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Unformatted text preview: Review Questions 4-3 There is a special need for ethical behavior by professionals to maintain public confidence in the profession, and in the services provided by members of that profession. The ethical requirements for CPAs are similar to the ethical requirements of other professions. All professionals are expected to be competent, perform services with due professional care, and recognize their responsibility to clients. The major difference between other professional groups and CPAs is independence. Because CPAs have a responsibility to financial statement users, it is essential that auditors be independent in fact and appearance. Most other professionals, such as attorneys, are expected to be an advocate for their clients. 4-6 Independence in auditing means taking an unbiased viewpoint. Users of financial statements would be unlikely to rely on the statements if they believed auditors were biased in issuing audit opinions. 4-9 Ways to reduce the appearance of the lack of independence are: the use of an audit committee to select auditors made up of directors who are not a part of management; a requirement that all changes of auditors and reasons therefore be reported to the SEC or other regulatory agency; and approval of the CPA firm by stockholders at the annual meeting. The Sarbanes–Oxley act requires that the audit committee of a public company consist only of independent members and be responsible for the appointment, termination, and compensation of the audit firm. Multiple Choice Questions From CPA Examinations 4-19 a. (1) b. (3) c. (3) Discussion Questions And Problems 4-21 a. Rule 101 - Independence. No violation. Jose Martinez is not a partner nor is he assigned to the engagement team for the audit client. b. Rule 201 - General Standards. Violation. Interpretation 201-1 states that a member who accepts a professional engagement implies that he or she has the necessary competence to complete the engagement according to professional standards. Bacon has violated the rule since he does not have the expertise to review the work of the consultant hired by Bacon. Bacon should have suggested that the company hire the consultant directly. c. Rule 102 - Integrity and Objectivity. Violation. This rule states that in tax practice, a member may resolve doubt in favor of his or her client as long as there is reasonable support for his or her position. In the example case, the client has provided no support for the unusual deductions. Phyllis Allen has violated Rule 102 by not requiring reasonable support for the deductions. 4-21 (continued) d. Rule 203 (Accounting Principles). Violation. This rule designates that the International Accounting Standards Board (IASB) is the established body for issuing international financial accounting standards. Sally Blanchard’s assertion that the financial statements are based on international financial accounting standards would be in violation of Rule 203 because she did not use standards issued by the IASB. not use standards issued by the IASB....
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- Fall '12
- International Financial Reporting Standards, Financial audit