Solution Manual for Auditing Canadian 7th Edition
Smieliauskas Bewley
CHAPTER 2 g;
Auditors’ Professional Roles and Responsibilities
g; g; g; g;
SOLUTIONS g;FOR g;REVIEW g;CHECKPOINTS
g; ESSENTIALS
2-1. Since g;auditing g;is g;a g;critical g;function g;in g;the g;economy, g;it g;is g;extensively g;regulated g;to g;ensure g;it g;remains
g;effective. g;In g;Canada, g;the g;regulation g;of g;professional g;accountants g;and g;auditors g;is g;a g;provincial g;responsibility,
g;and g;varies g;somewhat g;depending g;on g;the g;legislation g;in g;different g;provinces. g;The g;profession g;also g;has g;a
g;national g;umbrella g;organization g;that g;all g;provincial g;organizations g;are g;associated g;with. g;At g;the g;time g;of
g;writing, g;the g;profession g;is g;being g;streamlined g;at g;both g;the g;national g;and g;provincial g;levels g;by g;uniting g;three
g;formerly g;separate g;accounting g;designations g;(CA, g;CGA, g;CMA) g;into g;a g;single g;designation g;for g;Canadian
g;professional g;accountants, g;the g;“CPA” g;(Chartered g;Professional g;Accountant). g;The g;national g;umbrella
g;organization g;is g;CPA-Canada, g;and g;there g;are g;counterpart g;CPA g;associations g;in g;each g;province g;(e.g., g;CPA-
Saskatchewan) g;and g;territory.
2-2. When g;an g;accountant g;provides g;auditing g;and g;assurance g;services g;for g;use g;by g;the g;general g;public, g;this g;is
g;referred g;to g;as g;‘public g;accounting’. g;Public g;accounting g;is g;distinct g;from g;many g;other g;types g;of g;accounting-
related g;work g;that g;do g;not g;produce g;information g;that g;the g;general g;public g;will g;use g;and g;possibly g;rely g;on,
g;such g;as g;bookkeeping g;and g;financial g;statement g;and g;tax g;preparation g;for g;individuals g;or g;private g;companies.
g;Since g;a g;person g;from g;the g;general g;public g;may g;not g;be g;able g;to g;assess g;whether g;an g;accountant g;is g;properly
g;qualified g;and g;regulated g;to g;act g;in g;their g;best g;interest, g;to g;practice g;public g;accounting g;a g;person g;will g;meet
g;higher g;standards g;than g;are g;required g;to g;do g;other g;types g;of g;non-public g;accounting g;work. g;Generally, g;a
g;public g;accountant g;in g;Canada g;must g;have g;a g;CPA g;designation, g;and g;in g;many g;(most) g;provinces g;of g;Canada
g;must g;obtain g;further g;qualification g;and g;licensing g;(e.g., g;in g;Ontario, g;from g;the g;Public g;Accountants’ g;Council g;of
g;Ontario). g;In g;the g;case g;of g;public g;accounting g;that g;involves g;auditing g;publicly-traded g;companies' g;financial
g;statements, g;securities g;laws g;require g;the g;public g;accounting g;firm g;to g;be g;registered g;with g;the g;Canadian
g;Public g;Accountability g;Board g;(CPAB). g;CPAB g;will g;inspect g;their g;financial g;statement g;audit g;work g;on g;public
g;companies g;annually g;to g;provide g;the g;highest g;level g;of g;public g;protection, g;since g;these g;companies g;can g;sell
g;their g;securities g;directly g;to g;the g;public.
2-3. Members g;of g;a g;CPA g;association g;are g;required g;to g;comply g;with g;the g;professional g;ethics g;code g;of g;their
g;provincial g;association. g;Every g;ethics g;code g;has g;five g;similar g;components, g;requiring g;the g;member: g;to g;act g;with
g;integrity; g;to g;remain g;objective; g;to g;maintain g;the g;professional g;competencies g;their g;work g;requires g;and g;to g;do
g;their g;work g;with g;appropriate g;‘due’ g;care; g;to g;keep g;confidential g;all g;information g;they g;acquire g;through g;their
g;professional g;work, g;and; g;to g;behave g;professionally g;in g;a g;way g;that g;befits g;a g;well-respected g;profession.
2-4. g ; g ; In g;public g;accounting g;engagements, g;CPAs g;must g;demonstrate g;they g;can g;be g;objective g;by g;remaining
independent g;of g;any g;potentially g;conflicting g;interests, g;which g;includes g;being g;independent g;in g;fact g;and g;also
g;
g;independent g;as g;it g;would g;appear g;to g;an g;outsider.
,2-5. Independence g;in g;fact g;means g;the g;auditor g;maintains g;an g;objective g;perspective g;in g;doing g;his g;or g;her g;work g;- g;this
g;frame g;of g;mind g;is g;essential g;to g;performing g;an g;assurance g;role g;effectively, g;however g;it g;is g;not g;visible g;(or
g;provable) g;to g;outsiders. g;The g;auditor's g;independence g;must g;also g;be g;apparent g;to g;outsiders g;for g;them g;to
g;believe g;the g;auditor's g;opinion g;is g;in g;fact g;independent. g;Outsiders g;must g;see g;evidence g;that g;the g;CPA g;has g;no
g;financial g;or g;other g;interest g;that g;would g;cause g;them g;to g;act g;in g;a g;biased g;way, g;rather g;than g;in g;the g;outside
g;user’s g;best g;interest.
2-6. The g;professional g;ethics g;codes g;for g;accountants g;identify g;five g;situations g;that g;can g;arise g;in g;a g;three-party
g;accountability g;relationship g;and, g;if g;they g;exist, g;can g;threaten g;an g;auditor’s g;independence: g;self-review, g;self-
interest, g;advocacy, g;familiarity g;and g;intimidation. g;An g;important g;theme g;here g;is g;that g;even g;in g;their g;public
g;interest g;role, g;an g;auditor g;is g;still g;just g;a g;human g;being, g;and g;vulnerable g;to g;the g;usual g;human g;weaknesses
g;and g;failings. g;The g;independence g;guidance
Smieliauskas g;& g;Bewley, g;Auditing: g;An g;International g;Approach, g;7th g;Edition Page g;2-
1 g;Solutions g;Manual © g;2016, g;McGraw-Hill g;Education. g;All g;Rights
g; Reserved.
, attempts g;to g;bring g;these g;potential g;weaknesses g;to g;light, g;so g;auditors g;will g;have g;a g;better g;chance g;of g;seeing
g;when g;they g;might g;be g;failing g;to g;remain g;impartial. g;A g;self-review g;threat g;means g;the g;auditor g;is g;checking
g;his/her g;own g;work; g;in g;this g;case g;s/he g;cannot g;provide g;the g;critical, g;independent g;perspective g;that g;a g;user
g;(third g;party) g;would g;expect. g;With g;a g;self- g;interest g;threat, g;the g;auditor g;has g;something g;personal g;to g;gain g;and
g;so g;is g;not g;free g;to g;do g;what g;is g;in g;the g;user's g;best g;interest g;- g;in g;that g;case g;his/her g;opinion g;will g;not g;meet g;the
g;user's g;needs. g;With g;an g;advocacy g;threat, g;the g;auditor g;has g;taken g;a g;personal g;stand g;in g;support g;of g;the g;first
g;party's g;positions, g;so g;they g;are g;invested g;in g;that g;and g;will g;have g;a g;hard g;time g;seeing g;objectively g;whether g;the
g;position g;they g;publicly g;supported g;is g;wrong g;- g;again g;the g;auditor g;is g;not g;free g;to g;act g;in g;the g;user's g;best
g;interest. g;With g;a g;familiarity g;threat, g;the g;auditor g;is g;too g;friendly g;and g;close g;to g;the g;first g;party g;and g;that g;makes
g;it g;more g;difficult g;for g;the g;auditor g;to g;suspect g;or g;believe g;that g;this g;well-known g;person g;would g;do g;anything
g;wrong, g;or g;act g;against g;the g;best g;interests g;of g;the g;third g;party. g;In g;the g;case g;of g;an g;intimidation g;threat, g;the
g;auditor g;is g;facing g;personal g;risk g;and g;naturally g;must g;put g;their g;own g;critical g;interests g;first, g;before g;they g;can
g;meet g;their g;professional g;responsibilities. g;In g;an g;intimidation g;threat g;situation, g;an g;auditor g;would g;need g;to
g;seek g;legal g;advice g;on g;how g;best g;to g;protect g;him/herself g;without g;violating g;their g;professional g;duties.
2-7. g ; g ; Financial g;statement g;audits g;are g;required g;in g;various g;laws. g;Corporation g;laws g;require g;companies g;to
g;produce g;audited g;annual g;financial g;statements g;(though g;private g;and g;smaller g;companies g;sometimes g;can
g;waive g;this g;requirement), g;and g;securities g;laws g;require g;public g;companies g;to g;file g;audited g;financial
g;statements g;within g;90 g;days g;of g;their g;year g;end.
2-8. The g;professional g;ethics g;codes g;incorporate g;professional g;accounting g;and g;auditing g;standards, g;making g;compliance
g;with g;these g;standards g;the g;bottom-line g;professional g;responsibility g;of g;professional g;accountants. g;CPA
g;members g;meet g;the g;ethical g;requirements g;of g;professional g;competency g;and g;due g;care g;in g;performance g;their
g;work g;by g;complying g;with g;requirements g;of g;the g;CPA-Canada g;standards g;for g;accounting g;(generally g;accepted
g;accounting g;principles, g;GAAP, g;e.g., g;ASPE g;or g;IFRS) g;and g;auditing g;(generally g;accepted g;auditing g;standards,
g;GAAS: g;CAS).
2-9. The g;overall g;objectives g;of g;a g;financial g;statement g;audit g;are g;stated g;in g;Canadian g;Auditing g;Standards g;(CAS) g;in
g;the g;CPA- g;Canada g;Assurance g;Handbook, g;in g;CAS g;200, g;“Overall g;Objective g;of g;the g;Independent g;Auditor, g;and
g;the g;Conduct g;of g;the g;Audit g;in g;Accordance g;with g;Canadian g;Auditing g;Standards” g;CAS g;states g;a g;financial
g;statement g;auditor's g;overall g;objectives g;are: g;(a) g;To g;obtain g;reasonable g;assurance g;about g;whether g;the
g;financial g;statements g;as g;a g;whole g;are g;free g;from g;material g;misstatement, g;whether g;due g;to g;fraud g;or g;error,
g;thereby g;enabling g;the g;auditor g;to g;express g;an g;opinion g;on g;whether g;the g;financial g;statements g;are g;prepared,
g;in g;all g;material g;respects, g;in g;accordance g;with g;an g;applicable g;financial g;reporting g;framework; g;and g;(b) g;To
g;report g;on g;the g;financial g;statements, g;and g;communicate g;as g;required g;by g;the g;ISAs, g;in g;accordance g;with g;the
g;auditor’s g;findings. g;CAS g;200 g;also g;sets g;out g;principles g;and g;fundamental g;concepts g;that g;underlie g;the g;auditing
g;function.
2-10. g ; Self-regulation g;refers g;to g;the g;powers g;a g;professional g;group g;has g;in g;regulating g;its g;affairs g;without
g ;
g;intervention g;by g;a g;government g;or g;a g;government g;established g;external g;regulator. g;These g;affairs g;include
g;setting g;of g;standards, g;codes g;of g;conduct, g;education g;requirements, g;certification, g;and g;disciplining g;of
g;members.
Since g;the g;failure g;of g;Enron g;in g;2001, g;there g;has g;been g;increased g;involvement g;by g;outside g;agencies g;in g;the
g;monitoring g;of g;the g;audit g;function. g;Auditing g;is g;increasingly g;viewed g;as g;a g;key g;pillar g;in g;capital g;markets,
g;along g;with g;regulators g;and g;good g;governance g;practices. g;As g;a g;result g;external g;regulation g;of g;the g;profession
g;has g;been g;increasing. g;In g;Canada, g;this g;has g;taken g;the g;form g;of g;increased g;monitoring g;of g;auditors g;of g;public
g;companies g;via g;CPAB. g;CPAB g;however g;does g;not g;have g;the g;power g;to g;create g;audit g;and g;ethics g;standards g;as
g;does g;the g;PCAOB g;in g;the g;U.S. g;Nevertheless, g;both g;CPAB g;and g;PCAOB g;are g;increasingly g;assertive g;monitoring
g;the g;quality g;of g;audit g;practice g;and g;sanctioning g;auditors g;who g;do g;not g;meet g;their g;expectations. g;A g;major
g;focus g;of g;inspections g;by g;CPAB g;and g;PCAOB g;is g;the g;quality g;of g;the g;audit. g;Quality g;generally g;refers g;to g;degree
g;of g;conformity g;with g;standards g;and g;nature g;of g;procedures g;performed g;and g;their g;documentation.
g;"Procedures" g;relate g;to g;acts g;to g;be g;performed. g;"Standards" g;deal g;with g;measures g;of g;the g;quality g;of
g;performance g;of g;those g;acts g;and g;the g;objectives g;to g;be g;attained g;by g;the g;use g;of g;procedures. g;The g;standards
Smieliauskas & Bewley, Auditing: An International Approach, 7th Edition Page 2-2
Solutions Manual © 2016, McGraw-Hill Education. All Rights Reserved.
, g;are g;less g;subject g;to g;change. g;The g;standards g;provide g;the g;criteria g;for g;rejecting, g;accepting, g;or g;modifying g;a
g;procedure g;in g;a g ; given g;circumstance. g;An g;example g;of g;the g;relative g;stability g;of g;standards g;and g;procedures g;is
g;found g;in g;the g;change g;from g;non- g;EDP g;to g;EDP g;systems. g;New g;procedures g;were g;required g;to g;audit g;EDP
g;systems, g;but g;auditing g;standards g;remained g;unchanged g;and g;were g;the g;criteria g;for g;determining g;the
g;adequacy g;of g;the g;new g;procedures.
Smieliauskas & Bewley, Auditing: An International Approach, 7th Edition Page 2-3
Solutions Manual © 2016, McGraw-Hill Education. All Rights Reserved.
Smieliauskas Bewley
CHAPTER 2 g;
Auditors’ Professional Roles and Responsibilities
g; g; g; g;
SOLUTIONS g;FOR g;REVIEW g;CHECKPOINTS
g; ESSENTIALS
2-1. Since g;auditing g;is g;a g;critical g;function g;in g;the g;economy, g;it g;is g;extensively g;regulated g;to g;ensure g;it g;remains
g;effective. g;In g;Canada, g;the g;regulation g;of g;professional g;accountants g;and g;auditors g;is g;a g;provincial g;responsibility,
g;and g;varies g;somewhat g;depending g;on g;the g;legislation g;in g;different g;provinces. g;The g;profession g;also g;has g;a
g;national g;umbrella g;organization g;that g;all g;provincial g;organizations g;are g;associated g;with. g;At g;the g;time g;of
g;writing, g;the g;profession g;is g;being g;streamlined g;at g;both g;the g;national g;and g;provincial g;levels g;by g;uniting g;three
g;formerly g;separate g;accounting g;designations g;(CA, g;CGA, g;CMA) g;into g;a g;single g;designation g;for g;Canadian
g;professional g;accountants, g;the g;“CPA” g;(Chartered g;Professional g;Accountant). g;The g;national g;umbrella
g;organization g;is g;CPA-Canada, g;and g;there g;are g;counterpart g;CPA g;associations g;in g;each g;province g;(e.g., g;CPA-
Saskatchewan) g;and g;territory.
2-2. When g;an g;accountant g;provides g;auditing g;and g;assurance g;services g;for g;use g;by g;the g;general g;public, g;this g;is
g;referred g;to g;as g;‘public g;accounting’. g;Public g;accounting g;is g;distinct g;from g;many g;other g;types g;of g;accounting-
related g;work g;that g;do g;not g;produce g;information g;that g;the g;general g;public g;will g;use g;and g;possibly g;rely g;on,
g;such g;as g;bookkeeping g;and g;financial g;statement g;and g;tax g;preparation g;for g;individuals g;or g;private g;companies.
g;Since g;a g;person g;from g;the g;general g;public g;may g;not g;be g;able g;to g;assess g;whether g;an g;accountant g;is g;properly
g;qualified g;and g;regulated g;to g;act g;in g;their g;best g;interest, g;to g;practice g;public g;accounting g;a g;person g;will g;meet
g;higher g;standards g;than g;are g;required g;to g;do g;other g;types g;of g;non-public g;accounting g;work. g;Generally, g;a
g;public g;accountant g;in g;Canada g;must g;have g;a g;CPA g;designation, g;and g;in g;many g;(most) g;provinces g;of g;Canada
g;must g;obtain g;further g;qualification g;and g;licensing g;(e.g., g;in g;Ontario, g;from g;the g;Public g;Accountants’ g;Council g;of
g;Ontario). g;In g;the g;case g;of g;public g;accounting g;that g;involves g;auditing g;publicly-traded g;companies' g;financial
g;statements, g;securities g;laws g;require g;the g;public g;accounting g;firm g;to g;be g;registered g;with g;the g;Canadian
g;Public g;Accountability g;Board g;(CPAB). g;CPAB g;will g;inspect g;their g;financial g;statement g;audit g;work g;on g;public
g;companies g;annually g;to g;provide g;the g;highest g;level g;of g;public g;protection, g;since g;these g;companies g;can g;sell
g;their g;securities g;directly g;to g;the g;public.
2-3. Members g;of g;a g;CPA g;association g;are g;required g;to g;comply g;with g;the g;professional g;ethics g;code g;of g;their
g;provincial g;association. g;Every g;ethics g;code g;has g;five g;similar g;components, g;requiring g;the g;member: g;to g;act g;with
g;integrity; g;to g;remain g;objective; g;to g;maintain g;the g;professional g;competencies g;their g;work g;requires g;and g;to g;do
g;their g;work g;with g;appropriate g;‘due’ g;care; g;to g;keep g;confidential g;all g;information g;they g;acquire g;through g;their
g;professional g;work, g;and; g;to g;behave g;professionally g;in g;a g;way g;that g;befits g;a g;well-respected g;profession.
2-4. g ; g ; In g;public g;accounting g;engagements, g;CPAs g;must g;demonstrate g;they g;can g;be g;objective g;by g;remaining
independent g;of g;any g;potentially g;conflicting g;interests, g;which g;includes g;being g;independent g;in g;fact g;and g;also
g;
g;independent g;as g;it g;would g;appear g;to g;an g;outsider.
,2-5. Independence g;in g;fact g;means g;the g;auditor g;maintains g;an g;objective g;perspective g;in g;doing g;his g;or g;her g;work g;- g;this
g;frame g;of g;mind g;is g;essential g;to g;performing g;an g;assurance g;role g;effectively, g;however g;it g;is g;not g;visible g;(or
g;provable) g;to g;outsiders. g;The g;auditor's g;independence g;must g;also g;be g;apparent g;to g;outsiders g;for g;them g;to
g;believe g;the g;auditor's g;opinion g;is g;in g;fact g;independent. g;Outsiders g;must g;see g;evidence g;that g;the g;CPA g;has g;no
g;financial g;or g;other g;interest g;that g;would g;cause g;them g;to g;act g;in g;a g;biased g;way, g;rather g;than g;in g;the g;outside
g;user’s g;best g;interest.
2-6. The g;professional g;ethics g;codes g;for g;accountants g;identify g;five g;situations g;that g;can g;arise g;in g;a g;three-party
g;accountability g;relationship g;and, g;if g;they g;exist, g;can g;threaten g;an g;auditor’s g;independence: g;self-review, g;self-
interest, g;advocacy, g;familiarity g;and g;intimidation. g;An g;important g;theme g;here g;is g;that g;even g;in g;their g;public
g;interest g;role, g;an g;auditor g;is g;still g;just g;a g;human g;being, g;and g;vulnerable g;to g;the g;usual g;human g;weaknesses
g;and g;failings. g;The g;independence g;guidance
Smieliauskas g;& g;Bewley, g;Auditing: g;An g;International g;Approach, g;7th g;Edition Page g;2-
1 g;Solutions g;Manual © g;2016, g;McGraw-Hill g;Education. g;All g;Rights
g; Reserved.
, attempts g;to g;bring g;these g;potential g;weaknesses g;to g;light, g;so g;auditors g;will g;have g;a g;better g;chance g;of g;seeing
g;when g;they g;might g;be g;failing g;to g;remain g;impartial. g;A g;self-review g;threat g;means g;the g;auditor g;is g;checking
g;his/her g;own g;work; g;in g;this g;case g;s/he g;cannot g;provide g;the g;critical, g;independent g;perspective g;that g;a g;user
g;(third g;party) g;would g;expect. g;With g;a g;self- g;interest g;threat, g;the g;auditor g;has g;something g;personal g;to g;gain g;and
g;so g;is g;not g;free g;to g;do g;what g;is g;in g;the g;user's g;best g;interest g;- g;in g;that g;case g;his/her g;opinion g;will g;not g;meet g;the
g;user's g;needs. g;With g;an g;advocacy g;threat, g;the g;auditor g;has g;taken g;a g;personal g;stand g;in g;support g;of g;the g;first
g;party's g;positions, g;so g;they g;are g;invested g;in g;that g;and g;will g;have g;a g;hard g;time g;seeing g;objectively g;whether g;the
g;position g;they g;publicly g;supported g;is g;wrong g;- g;again g;the g;auditor g;is g;not g;free g;to g;act g;in g;the g;user's g;best
g;interest. g;With g;a g;familiarity g;threat, g;the g;auditor g;is g;too g;friendly g;and g;close g;to g;the g;first g;party g;and g;that g;makes
g;it g;more g;difficult g;for g;the g;auditor g;to g;suspect g;or g;believe g;that g;this g;well-known g;person g;would g;do g;anything
g;wrong, g;or g;act g;against g;the g;best g;interests g;of g;the g;third g;party. g;In g;the g;case g;of g;an g;intimidation g;threat, g;the
g;auditor g;is g;facing g;personal g;risk g;and g;naturally g;must g;put g;their g;own g;critical g;interests g;first, g;before g;they g;can
g;meet g;their g;professional g;responsibilities. g;In g;an g;intimidation g;threat g;situation, g;an g;auditor g;would g;need g;to
g;seek g;legal g;advice g;on g;how g;best g;to g;protect g;him/herself g;without g;violating g;their g;professional g;duties.
2-7. g ; g ; Financial g;statement g;audits g;are g;required g;in g;various g;laws. g;Corporation g;laws g;require g;companies g;to
g;produce g;audited g;annual g;financial g;statements g;(though g;private g;and g;smaller g;companies g;sometimes g;can
g;waive g;this g;requirement), g;and g;securities g;laws g;require g;public g;companies g;to g;file g;audited g;financial
g;statements g;within g;90 g;days g;of g;their g;year g;end.
2-8. The g;professional g;ethics g;codes g;incorporate g;professional g;accounting g;and g;auditing g;standards, g;making g;compliance
g;with g;these g;standards g;the g;bottom-line g;professional g;responsibility g;of g;professional g;accountants. g;CPA
g;members g;meet g;the g;ethical g;requirements g;of g;professional g;competency g;and g;due g;care g;in g;performance g;their
g;work g;by g;complying g;with g;requirements g;of g;the g;CPA-Canada g;standards g;for g;accounting g;(generally g;accepted
g;accounting g;principles, g;GAAP, g;e.g., g;ASPE g;or g;IFRS) g;and g;auditing g;(generally g;accepted g;auditing g;standards,
g;GAAS: g;CAS).
2-9. The g;overall g;objectives g;of g;a g;financial g;statement g;audit g;are g;stated g;in g;Canadian g;Auditing g;Standards g;(CAS) g;in
g;the g;CPA- g;Canada g;Assurance g;Handbook, g;in g;CAS g;200, g;“Overall g;Objective g;of g;the g;Independent g;Auditor, g;and
g;the g;Conduct g;of g;the g;Audit g;in g;Accordance g;with g;Canadian g;Auditing g;Standards” g;CAS g;states g;a g;financial
g;statement g;auditor's g;overall g;objectives g;are: g;(a) g;To g;obtain g;reasonable g;assurance g;about g;whether g;the
g;financial g;statements g;as g;a g;whole g;are g;free g;from g;material g;misstatement, g;whether g;due g;to g;fraud g;or g;error,
g;thereby g;enabling g;the g;auditor g;to g;express g;an g;opinion g;on g;whether g;the g;financial g;statements g;are g;prepared,
g;in g;all g;material g;respects, g;in g;accordance g;with g;an g;applicable g;financial g;reporting g;framework; g;and g;(b) g;To
g;report g;on g;the g;financial g;statements, g;and g;communicate g;as g;required g;by g;the g;ISAs, g;in g;accordance g;with g;the
g;auditor’s g;findings. g;CAS g;200 g;also g;sets g;out g;principles g;and g;fundamental g;concepts g;that g;underlie g;the g;auditing
g;function.
2-10. g ; Self-regulation g;refers g;to g;the g;powers g;a g;professional g;group g;has g;in g;regulating g;its g;affairs g;without
g ;
g;intervention g;by g;a g;government g;or g;a g;government g;established g;external g;regulator. g;These g;affairs g;include
g;setting g;of g;standards, g;codes g;of g;conduct, g;education g;requirements, g;certification, g;and g;disciplining g;of
g;members.
Since g;the g;failure g;of g;Enron g;in g;2001, g;there g;has g;been g;increased g;involvement g;by g;outside g;agencies g;in g;the
g;monitoring g;of g;the g;audit g;function. g;Auditing g;is g;increasingly g;viewed g;as g;a g;key g;pillar g;in g;capital g;markets,
g;along g;with g;regulators g;and g;good g;governance g;practices. g;As g;a g;result g;external g;regulation g;of g;the g;profession
g;has g;been g;increasing. g;In g;Canada, g;this g;has g;taken g;the g;form g;of g;increased g;monitoring g;of g;auditors g;of g;public
g;companies g;via g;CPAB. g;CPAB g;however g;does g;not g;have g;the g;power g;to g;create g;audit g;and g;ethics g;standards g;as
g;does g;the g;PCAOB g;in g;the g;U.S. g;Nevertheless, g;both g;CPAB g;and g;PCAOB g;are g;increasingly g;assertive g;monitoring
g;the g;quality g;of g;audit g;practice g;and g;sanctioning g;auditors g;who g;do g;not g;meet g;their g;expectations. g;A g;major
g;focus g;of g;inspections g;by g;CPAB g;and g;PCAOB g;is g;the g;quality g;of g;the g;audit. g;Quality g;generally g;refers g;to g;degree
g;of g;conformity g;with g;standards g;and g;nature g;of g;procedures g;performed g;and g;their g;documentation.
g;"Procedures" g;relate g;to g;acts g;to g;be g;performed. g;"Standards" g;deal g;with g;measures g;of g;the g;quality g;of
g;performance g;of g;those g;acts g;and g;the g;objectives g;to g;be g;attained g;by g;the g;use g;of g;procedures. g;The g;standards
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Solutions Manual © 2016, McGraw-Hill Education. All Rights Reserved.
, g;are g;less g;subject g;to g;change. g;The g;standards g;provide g;the g;criteria g;for g;rejecting, g;accepting, g;or g;modifying g;a
g;procedure g;in g;a g ; given g;circumstance. g;An g;example g;of g;the g;relative g;stability g;of g;standards g;and g;procedures g;is
g;found g;in g;the g;change g;from g;non- g;EDP g;to g;EDP g;systems. g;New g;procedures g;were g;required g;to g;audit g;EDP
g;systems, g;but g;auditing g;standards g;remained g;unchanged g;and g;were g;the g;criteria g;for g;determining g;the
g;adequacy g;of g;the g;new g;procedures.
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Solutions Manual © 2016, McGraw-Hill Education. All Rights Reserved.
