Explain How CPAs Should Evaluate Risks to Integrity and Objectivity

question 25

Essay

Explain how CPAs should evaluate risks to integrity and objectivity when considering providing gifts to audit clients and/or client management or accepting risks from them.
Gifts made or received, in particular, may cloud audit judgment and impair independence. They can compromise objectivity and integrity because of the size and/or importance of the gift and the purpose of giving it or receiving it from the client. To avoid a conflict of interest that may impair integrity, objectivity and independence, the following guidelines should be followed.
If the audit is completed, the first question is whether the acceptance of the gift might make it appear to a reasonable observer that the gift is intended to influence the audit opinion. If so, that would create an undue influence threat and compromise integrity and objectivity. Also, it could be perceived as an advance payoff for future audit opinions. The influence does not have to be immediate. Beyond that, an important issue to consider is: Would acceptance violate any laws, regulations, or firm policies. If so, acceptance would create a threat that cannot be reduced or eliminated through any safeguards. If not, consider the following:
What is the nature, value, and intent of the gift?
Is it more than clearly inconsequential?
Is it reasonable in the circumstances?
Is it standard practice to accept or reject such gifts?
Does the client expect a "quid pro quo?"

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Definitions:

Prints Money

Refers to the action of a central bank creating additional currency as part of its monetary policy.

Currency Loses Value

A situation where a currency diminishes in purchasing power compared to other currencies, often due to inflation or economic policies.

Purchasing-power Parity

A theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries.

Exchange Rates

The rate at which one currency can be exchanged for another, affecting trade and economic relations between countries.