Ethics & Professional Responsibility - CPA Auditing and Attestation (AUD)

Under the AICPA code of professional conduct, the responsibility principle refers to maintaining public trust.

Under the AICPA code of professional conduct, the “scope and nature of services” principle requires that practitioners work in firms that maintain appropriate quality control procedures.

The General Standards Rule of the AICPA Code of Professional Conduct states that the auditor must have adequate technical training as an auditor.

A CPA must maintain objectivity and integrity in the performance of any professional service.

PCAOB procedures are to be obeyed for public company engagements. In addition to professional competence, there is due professional care, planning and supervision, and sufficient relevant data.

The GAO professional framework includes the application of appropriate safeguards. As stated under Governmental Accounting Standards section 3.08, “Auditors should apply the conceptual framework at the audit organization, audit, and individual auditor levels to apply safeguards as necessary to eliminate the threats or reduce them to an acceptable level.”

The partner's investment in government bonds of a governmental client creates a financial threat. This threat falls under the self-interest threat as expressed in the GAO Conceptual Framework Standards: “Self-interest threat - the threat that a financial or other interest will inappropriately influence an auditor’s judgment or behavior.”

Internal auditors that are accountable to the government agency head are considered independent for internal reporting purposes. Under section 3.31 of GAGAS; “Certain entities employ auditors to work for entity management. These auditors may be subject to administrative direction from persons involved in the entity management process. Such audit organizations are internal audit functions and are encouraged to use the Institute of Internal Auditors (IIA) International Standards for the Professional Practice of Internal Auditing in conjunction with GAGAS. In accordance with GAGAS, internal auditors who work under the direction of the audited entity’s management are considered independent.”

GAGAS ethics do not include specific references to fraud detection. Ethics covers the public interest, integrity, and proper usage of information.

The self-interest threat is that a financial or other interest will influence an auditor's judgment or behavior inappropriately.

The undue influence threat relates to how an external factor can impact an auditor's independence.

According to PCAOB guidelines: “During the period of the professional engagement, a partner or professional employee of the firm, his or her immediate family, or any group of such persons acting together owned more than 5 percent of a client’s outstanding equity securities or other ownership interests.”

Under AICPA and PCAOB guidelines, independence is impaired by an employment arrangement with a client. Under ET Section 100: Participated on the attest engagement team or was an individual in a position to influence the attest engagement for the client when the attest engagement covers any period that includes his or her former employment or association with that client.”

Under PCAOB standards for public companies, an audit lead is required to rotate every five years. The guidance provided by the PCAOB includes the following: “Auditors have many rigorous standards that must be upheld that are supposed to create independence from the companies they audit. One of the most important is the mandatory lead rotation every five years. This is a much more cost-effective way of increasing independence between auditors and clients. When the lead auditor changes, they must “start from scratch” with their client, which means no longstanding relationship is intact. In addition, the audit firm will have to spend less time on the audit than if it were an entirely new company, which saves massive amounts of time, and most importantly, money.”

SOX and SEC rules prohibit an accounting firm from auditing an issuer's financial statements if certain members of management of the issuer had been members of the firm's audit engagement team within the one year period preceding the beginning of audit procedures. These positions include CEO, CFO, and controller.

Registered firms are required to maintain these work papers for a period of 7 years.

Only a public company or issuer would have to obey these procedures.