Chap019

Auditing and Assurance Services

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b. Yes. This would be a violation of Rule 101 because McDermott's employer is the source of the revenues for the entities being audited. 19-8
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Chapter 19 - Professional Conduct, Independence, and Quality Control c. Yes. If a member in industry uses confidential information obtained from an employer for his or her personal benefit, disclosure of the information is considered an act discreditable to the profession in violation of Rule 501. The member also violates Rule 301 which prohibits disclosing confidential client information with few exceptions. d. No. Interpretation 102-4 states that if a member in industry concludes that the financial statements or records could be materially misstated, the member should consider whether any responsibility exists to communicate the problem to third parties, such as regulators. However, the CPA should consult his attorney prior to any disclosure. e. Yes. Under Interpretation 501-4, a member who, through his or her negligence, makes or permits another to make false and misleading entries in the financial statements has committed an act discreditable to the profession. 19-31 a. Services that Perez may perform: Counsel on potential expansion plans. Search for and interview new personnel. Train personnel. Services that Perez may not perform: Hire new personnel. Supervise the operation of the system. Monitor client-prepared source documents and make changes in basic IT- generated data without the concurrence of the client. b. The significant matters related to an engagement generally include (a) the engagement's objectives, (b) the scope, (c) the approach, (d) the role of all personnel, (e) the manner in which results are to be communicated, (f) the timetable, and (g) the fee. Solutions to Discussion Cases 19-32 a. If Pina, Johnson & Associates audited one of the entities that received one of the large loans, it would not be appropriate for Johnson to seek financial information about that entity from the other auditors in his firm. Release of such information would violate Rule 301. The right of confidentiality for that entity would be violated. The possible costs of using the information would be lawsuits and disciplinary actions taken by the AICPA. The benefit would be that they could gather more reliable evidence. However, the potential costs would far outweigh the benefits. b. If Johnson had obtained the information about the possible violations of environmental laws from appropriate sources, it would not be unethical to use such information in determining the fair value of the loan to Sun City Savings & Loan. The auditor has an obligation to use such information in assessing the entity's ability 19-9
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Chapter 19 - Professional Conduct, Independence, and Quality Control to repay the loan. The auditor should consider the rights of the parties involved and the source of the information.
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