A6 (1) - Professional Responsibilities

Question 1

AICPA CODE OF PROFESSIONAL CONDUCT

Answer 1

(1) . The AICPA’s Code of Professional Conduct governs any service that a member of the AICPA performs
(2) . The code is applicable to all members of the AICPA
(3) . professional code of conduct is a distinguishing mark of a profession that accepts a high degree of responsibility toward the public. It is a voluntary acceptance for the purpose of benefiting society.

Question 2

Principles

Answer 2

1) . Article I-Responsibilities
2) . Article II-Public Interest
3) . Article III-Integrity
4) . Article IV -Objectivity and Independence
5) . Article V-Due Care
6) . Article VI-Scope and Nature of Services

Question 3

Key points in Article I-Responsibilities

Answer 3

Members should exercise sensitive professional and moral judgments in all their activities

Question 4

Key points in Article IV-Objectivity and Independence

Answer 4

A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities.

A member in public practice should be independent in fact and appearance when providing auditing and other attestation services.”

Question 5

Key points in Article VI-Scope and Nature of Services

Answer 5

a. Have adequate internal quality control
b. Determine whether, for audit clients, conflicts of interest arise due to the scope and nature of other services; and
c. Assess whether the firm’s activities are consistent with professionalism

Question 6

Rules

Answer 6

1) . Rule 101-independence
2) . Rule 102-lntegrity and Objectivity
3) . Rule 201-General Standards
4) . Rule 202-Compliance with Standards
5) .Rule 203- Accounting Principles
6) Rule 301-Confidential Client Information.
7) . Rule 302-Contingent Fees
8) . Rule 501-Discreditable Acts
9) . Rule S02-Advertising and Other Forms of Solicitation
10) . Rule 503-Commissions and Referral Fees
11) . Rule 50S-Form of Organization and Name

Question 7

Rule 101-independence

Answer 7

A member in public practice shall be independent in the performance of professional services

Independence is not required for compilations and nonattestation services (e.g., tax services, consulting services).

Question 8

Independence Impaired by Financial Interests

Answer 8

(1) . Independence is impaired if a covered member has a direct financial interest (regardless of materiality) or a material indirect financial interest in an attestation client
(2) . Independence will be impaired if a covered member or his immediate family (spouse or dependents) has a loan to or from a client.
(3) Independence is impaired by acceptance of more than a token gift..

Question 9

Independence NOT Impaired by Financial Interests

Answer 9

(A). Fully collateralized car loans with a financial institution client.

(b) Cash advance or credit card not exceed $10,000.
(c) A bank account that fully insured by the government.
(d) A passbook loan

Question 10

Independence Impaired by Employment Relationships

Answer 10

(1) . Independence is impaired if an individual who was formerly employed by the client participates on the engagement team or is in a position to influence the engagement when the engagement covers any period of his or her former employment with the client.
(2) Independence is impaired by an immediate family member’s employment with a client in a key position (e.g., independence would be impaired if the spouse was the client’s internal auditor).

(3) Independence is impaired if a partner or professional employee leaves the firm and is employed by the client in a key position unless the individual is no longer in a position to influence or participate in the firm’s business
decisions and the amounts due to the individual are immaterial to the firm.

Question 11

Independence NOT Impaired by Financial Interests

Answer 11

(A). Fully collateralized car loans with a financial institution client.

(b) Cash advance or credit card not exceed $10,000.
(c) A bank account that fully insured by the government.
(d) A passbook loan

Question 12

Independence Impaired by Employment Relationships

Answer 12

(1) . Independence is impaired if an individual who was formerly employed by the client participates on the engagement team or is in a position to influence the engagement when the engagement covers any period of his or her former employment with the client.
(2) Independence is impaired by an immediate family member’s employment with a client in a key position (e.g., independence would be impaired if the spouse was the client’s internal auditor).

(3) Independence is impaired if a partner or professional employee leaves the firm and is employed by the client in a key position unless the individual is no longer in a position to influence or participate in the firm’s business
decisions and the amounts due to the individual are immaterial to the firm.

Question 13

Rule 201-General Standards

Answer 13

1- Professional Competence
2- Due Professional Care
3- Planning and Supervision
4- Sufficient Relevant Data

Question 14

Rule 202-Compliance with Standards

Answer 14

1 - Auditing Standards Board and PCAOB
2- Management Consulting Services Executive Committee
3- Accounting and Review Services Committee
4- Government Accounting Standards Board
5- Tax Executive Committee

Question 15

Rule 203-Accounting Principles

Answer 15

GAAP in general

Question 16

Rule 301-Confidential Client Information

Answer 16

A member shall not disclose any confidential client information without the specific consent of the client

Question 17

EXCEPTION for Confidential Client Information

Answer 17

1- subpoena or summons
2- part of a quality review
3- inquiry either made by the ethics division or the trial

Question 18

Rule 302-Contingent Fees

Answer 18

Contingent fees performing services where

The fee amount is dependent upon the finding or result obtained.

Question 19

Rule 50S- Form of Organization and Name

Answer 19

(1) The Use of Misleading Firm Names is Not Allowed
(2) If all partners except one have died or left the firm, the remaining partner may continue to practice under the partnership name for up to two years after becoming a sole practitioner.

Question 20

Rule 501-Discreditable Acts

Answer 20

1- Failure to return records to a client after the client makes demand.

2- Solicitation or disclosure of CPA Examination questions and answers

3- Failing to follow applicable standards in government audits unless the member discloses that the standards not followed and the reasons for noncompliance

4-Negligence in preparing FS or records

5-Failing to follow GAAS and other applicable standards of government agencies unless the member discloses standards not followed and reasons for noncompliance

6-Failure to timely file personal or tax return or to timely remit payroll or other taxes collected on behalf of others.

7-Failure to follow regulatory requirements (where applicable) prohibiting the use of certain types of indemnification and limitation of liability provisions

Question 21

Rule 502-Advertising and Other Forms of Solicitation

Answer 21

1- Create false or unjustified expectations of favorable results

2- Intentionally underestimate fees

Question 22

Rule 503-Commissions and Referral Fees

Answer 22

(1) An audit or review of financial statements.
(2) A compilation of financial statements expected to be used by third parties, when the member does not disclose a lack of independence.
(3) An examination of prospective financial information.

Question 23

Rule 505-Form of Organization and Name - The Use of Misleading Firm Names is Not Allowed

Answer 23

1- “Members of the AICPA” require all of its CPA owners are members of the Institute.

Question 24

Rule 505-Form of Organization and Name - If all partners except one have died or left the firm

Answer 24

The remaining partner continue to for up to two years

Question 25

Rule 505-Form of Organization and Name -Ownership of CPA Firms for

Answer 25

1- A majority of the ownership, both in financial interests and in voting rights, and responsibilities must belong to CPAs

2- Non- CPA can use the title principle, officer , member , or shareholder but not hold themselves CPAs

Question 26

II. THE SARBANES-OXLEY ACT OF 2002

Answer 26

In the wake of the collapse of Enron and WorldCom corporations and the restatement of financial statements of a number of other SEC reporting companies, Congress passed the Sarbanes-Oxley Act (SOX).

Question 27

SOX Title I-Public Company Accounting Oversight Board (PCAOB) duties and main activates

Answer 27

1- Register public accounting firm for issuers
2- Establish rules related to the audit reports for issuers
3- Conduct inspections, investigations

Question 28

SOX Title I - Application for registration

Answer 28

1- Names of issuers audited in previous & current year
2- Annual fees received for such audits
3- Statement of the firm’s quality control policies
4- A list of all firm accountants
5- Legal or disciplinary against the firm
6- Disagreements between issuer& firm related to audits.

Question 29

SOX Title I - Registered Firm Must Adhere to the Following Auditing Standards

Answer 29

1- Audit documentation maintained for 7 years

2-Provide a second partner review of each audit report

3- Describe in audit reports the scope of the testing of the issuer’s Internal control structure and procedures

Question 30

SOX Title I - Quality Control Standards Required of Registered Firms

Answer 30

1- Professional ethics
2- Independence from issuers that
3- Supervise audit work.

Question 31

SOX Title I - Investigations and Sanctions

Answer 31

1- Temporary or permanent suspension registration

2- Temporary or permanent suspension to the person from associating with a registered firm.

3- Temporary or permanent limitation on the activities functions to the firm or person

4- professional education or training

Question 32

SOX Title II-Auditor Independence - (prohibited services)

Answer 32

(1) Bookkeeping;
(2) Financial information systems design implementation;
(3) Appraisal and valuation services;
(4) Actuarial services;
(5) Management functions or human resources services;
(6) Internal audit outsourcing services;
(7) Services as a broker, dealer, investment adviser
(8) Legal services; and
(9) Expert services unrelated to the audit.

Question 33

SOX Title II-Auditor Independence ( main characteristics)

Answer 33

1- Preapproved by the audit committee
2- Audit Partner Rotation every 5 years
3- Registered Firms Must Report to Audit Committees
4- The audit firm cannot have employed the issuer’s CEO, CFO, Controller, or Chief Accounting Officer, or any person serving in an equivalent position for a one-year period preceding the audit.

Question 34

SOX Title III - Improper Influence on Conduct of Audits

Answer 34

It is unlawful for any officer or director of an issuer to take any action to fraudulently influence, coerce, manipulate, or mislead any independent auditor engaged for assurance services

Question 35

SOX Title IV- Required Disclosures

Answer 35

1- Material adjustments

2- All material off-balance sheet transactions

Question 36

SOX Title IV - Officers, Directors, or 10% + Shareholders

Answer 36

1- Any officer, director, or owner of more than 10% of any equity security must file a report indicating how many shares they own within 10 days after becoming an
officer, director, or more than 10% owner.

2- A change in ownership must be filed within 2 days of such change.

Question 37

SOX Title IV - Management Assessment of Internal Controls Form 1O-K and 10-0 reports

Answer 37

1- Management’s responsibility to set an control
2-Assessment of the effectiveness of control structure
3-Code of ethics for senior financial officers
4-if the audit committee has at least one financial expert .

Question 38

U.S. SECURITIES AND EXCHANGE COMMISSION (SEC)

Answer 38

See Ref (A6 -1 )- Summary of Independence standards

Question 39

PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD (PCAOB)

Answer 39

See Ref (A6 -1 )- Summary of Independence standards

Question 40

DEPARTMENT OF LABOR (DOL)

Answer 40

See Ref (A6 -1 )- Summary of Independence standards

Question 41

IFAC CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS -

Answer 41

See Ref (A6 -1 )- Summary of Independence standards

Question 42

LICENSING AND DISCIPLINARY SYSTEMS - State Boards of Accountancy

Answer 42

1-  vary from state to state.
2-require successful completion of the CPA examination
3- A residency requirement
4- Educational requirements;
5- Experience requirements

Question 43

LICENSING AND DISCIPLINARY SYSTEMS - Disciplinary Power of State Boards

Answer 43

there are three broad categories of misconduct:
1- Misconduct while performing accounting services
2- Misconduct outside the scope of accounting services
3- Criminal conviction

Question 44

LICENSING AND DISCIPLINARY SYSTEMS - five penalties that a state board of accountancy may impose for professional misconduct:

Answer 44

(1) Suspension or revocation of license;
(2) A monetary fine;
(3) A reprimand or censure;
(4) Probation; and
(5) Requirement for Continuing Professional Education (CPE) courses

Question 45

LICENSING AND DISCIPLINARY SYSTEMS - American Institute of Certified Public Accountants (AICPA) and State CPA Societies

Answer 45

Joint Ethics Enforcement Program (JEEP):- The AICPA and state CPA societies have created the Joint Ethics Enforcement Program (JEEP) for enforcement of their codes of conduct by means of a single
investigation and action.

Question 46

LICENSING AND DISCIPLINARY SYSTEMS - Disciplinary Action by the AICPA and State CPA Societies

Answer 46

Suspend or terminate membership for failure to pay dues orfailure to comply with membership retention requirements

1- Proof of conviction of a crime punishable by imprisonment for more than one year.

(2) Proof of conviction for willful failure to file any income tax return.
(3) Proof of conviction for filing a false or fraudulent income tax return or aiding in the preparation of a false or fraudulent income tax return of a client.
(4) Suspension or revocation of a member’s license to practice public accounting as a disciplinary measure by a government authority.