What is the definition of the standard of "due professional care", and how might a court decide whether an audit firm met the standard?
Why is independence often considered the cornerstone of the auditing profession? Why were independence issues a primary concern of Congress when they developed the Sarbanes-Oxley Act?© BrainMass Inc. brainmass.com October 25, 2018, 1:56 am ad1c9bdddf
According to Beasley, et.al., the GAAS standard of 'due professional care' entails that the auditor has to consistently observe the standards of fieldwork and reporting in order to show that he has complied with this standard. Only when the auditor possesses the adequate training and experience and a mental attitude that is independent can the auditor achieve these fieldwork and reporting standards. 'Due professional care' synthesizes the entire audit process. The auditor gathers and collects all the facts during the audit engagement and he uses his experience and professional judgment so that a fair and honest judgment on the financial statements can be concluded. This standard has two aspects: professional skepticism and reasonable assurance. Skepticism consists of a questioning mind-set of the possibility of fraud; a critical evaluation of the evidence of how it is obtained; and not to allow management's integrity to make him accept evidence that is not persuasive. Reasonable assurance is a high level of assurance in which the auditor is expected to plan and perform the audit for the purpose of gathering sufficient and appropriate evidence to limit the audit risk. In effect, the auditor must obtain reasonable assurance of the financial statements' freedom from material misstatement. (Beasley, et. al., 2008)
A research study in China of Chinese certified public accountants focused on these CPAs to examine and recognize the importance of exercising due ...
The solution defines 'due professional care' foundation of GAAS and it also discusses the independence in the auditing profession. References are included.
Accounting and Auditing
1) Why is public accounting often viewed as a guarantor of results, or even as a provider of assurance that one's investment is of high quality? To what extent is it reasonable to view the auditor as a guarantor? Explain. To what extent do you believe that user expectations of the public accounting profession appear to be unwarranted? Explain.
2) The Sarbanes-Oxley Act of 2002 has been described as the most far-reaching legislation affecting business since the passage of the 1933 Securities Act. What are the specific portions of the legislation that affect the external audit profession, and how do they affect the profession? How does the legislation affect the internal audit profession? What are some activities that are implied in the legislation, as well as activities that will likely emerge as companies implement various provisions of the act? Do you believe that legislation enhances the power and prestige of the audit profession, or alternatively, does it decrease both the power and prestige of the profession? Explain.
3) The ten Generally Accepted Auditing Standards (GAAS) provide the foundation for all other auditing standards and interpretations. What is the definition of the standard of due professional care, and how might a court decide whether an audit firm met the standard? Why is independence often considered the cornerstone of the auditing profession? Why were independence issues a primary concern of Congress when they developed the Sarbanes-Oxley Act?View Full Posting Details