Free Essay

Threat to Compliance with Fundamental Principles on Auditing

In: Other Topics

Submitted By ScriVox
Words 690
Pages 3
Threats to Compliance With The Fundamental Principles 1. Self-interest threat – the threat that a financial or other interest will inappropriately influence the professional accountant’s judgment or behavior. Examples of the circumstances that may create self-interest threat include:

a. A direct financial interest or material indirect financial interest in a client b. A loan or guarantee to or from a client or any of its directors or officers c. Undue independence on total fees from a particular client d. Concern about the possibility of losing the engagement e. Having a close business relationship with a client f. Potential employment with a client g. Contingent fees relating to an engagement

2. Self-review threat – the threat that a professional accountant will not appropriately evaluate the results of a previous judgment made or service performed in forming a conclusion about the subject matter of the engagement. Examples of the circumstances that may create self-review threat include:

a. A member of the engagement team being, or having recently been, a director or officer of the firm. b. A member of the engagement team being, of having recently been, an employee of the client in a position to exert direct and significant influence over the subject matter of the engagement. c. Performing services for a client that directly affect the subject matter of the engagement. d. Preparation of original data used to generate financial statements or preparation of other records that are the subject matter of another engagement. e. Reporting on the operation of financial systems after being involved in their design or implementation. f. The discovery of a significant error during re-evaluation of the work of the professional accountant in public practice.

3. Advocacy threat – the threat that a professional accountant will promote a client’s or employer’s position to the point that the professional accountant’s objectivity is compromised. Examples of the circumstances that may create advocacy threat include:

a. Dealing in, or being a promoter of, share or other securities in a client. b. Acting as an advocate on behalf of certain in litigation or in resolving disputes with third parties.

4. Familiarity threat ─ the threat that due to a long or close relationship with a client or employer, a professional accountant will be too sympathetic to their interests or too accepting of their work. Examples of the circumstances that may create familiarity threat include:

a. A member of the engagement team having an, immediate family member or close family member who is a director or officer of the client. b. A member of the engagement team having an, immediate family member or close family member who, as an employee of the assurance client, is in a position to exert direct and significant influence over the subject matter of the engagement. c. A former partner of the firm being a director, officer of the client or an employee in a position to exert direct and significant influence over the subject matter of the engagement. d. Long association of a senior member of the engagement team with the client. e. Acceptance of gifts or preferential treatment, unless the value is clearly insignificant, from a client, its directors, officers or employees.

5. Intimidation threat – the threat that a professional accountant will be deterred from acting objectively because of actual or perceived pressures, including attempts to exercise undue influence over the professional accountant. Examples of the circumstances that may create intimidation threat include:

a. Being threatened with litigation. b. Being threatened with dismissal or replacement over a disagreement with the application of an accounting principle. c. Being pressured to reduce inappropriately the extent work performed in order to reduce fees.

The table summarizes the independence requirements of different assurance engagements.

| Members of assurance team | Firm | Network Firm | Audit | Yes | Yes | Yes | Non-audit (not restricted) | Yes | Yes | No | Non-audit (restricted) | Yes | No | No |

Engagement team B can still audit PLDT because a direct connection has never occurred between the two parties. However, strict independence must be followed by team B to formulate neutral and fair presentation of report.

SEAN GREGORY P. CAMPO
Bachelor of Science in Accountancy - III
St. Paul University Philippines…...

Similar Documents

Free Essay

Ifac Principles-Auditing

...Institute. This article is about ethical matters and the activities of the IFAC Ethics Committee. Besides ethics, IFAC Boards and Committees develop international standards on auditing and assurance (ISAs), on education and on public sector accounting. Each of the member bodies of IFAC - there are 163 currently from all parts of the globe - undertakes to use their best endeavours, subject to national laws and regulations, to implement the standards issued by IFAC in each of these fields. So, ICAI - and indeed, the other UK and Irish based accounting bodies that have members in Ireland - have obligations to promulgate IFAC standards and to monitor their members' performance against them. In the case of ethics, 2005 has been an important year for IFAC activities. After three years of drafting, consultation, exposure and revision the IFAC Ethics Committee finally released a new Code of Ethics at the end of June 2005. The new Code applies to all professional accountants - those in practice, in industry, academe, government etc. - and it is effective from June 30, 2006, thus giving IFAC’s member bodies time to make any adaptations necessary for local laws and regulations, to translate where necessary and to obtain local approvals for release and promulgation. FUNDAMENTAL PRINCIPLES The fundamental principles are: - Integrity - An accountant should be straightforward and honest in all professional and business relationships. For example, an accountant should not be......

Words: 2222 - Pages: 9

Premium Essay

Auditing the System/Application Domain for Compliance

...server-level applications. Mail servers hand receipt and sending of e-mail. Database servers host databases that are accessed by users, applications, or other servers. DNS servers provide names to IP addresses for clients. To protect this domain the following methods should be utilized; removal of unnecessary services and protocols, changing of default passwords, regular patch and updates, enable local firewalls. The major threats to these areas are unauthorized access, hardware failure, and data loss. Since the system/ application domain consists of all of a business’s mission-critical systems, applications, and data it is important to ensure that this domain is secure at all times. Failure to do so will result in large amounts of sensitive information as well as the threat of having productions cease to function. Unauthorized physical access is gaining access to a physical entity without permission. This is potentially dangerous because if an individual were to gain such access they could destroy the systems and data within the systems. This threat is centered on access to such places as data centers with a great deal of sensitive information. To prevent unauthorized physical access policies, standards, procedures and guidelines must be followed. For example, all guest must be escorted by an employee at all times. Staff should immediately report any suspicious activity and question persons that do not have an employee ID or batch visible. Software......

Words: 485 - Pages: 2

Free Essay

Auditing It Infrastructures for Compliance

...and combine them into one final report. These reports will consist of: - The two auditing frameworks or hardening guidelines / security checklists used by the DoD. - How a security assessment addressing modern day risks, threats, and vulnerabilities throughout the 7-domains of a typical IT infrastructure can help an organization achieve compliance. - How to gather and obtain needed information to perform a GLBA Financial Privacy & Safeguards Rules compliance audit and what must be covered. - The top workstation domain risks, threats, and vulnerabilities which will not only include possible causes, but mitigations as to prevent these issues from happening. - The top LAN – to – WAN risks, threats, and vulnerabilities which will not only include possible causes, but mitigations as to how we can prevent these issues from happening. - The top Remote Access Domain risks, threats, and vulnerabilities as well as ways to mitigate these types of issues. - The top Systems / Application Domain risks, threats, and vulnerabilities as well as ways to mitigate these types of issues. Part 1: Purpose: The purpose of part 1 for this lab is to develop an executive summary in regards to either the two auditing frameworks or hardening guidelines/security checklists used by the DoD. For this, I have chosen to discuss the two auditing frameworks. Background: A little background about the AF (Auditing Framework) for the DoD is that it provides a foundation for developing and......

Words: 2140 - Pages: 9

Premium Essay

Auditing Ethics and Compliance

...business experienced in moving toward the solution. Keep a close correlation with how the positive outcome is tied to one of the steps the business took in determining the solution. For example, "Company ABC found that, according to market research, Company XYZ can not only solve the shipping problem now, but is able to handle the expected shipping needs for Company ABC for years to come." |Introduction: The ethics of auditing | Next | Introduction: The ethics of auditing Tom Campbell Accountancy and auditing are complex and technical processes. Ethics, in contrast, might be considered relatively simple. The difficult part of ethics, it may be argued, is not knowing what we ought to do, but getting ourselves, and others, to do the right thing. Truthfulness, honesty, care, loyalty, integrity: we know what they require, but we do not know if and how these requirements can be met. If this is indeed the case, and we want to promote ethical auditing, then we need to attract decent people into the profession, train them well, and not subject them to more temptation than they can cope with. Beyond that, all that is required is a code of ethics laying down minimum standards of professional conduct, with a complaints and disciplinary process to deal with any errant behaviour that comes to the attention of professional bodies, such as CPA Australia and the Institute of......

Words: 5555 - Pages: 23

Free Essay

Auditing It Infrastructures Compliance

...In the given table, you need to fill in the name of the laws, and correspondingly, fill the sector related to each law. You need to provide a rationale of compliance laws with which a public or a private organization may have to comply. |Compliance Laws |Description of Compliance Law |Rationale for Using this Law | | |This act is the result of public company account |Corporate accountability and responsibility act. | | |reform and investor protection act. | | | |This act mandate many reforms to enhance corporate | | |Sarbanes-Oxley Act (SOX) |responsibility, financial disclosure, and prevent | | | |fraud. | | |Health Insurance Portability and |Provides for helping citizens maintain their health |Health care | |Accountability Act (HIPPA) |insurance coverage. |Protection of health insurance coverage | | |Improves efficiency and effectiveness of the American...

Words: 414 - Pages: 2

Free Essay

Auditing and Compliance Lab 4

...vulnerable to SQL Injections. Malicious code writers have exploited these vulnerabilities to distribute malware so quick that the government cannot contain such a large quantity. 3. What does it mean to have a policy of Nondisclosure in an organization? It is a contract where the parties agree not to disclose information covered by the agreement. It outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to or by third parties. 4. What Trends were tracked when it came to Malicious Code in 2009 by the Symantec Report researched during this lab? DoS attacks are always common, however targeted attacks using advanced persistent threats (SPT) that occurred in 2009 made headlines. 5. What is Phishing? Describe what a typical Phishing attacks attempt to accomplish? Phishing is a term used to describe various scams that use fraudulent e-mail messages, sent by criminals, to trick you into divulging personal information. The criminals use this information to steal your identity, rob your bank account, or take over your computer. Counterfeit web sites, using “hijacked” company brands and logos, are created to lure you into revealing information you would not want to be public knowledge. 6. What is the Zero Day Initiative? Do you think this is valuable, and would you participate if you were the managing partner in a large firm? A program for rewarding......

Words: 1109 - Pages: 5

Premium Essay

Hmw Chapter 2 Auditing Principles

...withdrawal from the engagement or from both the engagement and the client relationship, and the reasons for the withdrawal. • Considering whether there is a professional, regulatory or legal requirement for the firm to remain in place, or for the firm to report the withdrawal from the engagement, or from both the engagement and the client relationship, together with the reasons for the withdrawal, to regulatory authorities. • Documenting significant issues, consultations, conclusions and the basis for the conclusions. Human Resources 36. The firm should establish policies and procedures designed to provide it with reasonable assurance that it has sufficient personnel with the capabilities, competence, and commitment to ethical principles necessary to perform its engagements in accordance with professional standards and regulatory and legal requirements, and to enable the firm or engagement partners to issue reports that are appropriate in the circumstances. 37. Such policies and procedures address the following personnel issues: • Recruitment; • Performance evaluation; • Capabilities; • Competence; • Career development; • Promotion; • Compensation; and • The estimation of personnel needs. Addressing these issues enables the firm to ascertain the number and characteristics of the individuals required for the firm’s engagements. The firm’s recruitment processes include procedures that help the firm select individuals of integrity with......

Words: 811 - Pages: 4

Premium Essay

Fundamental Principles of Environmental Science

...Fundamental Principles of Environmental Science Environmental science looks at nature and how introducing humans and their technology effects the environment (Your Dictionary, n.d.). A great example of this is the study of nature and how recycling effects the environment. This study could include what our current usage without recycling plastics historically has done to the environment and calculations on what that will look like in the future. Then, introducing recycling to determine what we could accomplish to diminish those effects. Environmental science is an important piece to study for our future as a planet and generations to come. Due to the findings from environmental science, we continue to strive for a more sustainable and efficient way of life. These findings have made the world aware of the detrimental effects of our consumption without taking any action. We have taken this knowledge and applied technology to provide solutions to the affects to the environment in today’s world. Some of the current concerns to our environment include global warming, creating clean energy, reviving the world’s oceans, preventing pollution and protecting endangered wildlife and places. We have diligently been working on solutions through technology for all of these concerns. When we look at global warming for instance, there are many things to consider that make the study and concept of environmental sustainability important. Global warming historically has resulted in...

Words: 573 - Pages: 3

Premium Essay

Fundamental Accounting Principles Mid-Term

...answers immediately under each question. Your exam must include both the given questions and your complete answers. The exam is worth 20% of your course grade. Your completed exam is due to the Assignment Drop Box by Sunday, July 12, at 10:00 p.m. 1. Problem #1 The equation to answer this questions is assets= liabilities+ owner's equity. Before the sale of the parcel of land is made, $60,000(what the seller still owed the bank on the land)+ $110,000(the amount of money the seller has invested into purchasing the land)= $170,000 (which is what the land was originally purchased for). (10 points) 2.Problem #2 (5 points) 3.1. D (going concern principle) 4.2. A (Business entity principle) 5.3. B (Objectivity principle) 6.4. C (Cost Principle) 7.5. E (Monetary unit principle) 3. 3. Problem #3(5 points) 4. 1. C (financing activity) 5. 2. A (operating activity) 6. 3. C (financing activity) 7. 4. B (investing activity) 8. 5. B (investing activity) 9. 6. A (operating activity) 10. 11. 12. 13. 14. 15.Austin Michael Dix 16. 4. Problem #4(15 points) 17. Hanson Storage 18. Adjusted Trial Balance 19. Cash....................................... $ 3,050 Acounts Receivable......................... 400 Prepaid Insurance.......................... ......

Words: 1574 - Pages: 7

Free Essay

Auditing Principles

...confidential data. At the very beginning of the twentieth century forensic accounting was not recognized as a separate practice area from auditing. As the passage of time, forensic accounting became a more distinct practice area. The development of computers and the internet caused forensic accounting to expand and become a separate field which deals with investigating activities and fraud protection rather than stating an opinion on whether or not the financial statements are in accordance with GAAP. Continually, auditors are focusing on the fair representation of financial statements and giving an opinion without an intent to search for detecting fraudulent activities. Forensic accounting as a part of the accounting profession was mentioned for the first time in early 1900’s. During its early phase it was believed that the auditor’s responsibility was to detect and prevent fraud. Since the very beginning, forensic accounting has been subject to constant changes as both accountants as well as the public tried to come up with defining the auditing profession. As the large corporations and many other businesses expanded and became more complicated to deal with, it became clearer that auditors would not be able to monitor the fraudulent activities as was initially planned. Therefore, forensic accounting started to expand and depart from auditing as the separate accounting field which started to face more challenges. By the passage of the Securities Act of 1933 and the......

Words: 981 - Pages: 4

Premium Essay

Principles of Auditing

... 2. Understand drivers for audit regulation. 3. Understand the role of public oversight. 4. Distinguish between different audit firms. 5. Identify some current developments in the audit market. 6. Portray the series of industry codes of conduct and guidance 2.2 Introduction The emergence of today’s auditors happened during the Industrial Revolution that started in Great Britain around 1780. This revolution led to the emergence of large industrial companies with complex bureaucratic structures and, gradually, the need to look for external funds in order to finance further expansion: the separation between capital provision and management. Both developments resulted in demand for the services of specialists in bookkeeping and in auditing internal and external financial representations. The institutionalization of the audit profession was then merely a matter of time. Management Controls Operations and Communications Management has control over the accounting systems and internal controls of the enterprises that auditors audit. Management is not only responsible for the financial and internal control reports to investors, but also has the authority to determine the precise nature of the representations that go into those reports. However, management can scarcely be expected to take an impartial view of this process. Communications to Stakeholders – the Financial Statements The financial statements measure the financial and non-financial performance and financial...

Words: 13100 - Pages: 53

Premium Essay

Lab 6: Auditing the Workstation Domain for Compliance

...Lab 6: Auditing the Workstation Domain for Compliance Question 1 – What are some common risks, threats, vulnerabilities commonly found in the Remote Access Domain that must be mitigated through a layered security strategy? a. Some common risks, threats, or vulnerabilities are company laptop stolen, software keyloggers being put on computers and having passwords and user accounts stolen, data leakage, and unauthorized access to the network. Question 2 – File-sharing utilities and client-to-client communication applications can provide the ability to share files with other users (i.e. Peer-to-Peer networking or Sharing). What risk and/or vulnerabilities are introduced with these applications? a. A lot of these are shared through clear text. If a user uses the same password for logging into one of these utilities as they do for their network login or any other data sensitive login the password can be easily compromised. Question 3 – Explain how confidentiality can be achieved within the Workstation Domain with security controls and security countermeasures. a. You can achieve this by using GPO’s and WMI filters. This will help push Workstation security policies to the computers such as if the computer is idle for more than 5 minutes it locks, or access to different parts of the computer like control panel are blocked. Question 4 – Explain how data integrity can be achieved within the Workstation Domain with security controls and security countermeasures. a. Security......

Words: 951 - Pages: 4

Premium Essay

Principles of Auditing

...There are numerous threats to auditor independence. Derived from Porter, Et Al (2014) - Firstly, Self-interest threat which are dangers that emerge from auditors acting to their own interest. Auditors may support, intentionally or intuitively, those self-intrigues over their enthusiasm for performing a quality review. The auditors’ relationship with bluebird limited creates a financial self-interest because they pay the auditors’ fees. Auditors also have a financial self-interest if they own stock in an auditee; as I have just inherited a 3% shareholding in bluebird, the quality of the audit may be lacking as a financial self interest may be obtained by me, for example excluding some pieces of vital information from the audit to serve my own financial interests. Another kind of threat, known as Self-review may be brought about. These are threats that emerge from inspectors inspecting their own particular work or the work done by others in their firm. It might be harder to assess without predisposition one's own particular work, or that of one's firm, than the work of another person or of some other firm. As the auditor has a 3% shareholding in bluebird, a self-review threat may arise if I was to review judgements and decisions I, or others within the firm, have made. Familiarity (or trust) threats are threats that emerge from auditors being impacted by a close association with an auditee. Such a risk is available when auditors are not adequately suspicious of an auditee's...

Words: 2616 - Pages: 11

Premium Essay

Ethics, Compliance Auditing, and Emerging Issues

...Ethics, Compliance Auditing, and Emerging Issues INTERNAL MEMO TO: John Doe CEO FROM: Glen Leonard RE: Ethics Program / Training /Compliance Auditing ------------------------------------------------- DATE: February 22, 2016 This memo serves as notice that we will soon initiate efforts to develop and implement an ethics program as well as the appropriate training and an effective way to monitor those plans. As you are aware, consumers and partners want to work with companies they can trust, and having a program that will build management skills and effectively structure business controls is a great way to become transparent and build that trust. Overall, an effective ethics and compliance program will protect the organization by identifying and preventing inappropriate conduct while promoting adherence to the legal and ethical responsibilities of the organization. The core components of the proposed ethics program will include: * Establishing Standards and Procedures – this will include code of conduct, policies and procedures * Training and Education, to ensure employees are trained on the code of conduct, policies and procedures and other programs and objectives that are relevant to the program * Monitoring, Auditing and Evaluation establishing a system to detect and prevent unethical conduct and to ensure the system is effective and being adhered to. To close, with the establishment of an effective ethics......

Words: 1669 - Pages: 7

Premium Essay

Compliance Auditing

...Project: Compliance Auditing | Final DraftAdvanced Auditing | | | | | OUTLINE I. Compliance Audits a. Objective, Scope, and Methodology b. Regulations II. Features & Benefits a. Assessment of overall security b. Exposures that create the greatest risk c. Internal Controls III. The Compliance Audit Process d. Interviews and Reviews e. Preparation f. Procedural Component IV. Conclusion Compliance Auditing Compliance auditing determines whether a process or transaction has or has not followed applicable rules. If rules are violated, the auditor determines the cause and recommends ways to prevent future deviations. The rules being tested can be those created by the organization for itself through corporate by-laws, policies, plans, and procedures; can be those imposed on the organization through external laws and regulations; or can be those external standards that the organization has chosen to follow. In addition Compliance auditors gather evidence regarding fraudulent or abusive activity affecting governmental entities. Their audits are designed to detect and deter the misappropriation of public assets and to reduce future fraud risks. (Associates, 2003) Compliance auditors must have the skills to research issues effectively using authoritative materials, understand how to apply the knowledge gained to the circumstances being tested, and be able to explain to the......

Words: 1780 - Pages: 8