Exam 4: Professional Liability and the Need for Quality Auditor Judgments and Ethical Decisions

Major threats to the independence of the auditor include compensation schemes,familiarity with the client,and time pressures.

Rights theory focuses on evaluating actions in terms of the fundamental rights of the parties involved.

The Sarbanes-Oxley Act of 2002 amends the Securities and Exchange Act of 1934 and places prohibitions on certain consulting services by auditors for their audit clients.

Commissions and referral fees are allowed to audit firms as long as the audit client is informed of the fees.

Independence is not required for which of the following types of services?

Independence Discuss what audit independence is and why it is important to the audit firm and the profession.What are some major threats to audit firm independence and what are some of the steps that audit firms and the profession have taken in addressing those threats?

A contingency fee is a situation in which no fee will be charged unless a specified finding or result is attained.

Public confidence is mostly maintained by the public accounting profession through integrity based on personal moral standards and it is reinforced by codes of conduct.

Which of following actions satisfies Rule 201 of the General Standards of the Code of Professional Conduct definition of professional competence?

The highest-order rights include rights granted by the government,such as civil rights,legal rights,rights to own property,and license privileges.

Commissions and referral fees are not permitted for which types of services?

The AICPA may revoke a member's CPA license for violations of its Code of Professional Conduct.

The AICPA's Code of Professional Conduct defines an indirect financial interest as an investment of one percent or less of a client's organization,and because the amount is so small it is considered immaterial

Auditors are permitted to perform for a contingent fee an audit of the financial statements if the audit committee approves the agreement in advance of the services being provided.

If a member owns several shares of stock of a company during the first few months of the fiscal year under audit and then sells the shares before accepting the engagement,the firm does not violate the independence rules of the AICPA.

AICPA Code of Professional Conduct,Rule 101 Livingston and Associates is a audit firm in Las Vegas,Nevada and it performs the financial statement audit for Smith Plastics,Inc.For each non-related situation below,determine if each individual represented is independent of Smith Plastics and if Livingston and Associates (the Firm)is independent of Smith Plastics: A. Sam Livingston,an audit partner,meets Jill Warner,CFO of Smith Plastics after the engagement begins and they fall in love.Sam and Jill marry in Lake Tahoe,California a short time later.Sam Livingston will not be on the audit engagement team of Smith Plastics. B. The Firm hires Billy Messer as a staff auditor.Billy is aware that his father has a material investment in Smith Plastics.Billy will not work on the Smith Plastics audit. C. Lucy Brown is an audit manager at the Firm.Bob,her high school aged son,owns 1% of the equity of Smith Plastics.The investment is not material to Bob or Lucy's net worth.Lucy is assigned as the audit manager for the Smith Plastics engagement. D. Smith Plastics has paid all but $5,000 of the previous years audit fees. E. Julie Simpson,tax partner at the Firm has a 401k plan with multiple securities making up the balance.One of the securities in the plan is that of Smith Plastics which comprises .05% of the total balance of Julie's 401k.Julie does not have a significant portion of her retirement or savings in this particular plan.

An auditor of a public client may assist a client in designing and implementing internal controls over financial reporting.

Which of the following is an acceptable organizational form for an audit firm?

Expectations Gap What is the expectations gap?

What does utilitarian theory hold?