Auditor Independence and Ethical Issues

<p>Deep pockets theory</p> Signup and view all the answers

<p>Both civil action and criminal charges</p> Signup and view all the answers

<p>Deal only with clients possessing integrity</p> Signup and view all the answers

<p>Educate investors about FS</p> Signup and view all the answers

<p>Audit committee</p> Signup and view all the answers

<p>All of the above</p> Signup and view all the answers

<p>Firms cannot provide accounting and bookkeeping services to their assurance clients</p> Signup and view all the answers

<p>All of the above</p> Signup and view all the answers

<p>To ensure that accountants adhere to the rules as maximum standards</p> Signup and view all the answers

<p>To maintain an unbiased attitude during the audit</p> Signup and view all the answers

<p>Independence in fact refers to the unbiased attitude of the auditor, while independence in appearance refers to other people's interpretation of the auditor's unbiased attitude.</p> Signup and view all the answers

<p>All of the above</p> Signup and view all the answers

<p>They must report the breach to the profession's discipline committee after advising the member of the intent to make a report.</p> Signup and view all the answers

<p>Audits, reviews, compilation engagements, and any other engagements that require the auditor to be objective.</p> Signup and view all the answers

<p>For a reasonable period of time, and some documentation needs to be retained indefinitely.</p> Signup and view all the answers

<p>The prior year's financial statement, tax returns, and working papers.</p> Signup and view all the answers

<p>The audit firm's chief executive officer (CEO) must not be in a financial reporting oversight role of the entity being audited.</p> Signup and view all the answers

<p>Key audit partners must leave the audit team after seven years.</p> Signup and view all the answers

<p>If 15% of the firm's total revenue comes from a listed entity for two consecutive years.</p> Signup and view all the answers

<p>Expectations gap</p> Signup and view all the answers

<p>Professional behaviour, Integrity and due care, Objectivity, Professional competence, Confidentiality</p> Signup and view all the answers

<p>A situation in which a decision must be made about the appropriate behaviour</p> Signup and view all the answers

<p>A methodological approach to resolving an ethical dilemma</p> Signup and view all the answers

<p>The four threats to auditor independence are self-review, advocacy, familiarity, and intimidation.</p> Signup and view all the answers

<p>Some examples of safeguards that can be implemented to reduce threats to auditor independence include rotation of partners on the engagement, limits on percentage of firm revenue from one client, independent reviews provided by CPAB, and qualified independent audit committees.</p> Signup and view all the answers

<p>The key responsibilities of an audit committee include providing oversight of the auditor (internal and external), serving as an objective and independent liaison between auditors, management, and the board of directors, and ensuring the auditor's independence.</p> Signup and view all the answers

<p>Some of the prohibitions applicable to all assurance engagements include members of the engagement team not having a direct or material indirect financial interest in the entity subject to the assurance engagement, not having a loan from or a loan guaranteed by the entity, not having a close business relationship with the entity, and not accepting significant gifts or hospitality from the assurance client.</p> Signup and view all the answers

<p>They have to report the breach to the profession's discipline committee after first advising the member of the intent to make a report and give them an opportunity to mitigate the circumstances.</p> Signup and view all the answers

<p>Members must obtain adequate information, including an assessment of accounting policies and internal controls, to estimate a fee.</p> Signup and view all the answers

<p>Documentation and working papers should be retained for a reasonable period of time, and some documentation needs to be retained indefinitely (permanent file) such as financial statements, contracts, leases, and tax returns.</p> Signup and view all the answers

<p>A predecessor should supply reasonable information to the successor about the client, including prior year's financial statements and tax returns, and allow the successor to review the working papers and answer questions to meet the CPA Canada Handbook requirements.</p> Signup and view all the answers

<p>The deep pockets theory suggests that auditors can become the target of lawsuits because they have the financial resources to pay damages, even if they are not primarily responsible for the financial loss.</p> Signup and view all the answers

<p>Auditors can face criminal and quasi-criminal liability for breaches of securities legislation, such as making misleading or untrue statements or omissions in required documents. This can result in fines of up to $5 million and/or imprisonment for up to 5 years less 1 day.</p> Signup and view all the answers

<p>Accountants can minimize their liability by dealing only with clients possessing integrity, maintaining independence, understanding the client's business, performing quality audits, and properly documenting their work. They should also exercise and maintain professional skepticism.</p> Signup and view all the answers

<p>The profession's response to legal liability includes standard setting by organizations like the IAASB and CPA, opposing unwarranted lawsuits even if the cost is greater than settling, educating users about the auditor's responsibilities, and sanctioning members for improper conduct and performance.</p> Signup and view all the answers

<p>Ethical blind spots refer to unconscious tendencies that can affect the ethical decision-making process or cause the decision maker to not recognize the ethical dimension of a choice. The purpose of identifying and understanding ethical blind spots is to eliminate ethics from the decision-making process.</p> Signup and view all the answers

<p>Rule 201 of the CPA code requires accountants to behave in the best interests of their profession and the public interest. They should not publicly criticize a colleague without giving them the chance to explain first. They should also not voluntarily resign from an audit engagement without good and sufficient reason.</p> Signup and view all the answers

<p>Independence is one of the hallmarks of the auditing profession. The value of auditing depends on the public's perception of the independence of auditors. Auditors must be free of any influence, interest, or relationship that impairs professional judgment or objectivity. Independence is not only a state of mind; it also includes the appearance of independence, in the view of a reasonable observer.</p> Signup and view all the answers

<p>Professional accountants are required to attend a certain number of continuing professional education courses each year to maintain their professional competence. This ensures that they stay up-to-date with the latest developments and best practices in their field.</p> Signup and view all the answers

<p>Audit failure refers to the situation when the auditor issues an erroneous audit opinion due to a failure to comply with auditing standards. Business failure, on the other hand, occurs when a business is unable to repay its lenders or meet investor expectations due to economic or business conditions.</p> Signup and view all the answers

<p>Audit risk is the risk that the auditor will conclude that the financial statements are fairly stated and issue an unqualified opinion when, in fact, they are materially misstated. Audit risk is unavoidable because auditors gather evidence on a test basis and because well-concealed frauds are extremely difficult to detect.</p> Signup and view all the answers

<p>The expectations gap refers to the difference between the public's expectations of the auditor's role and responsibilities and the auditor's actual responsibilities per auditing standards. This gap leads to conflict because statement users often have higher expectations of what auditors should detect and report, while auditors are limited by the scope and nature of their work.</p> Signup and view all the answers

<p>The four main sources of auditor liability discussed in the text are: 1) Common law liability to clients, where auditors can be sued for negligence or breach of contract by their clients. 2) Common law liability to third parties, where auditors can be sued by potential shareholders, vendors, creditors, employees, and customers who rely on the auditor's work. 3) Liability under provincial securities law to third parties, where auditors can be sued by investors for misrepresentation in their audit reports. 4) Failure to meet generally accepted auditing standards (GAAS), which is often strong evidence of negligence and can lead to legal liability.</p> Signup and view all the answers