审计学：一种整合方法 阿伦斯 英文版 第12版RRChapter04
审计学：一种整合方法_第12版_英文版Chapter01-46页精选文档
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1 - 10
Distinguish Between Auditing and Accounting
Accounting is the recording, classifying, and summarizing of economic events for the purpose of providing financial information used in decision making.
Auditing should be done by a competent, independent person.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1-4
Information and Established Criteria
The competence of the individual performing the audit is of little value if he or she is biased in the accumulation and evaluation of evidence.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1 - 12
Economic Demand for Auditing
Information risk reflects the possibility that the information upon which the business risk decision was made was inaccurate.
审计学：一种整合方法-阿伦斯-英文版-第12版-课后答案-Chapter-7-Solutions-Manual
Chapter 7Audit EvidenceReview Questions7-1In both a legal case and in an audit of financial statements, evidence is used by an unbiased person to draw conclusions. In addition, the consequences of an incorrect decision in both situations can be equally undesirable. For example, if a guilty person is set free, society may be in danger if the person repeats his or her illegal act. Similarly, if investors rely on materially misstated financial statements, they could lose significant amounts of money. Finally, the guilt of a defendant in a legal case must be proven beyond a reasonable doubt. This is similar to the concept of sufficient appropriate evidence in an audit situation. As with a judge or jury, an auditor cannot be completely convinced that his or her opinion is correct, but rather must obtain a high level of assurance.The nature of evidence in a legal case and in an audit of financial statements differs because a legal case relies heavily on testimony by witnesses and other parties involved. While inquiry is a form of evidence used by auditors, other more reliable types of evidence such as confirmation with third parties, physical examination, and documentation are also used extensively. A legal case also differs from an audit because of the nature of the conclusions made. In a legal case, a judge or jury decides the guilt or innocence of the defendant. In an audit, the auditor issues one of several audit opinions after evaluating the evidence.7-2The four major audit evidence decisions that must be made on every audit are:1.Which audit procedures to use.2.What sample size to select for a given procedure.3.Which items to select from the population.4.When to perform the procedure.7-3An audit procedure is the detailed instruction for the collection of a type of audit evidence that is to be obtained. Because audit procedures are the instructions to be followed in accumulating evidence, they must be worded carefully to make sure the instructions are clear.7-4An audit program for accounts receivable is a list of auditprocedures that will be used to audit accounts receivable for a given client. The audit procedures, sample size, items to select, and timing should be included in the audit program.7-5The auditor must obtain sufficient appropriate evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit. There are three major phrases of the standard.7-5(continued)7-6There are two primary reasons why the auditor can only be persuaded with a reasonable level of assurance, rather than be convinced that the financial statements are correct:1.The cost of accumulating evidence. It would be extremelycostly for the auditor to gather enough evidence to becompletely convinced.2.Evidence is normally not sufficiently reliable to enable theauditor to be completely convinced. For example,confirmations from customers may come back with erroneousinformation, which is the fault of the customer rather thanthe client.7-7The two determinants of the persuasiveness of evidence are appropriateness and sufficiency. Appropriateness refers to the relevance and reliability of evidence, or the degree to which evidence can be considered believable or worthy of trust. Appropriateness relates to the audit procedures selected, including the timing of when those procedures are performed. Sufficiency refers to the quantity of evidence and it is related to sample size and items to select.7-8Following are six characteristics that determine reliability and an example of each.7-97-9 (continued)7-10The four characteristics of the definition of a confirmation are:1.Receipt2.Written or oral response3.From independent third party4.Requested by the auditorA confirmation is prepared specifically for the auditor and comes from an external source. External documentation is in the hands of the client at the time of the audit and was prepared for the client's use in the day-to-day operation of the business.7-11Internal documentation is prepared and used within the client's organization without ever going to an outside party, such as a customer or vendor.Examples:check request formreceiving reportpayroll time cardadjusting journal entryExternal documentation either originated with an outside party or was an internal document that went to an outside party and is now either in the hands of the client or is readily accessible.Examples:vendor's invoicecancelled checkcancelled notevalidated deposit slip7-12Analytical procedures are useful for indicating account balances that may be distorted by unusual or significant transactions and that should be intensively investigated. They are also useful in reviewing accounts or transactions for reasonableness to corroborate tentative conclusions reached on the basis of other evidence.7-13The most important reasons for performing analytical procedures are the following:1.Understanding the client's industry and business2.Assessment of the entity's ability to continue as a goingconcern3.Indication of the presence of possible misstatements in thefinancial statements4.Reduction of detailed audit tests7-14The decrease of the current ratio indicates a liquidity problem for Harper Company since the ratio has dropped to a level close to the requirements of the bond indenture. Special care should be exercised by the auditor to determine that the 2.05 ratio is proper since management would be motivated to hide any lower ratio. The auditor should expand procedures to test all current assets for proper cutoff and possible overstatement and to test all current liabilities for proper cutoff and possible understatement.7-15Attention directing analytical procedures occur when significant, unexpected differences are found between current year's unaudited financial data and other data used in comparisons. If an unusual difference is large, the auditor must determine the reason for it, and satisfy himself or herself that the cause is a valid economic event and not an error or misstatement due to fraud.When an analytical procedure reveals no unusual fluctuations, the implication is minimized. In that case, the analytical procedure constitutes substantive evidence in support of the fair statement of the related account balances, and it is possible to perform fewer detailed substantive tests in connection with those accounts.Frequently, the same analytical procedures can be used for attention directing and for reducing substantive tests, depending on the outcome of the tests. Simple procedures such as comparing the current year account balance to the prior year account balance is more attention directing (and provides less assurance) than more complex analytical procedures; i.e., those which rely on regression analysis. More sophisticated analytical procedures help the auditor examine relationships between several information variables simultaneously. The nature of these tests may provide greater assurance than simpleprocedures.7-16The statement is correct. Except for certain accounts with small dollar balances, analytical procedures are essential to help the auditor identify trends in a client's business and to see the relationship between the client's performance and industry averages. However, the auditor is responsible for gathering sufficient appropriate evidence in addition to the evidence obtained as a result of the analytical procedures.7-17The purposes of audit documentation are as follows:1.To provide a basis for planning the audit. The auditor mayuse reference information from the previous year in order toplan this year's audit, such as the evaluation of internalcontrol, the time budget, etc.2.To provide a record of the evidence accumulated and theresults of the tests. This is the primary means ofdocumenting that an adequate audit was performed.3.To provide data for deciding the proper type of audit report.Data are used in determining the scope of the audit and thefairness with which the financial statements are stated.4.To provide a basis for review by supervisors and partners.These individuals use the audit documentation to evaluatewhether sufficient appropriate evidence was accumulated tojustify the audit report.Audit documentation are used for several purposes, both during the audit and after the audit is completed. One of the uses is the review by more experienced personnel. A second is for planning the subsequent year audit. A third is to demonstrate that the auditor has accumulated sufficient appropriate evidence if there is a need to defend the audit at a later date. For these uses, it is important that the audit documentation provide sufficient information so that the person reviewing an audit schedule knows the name of the client, contents of the audit schedule, period covered, who prepared the audit schedule, when it was prepared, and how it ties into the rest of the audit files with an index code.7-18The two criteria used by auditors of public companies when determining whether memos, correspondence, and other documents must be maintained in the audit files are as follows:1.The materials are created, sent, or received in connectionwith the audit or review.2.The materials contain conclusions, opinions, analyses, orfinancial data related to the audit or review.7-19 The Sarbanes-Oxley Act of 2002 requires auditors of public companies to prepare and maintain audit schedules and other information related to any audit report in sufficient detail to support the auditor’s conclusions, for a period of not less than 7 years.7-20Audit schedules should include the following:Name of the client Enables the auditor to identify the appropriate file to include the audit schedule in if it is removed from the files.Period covered Enables the auditor to identify the appropriate year to which an audit schedule for a client belongs if it is removed from the files.7-20 (continued)Description of the contents A list of the contents enables the reviewer to determine whether all important parts of the audit schedule have been included. The contents description is also used as a means of identifying audit files in the same manner that a table of contents is used.Initials of the preparer Indicates who prepared the audit schedule in case there are questions by the reviewer or someone who wants information from the files at a later date. It also clearly identifies who is responsible for preparing the audit documentation if the audit must be defended.Date of preparation Helps the reviewer to determine the sequence of the preparation of the audit schedules. It is also useful for the subsequent year in planning the sequence of preparing audit schedules.Indexing Helps in organizing and filing audit schedules. Indexing also facilitates in searching between related portions of the audit documentation.7-21The permanent file contains data of an historical and continuing nature pertinent to the current audit. Examples of items included in the file are:1.Articles of incorporation2.Bylaws, bond indentures, and contracts3.Analysis of accounts that have continuing importance to theauditorrmation related to the understanding of internal control:a.flowchartsb.internal control questionnaires5.Results of previous years' analytical procedures, such asvarious ratios and percentages compiled by the auditorsBy separating this information from the current year's audit files, it becomes easily accessible for the following year's auditors to obtain permanent file data.7-22The purpose of an analysis is to show the activity in a general ledger account during the entire period under audit, tying together the beginning and ending balances. The trial balance includes the detailed make-up of an ending balance. It differs from an analysis in that itincludes only those items comprising the end of the period balance. A test of reasonableness schedule contains information that enables the auditor to evaluate whether a certain account balance appears to be misstated. One example of a test of reasonableness schedule is a schedule that compares current year expenses to prior years' amounts. This type of schedule is intended to show which accounts need investigation due to significant variances.7-23Unanswered questions and exceptions may indicate the potential for significant errors or fraud in the financial statements. These should be investigated and resolved to make sure that financial statements are fairly presented.7-23 (continued)The audit files can also be subpoenaed by courts as legal evidence. Unanswered questions and exceptions may indicate lack of due care by the auditor.7-24Tick marks are symbols adjacent to information in audit schedules for the purpose of indicating the work performed by the auditor. An explanation of the tick mark must be included at the bottom of the audit schedule to indicate what was done and who did it.7-25Audit files are owned by the auditor. They can be used by the client if the auditor wants to release them after a careful consideration of whether there might be confidential information in them. The audit files can be subpoenaed by a court and thereby become the property of the court. They can be released to another CPA firm without the client's permission if they are being reviewed as a part of a voluntary peer review program under AICPA, state CPA society, or state Board of Accountancy authorization. The audit files can be sold or released to other users if the auditor obtains permission from the client.7-26It is a violation unless the CPA obtains permission from each client before the audit files for that client are released.7-27 When evidence can be examined only in machine-readable form, auditors use computers to read and examine evidence. There are commercial audit software programs designed specifically for use by auditors, such as ACL Software and Interactive Data Extraction and Analysis (IDEA). Spreadsheet software packages can also be used by auditors to perform audit tests on data that is available only in machine-readable form.7-28 The purposes of audit documentation software are to convert traditional paper-based documentation into electronic files and to organize the audit documentation. The benefits of audit documentation software, such as Automated Client Engagement (ACE), are as follows:The auditor can more efficiently prepare a trial balance, lead schedules, supporting audit documentation, financialstatements, and ratio analysis using the computer ratherthan by hand.The effects of adjusting journal entries are automatically carried through to the trial balance and financialstatements, making last-minute adjustments easier to make.Tick marks and review notes can be entered directly into computerized files.Data can be imported and exported to other applications. For example, a client’s general ledger can be downloaded into ACE and tax information can be downloaded into a commercial tax preparation package after the audit is completed.** Bills of lading are ordinarily signed by the freight company.That signature will be included on the top of the bill oflading, therefore, it is an external document.Multiple Choice Questions From CPA Examinations7-29 a. (2) b. (1) c. (4) d. (1)7-30 a. (3) b. (3) c. (4) d. (4)Discussion Questions And Problems7-31 a.1.External 7. Internal 13. Internal2.Internal 8. Internal 14. External3.External 9. External 15. Internal4.External 10. Internal* 16. External5.Internal* 11. External 17. External6.Internal 12. External** 18. External* Even though these may be signed or initialed by employees, they are still internal documents.b.External evidence is considered more reliable than internalevidence because external evidence has been in the hands ofboth the client and another party, implying agreement aboutthe information and the conditions stated on the document.7-32 1. (5) inquiry of client2.(8) observation3.(1) physical examination4.(2) confirmation5.(6) recalculation6.(2) confirmation7.(3) documentation8.(4) analytical procedures9.(5) inquiry of client10.(7) reperformance11.(8) observation12.(1) physical examination13.(4) analytical procedures14.(3) documentation15.(5) inquiry of client16.(4) analytical procedures17.(3) documentation18.(6) recalculation19.(1) physical examination20.(2) confirmation7-33Examples of audit evidence the auditor can use to support each of the functions are:a.Examine invoice from vendorDirect confirmation with vendorb.Physical examinationDirect confirmation with custodianc.Direct confirmation with customerExamine cash receipts journal and bank deposits forsubsequent cash receiptsd.Examine title for ownership of assetExamine invoice from vendore.Direct confirmation with vendorExamine client's copy of vendor's statementf.Physical examinationExamine sales invoice of subsequent sale of goods showingmarked down sale priceg.Count petty cashDirect confirmation with custodian7-34 a. Confirmations are normally more reliable evidence than inquiries of the client because of the independence of theoutside party confirming the information.b.Confirmation of bank balances is considered highly reliablewhereas confirmation of a department store charge account isoften not considered reliable. Banks are accustomed toconfirmations from auditors and normally maintain excellentaccounting records, whereas most customers of departmentstores have neither characteristic.c.If an auditor is not qualified to distinguish betweenvaluable inventory (e.g., diamonds) and worthless inventory(e.g., glass), the physical examination of inventory wouldnot be considered to be reliable evidence.d.Recalculation tests are highly reliable because the auditoris able to gain 100% assurance of the accuracy, but thetests only verify whether the recorded amounts areaccurately totaled. These tests do not uncover omissions orfictitious amounts.e.Relatively reliable documentation examples include: vendorstatements, bank statements, and signed lease agreements.Relatively unreliable documentation examples may be: copiesof customer invoices, internal memoranda and othercommunications, and a listing of fixed asset additions.The difference between reliable and unreliable documentation examples above is whether they originate fromoutside or inside the client's organization. Externalinformation is considered more reliable than internal documentation.7-34 (continued)f.1.Confirmation of accounts receivable - Corporationaccustomed to confirmations compared to a member ofthe general public.2.Examination of the corporate minutes - Experiencedpartner compared to a new assistant.3.Physical observation of inventory - Auditorknowledgeable in the client's inventory compared toone who is not.4.Attorney's letter - General counsel compared to anattorney involved only with patents.g. Analytical procedures are evidence of the likelihood ofmisstatements in the financial statements, but they arerarely sufficient by themselves to conclude that thestatements are misstated. Other supportive evidence isneeded to determine whether apparent misstatements areactually material.7-357-35 (continued)7-367-37 a. The six factors determining the reliability of evidence are:1.Independence of provider2.Effectiveness of client's internal controls3.Auditor's direct knowledge4.Qualifications of individuals providing theinformation5.Degree of objectivity6.Timelinessb. andc.7-387-38 (continued)7-39 a. The purpose of audit documentation is to aid the auditor in providing reasonable assurance that an adequate audit wasconducted in accordance with auditing standards.Specifically, the audit documentation provides:1. a basis for planning the audit2. a record of the evidence accumulated and results oftests3.data for deciding the proper audit report4. a basis for review by supervisors and partnersb.Audit files are the CPA's records of the procedures followed,tests performed, and conclusions reached during the audit.Audit files may include audit programs, analyses, memoranda,letters of confirmation and representation, abstracts ofcompany documents, and schedules or commentaries prepared orobtained by the auditor.c.The factors that affect the CPA's judgment of the type andcontent of the audit files for an engagement include:1.The nature of the auditor's report2.The nature of the client's business3.The nature of the financial statements, schedules, orother information upon which the CPA is reporting andthe materiality of the items included therein4.The nature and condition of the client's records andinternal controls5.The needs for supervision and review of work performedby assistants7-40In general, the audit schedule is not set up in a logical manner to show what the auditor wants to accomplish. The primary objective of the audit schedule is to verify the ending balance in notes receivable and interest receivable. A secondary objective is to account for allinterest income, cash received and cash disbursed for new notes, collateral as security, and other information about the notes for disclosure purposes.Specific deficiencies of the audit schedule presented in the question are:7-40 (continued)c.Spreadsheet SolutionThe purpose of using an Excel spreadsheet in this problem is to give the student some experience in preparing a simple audit schedule using an Excel spreadsheet. It should be explained to students that this type of audit schedule may or may not be prepared in actual practice, and that often templates are used to prepare more time-consuming audit schedules. Also, whether or not tick marks are computerized is a matter to be decided. The advantage is that the completed audit work can then be stored and reviewed electronically, a direction many firms are going. On the other hand, it may be more efficient to indicate audit work manually as it is performed, and a contrast in the color of the tick marks through use of a colored pencil may be desirable.The following solution was prepared with Excel (Filename P740.xls). The formulas used are self-evident, so no listing is provided, although it is available on the Companion Website and on the Instructor’s Resource CD- ROM, which is available upon request. Two items deserve comment:1.An advantage of using a spreadsheet program for thesetypes of analyses is that footing and crossfooting aredone automatically.2.When auditor tick marks are done by computer, aproblem arises as to how to place them on theworksheet. One could use narrow columns insertedbetween the scheduled client data, or, as done here,the tick marks are placed in blank rows beneath therelated data.7-40 (continued)-可编辑修改-VANDERVOORT COMPANYSchedule N-1 DateA/C #110 - NOTES RECEIVABLE Prepared by JD 01/21/08 12/31/07Approved by PP 02/15/08Account #110 - Notes Receivable InterestDate InterestMade/ Rate/ Face Value ofBalance Balance Receivable Receivable Maker Due Date Paid toAmount Security12/31/06 Additions Payments 12/31/07 12/31/06 Earned Received 12/31/07Apex Co. c *6/15/06 / 5% / 5000 None4000 0 1000 3000104 175 0 279 06/15/08 None pd.tp r tp < Ajax, Inc. c *11/21/06 / 5% / 3591 None3591 0 3591 0 0 102 102 0 Demand 12/31/07tp r tp < r J.J. Co. c *11/1/06 / 5% / 13180 2400012780 0 2400 10380 24 577 601 0 04/01/12 12/31/07 tp r tp < r ($200/Mo.)P.Smith c *7/26/07 / 5% / 25000 500000 250005000 200000 468 200 268 08/01/09 09/30/07 r r < r ($1000/Mo.)Martin-Peterson c *5/12/06 / 5% / 2100 None2100 0 2100 0 0 105 105 0 Demand 12/31/07tp r tp < r Tent Co. c *9/3/07 / 6% / 12000 100000 12000 1600 10400 0 162 108 54 02/01/10 11/30/07 r r < r ($400/Mo.) 2247137000156914378012815891116601f f f f, cf f f f f, cf Tpwtbtb opwtbLegend of Auditor's Tick Marks f Footed cf Crossfooted7-40 (continued)7-19tp Traced to prior year audit fileswtb Traced total to working trial balanceop Traced total to operations audit schedule - OP6* Examined note for payee, made and due dates,interest rate, face amount, and value ofsecurity. No exceptions noted.c Received confirmation, including date interest paid to,interest rate, interest paid during 2007, notebalance, and security. No exceptions noted.r Traced to cash receipts records< Recomputed for the year-可编辑修改-Cases7-41 The following are deficiencies in the sufficiency and appropriateness of the evidence in the audit of accounts payable for Grande Stores:McClure Advertising Credits–An insufficient number of confirmations (four) were sent. The use of alternative procedures is probably acceptable. However, one credit was confirmed by telephone, rather than by written confirmation. Although the differences found were immaterial, the auditors should have determined the reason for the differences, and any errors should have been projected to the population.Twenty additional credits were selected for testing. Whether this is a sufficient number is a matter of judgment, and depends on several factors. With a fairly small sample, it is critical that the items selected for testing adequately represent the population. The testing relied on internal documentation, which is insufficient to support the credits. The placing of the ad is insufficient evidence without supporting evidence from the vendor supporting the reduction in accounts payable.Springbrook Credits –These credits were confirmed by telephone, and were not supported by a written confirmation. The staff auditor was suspicious of the client’s unwillingness to allow written confirmation of the amounts, as well as the client’s changing explanation of the nature of the credits, but did not perform additional testing to resolve any doubts about the validity of the credits.Ridolfi Credits– The auditor obtained an oral confirmation that these credits were not valid. The client indicated that the auditor's information was incorrect, but would not allow the auditor to obtain written confirmation for these credits. In addition, the credit memos had been altered, which should have further indicated to the auditor that the credits were not valid.Accounts Payable Accrual–The auditors sent 50 accounts payable confirmations. Whether this is a sufficient number of confirmations is a matter of auditor judgment. However, the adequacy of the confirmations as evidence is significantly undermined by the knowledge that the client told suppliers how to respond. As a result, the auditor should have verified the confirmed balances using alternative procedures. There is no discussion of the performance of alternative procedures for nonresponses, or the resolution of the six responses that were not reconciled to Grande’s records.The auditors agreed to an adjustment of $260,000 when their cutoff tests indicated a potential liability of $500,000. It would be appropriate for the auditors to agree to a lower amount only if additional testing supported a lower accrued liability.7-42The audit schedule contains the following deficiencies:1.There is no indication of follow-up on the identified errorin the accrued interest payable computation.2.There is no indication whether the confirmation exceptionwas resolved.。
审计学：一种整合方法_第12版_英文版Chapter01
1 - 12
Economic Demand for Auditing
Information risk reflects the possibility that the information upon which the business risk decision was made was inaccurate.
1 - 11
Learning Objective 3
Explain the importance of auditing in reducing information risk.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1-5
Accumulating Evidence and Evaluating Evidence
Evidence is any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1 - 16
Learning Objective 5
Describe assurance services and distinguish audit services from other assurance and nonassurance services provided by CPAs.
审计学：一种整合方法_第12版_英文版Cha(1)
Accumulating Evidence and Evaluating Evidence
Evidence is any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria.
Determines correspondence
Report on results
Report on tax deficiencies
Established criteria
Internal Revenue Code and all
interpretations
Learning Objective 2
Auditing is determining whether recorded information properly reflects the economic events that occurred during the accounting period.
Learning Objective 3
The final stage in the auditing process is preparing the Audit Report, which is the communication of the auditor’s findings to users.
Audit of a Tax Return Example
Learning Objective 1
Describe auditing.
Nature of Auditing
审计学：一种整合方法_第12版_英文版Chapter08
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 8 - 18
Web site visitors same-store sales sales/square foot
Performance measurement includes ratio analysis and benchmarking against key competitors.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 8 - 16
Code of Ethics
In response to the Sarbanes-Oxley Act, the SEC now requires each public company to disclose whether is has adopted a code of ethics that applies to senior management.
Measurement and Performance
The client’s performance measurement system includes key performance indicators. Examples: market share sales per employee unit sales growth
审计学：一种整合方法_第12版_英文版Cha
6 - 13
Financial Statements Cycles
Audits are performed by dividing the financial statements into smaller segments or components.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
cycle
Inventory and warehousing
cycle
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
6 - 17
Learning Objective 5
Describe why the auditor obtains a combination of assurance by auditing classes of transactions and ending balances in accounts, including presentation and disclosure.
6 - 16
Relationships Among Transaction Cycles
General cash
Capital acquisition and repayment cycle
Sales and collection
cycle
Acquisition and payment
cycle
Payroll and personnel
审计学：一种整合方法_第 12版_英文版Cha
审计学：一种整合方法_第12版_英文版Cha
Financial Statements Cycles
Learning Objective 4
• Classify transactions and account • balances into financial statement • cycles and identify benefits of a • cycle approach to segmenting • the audit.
Objective of Conducting an Audit o f Financial Statements
The objective of the ordinary audit of financial statements is the expression of an opinion of the fairness with which they present fairly, in all respects, financial position, result of operations, and its cash flows in conformity with GAAP.
Management’s Responsibilities
Management is responsible for the financial statements and for internal control.
The Sarbanes-Oxley Act increases management’s responsibility for the finຫໍສະໝຸດ ncial statements.
The Sarbanes-Oxley Act provides for criminal penalties for anyone who knowingly falsely certifies the statements.
审计学：一种整合方法-阿伦斯-英文版-第12版RRChapter10课件
Existing sales transactions are recorded
Sales for goods shipped are correctly billed
审计学：一种整合方法-阿伦斯-英文版-第12版 RRChapter10
审计学：一种整合方法-阿伦斯-英文版-第12版 RRChapter10
Internal Control Objectives
1. Reliability of financial reporting 2. Efficiency and effectiveness of operations 3. Compliance with laws and regulations
➢ Auditor responsibilities for testing internal control
审计学：一种整合方法-阿伦斯-英文版-第12版 RRChapter10
Sales Transaction-related Audit Objectives
Transaction-related Audit Objective – General form
审计学：一种整合方法-阿伦斯-英文版-第12版 RRChapter10
Five Components of Internal Control
Risk assessment
审计学：一种整合方法-阿伦斯-英文版-第12版 RRChapter10
Learning Objective 2
• Contrast management’s • responsibilities for maintaining • and reporting on internal controls • with the auditor’s responsibilities • for understanding, testing, and • reporting on internal controls.
审计学：一种整合方法-阿伦斯-英文版-第12版-课后答案-Chapter-10-Solutions-Manual
Chapter 10Section 404 Audits of Internal Controland Control RiskReview Questions10-1Management typically has three broad objectives in designing an effective internal control system.1. Reliability of Financial Reporting Management is responsible forpreparing financial statements for investors, creditors, and other users.Management has both a legal and professional responsibility to be sure that the information is fairly presented in accordance with reporting requirements such as GAAP. The objective of effective internal control over financial reporting is to fulfill these financial reporting responsibilities.2. Efficiency and Effectiveness of Operations Controls within anorganization are meant to encourage efficient and effective use of its resources to optimize the company’s goals. An important objective of these controls is accurate financial and non-financial information about the entity’s operations for decision making.3. Compliance with Laws and Regulations Section 404 of the Sarbanes-Oxley Act requires all public companies to issue a report about the operating effectiveness of internal control over financial reporting. In addition to the legal provisions of Section 404, public, nonpublic, and not-for-profit organizations are required to follow many laws and regulations. Some relate to accounting only indirectly, such as environmental protection and civil rights laws. Others are closely related to accounting, such as income tax regulations and fraud.10-2Management designs systems of internal control to accomplish three categories of objectives: financial reporting, operations, and compliance with laws and regulations. The auditor’s focus in both the audit of financial statement s and the audit of internal controls is on those controls related to the reliability of financial reporting plus those controls related to operations and to compliance with laws and regulations objectives that could materially affect financial reporting. 10-3Section 404 requires management of all public companies to issue an internal control report that includes the following:▪ A statement that management is responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting and▪An assessment of the effectiveness of the internal control structure and procedures for financial reporting as of the end of the company’s fiscal year.10-4Management’s assessment of internal control over financial reporting consists of two key components. First, management must evaluate the design of internal control over financial reporting. Second, management must test the operating effectiveness of those controls.When evaluating the design of internal control over financial reporting, management evaluates whether the controls are designed to prevent or detect material misstatements in the financial statements. When testing the operating effectiveness of those controls, the objective is to determine whether the control is operating as designed and whether the person performing the control possesses the necessary authority and qualifications to perform the control effectively.10-5There are eight parts of the planning phase of audits: accept client and perform initial plan ning, understand the client’s business and industry, assess client business risk, perform preliminary analytical procedures, set materiality and assess acceptable audit risk and inherent risk, understand internal control and assess control risk, gather information to assess fraud risks, and develop an overall audit plan and audit program. Understanding internal control and assessing control risk is therefore part six of planning. Only gathering information to assess fraud risk and developing an overall audit plan and audit program follow understanding internal control and assessing control risk.10-6The second GAAS field work standard states “The auditor must obtain a sufficient understanding of the entity and its environment, including its internal controls, to assess the risk of material misstatement of the financial statements whether due to error or fraud and to design the nature, timing, and extent of further audit procedures.” The auditor obtains the understanding of internal control to assess control risk in every audit and that responsibility is the same for audits of both public and nonpublic companies. Auditors are primarily concerned about controls related to the reliability of financial reporting and controls over classes of transactions.10-7Section 404 requires that the auditor attest to and issue a report on management’s assessment of internal control over financial reporting. To express an opinion on internal controls, the auditor obtains an understanding of and performs tests of controls related to all significant account balances, classes of transactions, and disclosures and related assertions in the financial statements. PCAOB Standard 2 requires that the audit report on internal control over financial reporting under Sarbanes-Oxley includ e the auditor’s opinion as to whether management’s assessment of the design and operating effectiveness of internal control over financial reporting is fairly stated in all material respects. This involves both evaluating management’s assessment process an d arriving at the auditor’s independent assessment of the internal controls’ design and operating effectiveness.10-8The six transaction-related audit objectives are:1. Recorded transactions exist (occurrence).2. Existing transactions are recorded (completeness).3. Recorded transactions are stated at the correct amounts (accuracy).4. Recorded transactions are properly included in the master files andcorrectly summarized (posting and summarization)._5. Transactions are properly classified (classification).6. Transactions are recorded on the correct dates (timing).10-9COSO’s Internal Control Integrated Framework is the most widely accepted internal control framework in the U.S. The COSO framework describes internal control as consisting of five components that management designs and implements to provide reasonable assurance that its control objectives will be met. Each component contains many controls, but auditors concentrate on those designed to prevent or detect material misstatements in the financial statements. 10-10 The COSO Internal Control –Integrated Framework consists of the following five components:1. Control environment2. Risk assessment3. Control activities4. Information and communication5. MonitoringThe control environment serves as the umbrella for the other four components. Without an effective control environment, the other four are unlikely to result in effective internal control, regardless of their quality.10-11The control environment consists of the actions, policies, and procedures that reflect the overall attitudes of top management, directors, and owners of an entity about internal control and its importance to the entity. The following are the most important subcomponents the control environment:Integrity and ethical valuesCommitment to competenceBoard of directors or audit committee participationManagement's philosophy and operating styleOrganizational structureAssignment of authority and responsibilityHuman resource policies and practices10-12Internal control includes five categories of controls that management designs and implements to provide reasonable assurance that its control objectives will be met. These are called the components internal control, and are: The control environmentRisk assessmentControl activitiesInformation and communicationMonitoringThe control environment is the broadest of the five and deals primarily with the way management implements its attitude about internal controls. The other four components are closely related to the control environment. Risk assessment is management's identification and analysis of risks relevant to the preparation of financial statements in accordance with GAAP. To respond to this risk assessment, management implements control activities and creates the accounting information and communication system to meet its objectives for financial reporting. Finally, management periodically assesses the quality of internal control performance to determine that controls are operating as intended and that they are modified as appropriate for changes in conditions (monitoring). All five components are necessary for effectively designed and implemented internal control.10-13The five categories of control activities are:Adequate separation of dutiesExample: The following two functions are performed bydifferent people: processing customer orders and billing ofcustomers.Proper authorization of transactions and activitiesExample: The granting of credit is authorized beforeshipment takes place.Adequate documents and recordsExample: Recording of sales is supported by authorizedshipping documents and approved customer orders.Physical control over assets and recordsExample: A password is required before entry into thecomputerized accounts receivable master file can be made.Independent checks on performanceExample: Accounts receivable master file contents areindependently verified.10-14Separation of operational responsibility from record keeping is intended to reduce the likelihood of operational personnel biasing the results of their performance by incorrectly recording information.Separation of the custody of assets from accounting for these assets is intended to prevent misappropriation of assets. When one person performs both functions, the possibility of that person's disposal of the asset for personal gain and adjustment of the records to relieve himself or herself of responsibility for the asset without detection increases.10-15An example of a physical control the client can use to protect each of the following assets or records is:1. Petty cash should be kept locked in a fireproof safe.2. Cash received by retail clerks should be entered into a cashregister to record all cash received.3. Accounts receivable records should be stored in a locked, fireproofsafe. Adequate backup copies of computerized records should bemaintained and access to the master files should be restricted viapasswords.4. Raw material inventory should be retained in a locked storeroomwith a reliable and competent employee controlling access.5. Perishable tools should be stored in a locked storeroom undercontrol of a reliable employee.6. Manufacturing equipment should be kept in an area protected byburglar alarms and fire alarms and kept locked when not in use.7. Marketable securities should be stored in a safety deposit vault.10-16Independent checks on performance are internal control activities designed for the continuous internal verification of other controls. Examples of independent checks include:Preparation of the monthly bank reconciliation by an individual with no responsibility for recording transactions or handling cash.Recomputing inventory extensions for a listing of inventory by someone who did not originally do the extensions.The preparation of the sales journal by one person and the accounts receivable master file by a different person, and areconciliation of the control account to the master file.The counting of inventory by two different count teams.The existence of an effective internal audit staff.10-17As illustrated by Figure 10-3, there are four phases in the process of understanding internal control and assessing control risk. In the first phase the auditor obtains an understanding of internal controls, which includes an understanding of their design and whether they have been implemented. Next the auditor must make a preliminary assessment control risk (phase 2) and perform tests of controls in every audit as part of their integrated audits (phase 3). The auditor uses the results of tests of controls for both the audit report on internal control over financial reporting and to assess control risk and to ultimately decide planned detection risk and substantive tests for the audit of financial statements, which is phase 4.10-18Section 404 of the Sarbanes-Oxley Act requires management to document its processes for assessing the effectiveness of the company’s internal control over financial reporting. Management must document the design of controls, including all five control components and also the results of its testing and evaluation. The types of information gathered by management to assess and document internal control effectiveness can take many forms, including policy manuals, flowcharts, narratives, documents, questionnaires and other forms that are in either paper or electronic formats. PCAOB Standard 2 requires the auditor10-18 (continued)to evaluate the client’s documentation when auditing internal control over financial reporting. The lack of management documentation of internal control over financial reporting may prevent the auditor from concluding that the controls are adequately designed or operating effectively. When documentation is inadequate, the auditor may decide to withdraw from the engagement or to issue a disclaimer of opinion on internal control over financial reporting.10-19When obtaining an understanding of internal control, the auditor must assess two aspects about those controls. First, the auditor must gather evidence about the design of internal controls. Second, the auditor must gather evidence about whether those controls have been implemented.10-20In a walkthrough of internal control, the auditor selects one or a few documents for the initiation of a transaction type and traces them through the entire accounting process. At each stage of processing, the auditor makes inquiries and observes current activities, in addition to examining completed documentation for the transaction or transactions selected. Thus, the auditor combines observation, documentation, and inquiry to conduct a walkthrough of internal control. PCAOB Standard 2 requires the auditor to perform at least one walkthrough for each major class of transactions.10-21A key control is a control that is expected to have the greatest effect on meeting the transaction-related audit objectives. A control deficiency represents a deficiency in the design or operation of controls that does not permit company personnel to prevent or detect misstatements on a timely basis. A design deficiency exists if a necessary control is missing or not properly designed. An operation deficiency exists if a well designed control does not operate as designed or when the person performing the control is insufficiently qualified or authorized.10-22A significant deficiency exists if one or more control deficiencies exist that, more than remotely,adversely affect a company’s ability to initiate, authorize, record, process, or report external financial statements reliably. A material weakness exists if a significant deficiency, by itself, or in combination with other significant deficiencies, results in a more than remote likelihood that internal control will not prevent or detect material financial statement misstatements. The presence of one significant deficiency that is not deemed to be a material weakness may not affect the auditor’s report. In that instance, the auditor’s report on internal control over financial reporting would contain an unqualified opinion. However, if the deficiency is deemed to be a material weakness, the auditor must express an adverse opinion on the effectiveness of internal control over financial reporting.10-23The most important internal control deficiency which permitted the defalcation to occur was the failure to adequately segregate the accounting responsibility of recording billings in the sales journal from the custodial responsibility of receiving the cash. Regardless of how trustworthy James appeared, no employee should be given the combined duties of custody of assets and accounting for those assets.10-24Maier is correct in her belief that internal controls frequently do not function in the manner they are supposed to. However, regardless of this, her approach ignores the value of beginning the understanding of internal control by preparing or reviewing a rough flowchart. Obtaining an early understanding of the client's internal control will provide Maier with a basis for a decision about further audit procedures and sample sizes based on assessed control risk. By not obtaining an understanding of internal control until later in the engagement, Maier risks performing either too much or too little work, or emphasizing the wrong areas during her audit.10-25The extent of controls tested by auditors to express an opinion on internal controls for a public company is significantly greater than that tested solely to express an opinion on the financial statements. To express an opinion on internal controls for a public company, the auditor obtains an understanding of and performs tests of controls for all significant account balances, classes of transactions, and disclosures and related assertions in the financial statements. In contrast, the extent of controls tested by an auditor of a nonpublic company is dependent on th e auditor’s assessment of control risk. Whenever the auditor assesses control risk below maximum, the auditor must perform tests of controls to support that control risk assessment. The auditor will not perform tests of controls when the auditor assesses control risk at maximum. When control risk is assessed below the maximum, the auditor designs and performs a combination of tests of controls and substantive procedures. Thus, for a nonpublic company, the tests of controls vary based on the auditor’s assess ment of control risk.10-26There is a significant overlap between tests of controls and procedures to obtain an understanding of internal control. Both include inquiry, documentation, and observation. There are two primary differences in the application of these common procedures. First, in obtaining an understanding of internal control, the procedures to obtain an understanding are applied to all controls identified during that phase. Tests of controls, on the other hand, are applied only when the assessed control risk has not been satisfied by the procedures to obtain an understanding. Second, procedures to obtain an understanding are performed only on one or a few transactions or, in the case of observations, at a single point in time. Tests of controls are performed on larger samples of transactions (perhaps 20 to 100), and often observations are made at more than one point in time.10-27PCAOB Standard 2 requires a public company auditor to test controls each year for all relevant assertions for significant accounts and transactions. However, if evidence was obtained in the prior year’s audit that indicates that a key control was operating effectively, and the auditor determines that the control is still in place, the extent of the tests of that control may be reduced somewhat in the current year.10-28 When the auditor’s risk assessment procedures identify significant risks, the auditor is required to test the operating effectiveness of controls that mitigate these risks in the current year audit, if the auditor plans to rely on those controls to support a control risk assessment below 100%. Thus, tests of controls are required in the current year audit for those controls the auditor plans to rely on to reduce control risk. The greater the risk, the more the audit evidence the auditor should obtain that controls are operating effectively.10-29 PCAOB Standard 2 requires that t he auditor’s report on internal control include two auditor opinions:1. The auditor’s opinion on whether management’s assessment of theeffectiveness of internal control over financial reporting as of the end of the fiscal period is fairly stated, in all material respects. In practice it is unlikely for the auditor to issue anything other than an unqualified report on this opinion. If the auditor concludes that management has not identified and reported all significant deficiencies and material weaknesses, it will be in management’s best interests to revise its report to conform to the auditor’s conclusions.2. The auditor’s opinion on whether the company maintained, in all materialrespects, effective internal control over financial reporting as of the specified date. There is likely to be more variety in these reports.10-30The auditor may issue an unqualified opinion on internal control over financial reporting when two conditions are present:▪there are no identified material weaknesses; and▪there have been no restrictions on the scope of the auditor’s work.A scope limitation is the condition that would cause the auditor to express a qualified opinion or a disclaimer of opinion on internal control over financial reporting. This type of opinion is issued when the auditor is unable to determine if there are material weaknesses, due to a restriction on the scope of the audit of internal control over financial reporting or other circumstances where the auditor is unable to obtain sufficient evidence.10-31PCAOB Standard 2 requires that the audit of the financial statements and the audit of internal control over financial reporting be integrated. In an integrated audit, the auditor must consider the results of audit procedures performed to issue the audit report on the financial statements when issuing the audit report on internal control. For example, if the auditor identifies a material misstatement in the financial statements that was not initially identified by the company’s internal controls, the auditor should consider this as at least a significant deficiency, if not a material weakness for purposes of reporting on internal control. In such circumstances, the auditor’s report on the financial statements may be unqualified as long as management corrected the misstatement before issuing the financial statements. In contrast, however, the auditor’s report on internal control must include an adverse opinion if the auditor concludes it is a material weakness.Multiple Choice Questions From CPA Examinations10-32 a. (3) b. (3) c. (4) d. (4)10-33 a. (3) b. (2) c. (4) d. (2)10-34 a. (3) b. (4) c. (4) d. (2)Discussion Questions and Problems10-351. a. Adequate segregation of duties and proper authorization of transactions and activities.b. Recorded transactions exist.c. An unauthorized or invalid time card turned in by an existingemployee. The time card may be for an employee whoformerly worked for the company or one who is temporarilylaid off.d. An employee could be claiming too many hours by having afriend punch him or her in early, or by making manualchanges on time cards.e. Check to see that all employees that are punched in one dayare physically present..2. a. Adequate documents and records.b. Existing transactions are recorded.c. A missing time card number never could be identified beforepreparation of payroll starts.d. An employee would not be paid for a time period. (Theemployee is almost certain to bring this to management'sattention.) The primary benefit of the control would be toprevent misstatements for a short period of time and toprevent employee dissatisfaction from failure to pay them.e. Obtain a list of company employees and make sure thateach one has received a paycheck for the time period inquestion.3. a. Proper authorization of transactions and activities.b. Recorded transactions exist.c. A paycheck cannot be processed for an invalid employeenumber.d. A fictitious payroll check could be processed for a fictitiousemployee if invalid employee numbers are included in theemployee master file.e. Include test data transactions with invalid employee numbersin the data to be inputted into the payroll accounting systemand determine that all invalid transactions are automaticallyrejected by the software application.4. a. Adequate separation of duties.b. Recorded transactions exist.c. A fictitious payroll check that is originated by the person bothpreparing the payroll checks and distributing the payrollchecks.d. If one person kept a record of time, prepared the payroll, anddistributed the checks, that person could add a nonexistentemployee to the payroll, process the information for theemployee and deposit the paycheck in his or her own bankaccount without detection.10-35 (continued)e. Perform a surprise payoff in which the auditor accounts forall paychecks and distributes them to the employees, whomust provide identification in order to receive their checks.5. a. Independent check on performance.b. Recorded transactions are stated at the correct amounts.c. Mechanical errors of adding up the number of hours,calculating the gross payroll incorrectly, or calculatingwithholding incorrectly.d. Payroll checks incorrectly calculated could be paid toemployees.e. Recheck the amounts for gross payroll, withholding and netpayroll.6. a. Adequate documents and records.b. Existing transactions are recorded.c. Preparation of a check for an inappropriate person, thedistribution of that check to that person, and the recording ofthat check in the cash disbursements journal as a voidedcheck.d. An employee who is supposed to void a check could recordit as voided on the books and cash the check. At month-endthe amount of the check could be covered by adjusting thebank reconciliation.e. Test month-end bank reconciliations in detail to determinethat the account reconciles properly, that all supportingdocuments are proper, looking especially for a check thatcleared and was supposed to be voided, and that noalterations have been made to the bank statement.7. a. Proper authorization of transactions and activities.b. Recorded transactions exist and recorded transactions arestated at the correct amounts.c. Both errors and fraud are likely to be prevented if competenttrustworthy employees are hired. Hiring honest employeesminimizes a likelihood of fraud. Hiring competent employeesminimizes the likelihood of unintentional errors.d. Several types of intentional misstatements could occur if adishonest person is hired. Similarly, several types ofunintentional errors could occur if an incompetent person ishired.e. An examination of cancelled checks and supportingdocuments, including time cards and personnel records, is atest of the possibility of fraud. A test of the calculation ofpayroll is a test for an unintentional error caused byemployees who are not competent.10-35(continued)8. a. Proper authorization of transactions and activities, andadequate documents and records.b. Recorded transactions exist.c. The preparation of an inappropriate payroll check for aformer employee is prevented.d. A terminated employee could be continued on the payrollwith someone else obtaining the paycheck.e. Perform a surprise payoff in which the auditor accounts forall paychecks and distributes them to the employees, whomust provide identification to receive their checks.9. a. Physical control over assets and records, and adequatesegregation of duties.b. Recorded transactions exist.c. Checks prepared for nonexistent employees or employeeson vacation, or absent for other reasons are controlled andsafeguarded.d. Checks could be lost which are intended for absentemployees or a check could be taken by the personresponsible for distributing the checks.e. Examine cancelled checks to make certain that each checkis properly endorsed, supported by a time card, and theperson for whom the check is made out is still working forthe company.10. a. Proper authorization of transactions and activities andadequate separation of duties.b. Recorded transactions exist and recorded transactions arestated at the correct amounts.c. Preparation of a check for a fictitious employee orpreparation of checks using an unapproved pay rate areprevented.d. A fictitious payroll check could be processed for a fictitiousemployee if those with record keeping responsibilities areallowed to enter new employee numbers into the master file.Also, paychecks to valid employees could be overstated ifunauthorized personnel have the ability to make changes tothe pay rates in the master files.e. Attempt to access the on-line payroll master file using apassword that is not allowed access to that master file.。
审计学：一种整合方法 阿伦斯 英文版 第12版RRChapter10
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
10 - 6
Management and Auditor Responsibilities Related to Internal Control
Auditor responsibilities for understanding internal control Controls over the reliability of financial reporting Control over classes of transactions
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
10 - 14
Control Activities
1. Adequate separation of duties 2. Proper authorization of transactions and activities 3. Adequate documents and records
Transaction-related Audit Objective – General form Sales Transaction-related Audit Objectives
Recorded transactions exist (occurrence)
Existing transactions are recorded (completeness) Transactions are stated correctly (accuracy)
- 1、下载文档前请自行甄别文档内容的完整性，平台不提供额外的编辑、内容补充、找答案等附加服务。
- 2、"仅部分预览"的文档,不可在线预览部分如存在完整性等问题,可反馈申请退款(可完整预览的文档不适用该条件!)。
- 3、如文档侵犯您的权益，请联系客服反馈,我们会尽快为您处理(人工客服工作时间：9:00-18:30)。
4 - 11
Resolving Ethical Dilemmas
1. Obtain the relevant facts 2. Identify the ethical issues from the facts 3. Determine who is affected
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
4-3
Illustrative Prescribed Ethical Principles
Trustworthiness Respect
Responsibility
Ethical Dilemmas
An ethical dilemma is a situation a person faces in which a decision must be made about appropriate behavior.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
4-6
A Person Chooses to Act Selfishly – Example
Person A finds a briefcase containing important papers and $1,000. He tosses the briefcase and keeps the money.
4 - 19
Learning Objective 4
Describe the purpose and content of the AICPA Code of Professional Conduct.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
What alternatives does the staff person have?
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
4 - 15
Learning Objective 3
Explain the importance of ethical conduct for the accounting profession.
Fairness
Caring
Citizenship
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
4-4
Need for Ethics
Ethical behavior is necessary for a society to function in an orderly manner. The need for ethics in society is sufficiently important that many commonly held ethical values are incorporated into laws.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
4 - 16
Special Need for Ethical Conduct in Professions
Our society has attached a special meaning to the term professional. Professionals are expected to conduct themselves at a higher level than most other members of society.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
4 - 17
Difference Between CPA Firms and Other Professionals
CPA firms are engaged and paid by the company issuing the financial statements. Primary beneficiaries of the audit are statement users.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
4-5
Why People Act Unethically
The person’s ethical standards are different from those of society as a whole. The person chooses to act selfishly.
He tells nobody and spends the money.
He has violated his own ethical standards and chose to act selfishly.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 4-8
4-7
A Person Chooses to Act Selfishly – Example
Person B faces the same situation but responds differently. He keeps the money but leaves the briefcase.
Learning Objective 2
Resolve ethical dilemmas using an ethical framework.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
4-9
4 - 20
Code of Professional Conduct
Principles
Ideal standards of ethical conduct stated in philosophical terms. They are not enforceable. Minimum standards of ethical conduct stated as specific rules. They are enforceable.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
4 - 18
CPAs Encouraged to Conduct Themselves at a High Level
CPA examination GAAS and interpretations Continuing education requirements
Quality control
Peer review
Conduct of CPA firm personnel
Legal liability
PCAOB and SEC
Code of Professional Conduct
AICPA practice sections
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
4-2
What Are Ethics?
Ethics can be defined broadly as a set of moral principles or values. Each of us has such a set of values. We may or may not have considered them explicitly.
6. Decide the appropriate action
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
4 - 13
Relevant Facts
A staff person has been informed that he will work hours without recording them as hours worked. Firm policy prohibits this practice. Another staff person has stated that this is common practice in the firm.
4 - 10
Rationalizing Unethical Behavior