TOP AUDITING ISSUES FOR 2013 - CCH

MODULE 1 — CHAPTER 1 — The Conceptual Framework Approach to Independence 5
Safeguards
Safeguards are controls designed to eliminate threats to independence, or to
reduce them to acceptable levels. They are sensitive to facts and circumstances
in each individual case. Under the conceptual framework, auditors apply
safeguards to address specific threats. Independence is impaired if no
safeguards can be applied to eliminate an unacceptable threat or to reduce
it to an acceptable level.
The Yellow Book provides examples of safeguards that may be effective.
At the audit organization level, those include:
Consulting an independent third party
Involving another audit organization to perform or reperform part of
the audit
Review of audit work by a professional staff member who was not a part
of the audit team
Removing individuals from the audit team when their financial or other
interests or relationships create threats to independence
Safeguards may also be applied by the audited entity. Auditors may be able
to place limited reliance on those safeguards, but cannot rely on them solely
to eliminate or reduce threats.
Examples of those safeguards include:
An entity-imposed requirement that auditor appointment be ratified or
approved by persons outside of management
The entity’s internal procedures that ensure objective choices in procuring
nonaudit services
A governance structure that provides appropriate oversight and
communication concerning the audit organization’s services
OBSERVATION
The GAO standards are more rigorous than the AICPA standards in that they do not allow
the auditor to rely solely on safeguards implemented at the audited entity.
STUDY QUESTION
3. Government Auditing Standards lists all of the following as safeguards that can
be applied at the audit organization level to eliminate or reduce threats to
independence, except:
a. A governance structure at the audited entity that provides appropriate
oversight concerning the audit organization’s services
b. Involvement of another audit organization to perform part of the audit
c. Review of audit work by a professional staff member who was not a part of
the audit team
d. Consultation with an independent third party