When Independence is Required
James, a CPA at EY, also serves as an officer for the audit client. Does James fulfill independence requirements?
What is No - a CPA firm professional may not serve as an officer for a firm's audit client, even if they are not involved with the audit?
A client provides tickets to a concert for the audit team in an attempt to get them to not disclose a related party concern. Which of the seven threats to independence does this concern?
What is Undue influence?
The selective perception of data in support of a client’s viewpoint is often called the __________.
What is Self-serving bias?
True or False: An auditor can maintain independence even if they have a financial interest in the client company they are auditing.
What is False?
John is a partner at the Boston PwC office where his friend James, the lead partner on a different engagement, works. Does John need to fulfill independence requirements for the engagement?
What is Yes - Partners in the same office as a lead partner for an engagement are considered covered members?
You're a partner at an accounting firm. You own shares in a client company you're auditing. What threat to independence does this present, and what steps should you take to mitigate this threat?
What is [Direct financial] Self-interest - To fight this threat, you should divest yourself of the shares in the client company or remove yourself from any involvement in the audit?
A member of the audit team for a public company notices errors in the recording of sales that result in their revenue being grossly overstated. The relationship between the audit team and the client is already rocky, so the auditor is weary of bringing this up and risking upsetting the client even more. What behavioral bias is impacting this auditor?
What is The Cooperation preference?
True or False: Audit committee members are not expected to be independent of the company.
What is False - Must be independent besides being a member of the BoD?
Mary is a noncovered member for a particular audit. Mary’s husband, Dave, owns 3.5% of the client's stock. Does Mary fulfill the independence rule?
What is Yes - Total stock interests are less than 5%?
Is an auditor's independence extinguished when an auditor and client have commenced or threatened to commence litigation against one another?
What is Yes (adverse interest threat)?
An auditor wants to avoid bitter confrontation with their client about a detected mistake, and as a result, puts the financial statements at risk. The auditor pays no mind to the potential consequences of this action, as they are uncertain and do not impact anything now. What behavioral bias is impacting this auditor?
What is Discounting?
Three weeks into an audit engagement, an independence issue is discovered. What should be done?
What is Issue a Disclaimer of Opinion?
Rick, a recent UMD grad, just got assigned to his first audit engagement at the accounting firm he works at. He is a staff accountant, and today is his first day on the engagement. Is Rick required to be independent?
What is Yes - Any member of an audit team is considered a covered member and must maintain independence during the entirety of the audit, regardless of their position or seniority?
What does an accounting professional who is contemplating leaving the firm to join their audit client need to do?
What is ceasing participation in the engagement and disclosing intentions to the firm, as soon as the auditor intends to seek or discuss potential employment with the client?
An auditor has been working closely with a client for many years, developing a strong personal relationship with the client's management team. What behavioral bias should the auditor watch for, and how could they fight against it?
What is Moral Seduction - switch out audit team, maintain professional boundaries?
Name one organization that provides additional independence rules for publicly traded companies.
What is PCAOB, SEC?