Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Question
Chapter 4, Problem 26DQP
a.
To determine
State the reason for which independence is essential for auditors.
b.
To determine
Compare the significance of independence of CPA’s with that of other professionals such as attorneys.
c.
To determine
Explain the difference between independence of CPA’s with that of other professionals such as attorneys.
d.1
To determine
Identify whether the partner has violated the AICPA code of professional conduct.
d.2
To determine
State whether the ownership is probable to affect the partners’ independence of mind.
d.3
To determine
State the reason for which the strict requirements about stock ownership in the rules of conduct.
e.
To determine
Explain the manner in which the situations given affect the independence of mind and independence in appearance and evaluate the social consequence of prohibiting auditors.
f.
To determine
Explain the manner in which the situations given affect the independence of mind and independence in appearance and evaluate the social consequence of prohibiting auditors.
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Discuss how each of the following could affect independence of mind and independence in appearance, and evaluate the social consequence of prohibiting auditors from doing each one:
Owning stock in a client company.
Having bookkeeping services for an audit client performed by the same person who does the audit.
Having a spouse who is the chief financial officer of a client company.
Discuss how each of the following could affect independence of mind and independence in appearance, and evaluate the social consequence of prohibiting auditors from doing each one:
Owning stock in a client company.
Having bookkeeping services for an audit client performed by the same person who does the audit.
Having a spouse who is the chief financial officer of a client company.
(More detail)
Which choice is the best example of an independent auditor?
A. CPA who has a significant investment in the company being audited.
B. A CPA who currently performs payroll services at the company it's auditing
C. A CPA who is the best friend of upper financial management at the company being audited.
D. None of these are independent auditors.
Chapter 4 Solutions
Auditing And Assurance Services
Ch. 4 - Prob. 1RQCh. 4 - Describe an ethical dilemma. How does a person...Ch. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Prob. 7RQCh. 4 - Prob. 8RQCh. 4 - Prob. 9RQCh. 4 - Prob. 10RQ
Ch. 4 - Prob. 11RQCh. 4 - Prob. 12RQCh. 4 - Prob. 13RQCh. 4 - Prob. 14RQCh. 4 - Prob. 15RQCh. 4 - Prob. 16RQCh. 4 - Prob. 17RQCh. 4 - Prob. 18.1MCQCh. 4 - Prob. 18.2MCQCh. 4 - Prob. 18.3MCQCh. 4 - Prob. 19.1MCQCh. 4 - Prob. 19.2MCQCh. 4 - Prob. 19.3MCQCh. 4 - Prob. 20.1MCQCh. 4 - Prob. 20.2MCQCh. 4 - Prob. 20.3MCQCh. 4 - Prob. 21DQPCh. 4 - Prob. 22DQPCh. 4 - Prob. 23DQPCh. 4 - Prob. 24DQPCh. 4 - Prob. 25DQPCh. 4 - Prob. 26DQPCh. 4 - Prob. 27DQPCh. 4 - Prob. 28DQPCh. 4 - Prob. 30CCh. 4 - Prob. 31CCh. 4 - Prob. 32C
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Similar questions
- 1. Which of the following statements is true? The CPA firm will lose its independence if: A. a staff auditor providing audit services to the client acquires stock in that client. B. a staff tax preparer who provides 15 hours of non-audit services to the client acquires stock in that client. C. an audit manager in an office different than the office providing audit services has a direct, immaterial financial interest in the audit client. D. an audit partner has an indirect, immaterial financial interest in an audit client that he is not in charge of. 2. The correct sequence of the paragraphs in the audit report should be: A. Basis of opinion – Explanatory paragraph – Opinion. B. Opinion - Basis of opinion – Explanatory paragraph. C. Opinion - Explanatory paragraph – Basis of opinion. D. Basis of opinion – Opinion – Explanatory paragraph. 3. The underlying reason for a code of professional ethics for auditing profession is: A. the need for public confidence in the quality of service of…arrow_forwardb) The IESBA Code of Ethics for Professional Accountants highlights a number of areas in which threats might arise to independence and objectivity. Required; i. Explain what is meant by an advocacy threat and give an example of a situation which may create an advocacy threat. ii. State the category of threat that arises from an inappropriately close business relationship with a client and give two examples of close business relationships that would cause such a threat. c) An audit is one type of assurance engagement, but practitioners may carry out other assurance engagements, such as review engagements. Required; Describe a review engagement and explain the level of assurance given in such an engagement. d) Explain the terms `accountancy', `stewardship' and `agency' and explain how they can be applied to the relationship between directors and shareholders.arrow_forwardMr. Bader is leaving his Auditing Firm to become the Finance Director of his client company. The ethical dilemma that he is most likely to face would be conflict in: a. Confidentiality b. Due Care c. Professional Competence d. Professional Behaviorarrow_forward
- 1: What problems do you see when an auditor relies extensively on management’s representations on the financial statements? 2: Do you believe that a CPA should be able to advertise? What guidelines would you recommend? Are there any areas you believe should be avoided?arrow_forwardBarbara Wells is a first-year auditor for a large public accounting firm. She was assigned to audit Larson Brothers; the CEO of Larson is her brother. She discussed some of her findings with family members. What is the relevant requirement (s) for the ethical behavior of an auditor? a. Qualified to carry out the scope of service b. Confidential c. All of those listed d. Independencearrow_forwardChoose the correct.Which of the following is not a way by which the Sarbanes–Oxley Act attempts to ensure auditor independence from an audit client?a. The auditing firm must be appointed by the client’s audit committee.b. Audit fees must be approved by the Public Company Accounting Oversight Board.c. The audit committee must be composed of members of the client’s board of directors who are independent of the management.d. The external auditor cannot also perform financial information system design and implementation work.arrow_forward
- According to the standards of the profession, which of the following circumstances will prevent an auditor performing audit engagements from being independent? a.The auditor's brother is the Operations Manager of the firm's client being audited by a team of which the said auditor is not a part of. b.The auditor obtained an automobile loan from a bank which is a client of another auditing firm. c.The auditor's spouse is employed as the Director of finance department of the company the said auditor is currently auditing. d.The auditor's auditing firm is involved in litigation with a previous client relating to billing for consulting services for which the amount involved is insignificant to the firm and to the client company.arrow_forwardAuditors are important because they are able to provide assurance of an organization's financial statements from an objective and independent opinion. It benefits the company in several ways, such as maintaining consistency, finding errors in their processing, or detecting fraud. While performing work , the auditors may face situations when they will not be able to fulfill ethical requirements. Which threat may occur as a result of the financial or other interests of a professional accountant or of an immediate or close family member? Self-interest threats Familiarity threats Advocacy threats Self-review threatsarrow_forwardCertified Public Accountants (CPA) have imposed a rigorous code of conduct on themselves. A CPA engaged in the practice of public accounting can be a stockholder/shareholder of the company he is auditing. Select one: True Falsearrow_forward
- For each situation below identify the threat and one fundamental principle that is comprised.a) An auditor has shares in a company which is an audit client of theirs.b) An accountant has compiled the financial statements for a client and was requested to also audit the statements.c) The financial director of Baboo Ltd is very aggressive and dismissive of the audit function and audit teamd) A chartered accountant values a client’s shares and then leads the negotiations on the sale of the client’s companye) The chartered accountant fails to report a fraud at a client because the perpetrator is a close friend and he issympathetic to the interest of his friend.arrow_forwardAssume that a CPA serves as an audit client’s business consultant and performs each of the following services for the client. Identify the threats to independence. Do you believe any safeguards can be employed to reduce the threat to an acceptable level? Explain.a. Advising on how to structure its business transactions to obtain specific accounting treatment under GAAP.b.Advising and directing the client in the accounting treatment that the client employed for numerous complex accounting, apart from its audit of the client’s financial statements.c. Selecting the audit client’s most senior accounting personnel by directly interviewing applicants for those positions.arrow_forwardPickens and Perkins, CPAS, decide to incorporate their practice of accountancy. According to the AICPA Code of Professional Conduct: Select one: O a. This is not an acceptable form of organization. O b. This is an acceptable form of organization. O C. This is only an acteptable form of organization if the firm performs no audits. O d. This is an acceptable form of organization if a minority interest of public shareholders is established. Clear my choicearrow_forward
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