In this episode of THE SAMPLE, Leita Hart-Fanta shares how to apply Conceptual Framework for compromised independence. She goes through the three-step process for whenever your independence has been compromised.
Welcome to The Sample, a quick discussion of auditing concepts and terms that will help you do your work. Conducting an audit in accordance with auditing standards is no small feat and I want to support you. We’ll be referring to the GAO, IIA and AICPA literature to bolster our conversations. Let’s get started.
In this episode, we answer the question “What is the conceptual framework?”
Apply Conceptual Framework for Compromised Independence
Wow, what a fancy title, right? But it’s a three-step process that we apply whenever our independence has been compromised. You know, we, as auditors, we provide objective, fact-based assessment of what’s going on. And whenever that’s corrupted, we are to do our best to recognize it and then document our thought process and our effort to resolve it, right? And so the conceptual framework is a very fancy title for something that we always go through. As humans, when we’re making decisions, we recognize a risk, we decide whether it’s a big deal or not and then we respond to the risk.
Conceptual Framework is a Three-Step Process
The way the GAO puts it is that we evaluate threats to independence, evaluate the significance of the threats identified and then apply safeguards. So, the threats are many they come up with in the Yellow Book standards. Seven threats. I’ve written a blog post or created a video on each of these, so you can find that on my website.
The second step is to decide whether the threat would compromise your professional judgment or create the appearance that your integrity, objectivity or professional skepticism may be compromised. And if so, if you feel like it is a big deal and needs to be addressed, then you apply safeguards.
You can talk it out with somebody, and that’s not much of a safeguard, but you can kind of discuss it with people. Or you can have someone else reperform part of the audit or perform the audit. Have someone that’s not part of the audit engagement review the work. Or the most nuclear solution to an independence problem is to withdraw from the audit.
Document and Apply Safeguards
So that’s the conceptual framework, a very fancy title for how you think through and document under Yellow Book standards. You need to document it, a compromise to your independence. You identify that you are having a problem with independence. You decide if it’s a big deal, and then you respond by applying safeguards.
Want to Know More?
Want to learn more and earn some CPE hours at the same time? I suggest two videos. Either the Yellow Book Standards for Financial Auditors or the Yellow Book Standards for Performance Auditors, depending on what flavor of audit you’re doing.
And that wraps it up for another episode of The Sample. True to the nature of a sample, we didn’t talk about everything, so you’ve probably got questions. Write to me at firstname.lastname@example.org and I’ll do my best to fill in the blanks. Thanks for playing.