AP4.3 (LO 1) Challenging ur int audit procedures related to client noncompliance
ID: 2332185 • Letter: A
Question
AP4.3 (LO 1) Challenging ur int audit procedures related to client noncompliance with laws and regulations. You of your research to the other interns in your training class. Noncompliance with laws and regulations As part of ern training at a large public accounting firm, you have been asked to conduct research about will report the findings Required Go to www.aicpa.org/research/standards to access the Clarified Statemen Navigate to AU-C 250 and answer the following questions: ts on Auditing Standards. a. What might be indicators that a client has committed an illegal act? b. What are some specific procedures the auditor can use to obtain an understanding of an identified or suspected illegal act? c. In what situations might an auditor have a duty to notify external parties about a client's noncom- pliance with laws and regulations?Explanation / Answer
a. Indicators that a client may have committed an illegal act are as below:
1. Investigations by regulatory organizations or government departments or payments of fines or penalties.
2. Payments for unspecified services or loans to consultants, related parties, employees, government officials or government employees.
3. Sales commissions or agents fees that are excessive in relation to what is ordinarily paid by the entity or in its industry or to the services actually received.
4. Purchases made at prices that are significantly above or below market price.
5. Unusual cash purchases, purchases in the form of bearer checks or transfered to numbered bank accounts.
6. Unusual transactions with companies registered in tax havens.
7. Payment for goods or services made other than to the country from which the goods or services originated.
8. Existence of an information system that fails, whether by design or accident, to provide an adequate audit trail or sufficient evidence.
9. Unauthorized or improperly recorded transactions.
10. Adverse media comment.
11. Noncompliance with laws or regulations that has been cited in examination reports of regulatory agencies made available to the auditor.
12. Failure to file tax returns or pay government duties or similar fees that are common to the entity's industry or the nature of its business.
b. Some specific prodecures that the auditor can use to obtain an understanding of an identified or suspected illegal act is as follows:
1. Examining supporting documents such as invoices, cancelled checks and contracts and comparing them with accouting records.
2. Confirming significant information about the matter with the other party to the transactions or intermediaries such as banks or lawyers.
3. Determining if the transaction has been properly authorized.
4. Considering whether other similar transactions or events may have occured and applying procedures to identify them.
c. It is the auditors professional duty to maintain client confidentiality but they may have to report suspected or identified noncompliance of laws and regulations to external parties. In some cases, confidentiality may be overridden by statute, the laws or court of law. The auditor may have to notify external parties of noncompliance in the following cases:
1. Inquiries from the current auditor to a predecessor auditor in accordance with Section 210 Terms of Engagement.
2. In response to a court order.
3. In case of audit of entities that receive financial assistance from a government agency.
Due to potential conflicts between an auditor's ethical and legal obligations for confidentiality that may be complex, the auditor may consult with legal counsel before notifying about noncompliance to external parties.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.