Auditing Week 2 HW
a. Providing bookkeeping services to a public company.
The services were pre-approved by the audit
committee of the company.
b. Providing internal audit services to a public company
that is not an audit client.
c. Implementing a financial information system designed
by management for a private company.
d. Recommending a tax shelter to a client that is publicly
held. The services were pre-approved by the audit
e. Providing internal audit services to a public company
client with the pre-approval of the audit committee.
Sarah Milsaps has violated Rule 102 by not
requiring reasonable support for the deductions.
e. Rule 203 (Accounting Principles). Violation. This rule designates that
the International Accounting Standards Board (IASB) is the established
body for issuing international financial accounting standards.
Roberta Hernandez’s assertion that the financial statements are
based on international financial accounting standards would be in
violation of Rule 203 because she did not use standards issued by
f. Rules 101 (Independence) and 102 (Integrity and Objectivity).
Violation. Appearance of independence has been impaired by
Steve Custer’s agency’s financial dealing with his audit clients
and participation in a business, which impairs his objectivity. It is
also a conflict of duties to recommend his own firm to review the
adequacy of the existing insurance coverage of existing clients
g. Rule 301 - Confidential Client Information. Violation. The client
should have been notified that the review was to take place, and an
attempt should have been made to obtain the client's permission for
such review because the review was not a part of an AICPA, state
CPA society or Board of Accountancy review program. The firms
violated Rule 301 by not obtaining consent from the client for the
h. Rule 501 - Acts Discreditable. No violation. The rule is vague and the
interpretation would be made by the state Board of Accountancy. In
most states this will be a civil action and would not likely be a violation.
a. Violation of Rule 101 – When audit firms create a network with
other firms to share certain characteristics, such as the sharing of
audit methodologies and audit manuals, interpretations of Rule 101
require each network firm to be independent of audit and review
clients of other network firms. The ownership by Miller and Yancy
who are partners in one of the network firms in the stock of a client
of another network firm would impair independence.
b. Violation of Rule 501 – An interpretation of Rule 501 prohibits the
inclusion of indemnification clauses and other limitations of liability
provisions in engagement letters for audit and other attest services.
c. No violation – While Jennifer’s audit client has a material investment
in Polex, her non-dependent parents’ investment in Polex represents
an indirect financial interest that is not material to her parents or
d. No violation – Because Joe has no responsibilities for financial
reporting in his new role and because the audit firm modified audit
procedures to reduce the risk that Joe has knowledge of the audit
plan, independence would not be impaired.
e. Violation of Rule 101 – Interpretations and rulings under Rule 101
note that independence is impaired if billed or unbilled fees remain
unpaid for professional services provided more than one year
before the date of the auditor’s report. Because the report date for