...This section is interpreted as an extensive list of all circumstances experienced by a professional accountant in the public practice that may create threat to compliance with its principles. Accordingly, it is not sufficient for a professional accountant in public practice to comply with the examples presented; rather, the framework should be realistic to the particular circumstances that are faced by the professional accountants. Professional Accountants in public practices should not be engaged in any type of business, occupation or activities that impairs or might prejudice integrity, objectivity or the good reputation of the profession and as a result would be incompatible with the rendering of professional services. A professional accountant is required to comply with the following principles of Integrity, objectivity, professional competence or due care, confidentiality and professional behavior or...
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...in this case deals with Sarah Jones independence of conducting the audit of FNB because her parents are dependent on the dividends from their significant investment in the bank. Gather all the facts Sarah Jones serves as an auditor in charge at a reputable accounting firm Trout & Cod CPA firm. She supports her family financially while her husband is a stay-at-home dad taking care of their two kids. During the audit of First National Bank (FNB), Sarah discovered that several significant commercial loans had deteriorated since the previous audit. Sarah believes that the reserves are not adequate because of the deteriorating loans and because of this she estimates the stock price could drop from $45 a share to below $18 with dividends being discontinued. Her situation becomes an ethical issue when she finds out that her parents invested nearly 25% of their retirement funds in FNB’s common stock. Her parent’s investment does not conflict with the CPA firm’s conflict of interest policy because her parents are not dependent on Sarah. Identify the stakeholders and obligations Trout & Cod CPA firm: Sarah’s obligations to the firm is to maintain the high standards and strong reputation that the firm has built. First National Bank: Sarah’s obligations to the FNB is to ensure that she provides professional services to the best of her ability. Shareholders of FNB: Sarah’s obligations to the shareholders of FNB is to maintain objectivity and integrity throughout the audit...
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...increase the productivity of financial markets. Financial statements provided by the auditors are often reviewed as credible, unbiased opinion that truly reflects the company financial positions. There’s no doubt that auditor independence is the core of auditing profession when establishing its objectivity and integrity. Auditor independence, in particular, indicates the ability of an auditor to disregard any influence or control when conducting an opinion (AAA, 1973). Therefore, auditor must be, and must be seen to be independent of company management. Lack of independence causes audits to be considered to have little value (Johnstone, Sutton, & Warfield, 2001). This is further supported by Elliott and Jacobson (1998) that a particular interest may trigger a risk that could weaken the outcome of the audit which in turn impairs the auditor independence. Hence, independence is fundamental to the purpose served by auditors (Moore et al., 2002). This study is limited to only four variables as to keep the task manageable. Prior years, various studies are being carried out by scholars in examining the effect and significance of the concerns. For instance, Abu Bakar, Abdul Rahman, and Abdul Rashid (2005) studied the factors that influence auditor independence in Malaysian-owned commercial banks loan officer’s perceptions. Furthermore, Abu Bakar and Ahmad (2009)...
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...confidence; this can be done by achieving high audit quality. Definition The PCAOB defines audit quality as providing “independent and reliable audits” regarding management’s financial statements, internal controls and potential threat for going concerns (PCAOB, 2013). Four key aspects of audit quality include independence, objectivity, skepticism, and competence. Maintaining and improving the four elements is critical to increasing audit quality and the usefulness of the information provided. Independence According to the PCAOB Auditing Standards, auditors should maintain independent mental attitudes. Independence is defined by the AICPA Code of Professional Conduct as independence of both, mind and appearance. Independence of mind requires the auditor to act with integrity, free of outside influence whereas independence of appearance requires the avoidance of situations leading to potential conflict of interests. Unless, the auditor is truly independent, the credibility and the reliability of the financial statements are compromised, violating the key objective of accounting: providing investors with relevant and reliable information (Whittington, Rany, 2014). Objectivity The AICPA Code of Professional Conduct requires auditors to be objective meaning that auditors should maintain a position that is free of conflict of interests and potential...
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...Enron: Independence Investors, creditors and other users look at financial report in order to understand and analysis of companies’ financial performance. And auditors are the people who will perform and exanimate all the company financial records in order to make sure its accurate and reliable. Therefore, the auditors must maintain independence in audit process because they will have to express their opinions of fairness about the company’s financial position. According to GAAP, independence section states that all the auditor must maintain independence in mental attitude in all matters relating to audit. It’s also defined as independence in fact and appearance. In addition, independence standards for public companies are currently a strong combination of announcement by AICPA and the SEC and the legal requirements of the Sarbanes-Oxley Act of 2002, as well as being enforced and interpreted by the PCAOB. Failing to perform independence audit services will brings many negative consequences to the firms because it affects the fairness of auditor’s opinion as well as considering as unethical act. This document will use Enron and Arthur Andersen independence case to discuss more about the important of being independence during audit process and its serious consequences if failure in providing in independence audit work, as well as auditors’ responsibilities. Enron Corporation was an American energy, commodities and services company, which filed bankruptcy at the end of 2001...
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...the accountants? Where were the controls? Enron’s public troubles began on October 16th of 2001 when management released a third quarter earnings report with a “mysterious $1.2 billion dollar reduction.” The following month the company restated earnings for the previous five years and erased $600 million in profits. It turned out that the October report began to reveal Enron’s gross abuse of special-purpose entities (SPEs) and the mark-to-market accounting method. The company used SPEs to keep enormous amounts of losses off its books while inflating earnings from supply contracts by booking all profits from a contract in the quarter the deal was made. What also became clear was that Enron did not accomplish their gross manipulations without the help from their accountant’s at Arthur Andersen. Enron shareholders and executives were not the only groups negatively affected by Enron’s aggressive accounting practices. Arthur Andersen was also unraveled because of the role it played in Enron’s materially misstated financial statements. In a letter to Kenneth Lay (, Enron’s CEO before and after Jeffrey Skilling’s short term) shortly after Jeffrey Skilling resigned, Sherron Watkins, a VP at Enron, expressed her concern with the state of the company and expressed stated concerns about Enron’s accounting practices even though they were “blessed” by Arthur Andersen. Because of these “blessings” Arthur Andersen (AA) personnel was deemed to be...
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...hypotheses guided the study. The sample for the study which was twenty companies from five sectors quoted in the Nigerian Stock Exchange. They were systematically and purposively selected from the number of quoted companies in the exchange. A five point scale questionnaire was used with items on ethical issues on organizational financial reporting and performance. Data was analyzed using descriptive statistical tools and Spearman Rank Order Correlation Coefficient. Findings suggest that the compliance by the accountant positively and significantly affect the quality of financial reports and performance of organizations. The conclusion drawn from the findings is that the compliance by the accountant on professional ethics of integrity, objectivity, honesty, compliance and accountability will improve the quality of financial reports and the performance of organizations. Based on the findings, some recommendations were made, among which are that organizations should establish a position for ethics officers in Nigerian organizations; creation of non-threatening environment for the discussion of ethical problems and co-operation...
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...employees. As per the stats of Eurostat, 67% of the privatesector jobs in Europe are created by SMEs, which represents a major share in the overall economy of a country (European Commission, 2008). Most SMEs encounter limited financial as well as non-financial resources. They depend upon the creditors like banks and other financial institutions, or private equity. In this regard, banks have become one of the major sources for SMEs fulfilling their financial requirements. However, banks are less likely to provide loans without any reasonable assurance of creditability of the firms. Banks generally rely on the financial information of the firms. They do prefer credible audited financial statements by independent auditors as a matter of assurance. In other words, most banks view auditing as a guarantee for the quality of information disclosed in companies as well as a foundation for their credit rating process. Banks believe that the credit rating would be unsure without audit obligation (Andersson & Paulsson, 2005 as cited in Ademi & Stigborn, 2010). Quality audit is an official, step-by-step assessment and evaluation of the activities and/or decisions opted, in reference to records, to ensure their applicability to meet...
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...Accounting and Taxation Full Length Research Paper Auditors’ perceptions on impact of mandatory audit firm rotation on auditor independence –Evidence from Bahrain Kousay Said* and Hussein Khasharmeh Department of Accounting, College of Business Administration, University of Bahrain, P.O. Box: 32038, Kingdom of Bahrain. st th Received 21 November 2013; Accepted 13 February 2014; Published April 2014 The current study examined several issues regarding auditor independence from the perspective of an emerging market such as Bahrain. Factors affecting the ability of auditors to remain independent include long audit tenure, financial dependence on a single audit client, non-audit services provided to audit clients, ex-auditor employment with an audit client and the existence of audit committees. It is therefore timely to examine the importance of auditor independence in the provision of reliable and credible financial information. The current study uses a questionnaire survey to examine auditors’ perceptions of the impact of mandatory audit firm rotation on auditor independence. The results of the study revealed that the majority of auditors agreed that MAR could safeguard auditor independence. The results also reveal that there is a significant relationship between mandatory audit firm rotation and auditor independence. Analyses of variance (ANOVA) were also conducted to test for the possibility of confounding effects arising from participants’ background...
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...operated a business brokerage business, and the business now has conflicts of interest towards the McHugh family. 2. The equipment of Silver’s Gym was fully depreciated and the plant was in need of costly repairs, and a brand new Johnny Z’s Gym opened up on nearby, lured over 50% of the prior membership of Silvers’ Gym away. All in all, that means buying Silver’s Gym for $600,000 is really a bad mistake for the unknowledgeable McHugh family. Questions for Discussion & Analysis 1. What are the ethical considerations involved for Donald Rosenthal, his business brokerage firm and his law firm? Donald Rosenthal is the stakeholder of Arnold, Quisling & Brutus, and at the same time, Donald Rosenthal also operates a business brokerage firm as a stakeholder. When there is a potential conflict of interest on those two entities, Donald Rosenthal will face to a dilemma to make business decisions. This dilemma will possibly affect an individual’s actions or decisions, result in lack of independence, objectivity and unethical behavior. As mention in this case, Donald Rosenthal fail to act integrity, loyalty, prudence and care to the asset management of McHugh, make unsuitable investment decision to achieve his own profit. Donald Rosenthal’s business brokerage firm has a business relationship to Edward Deegan and his Silver’s Gym. When Donald Rosenthal makes biased investment suggestion to buy the Silver’s Gym, the brokerage firm may violate several ethical rules by the employee’s...
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...“HENRI COANDA” AIR FORCE ACADEMY ROMANIA “GENERAL M.R. STEFANIK” ARMED FORCES ACADEMY SLOVAK REPUBLIC INTERNATIONAL CONFERENCE of SCIENTIFIC PAPER AFASES Brasov MANAGEMENT METHODS AND TECHNIQUES USED TO ENSURE THE INTERNAL AUDIT PERFORMANCE Marian SFETCU Phd. Student, Faculty of Economics Sciences and Business Administration of „Babeș - Bolyai” University of Cluj Napoca.E-mail: marian_sfetcu@yahoo.com. Tel: 0720 760 220 Abstract: This approach shows a research on the usage of managemental methods on the internal audit activity through qualitative and quantitative indicators of performance assurance. Balanced Scorecard, the management method and tool, referred to the Dashboard, contributes to the internal audit performance through resource planning, setting objectives and scope of the audit, communication and approval, following the recommendations, deferring to the code of ethics and how to achieve the objectives. The listed indicators, are components of the proposed management methods and tools, and they define efficency, effectiveness, economy and quality, all elements of the internal audit performance. Keywords: methods and techniques, audit, corporate governance, internal control system, performance indicators, Balanced Scorecard, Dashboard. JEL: M 42 1. INTRODUCTION The importance of using the management methods and techniques concerning the internal audit, is given by providing a new approach to this problem, which highlights the need to ensure...
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...several decades. Over the past few years, the whole world witnessed the impact of modern advances in information technology, globalization, and many other factors, all of which increased the public awareness of changes in global business environment and also brought many challenges to this profession. In response to these difficulties, modern accountants must develop a broader range of knowledge and skills to better perform their financial responsibilities. This paper examines several key challenges concerning the profession: 1) independence, 2) globalization and IFRS, 3) knowledge and skills gap. Challenges faced by accounting profession Independence and objectivity Independence is not a new issue faced by accountants; however, it has been and always will be one of the biggest challenges faced by this profession. Accounting to the research done by Beverley, Barry, Philomena, and Steven (2007), failure to maintain independence and objectivity is ranked as the second most frequent ethical failure factor (p.938). The growth of large international accounting firms has facilitated the provision of diversity of services. Clients benefit from such umbrella services more than the value of the service itself, which raises the question...
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...1666 K Street, NW Washington, D.C. 20006 Telephone: (202) 207-9100 Facsimile: (202) 862-8430 www.pcaobus.org ) CONCEPT RELEASE ON AUDITOR ) INDEPENDENCE AND AUDIT FIRM ) ROTATION; ) ) NOTICE OF ROUNDTABLE ) ) PCAOB Release No. 2011-006 August 16, 2011 PCAOB Rulemaking Docket Matter No. 37 Summary: The Public Company Accounting Oversight Board ("PCAOB" or "Board") is issuing a concept release to solicit public comment on ways that auditor independence, objectivity and professional skepticism could be enhanced. One possible approach on which the Board is seeking comment is mandatory audit firm rotation, which is explored in detail in this release. However, the Board seeks advice and comment on other approaches as well. The Board will also convene a public roundtable meeting in March 2012, at which interested persons will present their views. Additional details about the roundtable will be announced at a later date. Public Comment: Interested persons may submit written comments to the Board. Such comments should be sent to the Office of the Secretary, PCAOB, 1666 K Street, N.W., Washington, D.C. 20006-2803. Comments also may be submitted by e-mail to comments@pcaobus.org or through the Board's Web site at www.pcaobus.org. All comments should refer to PCAOB Rulemaking Docket Matter No. 37 in the subject or reference line. Comments should be received by the Board no later than 5:00 PM EST on December 14, 2011. Board Contacts: Martin F. Baumann, Chief Auditor...
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...Internal audit’s role in modern corporate governance Thought leadership series Risk and Advisory Services Internal audit’s role in modern corporate governance Recent events have highlighted the critical role of boards of directors in promoting good corporate governance. In particular, boards are being charged with ultimate responsibility for the effectiveness of their organisations’ internal control systems. An effective internal audit function plays a key role in assisting the board to discharge its governance responsibilities. Yet how does the board – and its audit committee – satisfy itself that internal audit is functioning effectively and efficiently? The board’s responsibility for internal controls Through working with a broad range of organisations in Hong Kong and internationally, KPMG has identified a number of best practices in relation to the role played by the board audit and/or risk management committees. s Recent events have highlighted the critical role of boards of directors in s s s s s s s Assessing the scope and effectiveness of the systems established by management to identify, assess, manage and monitor the various risks arising from the organisation’s activities. Ensuring senior management establishes and maintains adequate and effective internal controls. Satisfying itself that appropriate controls are in place for monitoring compliance with laws, regulations, supervisory requirements and relevant internal policies....
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...state all audit and non-audit fees the auditor should take reasonable steps to discontinue all relationships with the client that may impede the auditor's independence all of the above are correct 1 points Question 2 Which of the following is not a theory that underpins the demand for assurance services? agency theory resource-dependency theory information hypothesis insurance hypothesis 1 points Question 3 The regulatory body responsible for hearing applications in Australia as to whether auditors and liquidators have breached The Corporations Act is: Companies Auditors & Liquidators Disciplinary Board Australian Securities & Investments Commission Auditing & Assurance Standards Board Australian Securities Exchange 1 points Question 4 The Royal Commission appointed to inquire into the HIH collapse in 2001 released some key findings. Which one of the following was not a reason for the collapse of HIH? HIH did not have a corporate governance model the internal audit committee should have focused on risk identification and assessment, as well as the accounts the audit committee should have met more often without directors and management present HIH did not review their corporate governance model for changing circumstances 1 points Question 5 Per ASX Corporate...
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