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Chapter 4

BUS 426 Chapter Notes - Chapter 4: Chief Financial Officer, W. M. Keck Observatory, External Auditor

Business Administration
Course Code
BUS 426
Craig Emby

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Chapter 4
Professional Judgement and Ethics
Framework for Professional Judgement
- The application of relevant knowledge and experience, within the context provided by auditing and
accounting standards and Rules of Professional Conduct, in reaching decisions where a choice must
be made between alternative possible courses of actions
Auditor’s Midset ad Judgeet Tedecies
- The auditing standards note that professional skepticism a uestioig id is necessary for the
critical assessment of audit evidence
- Awareness of judgement traps and biases (judgement tendencies) can assist auditors in making better
o Refes to the auditos’ potetial to put oe eight oifoatio that is osistet ith thei
initial beliefs or preferences
o The end result may be that the auditor does not adequately consider contradictory evidence
Framework for Ethical Reasoning
- The structure of the auditor-client relationship has an inherent conflict of interest in that the company
that issues the financial statements pays the public accountant (PA)
o The primary beneficiaries of the PA services (the audit opinion) are financial statement users
- Gie the audito’s uiue ole ad its puli iteest oligatios, it is essetial that uses’ tust i the
auditos’ pofessioal ad ethial ehaio is ot isplaed
Resolving Ethical Dilemmas
- A generic framework for the resolution
Identify and
define issues
Gather the
facts and
analysis and
Review and
on and
rationale for
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o Obtain the relevant facts and identify issues
o Identify the ethical issues
o Identify who is affected and how each is affected
o Consider and evaluate courses of action
o Implement the course of action
Auditors’ Ethical Reasoig
- Giving Voice to Values (GVV)
o Based on the assumption that the organization and the person at the center of the dilemma is
willing to work to resolve ethical dilemmas
Ethical Blind Spots
- Decision makers are susceptible (容易受影響) to judgement traps
- Unconscious judgmental tendencies that can hinder the ethical decision making process or cause the
decision maker to fail to recognize the ethical dimension of a choice
o Failing to see an ethical issue because it is our self-interest not to notice
Professional Guidance on Ethical Conduct
- Have harmonized their rules of professional conduct
o The same set of rules applies to all Pas in Canada and serves both members and the public, made
by the provincial accounting associations
- The professional code of conduct in Canada is both principles-based and compliance-based
- Probably the most critical of all principles when an auditor is engaged to perform an audit
- The auditor must be independent in both appearance and fact
o When conducting an audit or review level assurance engagement
- Independence is not required for a compilation (編輯)
- Threats
o Required to consider five facets of independence before accepting or continuing an engagement
When the member has a financial interest in the client or in the financial results
of the client
o The firm or auditor owns shares in or has a loan to the client
o The liet’s fees ae sigifiat i elatio to the total fee ase of the PA
or of the firm
When the firm or member is perceived to promote (or actually does promote)
the liet’s positio
o The auditor is acting as an advocate in resolving a dispute with a major
creditor of the client
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