previously been audited by another CPA firm, the new (successor) auditor is REQUIRED by auditing standards to communicate with the predecessor auditor. The burden of communication rests with the successor auditor but the predecessor is required respond. The predecessor does have to get the client’s permission before making communication with successor auditor. The purpose of communication is to help the successor auditor evaluate whether to accept the engagement. 2. What is the purpose of the engagement letter? What is included in the engagement letter? Audit standards require that auditors document their understanding with the client in an engagement letter. It includes the engagement’s objectives, the responsibilities of the auditor and management, identification of the financial reporting framework used by management, reference to the expected form and content of the audit report, and...
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...Address Fraud: Regulation, Corporate Governance, and Audit Quality 1. The auditor is not responsible for the presentation of financial statements; therefore, the auditor has no responsibility for fraud in the financial statements. FALSE 2. An example of fraudulent financial reporting is the CFO intentionally overstating sales to boost profits. TRUE 3. The auditor is responsible for actively considering fraud risks in order to obtain reasonable assurance that the financial statements are free of material fraud. TRUE 4. Auditors need to consider fraud arising from misappropriation of assets and fraudulent financial reporting. TRUE 5. Fraud is an intentional act involving the use of deception that results in a material misstatement of the financial statements. TRUE 6. An example of fraudulent financial reporting is the treasurer's diversion of hundreds of thousands of dollars into a personal money market account. FALSE 7. BruceCo. has accounted for the revenue of Jiffy Mac, Inc., one of its suppliers as though it were its subsidiary. BruceCo. has probably committed fraud because of its misapplication of consolidation principles. TRUE 8. Consideration of fraud in financial statement audits is a relatively new concept derived originally from the Sarbanes-Oxley Act. FALSE 9. The most important lesson to be learned from The Great Salad Oil Swindle is that auditors can commit fraud by falsely including inventory that...
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...Quality Audit Project No.: 2 Student Name: Sonia Rana Name : Sonia Rana List of Contents Description Page No. Introduction Quality Audit and Its Importance Audit Team and Their Roles Audit Procedure Entry and Exit Meetings Reporting Audit Standards Summary References 3 4-5 5-7 8-11 11-13 13-14 14-15 15 15 Page 2 of 15 Name : Sonia Rana Introduction: This paper details the importance of the Quality audit, why audit are conducted and what is the purpose of auditing. It explains the process followed to organise, complete and report the audit. Also roles of the various audit team members including external experts/technical specialists are discussed. A brief overview of the audit process, what process and techniques are used during audit process. It also includes the importance of the entry and exit meetings, why these meetings are required and what is discussed in these meetings. This paper explores about the legislations, codes of practices and quality standards that applies to a Quality auditing. Also identifies what reports needs to be made as a result of audit findings, also discusses the formats of the reports and to whom these reports should be presented. A brief conclusion is presented in the last section summarising the findings and discussions. Quality Audits and Its Importance: Page 3 of 15 Name : Sonia Rana Quality audit is the process of systematic examination of a quality system carried out by an internal or external quality auditor or an audit team. It...
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...Economy 5 copy 1. The need for assurance services arises because the interests of the users of information may be different from that of the interests of those responsible for providing information. True False 2. A financial statement audit is a systematic process of objectively obtaining and evaluating evidence. True False True False True False True False 3. Auditors should conduct their work with an attitude of professional skepticism. 4. A bank using Milton Company's financial statements to determine the creditworthiness of a potential loan to Milton is a good example of the need for unbiased reporting. 5. An integrated audit requires the auditor to assess the effectiveness of internal controls. 6. In all states, a CPA must have completed at least 150 hours of college semester hours to receive their license. True False 7. The Center for Audit Quality was started by the International Federation of Accountants. True False 8. The Center for Audit Quality has the primary authority to set auditing standards. True False 9. In an audit, management is considered the “client”. True False 10. Auditing is the process of attesting to assertions about economic actions and events. True False 11. Auditing is the process of verifying the accuracy of the financial...
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...Professor John Kuhn Unit #1 Case Study 1. The Enron debacle created what one public official reported was a “crisis of confidence” on the part of the public in the accounting profession. List the parties who you believe are most responsible for that crisis. There are many responsible for the crisis at Enron. The two main are the top executives at Enron and the auditors at Arthur Andersen. The auditors at Arthur Andersen clearly had a conflict of interest. Andersen earned more form other accounting services from Enron than from auditing services performed. This would certainly lead to the notion that Andersen could and probably did alter the financial reports of Enron to their own benefit. The top executives at Enron were also just as responsible as each of them were profiting from the buying and selling of the company’s stock making huge profits. Both the auditors and the top executives were well aware of the special purpose entities to protect the data that should have been entered on the consolidated financial statements of Enron. The auditors and the top executive should have noticed the problem with the special purpose entities and reported them. Both the auditor and the top executives were profiting from the special purpose entities not being reported on the consolidated financial statements. 2. List three types of consulting services that audit firms have provided to their audit clients in recent years. For each item, indicate the specific threats, if...
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...Issues 1-. Is it necessary or appropriate for independent auditors to trust client executives? If so, to what extent should auditors trust client management? 2. a) What types of information should auditors obtain when evaluating the integrity of a prospective client’s executives? b ) What sources would they generally collect this information from? 3.a) Was it appropriate for Seidman & Seidman to resign as the audit firm of the company that chose Goldblum as its new president and CEO? b) What conditions would make appropriate for a professional firm, such as a CPA firm, to choose not to provide professional services to a company or individual requesting such services? Facts Equity Funding Corporation of America was founded in 1960 by four partners, however 2 of then resigned in no time leaving the organization to Stanley Goldblum (President) and Michael Riordan (Chairman of the board). The corporation based its activities in the life insurance industry providing policies and funding programs for investors., and gained a nationwide reputation after going public in 1964. Riordan died in 1969 and Goldblum was appointed as the new chairman of the board, where he designed a company’s employee, Fred Levin as the new executive vice-president. The corporation’s operations, revenues, and earning increased by the hand of the aggressive management policies directed by Goldblum and Levin, being ranked as one of the 10 largest life insurance companies in the US in 1972...
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...Guidance for audit committees Reviewing auditor independence November 2003 The Combined Code on Corporate Governance – July 2003 C.3 Audit Committee and Auditors Main Principle: The board should establish formal and transparent arrangements for considering how they should apply the financial reporting and internal control principles and for maintaining an appropriate relationship with the company’s auditors. Code provisions C.3.1 The board should establish an audit committee of at least three, or in the case of smaller companies two, members, who should all be independent non-executive directors. The board should satisfy itself that at least one member of the audit committee has recent and relevant financial experience. C.3.2 The main role and responsibilities of the audit committee should be set out in written terms of reference and should include: • to monitor the integrity of the financial statements of the company, and any formal announcements relating to the company’s financial performance, reviewing significant financial reporting judgements contained in them; • to review the company’s internal financial controls and, unless expressly addressed by a separate board risk committee composed of independent directors, or by the board itself, to review the company’s internal control and risk management systems; • to monitor and review the effectiveness of the company’s internal audit function; • to make recommendations to the board, for it to put to the shareholders...
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...Building an Effective Internal IT Audit Function (While this topic is written from an internal auditor's perspective, the concepts and philosophies can be adapted to guide the external audit function as well) AUDIT DEPARTMENT PURPOSE Why does the internal audit department exist? What's the end goal? * Is our purpose to issue reports? * To raise issues? * To make people look bad? * To show how smart we are and how dishonest, incompetent, and corrupt the rest of the company is? * To flex our muscles and show that we can do anything and tell on anyone because we report to the board of directors? AUDIT DEPARTMENTS * formed by the company's audit committee (a subset of the board of directors) * for the purpose of providing them with independent assurance that internal controls are in place and functioning effectively. The audit committee wants a group that it can trust to be objective enough to tell it if there is anything the committee should be worried about. What's "really going on" in the company. The committee wants someone it can trust to turn in all the evildoers in the company who refuse to implement internal controls. Internal audit departments usually report directly to the chairman of the audit committee, so they feel protected from blowing the whistle on the hordes of dishonest managers who surely have infested the company. The real mission of the internal audit department is to help improve the state of internal controls at the company. Admittedly...
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...has influence (if any) over the audit of Smackey Dog Foods, Inc. Solution: The SEC does not have direct influence over the audit of Smackey Company because, Smackey is not a public held organization, they do not have assets in excess of $10 million, and they do not have over 500 stockholders; which are the requirements for public and privately held companies. The SEC does have indirect influence over the audit because all companies, whether public or private are required to comply with General Accepted Accounting Principles (GAAP) and the SEC plays a significant role in influencing these standards. The auditors, while not bound by SEC rules they are required to obey specific audit rules and guidelines as outlined under the the American Institute of Certified Public Accountants (AICPA). The AICPA is responsible for establishing auditing and attestation standards for private companies in the United States and for enforcing a code of professional conduct for its members. The code is comprised of six principles that the auditors must adhere to. The principles are: responsibilities, the public interest, integrity, independence and objectivity, due care, and the scope and nature of services. Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client? Solution: During the initial planning of the audit of Smackey Dog Food, the auditors should discuss the following essential...
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...“Critically discussed if there are real reasons why institutional investors should be concerned about the independence and genuine effectiveness of the audit function? Search the findings of academic papers and other published sources to support your view.” Introduction An institutional investor is an organization that invests on behalf of the organization’s members. These investors are a part of corporate governance for companies and they have large amounts of money to invest. In Malaysia, there are five leading institutional investors; Employees Provident Fund of Malaysia (EPF), Pertubuhan Keselamatan Sosial (Social Security Organisation), Lembaga Tabung Haji (Pilgrimage Board), Khazanah Nasional, Permodalan Nasional Berhad (National Equity Corporation) and Lembaga Tabung Angkatan Tentera (Armed Forces Fund Board) have taken various measures over the years to put better governance practices in their investee companies. As they can afford to buy more shares and bonds, sometimes automatically put them as majority and proactive shareholders. They have power to influence over management decision making, conduct regular engagements with management of companies, placing new shares, demand meetings with the senior managements of companies regards to their performance, vote on key issues at general meetings and communicate on other matters affecting shareholders' interest. The institutional investor which is an external party that are independence from the management can be seen...
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...Ashley Richardson 11/15/2013 Western Governors University AUO1 – Auditing and Information Systems Additional Study Questions/ Study Guide 1. Accounting Information Systems Competency 302.1.1: Nature and Purpose The student understands the nature and purpose of information systems. * What is the difference between transaction processing systems, management information systems, and decision support systems? 2. Transaction processing systems - document financial activities 3. Management information systems - used to collect qualitative as well as quantitative information for decision making within organizations 4. Decision support systems - help the developers of an AIS identify what information they need for their planning, decision making, and control functions * How is a flowchart used? 5. A document flowchart traces the physical flow of documents through an organization—that is, the flow of documents from the departments, groups, or individuals who first created them to their final destinations. * How is the accounting information system documented? 6. An accounting information system is a collection of data and processing procedures that creates needed information for its users. An information system's components: Data or information is input, processed, and output as information for planning, decision-making, and control purposes. 1. Data flow diagrams provide both a physical and a logical view of a system...
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...Chapter 01 An Introduction to Assurance and Financial Statement Auditing True / False Questions 1. | Independence standards are required for audits of public companies, but not for audits of private companies. True False | 2. | Decision makers demand reliable information that is provided by accountants. True False | 3. | Information asymmetry seldom occurs. True False | 4. | Conflicts of interest often occur between absentee owners and managers. True False | 5. | Auditing services and attestation services are the same. True False | 6. | Auditing is a type of attest service. True False | 7. | Testing all transactions that occurred during the period is cost prohibitive. True False | Multiple Choice Questions 8. | Why do auditors generally use a sampling approach to evidence gathering? A. | Auditors are experts and do not need to look at much to know whether the financial statements are correct or not. | B. | Auditors must balance the cost of the audit with the need for precision. | C. | Auditors must limit their exposure to their auditee to maintain independence. | D. | The auditor's relationship with the auditee is generally adversarial, so the auditor will not have access to all of the financial information of the company. | | 9. | Which of the following statements best describes a relationship between sample size and other elements of auditing? A. | If materiality increases, so will...
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...Introduction The audit expectation gap has been in existence for decades; it was first introduced during the early 1970’s. Collective evidence has gradually shown the existence of the expectation gap. Researchers, Salehi, Ali, Kandasamy, Ojo, Epstein, Geiger, Pierce, Kilcommins, Humphrey, Adeyemi, Uadiale, Monroe, Woodcliff, Jennings, Porter, Sikka, Hassas-Yeganeh , Khaleghi, Dixon, Woodhead, Frank, Lowe, and Smith, have continued to investigate the existence of the expectation gap and its complications. The audit expectation gap exists when the public user and auditors have different beliefs about what an auditor’s responsibility should be. In the past few years, auditors have been unwillingly placed in the spotlight. The expectation gap has affected and deteriorated accountants’ credibility. The reason to this is that public users have expectations from auditors, for example, Salehi says, “the primary responsibility of an auditor is to verify whether the financial statements exhibit a true and fair view of state of affair of the business and their secondary responsibility is the prevention and detection of errors and frauds” (Salehi 2008, p. 65). These expectations by the public users increase the legal liability and credibility facing the audit profession (Ojo, 2006), and lastly, it lowers their earning potrantion and reputation associated with the work of auditors (Lee, Ali & Kandasamy 2008). Yet, the profession have been trying to decrease the disparity (Epstein and...
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...theory should include the following; * Both owners who are the principals and the managers who are the agents are deemed to be wealth maximizing agents * Individuals falling into different groups will ideally have different information and thus the more informed individuals will make a profit at the expense of the others * Another critical assumption made by agency theory is that for the owners to believe the report prepared by the managers of the business, they will demand to have this report verified by a third independent party. * Agency theory goes on to suggest that the appointment of professional external auditors is the most preferred cost effective way of monitoring the agents. * Under strict agency theory, financial reports are thus regarded as reports to owners of the business who are the principals and the external auditor is seen to act for and on behalf of the owners. DEFINITION OF AUDIT STATEMENT OF AUDITING STANDARDS-GLOSSARY OF TERMS issued by the Auditing Practices Board defines an Audit as; “ An exercise whose objective is to enable auditors to express an opinion whether the financial statements give a true and fair view of the entity`s affairs at the end of a period and its profit or loss for the period then ended and have been properly prepared in accordance with the applicable reporting framework” PARTIES TO THE AUDIT PROCES The American Accounting Association suggests that there are four parties to the accountability/audit process; ...
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