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Chapter 4

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


Department
Business Administration
Course Code
BUS 426
Professor
Craig Emby
Chapter
4

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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
judgements
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
Auditor
Mindset
Identify and
define issues
Gather the
facts and
information
Perform
analysis and
evaluate
alternatives
Reach
conclusions
Review and
complete
documentati
on and
rationale for
conclusions
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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
Independence
- 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
Self-interest
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
Advocacy
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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