Class Notes (836,153)
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BUS 426 (14)
Brad Bart (4)

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Business Administration
BUS 426
Brad Bart

MODULE 2 PROFESSIONAL STANDARDS, ETHICS AND LEGAL LIABILITIES Practice Standards Text page 30 briefly discusses the standard setting process. Input on the development of standards and on changes is sought from a broad range of users of financial statement information. A general awareness of the standard setting process described in the text should be adequate at this stage. Generally Accepted Auditing Standards (GAAS) CICA Handbook CAS 200 (Section 5100) GAAS are the Assurance Handbook recommendations that govern the activities of external auditors. The recommendation address qualifications of auditors, the performance of the audit and the preparation of the auditor’s report. .02 ♦Generally Accepted Auditing Standards are as follows: General standard The examination should be performed and the report prepared by a person or persons having adequate technical training and proficiency in auditing, with due care and with an objective state of mind. [SEPT. 1975] Examination standards (i) The auditor should plan and perform the audit to reduce audit risk to an acceptably low level that is consistent with the objective of an audit. The auditor should plan the nature, timing and extent of direction and supervision of ACCT4570 WINTER 2013 ROBERTSON Page 1 engagement team members and review of their work. [JAN. 2006 ]* (ii) The auditor should obtain an understanding of the entity and its environment, including internal control, sufficient to identify and assess the risks of material misstatement of the financial statements whether due to fraud or error, and sufficient to design and perform further audit procedures. [JAN. 2006] (iii) The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion. [JAN. 2006] Reporting standards (i) The report should identify the financial statements and distinguish between the responsibilities of management and the responsibilities of the auditor. [MARCH 1991 ] ** (ii) The report should describe the scope of the auditor's ** examination. [MARCH 1991 ] (iii) The report should contain either an expression of opinion on the financial statements or an assertion that an opinion cannot be expressed. In the latter case, the reasons * therefore should be stated. [SEPT. 1975 ] (iv) Where an opinion is expressed, it should indicate whether the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows in accordance with Canadian generally accepted accounting principles, except when the financial statements are prepared as described in AUDITOR'S REPORT ON FINANCIAL STATEMENTS PREPARED USING A BASIS OF ACCOUNTING OTHER THAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, paragraph 5600.09. ROBERTSONWINTER 2013 Page 2 The report should provide adequate explanation with respect to any reservation contained in such opinion. For entities whose financial statements are prepared in accordance with the CICA Public Sector Accounting Handbook, the auditor's opinion should also indicate whether the financial statements present fairly the changes in the entity's net debt. [JULY 2007 ]* 1. GAAS General Standard On pages 32 and 33 of the text, the issues of competence, objectivity and due care are discussed. You should understand what these issues are and be able to explain them if requested. 2. GAAS Examination Standards Planning and supervision, internal control assessment and sufficient, appropriate evidential matter are the 3 examination standards that provide the criteria for conducting an audit. These are important since, if followed, they provide documentation of the procedures done and the evidence collected to support that a proper audit was completed. There is a possibility that external parties may ultimately examine this evidence and if sufficient support is not present, the credibility of the audit could be in question. 3. GAAS Reporting Standards All standard unqualified reports contain title, address, notice of audit, responsibilities, description of the audit, opinion, signature, and date. The report must refer to GAAP or, if applicable, another appropriate basis of accounting. Prior to 1991, the auditor’s report required a reference to consistency but now this consistency reference does not require being detailed in the auditor’s report. It is presumed that the statements are consistently presented unless it is stated otherwise. Similarly, it is ACCT4570 WINTER 2013 ROBERTSON Page 3 assumed, if the subject of disclosure deficiencies are not addressed, all necessary disclosure has been presented in the financial statements. If in the opinion of the auditor, necessary disclosure has not been made, a GAAP qualification would normally be required. The auditor’s report must contain an expression of opinion on the financial statements or an assertion that an opinion cannot be expressed (along with the reasons for this result.) Assurance Standards (CICA Handbook Section 5025) Issued March, 1997. This section remains and is not part of CAS. DEFINITIONS AND UNDERLYING CONCEPTS .03 An assurance engagement is an engagement where, pursuant to an accountability relationship between two or more parties, a practitioner is engaged to issue a written communication expressing a conclusion concerning a subject matter for which the accountable party is responsible. .04 An accountability relationship is a prerequisite for an assurance engagement. An accountability relationship exists when one party (the accountable party) is answerable to and/or is responsible to another party (the user) for a subject matter or voluntarily chooses to report to another party on a subject matter. The accountability relationship may arise either as a result of an agreement or legislation, or because a user can be expected to have an interest in how the accountable party has discharged its responsibility for a subject matter. The assurance standards cover engagements such as audits, review engagements, forecasts, direct reporting engagements but do not address non-assurance engagements such as tax planning and consulting engagements. ACCT4570 WINTER 2013 ROBERTSON Page 4 The following chart (Handbook Section 5025.07) - Exhibit 2-5 - illustrates the relationship among the three parties in an assurance engagement: Assurance standards: • provide a framework for auditing subject matter other than financial statements • do not supersede GAAS, which covers the audit of financial statements • require that the practitioner have sufficient knowledge and proficiency with respect to the subject matter, whatever the subject matter may be • specifically require that the public accountant develop criteria to evaluate the subject matter • specifically require that the public accountant document important matters with evidence to support the conclusion expressed in their report ACCT4570 WINTER 2013 ROBERTSON Page 5 Quality Control Standards The International Federation of Accountants (IFAC) identified four basic elements of quality control. 1. Quality control policies and procedures should be implemented at both the levels of the audit firm and on individual audits. 2. The audit firm should implement quality control policies and procedures to ensure that all audits are conducted in accordance with International Standards on Auditing (ISAs) or relevant national standards of practices. 3. The firm’s general quality control policies and procedures should be communicated to its personnel in a manner that provides reasonable assurance that the procedures are understood and implemented. 4. The auditor should implement those quality control procedures which are, in the context of the policies and procedures of the firm, appropriate to the individual audit. In particular, delegated work should be properly directed, supervised and reviewed. In Canada and the U.S. the development of accountability boards is in process and it is expected that rules will be developed to address areas such as the rotation of partners on specific audit clients, limits on consulting services where conflict with the audit role may arise, prohibition of valuation services, legal services, information technology system design and internal audits for clients with assets over a $50 million threshold. Other potential rules include the rotation of audit firms doing a client audit, restrictions on audit firm personnel taking positions at client offices. Monitoring of Quality Control Name 3 ways to monitor quality control ACCT4570 WINTER 2013 ROBERTSON Page 6 1) Practice Inspection, 2) Peer Reviews, 3) Quality Inspections PROFESSIONAL ETHICS As members of a recognized profession, auditors have responsibilities to society – moral, professional and legal. An auditor’s moral responsibilities are defined as a responsibility to conform to social norms of behaviour. A public accountant should be upright, not kept upright. In essence, the comment suggests that a public accountant should behave in moral manner even if there were no Rules of Conduct. As time passes, social norms change but it is still important to recognize current norms and be prepared to adapt and modify behaviours as those social norms change in the future. General Ethics The test describes a pervasive sense of proper conduct as a critical characteristic of a professional accountant. Mautz and Sharaf, in The Philosophy of Auditing (American Accounting Association, 1991) stated, “Ethical behaviour in auditing or in any other activity is no more than a special application of the general notion of ethical conduct devised by philosophers for men generally. Ethical conduct in auditing draws its justification and basic nature from the general theory of ethics. Thus we are well advised to give some attention to the ideas and reasoning of some of the great philosophers on the subject.” “What is ethical behaviour?” 1. Ethical behaviour is that which produces the greatest good. 2. Ethical behaviour is that which conforms to moral rules and principles. ACCT4570 WINTER 2013 ROBERTSON Page 7 Occasionally two or more rules conflict and it may be diff
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