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Flashcards in Week 2 Deck (25):
1

Rules of Professional Conduct

Independence
Confidentiality
Mtc of Reputation
Integrity & Due Care
Competence
Adhere to Standards
Advertising & Solicitation
Other

2

Rules of Professional Conduct: Independence

Most critical characteristic
Unbiased viewpoint; serve public

3

Rules of Professional Conduct: Confidentiality

Need permission to disclose
Cannot profit from this information

4

Rules of Professional Conduct: Mtc of Reputation

You represent the profession
Give colleague opp. to explain actions

5

Rules of Professional Conduct: Integrity & Due Care

Open, honest and fair
Don’t take responsibilities lightly

6

Rules of Professional Conduct: Competence

Keep current – knowledge & skill
Match activities with skill set & knowledge

7

Rules of Professional Conduct: Adhere to Standards

Comply with GAAP & CAS

8

Rules of Professional Conduct: Advertising & Solicitation

Must be in good taste.
Cannot be false or misleading.

9

Rules of Professional Conduct: Other

Report breaches
No Contingent fees
Communicate with Predecessor Auditor

10

Independence – in mind & in appearance

Mind:
Objective Manner
No Benefit

Appearance:
Their confidence
What other’s See

11

The 5 Threats of Independence

Self-interest
Self-review
Advocacy
Familiarity
Intimidation

12

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

13

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

14

The 5 Threats of Independence
Advocacy

Perceived or actually is promoting the client’s position.
Ex. Assisting client with resolving major dispute with creditor

15

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

16

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

17

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

18

Independence - Conclusion

PA’s face, sometimes frequent, pressure re. their integrity & independence

Long term success of the profession demands PAs to resist these pressures

19

Stages of an Audit

Risk Assess
Risk Response
Report

20

Risk Assess

Planning
Understand the client
Risk identification
Risk and materiality assessment

21

Risk Response

Preforming
Test of Controls
Analytical Procedures
Test of Details

22

Report

Conclusion
Evaluate Results
Determine type & publish report

23

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?

24

If accept: Obtain Engagement Letter

Clear understanding of terms in writing
It is the contract, detailing the duties & obligations of each side

25

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