Professional Documents
Culture Documents
Advanced Auditing
Class Notes
What is a Professional?
Possesses specialized skill and knowledge
Belongs to and abides by the standards of a society (follows a Code)
Serves an important aspect of the public good
Issues/Guidance:
Integrity:
o To maintain and broaden public confidence, members should perform
all professional responsibilities with the highest sense of integrity
Objectivity and Independence:
o A member should maintain objectivity and be free of conflicts of
interest in discharging professional responsibilities.
o A member in public practice should be independent in fact and
appearance when providing auditing and other attestation services
Due Care:
o A member should observe the profession’s technical and ethical
standards, strive continually to improve competence and the quality
of services, and discharge professional responsibility to the best of the
member’s ability
Why Do Auditing Professionals Need a Professional Code of Ethics?
Codes of Conduct are concerned with a range of issues, including:
o Academic honesty
o Ensure adherence to confidentiality agreements
o Professional accountability
o Resolution of conflicts of interest
Moral Dilemma:
Moral dilemma is a situation in which two or more obligations, duties, rights,
or ideals come into conflict
To resolve we must:
o ID the factors
o Gather facts
o Rank considerations
o Consider alternative courses of action
o Arrive at a judgment
Ethics – Auditors/Employers
Ethics – Audit Employees
Confidentiality
Accountability Relationship?
An accountability relationship is a prerequisite for an assurance engagement
Exists when:
o The accountable party is answerable to and/or is responsible to
another party (the user) for a subject matter
Levels of Assurance:
Two distinct levels of assurance – a high level and a moderate level
What is a Review?
In a review engagement practitioner = moderate level of assurance
General Standards:
Before undertaking an assurance engagement, need to have reason to believe
that the engagement can be completed in accordance with the relevant
standards
SM is or will be within the collective professional expertise of the
practitioner and other persons performing the assurance engagement
Two Responsibilities under the General Standards:
o The assurance engagement should be performed with due care and
with an objective state of mind
Objective State of Mind:
o Remain unbiased in carrying out responsibility in forming conclusion
Performance/Examination Standards:
The practitioner should identify or develop criteria that are suitable for
evaluating the subject matter
What are criteria?
o Relevance
o Reliability
o Neutrality
o Understandability
o Completeness
Criteria needs to have significance to be suitable in order to have an
appropriate conclusion
Performance Standards:
Responsibilities: the work should be adequately planned and the practitioner
should ensure any other persons performing the assurance engagement are
properly supervised
Need a general strategy and a detailed approach to the execution of the
engagement
Factors including:
o Objective of the engagement
o Criteria to be used in the engagement
o Planned level of assurance
o Possible sources of evidence
o Preliminary judgments about materiality and expertise required,
including the nature and extent of specialist involvement
Sufficient/Appropriate:
Assurance is obtained through obtaining sufficient, appropriate audit
evidence
The concepts of sufficiency and appropriateness of evidence are interrelated
Assertions F/S:
Management asserts F/S are correct with regard to:
o Existence or occurrence of assets, liabilities, or transactions
o Completeness of information in the F/S
o Rights and obligations at a point in time
o Appropriate valuation or allocation
o Presentation and disclosure
Tips –
Be proactive
Look for patterns
Evaluate management explanations
Establish if they are reasonable to you or them
What is Objectivity?
Is an independent mental attitude which requires auditors to perform
audits in such a manger that they have an honest beliefs in their work
product and that no significant quality compromises are made
Objectivity requires auditors not to subordinate their judgment on audit
matters to that of others
The ability to view something without influence of feelings/emotions
Five Independence Threats:
1. Self interest
2. Self review
3. Advocacy
4. Familiarity
5. Intimidation
Liability to Clients:
1. Breach of Contract
Inappropriate withdrawal from an audit
Failure to discover theft – if specifically contracted
Breaching confidentiality
2. Negligence
The elements in any negligence action against your accountants are as
follows:
o Must have owed duty of care
o Must not have met the required standard of care
o Actions must have been the cause of plaintiff damages
o Damage must be reasonably foreseeable or not too remote
Duty of Care – exists if relationship between parties that is sufficiently
close to allow one party to contemplate that carelessness on its part will
cause hard to the other party
Damages – for the auditor to be liable, damages must be the proximate
result of negligence; limited to losses that use of reasonable care would
have avoided
Liability to Third Parties Under Common Law – third parties include:
actual and potential stockholders, vendors, bankers, employees,
customers; bank could claim it relied on a F/S to provide loan
3. Gross Negligence (Recklessness/Constructive Fraud)
4. Fraud
Criminal Law:
Can be found guilty for willful illegal conduct:
o Omission of material facts needed to not mislead
o Knowingly putting false information on F/S