AICPA Conceptual Framework
Under the AICPA Conceptual Framework, these measures are designed to eliminate or mitigate identified threats so that independence or compliance with the Code is not compromised.
What are safeguards?
Mary, an auditor, tells her friend that she couldn’t go out this weekend as she was working on a major acquisition project for her client, ABX company. By revealing this information, Mary was in violation of this AICPA rule.
What is confidentiality?
This element of the fraud triangle exists when controls are weak or oversight is poor, making it possible for someone to commit and conceal wrongdoing.
What is Opportunity?
This practice involves speeding up revenue or delaying expenses to reduce volatility in earnings.
What is income smoothing?
These are the two forms of independence auditors must maintain.
What are independence in fact and independence in appearance?
This concept describes how accounting choices range from completely ethical professional judgment to deliberate manipulation, with no clear dividing line between the two.
What is the Needles Continuum of Earnings Management?
The first step applying in the AICPA’s Conceptual Framework requires members to do this.
What is identifying threats?
When an accountant fails to file their own tax return or discriminates in the workplace, they violate this principle of professional behavior.
What are Acts Discreditable?
This group bears primarily responsibility for preventing and detecting fraud within an organization.
What is management and/or those charged with governance?
This practice inflates short-term revenue by sending excess goods to distributors, often in excess of their orders, so sales can be recorded prematurely.
What is channel stuffing?
This term describes the high, but not absolute, level of confidence auditors provide that material misstatements are unlikely to go undetected.
What is reasonable assurance?
When an auditor’s close friendship with a client’s CFO threatens objectivity, this type of threat exists.
What is a familiarity threat?
Under the AICPA general standards rule, members are required to maintain this quality, which requires appropriate education, skills, and training to perform their work.
What is competence?
According to Auditing Standards, this category of transactions is always presumed a fraud risk.
What is revenue?
When management sets aside amounts in good years to boost earnings later, they are creating these.
What are cookie jar reserves?
This term refers to a CPA’s mindset of independent thought and a questioning attitude when evaluating audit evidence.
What is professional skepticism?
A CPA assists a client in drafting an expert-witness report defending the client’s accounting treatment in pending litigation, and later is asked to serve as the auditor for the same company. This creates this type of independence threat.
What is an advocacy threat?
This type of payment depends on achieving a specific result, such as a tax refund or lawsuit victory, and is prohibited when a CPA performs an audit or other attest service.
What are contingent fees?
This process, required by AU-C 240, involves the audit team’s collective assessment of potential fraud risks using the fraud triangle as a guide.
What is Fraud Risk Assessment.
This practice involves taking large write-offs in periods of organizational stress or restructuring to make future reported profits appear stronger.
What is taking a bath?
Auditors who favor evidence that supports their initial expectations while ignoring or discounting contradictory information are exhibiting this judgment tendency.
What is confirmation tendency?
While planning an engagement, an auditor determines that a close friend is the client’s controller. After evaluating safeguards, the firm concludes that none can reduce the threat to an acceptable level. According to the AICPA Conceptual Framework, the auditor must do this.
What is decline or withdraw from the engagement.
A firm’s online ad claims, “We can make the IRS drop your penalties.” This violates which AICPA Rule?
What is the prohibition on false or misleading advertising and solicitation?
When auditors identify immaterial fraud committed by a lower-level employee, they are required to do this.
What is report it to the employee’s supervisor?
These accruals result from normal business activity and are largely outside management’s control, making them less susceptible to manipulation or earnings management
What are non-discretionary accruals?
According to the SEC, an auditor cannot (1) act as management, (2) serve as an advocate of a client, or (3) do this.
What is audit /review their own work.