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Lecture

ADM 4341 Lecture Notes - Audit Evidence, Contingent Fee, Gross Negligence


Department
Administration
Course Code
ADM 4341
Professor
Chris Liboiron

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Lecture #4: Auditor Independence & Legal Liability
Last Class
Mid-term questions
oWhat is assurance engagement
oPrerequisite
What is an accountability relationship
When someone is responsible about someone for something
oAttest engagement
Written assurances
E.g. Financial statement
oDirect reporting engagement
oCriteria
5 types
oWhy do you do a limited procedure
Do what you are responsible for. Don’t have to everything
oAlternative theorise of role of auditor
oCompare and contrast certain cases with each other
American Fuel & Supply Company Inc
What is the responsibility of auditors when they found a mistake on the audit they just
did
oYou have to inform everyone that used your report (creditor of the company u did
the audit on)
There is disagreement within the audit world
oCertain people only wanted to disclose the new information to the secured
creditors
Client pressure that prolong the problem
oClient wanted to sue the auditor

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Question 1
oQuantify the impact
Determine the seriousness of the impact
If impact can’t be determined, notify all third party user
oIf client will not cooperate
Notify each member of the board of director of the company
Notify each person of people that are relying on the report
oRevise the f/s
Question 2
oContact and ensure all users
Question 3
oNo because you found new information
Question 4
oYes because when they resigned, they still know of the information
Responsibility when they switch auditor
oAny knowledge of irregular information
oAny information on aggressive accounting practices
oIssues that would suggest business lacks integrity
oYou reason on why you were dismissed
Objectivity
Is an independent mental attitude which requires auditors to perform audits in such a
manner that they have an honest belief in their work product and that no significant
quality compromises are made
Being unbiased
Ways to lack independent
oFinancial ties

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oFamiliarity
Close relationship
oIntimidation
Any threat to the audit
Dispute with the client
oSelf-reviewed
Is the auditor related to the firm
Did you prepare
oSelf-interest
oCan you do the work
oActing in emotion
o Acted in advocacy
If you’re on the BOD of a company, you shouldn’t be auditing it
o
Objectivity requires auditors not to subordinate their judgment on audit matters to that of
others
The ability to view something without influence of feelings or emotions
Unbiased
Examples of Breaches of Auditor Independence
D
Five Independence Threats (midterm)
1. Self Interest
2. Self-Review
3. Advocacy
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