TOP AUDITING ISSUES FOR 2013 - CCH

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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
6 TOP AUDITING ISSUES FOR 2013 CPE COURSE Applying the Conceptual Framework Auditors should apply the conceptual framework to evaluate threats to independence. They should evaluate threats both individually and in the aggregate because threats can have a cumulative effect on independence. Many events can create threats to independence. Auditors use professional judgment to determine whether the facts and circumstances created by an event warrant applying the conceptual framework. When relevant new information about a threat to independence becomes known, the auditor should evaluate the threat’s significance in accordance with the framework. Examples of events that can give rise to threats are: The start of a new audit The assignment of new staff to an ongoing audit Acceptance of a nonaudit service for an audited entity Auditors should determine whether threats are at an acceptable level, or can be reduced to an acceptable level or eliminated. A threat is unacceptable if it could either: Affect the auditor’s ability to perform the audit without influences that compromise professional judgment, or Expose the auditor or audit organization to circumstances in which an informed and reasonable third party would conclude that the integrity, objectivity, or professional skepticism of the audit organization or a member of the audit team had been compromised. When an auditor identifies an unacceptable threat to independence, the auditor should determine whether safeguards are available to eliminate it, or reduce it to an acceptable level. This determination involves professional judgment. It takes into account: Independence of mind Independence in appearance Qualitative factors Quantitative factors Auditors are required to document threats that they consider to be at an unacceptable level, and the safeguards applied to eliminate or reduce them. OBSERVATION The Yellow Book does not require auditors to document threats that do not rise to an unacceptable level. Nor does it require them to “apply the framework” to those threats.
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MODULE 2 — CHAPTER 7 — Current
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INDEX 179 Auditor’s versus manage
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INDEX 181 forming an opinion and re
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INDEX 183 Management participation
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INDEX 185 Review standards interpre
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NOTES
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CCH LEARNING CENTER At CCH, we reco
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TOP AUDITING ISSUES FOR 2013 - CCH

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