Principles of Auditing & Other Assurance Services Chapter 3 Exam Bank Solution Manual Already Passed

Principles of Auditing & Other Assurance Services Chapter 3 Exam Bank Solution Manual Already Passed Acceptable level of risk of noncompliance - Answers A situation in which a reasonable and informed third party who is aware of the relevant information would be expected to conclude that a member's ability to comply with the rules is not compromised. For independence, this is referred to as the acceptable level of risk to independence. Attest engagement team - Answers Consists of individuals participating in the attest engagement, including those who perform concurring and second partner reviews. The attest engagement team includes all employees and contractors retained by the firm who participate in the attest engagement, irrespective of their functional classification (for example, audit, tax, or management consulting services), except specialists as discussed in the professional standards and individuals who perform only routine clerical functions, such as word processing and photocopying. Audit committee - Answers A committee of a corporation's board of directors that engages, compensates, and oversees the work of the independent auditors, monitors activities of the internal auditing staff, and intervenes in any disputes between management and the independent auditors. Members of the audit committee must be independent directors, that is, members of the board of directors who do not also serve as corporate officers or have other relationships that might impair independence. Close relative - Answers A parent, sibling, or nondependent child. Covered member - Answers A covered member may be (a) an individual on the attest engagement team; (b) an individual in a position to influence the attest engagement; (c) a partner, partner equivalent, or manager who provides nonattest services to the attest client beginning once he or she provides 10 hours of nonattest services to the client within any fiscal year and ending on the latter of the date (1) the firm signs the report on the financial statements for the fiscal year during which those services were provided, or (2) he or she no longer expects to provide 10 or more hours of nonattest services to the attest client on a recurring basis; (d) a partner or partner equivalent in the office in which the lead attest engagement partner or partner equivalent primarily practices in connection with the attest engagement; (e) the firm, including the firm's employee benefit plans; or (f) an entity whose operating, financial, or accounting policies can be controlled by any of the individuals or entities described in (a) through (e) or by two or more such individuals or entities if they act together. Direct financial interest - Answers A personal investment under the direct control of the investor. The Code of Professional Conduct prohibits CPAs from having any direct financial interests in their attest clients. Investments made by a CPA's spouse or dependents also are regarded as direct financial interests of the CPA. Ethical conflict - Answers An ethical dilemma. As defined in the AICPA Code of Professional Conduct, a situation in which an individual encounters obstacles in deciding an appropriate course of action due to internal or ethical pressures or when conflicts exist in applying relevant professional standards, to legal standards, or both. Ethical dilemma - Answers Also referred to as a moral dilemma or ethical conflict, is a situation in which there is a choice to be made between two options, neither of which resolves the situation in an ethically acceptable fashion. To follow one option makes it impossible to follow the other option. Financial Interest - Answers An ownership interest in an equity or a debt security issued by an entity, including the rights and obligations to acquire such an interest and derivatives directly related to such interest. See also direct financial interest and indirect financial interest. Immediate family member - Answers A spouse, spousal equivalent, or dependent (whether or not related). Impaired independence - Answers When independence is effectively extinguished. That, is when an auditor's independence is impaired, that auditor is not independent. Independence - Answers Independence includes two concepts—independence of mind and independence in appearance. Independence in appearance - Answers The avoidance of circumstances that would cause a reasonable and informed third party, having knowledge of all relevant information, including safeguards applied, to reasonably conclude that the integrity, objectivity, or professional skepticism of a firm or a member of the attest engagement team has been compromised. Independence of mind - Answers The state of mind that permits the performance of an attest service without being affected by influences that compromise professional judgment, thereby allowing an individual to act with integrity and exercise objectivity and professional skepticism.