3 discussion responses with references

3 discussion responses with references

Original information:We know that a conflict of interest refers to a person in a position of trust with personal interests or obligations that conflict with those of others. In this discussion, you will address the prompt below regarding a situation in which a conflict of interest might occur.

Create one initial post, and respond to at least two of your classmates.

For your initial post, address the following:

Under what circumstances might a job offer from an audit client be considered a conflict of interest and/or an independence violation?

Why might the AICPA include job offers in their conflict–of-interest guidelines?

What are the accounting professional’s conflict of interest reporting requirements?

For your response posts, address the following:

• Do you agree with your classmate’s rationale about why the AICPA includes job offers in their conflict-of-interest guidelines? What is another possible reason?

Do you agree with your classmate’s post in terms of why this situation is considered a violation? How would you respond if you were put in this situation?

1-Under what circumstances might a job offer from an audit client be considered a conflict of interest and/or an independence violation?

In certain situations, accepting a job offer from an audit client may be viewed as a conflict of interest or a breach of independence.

An auditor’s objectivity and independence may be compromised if they receive a job offer while they are actively conducting an audit. The auditor may feel under pressure to deliver positive results in order to secure the job offer, which could be interpreted as undermining the auditor’s independence (Independence Considerations When Contemplating Employment With an Attest Client | Audit Conduct, n.d.).

Any financial interest the auditor may have in the client, including stock options or other investments, can compromise their independence during the financial interests phase. This is particularly important if the financial incentives are part of the job offer (Independence and Conflicts of Interest, n.d.).

Why might the AICPA include job offers in their conflict-of-interest guidelines?

To guarantee that auditors uphold objectivity, integrity and independence in the course of their professional responsibilities, the AICPA incorporates employment offers into their conflict-of-interest guidelines.

The AICPA Code of Professional Conduct emphasizes that members must avoid conflicts of interest to uphold the integrity of the profession. An auditor’s ability to remain objective and impartial may be compromised by accepting or even considering a job offer from an audit client (Tapajna, 2020).

The purpose of these guidelines is to safeguard the integrity of the audit process and guarantee that auditors can carry out their responsibilities without being unduly influenced or biased.

What are the accounting professional’s conflict of interest reporting requirements?

In order to uphold the integrity, independence and objectivity of their work, accounting professionals must comply with certain requirements regarding the reporting of conflicts of interest. These requirements serve to promote transparency and resolve potential conflicts that may undermine the reliability of financial reporting and auditing procedures.

It is the responsibility of accountants to detect and assess any potential conflicts of interest. This includes figuring out whether a conflict is present and how big of an issue it is. Upon the identification of a conflict of interest, the accountant is required to notify the relevant stakeholders and clients of the nature of the conflict. To ensure that there is a clear-cut record of the agreement, the accountant must obtain consent from the parties affected by the disclosure before continuing to provide services. Complete documentation of all actions is necessary to safeguard the accountant and serve as a clear-cut record of the methods used to handle the conflict(Rood, 2017).

2-A job offer from an audit client can be considered a conflict of interest and/or an independence violation under several circumstances. Primarily, this occurs when an auditor is involved in the audit engagement while simultaneously considering or negotiating employment with the client. This situation compromises the auditor’s objectivity and professional skepticism, as they may be inclined to make decisions that favor the potential future employer rather than maintaining impartiality (AICPA, 2023).

The AICPA likely includes job offers in their conflict-of-interest guidelines to preserve the integrity and independence of the audit process. By addressing this issue, they aim to maintain public trust in the accounting profession and ensure that financial statements are free from bias. Job offers can create both actual and perceived conflicts of interest, potentially undermining the credibility of the audit (AICPA, 2023).

Regarding reporting requirements, the AICPA Code of Professional Conduct stipulates that members should disclose any potential conflicts of interest to relevant parties and obtain their consent to perform professional services. Specifically, the Code states that a member should evaluate the significance of the threat created by the conflict of interest and apply safeguards when necessary to eliminate or reduce it to an acceptable level. Additionally, auditors are required to immediately report any job offers from audit clients to the appropriate persons within their firm. This allows the firm to assess the situation and take necessary actions, such as removing the individual from the engagement team or implementing additional safeguards to maintain independence. These reporting requirements are crucial for maintaining the integrity of the audit process and protecting the public interest (AICPA, 2023).

These guidelines aim to protect the public interest by ensuring that auditors maintain their objectivity and professional skepticism throughout the audit process, even in the face of potential employment opportunities with clients (American Institute of Certified Public Accountants (Ahmad, 2015).

3-This course brings up topics that are very familiar to me as an Army internal auditor. We follow the GAO’s Yellow Book or GAGAS (Generally Accepted Government Audit Standards) instead of AICPA, but a lot of the standards within AICPA Code of Professional Conduct are included in the Yellow Book. Independence starts with independence of mind (auditor) and in appearance (third party). A job offer from the audit client would cause issues with independence of mind and in appearance.

The AICPA Code of Conduct addresses this in two ways, one – considering employment or association with an attest client, and two – subsequent employment or association with an attest client. We will stick with one since the prompt a job offer from an audit client. The AICPA includes job offers in the independence guidelines to guide audit firms and auditors on the conceptual framework in which they can bring most threats to both the auditor and firm’s independence to an acceptable level. The conflict of interest section 1.110does not address job offers specifically, however the auditor and firm in which this situation may arise, should address this internally and then with the audit client to advise them of what has been done to meet the requirements of the conflict of interest conceptual framework.

According to (AICPA, 2014) in section 1.279.010, Considering Employment or Association With an Attest Client, in .02, “The undue influence and self-interest threats to compliance with the “Independence Rule” [1.200.001] would be at an acceptable level and independence would not be impaired if all of the following safeguards are met:

1. The individual promptly reports such consideration or offer to an appropriate person in the firm.
2. The individual immediately ceases participation in the engagement and does not provide any services to the attest client until the employment offer is rejected or employment is no longer sought.
3. If a covered member becomes aware that an individual is considering employment or association with an attest client, the covered member should notify an appropriate person in the firm.
4. The appropriate person in the firm should consider whether, based on the nature of the engagement and the individual involved, the firm should perform additional procedures to provide reasonable assurance that any work that the individual performed for the attest client was performed in compliance with the “Integrity and Objectivity Rule” [1.100.001].

As you can see all of these points (a to e) have to met in order for there not to be an independence violation. There is also a separate conflict of interest potential that follows much the same framework where all the steps would have to be met to reach an acceptable level and not be a conflict of interest.