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UNIT 3 AUDITING D215 questions and answers graded A+ 2024/2025
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UNIT 3 AUDITING D215 questions and answers graded A+ 2024/2025
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UNIT 3 AUDITING D215level of expertise - ANSProfessional athletes are often referred to as "pros" because of their skill
and level of expertise
concern for the public interest - ANS•The cornerstone of the public accounting profession is that
the work done by Certified Public Accountants (C P A s) serves the public interest.
•The terms "professional," or a "profession," relate to a profession's responsibility and concern
for the public interest.
•To protect public interest and ensure C P A s are truly qualified and competent, State
governments regulate the licensing of CPAs.
In order to be recognized and practice as a C P A, individuals must: - ANS•(1) complete
education requirements, (2) pass a professional examination (the CPA exam), and (3) complete
an experience requirement. Many States also require the applicant to (4) pass an ethics exam.
NOTE**•State governments monitor, regulate, and support C P A s through state boards of
accountancy.
The Sarbanes-Oxley Act of 2002 (S O X) - ANScreated the Public Company Accounting
Oversight Board (P C A O B), under the Securities and Exchange Commission (S E C), to
provide oversight of the auditors of public companies
AICPA's Code of Professional Conduct (the Code) - ANSprovides guidance to all members of
the AICPA with respect to performance of their professional responsibilities.
1.Principles -express the basic tenets of ethical conduct and provide the framework for the rules
that govern the performance of a member's professional responsibilities.
2.Rules of Conduct -establish minimum standards of acceptable conduct in the performance of
professional services.
3.Interpretations- provide additional guidance regarding the scope and applicability of the rules
of conduct.
Conceptual Framework for Members in Public Practice - ANSStep 1: Identify threats. CPA s
interact with clients in a number of circumstances that can create the following threats.
Step 2: Evaluate the significance of threats.•CPAs should evaluate identified threats both
individually and in aggregate.
Step 3: Identify and apply safeguards. The following are three basic types of safeguards:
•safeguards created by the profession
•safeguards implemented by a client
•safeguards within the firm
•Step 4: Evaluate the effectiveness of safeguards. If a C P A concludes that threats are at an
acceptable level after applying the identified safeguards, then the C P A may proceed with the
professional service.
, •Step 5: Document threats and safeguards. (PLease see flash cards below)
Adverse interest threat: - ANS1.ACPA may not act with objectivity when the CPA's interests are
opposed to the client's interests.
Advocacy threat: - ANS1.ACPA may promote a client's interests or position to the point that the
CPA 's objectivity or independence is compromised. Example- A CPA firm has provided services
to a client for the last two years, and the revenue received equals 50 percent of the total
revenue for the CPA firm.During the current year, the client asks the CPA to serve as an expert
witness in a court case for which a customer is suing over the quality of their products. The CPA
agrees to testify while continuing to provide professional services to the client.
Familiarity threat: - ANS1.Due to a long or close relationship with a client, a C P A may become
too sympathetic to the client's interests, or too accepting of the client's work or product.
Management participation threat: - ANSA CPA may take on the role of client management or
otherwise assume management responsibilities.
Self-interest threat: - ANS5.A C P A could benefit financially, or otherwise, from an interest in, or
relationship with, a client or persons associated with the client. Example- threat exists if a CPA
performs bookkeeping services for a private company client and that work needs to be
evaluated by the same firm in the course of an attest engagement.
A self-interest threat can occur when a firm has excessive reliance on the revenues from a
single client.
Self-review threat: - ANS5.ACPA may not appropriately evaluate the results of a previous
judgment made, or service performed, by an individual in the C P A's firm. And, the C P A may
rely on that work in forming a judgment as part of an engagement.
Undue influence threat: - ANSA CPA may subordinate their judgment to an individual associated
with a client or relevant third party due to the individual's: (1) reputation or expertise, (2)
aggressive or dominant personality, or (3) attempts to coerce or exercise excessive influence
over the C P A.
Conceptual Framework for Members in Public Practice ( Step 5: Document threats and
safeguards.) - ANSIn step 1, the C P A understands there is a self-interest threat to exercising
due professional care when performing the audit.
In step 2, the C P A determines the threat is significant and the firm should put a safeguard in
place.
In step 3, the C P A discusses the low bid with the audit team during audit planning and sets an
expectation of professional standards.
In step 4, the C P A establishes the importance of setting an appropriate tone at the top
regarding compliance with professional standards.
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