12.20.18 Flashcards
Regarding employment or association with attest clients, the employment of a former partner by a client in a key position most likely impairs firm independence if
The former partner consults with the accounting firm.
A former partner or professional employee of the firm who is employed by or associated with an attest client in a key position impairs the firm’s independence unless, among other things, the former partner does not participate or appear to participate in, and is not associated with, the firm, regardless of compensation. For example, such activity may be by consulting, use of an office, or inclusion in membership lists.
An issuer may hire an employee of a registered public accounting firm who served on the audit engagement team within the previous year for which of the following positions?
Staff accountant.
Under SEC independence regulations, an accounting firm may not be independent with respect to an audit client if a former partner, principal, shareholder, or professional employee accepts employment with a client. Independence is impaired if (s)he (1) has a continuing financial interest in the firm or (2) is in a position to influence the firm’s operations or financial policies. Moreover, an accounting firm is not independent if a CEO, CFO, controller, or person in an equivalent position for an issuer was (1) employed by that firm and (2) participated in any capacity in the audit of that issuer during the year before the beginning of the audit. Accordingly, a staff accountant’s employment by the client does not impair independence. Such an individual does not have a continuing financial interest in the firm or the ability to influence its operations or policies.
A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit arises between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be dissociated from the resolution of the matter. The audit documentation would probably be
Expanded to detail the assistant auditor’s position and how the difference of opinion was resolved.
A public accounting firm should have policies and procedures that address differences of opinion. They should enable an engagement team member to document his or her disagreement with the conclusions reached after proper consultation. The policies and procedures should require that (1) conclusions be documented and implemented and (2) the report not be released until the matter is resolved (QC 10). For an audit of an issuer, AS 1215, Audit Documentation, requires working papers to document significant findings issues. They include “disagreements among members of the engagement team or with others consulted on the engagement about final conclusions reached on significant accounting or auditing matters.”
A member of the AICPA may render which service under a contingent fee arrangement?`
A CPA provides investment advisory services, with the fee based on a percentage of the client’s investment portfolio.
The member is not in violation of the Code if (1) the fee is based on a specified percentage of the portfolio, (2) the dollar amount of the portfolio on which the fee is based is determined at the beginning of each quarter (or longer period, if agreed) and is adjusted only for client additions or withdrawals, and (3) the fee arrangement is not renewed more often than quarterly.
A member of the AICPA has been requested to serve as a client advocate on accounting matters in a hearing before a regulatory body. The member should consider whether it is appropriate to accept the engagement if
I. The service stretches the bounds of performance standards.
II. The service compromises credibility.
III. The service exceeds sound and reasonable professional practice.
I, II, III.
Professional services involving client advocacy are governed by the Code (General Standards Rule, Compliance with Standards Rule, Accounting Principles Rule, and Integrity and Objectivity Rule). If independence is required for a service, the Independence Rule also applies. If the service (1) stretches the bounds of performance standards, (2) exceeds sound and reasonable professional practice, or (3) compromises credibility, it poses an unacceptable risk of injury to the member’s or the firm’s reputation. In these circumstances, the propriety of accepting the engagement should be considered.
A financial statement audit is designed to
Obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to fraud or error.
The auditor’s overall objectives include obtaining reasonable assurance about whether the financial statements as a whole are free of material misstatement, whether due to fraud or error. This determination permits an auditor to express an opinion on whether the statements are presented fairly, in all material respects, in accordance with the applicable reporting framework.
An attestation engagement is one in which a CPA is engaged to
Issue an examination, a review, or an agreed-upon procedures report on subject matter, or an assertion about subject matter, that is the responsibility of another party.
An attestation engagement is one in which a practitioner is engaged to issue, or does issue, an examination, a review, or an agreed-upon procedures report on subject matter, or an assertion about subject matter that is the responsibility of another party. The conclusion may refer to that assertion or to the subject matter to which the assertion relates. Furthermore, given one or more material deviations from the criteria, the practitioner should modify the report and ordinarily should express the conclusion directly on the subject matter.
The objective of assurance services is to
Enhance decision making.
The main objective of assurance services, as stated by the AICPA, is to provide information that assists in better decision making. Assurance services encompass audit and other attestation services but also include nonstandard services. Assurance services do not encompass consulting services.
Which of the following rules of the AICPA Code of Professional Conduct must be observed only by a member who is in public practice?
Independence.
Public practice consists of the performance of professional services for a client by an AICPA member or his or her firm. Professional services include, but are not limited to, services for which standards are issued by bodies designated by the AICPA Council. A client is (1) any person or entity, other than the member’s employer, that engages the member to perform professional services or (2) a person or entity with respect to which the services are performed.
NOTE: An employer does not include (1) an entity in public practice or (2) governments if certain requirements are met. The Independence Rule explicitly applies only to a member in public practice. Thus, it is limited to professional services performed for a client.
How many audits of public companies per year does a CPA firm that is registered with the Public Company Accounting Oversight Board (PCAOB) have to perform before it receives an annual inspection from the PCAOB?
More than 100 audits.
The PCAOB annually inspects registered CPA firms that regularly provide audit reports for more than 100 issuers. It inspects at least triennially firms that regularly provide audit reports for 100 or fewer issuers.
Which action is not considered an act discreditable to the accounting profession?
Having a bank collect notes received from a client in payment of fees.
CPAs are permitted to assign client notes received in payment of fees to banks for collection.
Auditing Interpretations are issued by the Audit Issues Task Force of the Auditing Standards Board (ASB) to provide timely guidance on the application of pronouncements of the ASB. They are
not auditing standards.
Auditing Interpretations of the SASs are numbered in the AU-C 9000 series and immediately follow the related sections in the codification of professional standards. They are interpretive publications and therefore are not auditing standards. Interpretive publications are recommendations for applying GAAS in specific situations. Other interpretive publications include AICPA Audit and Accounting Guides and AICPA Auditing Statements of Position.
A person identified as an audit committee financial expert of an issuer generally must have acquired the attributes of a financial expert through any of the following experiences, except
Serving on at least one other issuer’s audit committee or disclosure committee of the board of directors.
The attributes of a financial expert may be acquired in at least one of the following ways: (1) education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor, or experience in one or more positions that involve the performance of similar functions; (2) experience actively supervising such a person; (3) experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or (4) other relevant experience. Mere service on a board committee of an issuer does not provide all of the following attributes of a financial expert: (1) an understanding of GAAP and financial statements; (2) the ability to assess the general application of GAAP to estimates, accruals, and reserves; (3) experience preparing, auditing, analyzing, or evaluating statements with the complexity of accounting issues expected to be raised by the registrant’s statements; (4) an understanding of internal controls and the procedures for financial reporting; and (5) an understanding of audit committee functions.
An issuer’s auditor is prohibited from providing tax services to which of the following individuals?
The CEO.
PCAOB interim independence standards apply. A public accounting firm is not independent if, during the period of the professional engagement, it provides any tax service to a person in a financial reporting oversight role at the audit client. Such persons include the (1) CEO, (2) president, (3) CFO, (4) COO, (5) chief accounting officer, and (6) other individuals in equivalent positions.
A firm performed an attest engagement to apply agreed-upon procedures to help KIG Co. determine whether it should acquire FTBL Co. FTBL is responsible for the information to which procedures were applied. Who most likely is not required to be independent of the responsible party?
The firm, if it designed the responsible party’s information system.
The following covered members and their immediate families must be independent in relation to the responsible party: (1) an individual on the attest engagement team; (2) an individual who directly supervises or manages the attest engagement partner; and (3) individuals who consult with the attest engagement team about technical or industry-related matters specific to the engagement. Independence also is impaired if the firm had a material relationship with the responsible party prohibited under the Independence Rule. Moreover, a firm may provide nonattest services to the responsible party that normally are prohibited, e.g., designing the financial information system. However, if the nonattest services do not relate directly to the subject matter of the attest engagement, independence is not impaired.
