Professional Judgment and Audit Independence Challenges

School: Lander University - Course: BUSINESS 304 - Subject: Accounting

Chapter 4 Cases Case 4-1 KBC Solutions There are 5 components of professional judgment that make up the KPMG Professional Judgement Framework which is similar to the ethical decision model in chapter 2. However, in the real-world professionals will deviate from this model due to pressures like we see in Grace's case. Grace felt the pressure of taking on her first audit case as a senior. Grace was able to clarify the issues and consider alternatives. However, she inadequately gathered and evaluated information in step 3 because of the time pressure to complete the audit and pressures from her team. She decided to accept that the accrue expenses were right based on management's judgements. Grace reached her conclusions in step 4 based on limited judgement and did not articulate and document rationale for step 5. Grace did not completely uphold her duty to the public interest because she didn't make her own judgements about certain aspect in the audit. She was competent enough to do so but didn't deal with the pressures surrounding the situation well. Rick has the ethical obligation to properly supervise the engagement and lead if there are in obstacles. He needs to make sure that competent and trained people are assigned to the engagement. Case 4-4 Threats to Audit Independence Katy's independence might be impaired due to her relationship with DGS and the fact that she and the CFO make joint investment decisions. DGS has been Katy's client for a while now and they have developed a friendship. However, under the most recent ruling under SEC, the auditors' objectivity is more important than the relationships auditors have with the companies they audit. This rule aims to modernize rules and shift the focus on the relationships that pose threats to objectivity. This SEC rule also moves away from the importance of the auditors' independences and focuses on the auditors' impartiality. Since DGS has been a long-time client of hers, Katy may be face with overconfidence bias which might lead her to underestimate risks and make hasty decisions without having all the necessary information. She might also be susceptible to deterministic bias meaning she will think this audit is predictable and that it will be the same as it is each year which could also lead to underestimating risks. Katy should definitely bring this subject up with the compliance partner she will be meeting with. She should be transparent as possible about her friendship with DGS and prove that it does not impair her objectivity and judgment. Relying on materiality to judge independence can be dangerous because it focuses on a dollar amount boundary and ignoring what could potentially be improper relationships. In the long

Expert's Answer

Your future, our responsibilty submit your task on time.

Order Now

Need Urgent Academic Assistance?

Get Professional Help at Low Prices!

*
*
*


*

TOP
Order Notification

[variable_1] from [variable_2] has just ordered [variable_3] Assignment [amount] minutes ago.