Principles of Auditing & Other Assurance Services (Irwin Accounting)
20th Edition
ISBN: 9780077729141
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
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Question
Chapter 3, Problem 27QRA
a.
To determine
Provide the implications of this offer assuming Company L is a non-public corporation.
b.
To determine
Provide the implications of this offer assuming Company L is a public corporation.
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Roger Royce, CPA, has encountered a situation that he thinks may pose a threat to his independence with respect to Watson, Incorporated an audit client. The situation is not addressed by an independence rule or regulation. Using the AICPA Conceptual Framework for Independence Standards, describe how Royce can determine whether the threat truly impairs his independence.
AICPA independence requirements suggest that a CPA should evaluate whether a particular threat to independence would lead a reasonable person, aware of all the relevant facts, to conclude that:
a
A questioning mind reveals doubt as to independence.
b
An unacceptable risk of non-independence exists.
c
The accountant is definitely not independent.
d
There is substantial cause for a legal finding of non-independence.
Do you believe that the SEC should prohibit auditors from providing all nonaudit services for audit clients? Use ethical reasoning to support your answer.
Chapter 3 Solutions
Principles of Auditing & Other Assurance Services (Irwin Accounting)
Ch. 3 - What is meant by the term ethical dilemma?...Ch. 3 - What are the two major types of constraints on...Ch. 3 - Prob. 3RQCh. 3 - Prob. 4RQCh. 3 - Prob. 5RQCh. 3 - Prob. 6RQCh. 3 - Prob. 7RQCh. 3 - Bill Scott works as a manager in the Phoenix...Ch. 3 - Prob. 9RQCh. 3 - Prob. 10RQ
Ch. 3 - Prob. 11RQCh. 3 - Prob. 12RQCh. 3 - Prob. 13RQCh. 3 - Prob. 14RQCh. 3 - Prob. 15RQCh. 3 - Prob. 16RQCh. 3 - Prob. 17RQCh. 3 - Prob. 18RQCh. 3 - Prob. 19RQCh. 3 - Prob. 20RQCh. 3 - Prob. 21RQCh. 3 - Prob. 22RQCh. 3 - Prob. 23RQCh. 3 - Prob. 24RQCh. 3 - Prob. 25RQCh. 3 - Prob. 26RQCh. 3 - Prob. 27QRACh. 3 - Prob. 28QRACh. 3 - Prob. 29QRACh. 3 - Prob. 30QRACh. 3 - Prob. 31QRACh. 3 - Prob. 32QRACh. 3 - Ron Barber, CPA, is auditing the financial...Ch. 3 - Prob. 34AOQCh. 3 - Prob. 34BOQCh. 3 - Prob. 34COQCh. 3 - Prob. 34DOQCh. 3 - Prob. 34EOQCh. 3 - Prob. 34FOQCh. 3 - Prob. 34GOQCh. 3 - Prob. 34HOQCh. 3 - Prob. 34IOQCh. 3 - Prob. 34JOQCh. 3 - Prob. 34KOQCh. 3 - Prob. 34LOQCh. 3 - Prob. 35OQCh. 3 - Prob. 36OQCh. 3 - Prob. 37OQCh. 3 - Prob. 38OQCh. 3 - Prob. 39OQCh. 3 - Prob. 40OQCh. 3 - Prob. 41OQCh. 3 - Prob. 42OQCh. 3 - Gary Watson, a graduating business student at a...Ch. 3 - Prob. 44PCh. 3 - Prob. 45PCh. 3 - Prob. 46PCh. 3 - Prob. 47ITCCh. 3 - Prob. 48ITCCh. 3 - Prob. 49RDC
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Similar questions
- Some criticize the accounting profession for using expressions in the audit report that seem to be building in deniability should the client commit a fraudulent act. What expressions enable the CPA to build a defense should the audit wind up in the courtroom? Do you see anything wrong with these expressions from an ethical point of view?arrow_forwardWhen applying the GAO's conceptual framework (framework), which step should the auditor apply first? Evaluate the threat to independence. Apply safeguards to mitigate threats to independence. Determine whether use of the framework is required. Identify the threat to independence. When applying the GAD's conceptual framework (framework), which step should the auditor apply first? Evaluate the threat to independence O Apply safeguards to mitigate threats to independence O Determine whether use of the framework is required. O Identify the threat to independencearrow_forwardThe Conceptual Framework for AICPA Independence Standards(1) adopts a risk-based approach to analysis of independence matters.(2) defines independence of mind as avoiding circumstances in which reasonablepersons would conclude that integrity or objectivity has been compromised.(3) describes threats to independence as circumstances that impair independence.(4) states that safeguards must eliminate threats to independence to be consideredeffectivearrow_forward
- A CPA wishes to use representation letter as a substitute for performing other audit procedures. Doing so: Violates professional standards, Is acceptable, but should only be done when cost justified, Is acceptable, but only for non-public clients, Is acceptable and desirable under all conditionsarrow_forwardWhich of the following statements is true regarding the AICPA Code of Conduct's conceptual framework approach? An auditor who identifies threats should discontinue the engagement. Olf safeguards reduce threats to an acceptable level, the auditor should discontinue the engagement. OAfter threats are identified, an auditor should apply safeguards to determine whether the threat can be reduced to an acceptable level. OAn auditor who identifies threats that are significant should discontinue the engagement.arrow_forwardWhich of the following would be considered a self-interest threat? When a member of the assurance team was previously a director or officer of the assurance client Acting as the client’s advocate in a legal proceeding Potential employment with an assurance client A member of the assurance team has a close family member who is a director or officer of the assurance clientWhich of the following would be considered a self-interest threat? When a member of the assurance team was previously a director or officer of the assurance client Acting as the client’s advocate in a legal proceeding Potential employment with an assurance client A member of the assurance team has a close family member who is a director or officer of the assurance clientarrow_forward
- What are some civil and criminal consequences if CPAs/auditors fail to follow professional standards?arrow_forwardWhich of the following actions would be considered as self-interest threats?Select which option is correct: a. An auditor has no potential employment with an assurance client. b. A member of the assurance team is a director of the client. c. An auditor acts as an advocate on behalf of an assurance client. d. One client provides a high percentage of total audit fees.arrow_forwardFor each of the situations described below, identify the category of threat to the fundamental principles of the SAICA Code of Professional Conduct. Additionally, specify at least one fundamental principle that is compromised in each situation. 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 team. d) A chartered accountant values a client's shares and then leads the negotiations on the sale of the client's company. e) The chartered accountant fails to report a fraud at a client because the perpetrator is a close friend and he is sympathetic to the interest of his friendarrow_forward
- Each of the following situations involves possible violations ofthe AICPA Code of Professional Conduct. For each situation, state whether it is a violationof the Code. In those cases in which it is a violation, explain the nature of the violationand the rationale for the existing rule.a. The audit firm of Miller and Yancy, CPAs, has joined an association of other CPAfirms across the country to enhance the types of professional services the firm canprovide. Miller and Yancy share resources with other firms in the association,including audit methodologies, audit manuals, and common IT systems for billingand time reporting. One of the partners in Miller and Yancy has a direct financialinterest in the audit client of another firm in the association.b. Bruce Sullivan, CPA, is the audit partner on the engagement of Xylium Corporation,which is a public company. In structuring the agreement with the audit committeefor the audit of Xylium’s financial statements, Sullivan included a clause that…arrow_forwardWhich of the following statements is correct regarding auditor independence in fact and in appearance? The auditor should be independent both in fact and in appearance. The auditor should be independent in fact but not in appearance. O The auditor should be independent in appearance but not in fact. When the auditor does not challenge an inappropriate journal entry made by the client in order to keep the client for future audits, this is an example of loss of independence in appearance.arrow_forwardI need the answer as soon as possiblearrow_forward
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