Distinguish between independence of mind and independence in appearance. Identify an activity that may not affect independence of mind but is likely to affect independence in appearance.
Distinguish between independence of mind and independence in appearance.
A.
Independence of mind is a code of professional ethics where auditors remain skeptical of the information they receive throughout the audit, whereas independence in appearance is a code of professional conduct that allows any CPA firm to sign the financials of a company.
B.
Independence of mind exists when the auditor is actually able to maintain an unbiased attitude throughout the audit, whereas independence in appearance is dependent on others' interpretation of this independence and hence their faith in the auditor.
C.
Independence of mind is dependent upon the board of directors maintaining a professional level with the auditors, whereas independence in appearance provides for restrictions on employment of former audit firm employees by a client.
D.
Independence of mind requires audit partner to rotate to help maintain and keep independence, whereas independence in appearance maintains that the work produced is mainly for support of the client and that relationship.
Identify an activity that may not affect independence of mind but is likely to affect independence in appearance.
A.
Payment of high audit fees dependent upon profitable financials.
B.
Engagement of the CPA and payment of audit fees by a third party.
C.
Dependence upon a client for a large percentage of audit fees.
D.
Ownership of an immaterial indirect financial interest in the audited client.
E.
Performance of valuation services and actuarial services for the same company.
1) Solution: Independence of mind exist when the auditor is able to maintain an unbiased attitude throughout the audit, whereas independence in appearance is dependent on others interpretation of this independence and hence their faith in the auditor.
Explanation: When the auditor is actually able to maintain an unbiased attitude throughout the audit then Independence in fact exists. On other hand independence in appearance is dependent on others' interpretation of this independence and as a result in auditor's faith
2) Solution: Dependence upon a client for a large percentage of audit fees.
Explanation: Dependence upon a client for a large percentage of audit fees ; Director or officer of a client ; Auditor engagement and audit fees payment by management are few activities that may not affect independence in fact, however which are likely to affect independence in appearance
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