Auditing and Assurance 1 - Chap 1 - Auditing (AA123) | Đại học Hoa Sen

Group 4 - Auditing & Anssurance 1
Chapter 2: Ethics, Idependence and Corporate Governance EX 2-1: 1.
a. Jane’s threats: Jane’s independence may be lost if she accept the offer of the
client. Because the big discount is only applied for long time customers of the dealership. b. Safeguard: -
If Jane accept the client’s offer, she shoud leave audit team. -
Discuss with audit commitee about the issue with the client.
c. Violation of rule of conduct: Jane will be distracted when evaluating the dealership.
d. Action: Jane should reject the offer sale manager’s. 2.
a. Threats: When Jane eats meals continuity in the client’s lunchroom just only
management levels, she create close realationship with dealership and big
affect to Jane’s independence.
b. Safe guard: Jane should comply with her firm’s policies about gift and hospitality from clients:
c. Vioalation of rule of conduct: The close relationship with the dealership
easily make her have favorable opinions for the client.
d. Jane should eats meals outside. 3.
a. Threats: The dealership want to create close relationship with her.
b. Safe guard: Jane should comply with her firm’s policies about gift and hospitality from customers.
c. Vioaltion of rule of conduct: Gift may be considered as a form of bride, it
make her decrease objective and discredit her professional.
d. Action: Jane shouldn’t receive gift from dealership because she is an auditor,
not an employees of dealership. EX 2-2:
There are two threats to compliance with the fundamental principles that may exist
as a result of your discussions with the CFO:
- Intimidation threat: You are consulting the acquisition of Staple for Hammer, your
client. You discover there’s a problem in the cash flows of Staple but the CFO of
Hammer does not want you to present this problem in your report with an explicit
intimidation that you may lose the similar engagements in the future if you do not follow his demand.
- Self-interest threat: You are worried if you do not maintain the good relationship
with the CFO, you may lose this client and therefore your future benefit can be reduced.
If you follow the CFO directive, you may violate these fundamental principles:
- Integrity: This principle requires you not to omit or obscure information required
to be included where such omission or obscurity would be misleading
decision making if you do not mention the problem of cash flows in your report.
- Objectivity: You should avoid relationships that bias or unduly influence your
judgment. If you follow the CFO command, you may breach this principle.
- Professional competence and due care: This principle imposes on you to provide
the competent professional service. It may be violated if you do not reveal the
impact of cash flows besides sales and profits. EX 2-3:
a. In order to be professional I would listen to their suggestions but I would
have to say that I would handle the audit how I feel fit. Plus I would be a
little skeptical if they were telling how to do the audit because that would
make me feeling like they were trying to hide something that they did not want us to know about.
b. Assets=Liability+S/E, every transaction need to record in two sides of this
equation, if examine them separately, the auditor cannot find the
relationship in some transaction and will omit some error and frauds. First
the assets listed in the Assets Part of Financial Report may not really exist.
Also the recorded sales transactions listed in the income part may not
really occur. So the auditors must ensure that the reported sales transaction
really occurred and were not created to fraudulently inflate the company's
profits, the auditors can check the assets and income at the same time to
ensure where does the revernue came from. Then because the complexity
of accounting information will make accountant omit transactions or
record the transactions in the wrong entries or in the improper periods,
thus auditor's specific objectives include obtaining evidence to determine
whether all the accounts payable included, all notes payable are included,
all expense recorded. For example, auditors perform audit procedures such
as analyzing repair and maintenance expenses to ensure that they should
in fact be expensed rather than capitalized. Similarly, examining additions
to building and equipment to ensure that transactions that should have
been expensed were not in fact capitalized. Cut off errors will occur when
a company fails to record accruals for expense incurred but not yet paid,
thus understating both expense and liabilities. And sometime does the
company really own the assets? Are related legal responsibilities
identified? The object is to obtain evidence about owning and owing,
because the idea includes assets (right) for which a company does not
actually hold title. For example, the machines rented from others and need
to pay rents every year but recorded as assets, it will overstate the assets
and understate the expense.All the reasons listed can prove that the audit
work should not be assigned solely according to assets, liability, and income and expense categories.
c. No, I don’t think that the staff member that has the uncle who owns the
advertising firm should examine the advertising cost. I feel this way
because and audit professional should be able to examine the data.
Because they will need to do their research to get it figured out. It would
also be a conflict of interest because of the family connection. EX 2-4: 1.
The auditors' firm provides extensive consulting services to the client;
these services provide revenues to the firm that exceed revenues received from the audit engagement.
While auditors might still be independent in fact with respect to the audit of the
client, the large revenues resulting from these services create a financial interest
that many users would find to be troubling. For example, consider the possibility
that clients might use the revenues from these services as a bargaining tool with
auditors if an issue arises during the audit engagement. Currently, no prohibitions
exist on the extent of consulting services or revenues, other than the prohibition
of certain types of services and the required approval of nonaudit services by the client's audit committee. 2.
The spouse of the partner in charge of the audit engagement occupies an
executive-level position within the client.
This would clearly pose a compromise to auditors' independence and would not
be permitted under current guidelines. The issues in this case are (1) the fact that
the auditor is directly involved with the engagement and (2) the executive-level
position occupied by his or her spouse with a client. 3.
A distant relative of a partner within the firm occupies an entry-level
position within a client of the firm. (the audit is conducted by another office of
the firm with which the partner has infrequent contact.)
This introduces a similar issue to (2), but would be less likely to compromise the
auditors' independence. The major differences in this scenario are (1) the auditor
is not directly involved with the engagement, (2) the level of position held by the
auditor's relative is not at the executive level, and (3) the relationship between the
auditor and other individual is not as close. Professional standards would likely
not conclude that this situation would compromise the auditor's independence. 4.
A staff member within the firm owns shares of stock of one of that firm's
clients. (she is not a member of the engagement team serving that client).
This represents a direct financial interest in a client. The issue is whether the fact
that the staff member is not a part of the engagement team compromises his or
her independence. While professional guidelines would not conclude that this
situation compromises the independence of the staff member, many firms have
adopted the practice of not permitting any of their professional staff to hold
financial interests in their audit clients.