A6 (1) - Professional Responsibilities Flashcards
AICPA CODE OF PROFESSIONAL CONDUCT
(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.
Principles
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
Key points in Article I-Responsibilities
Members should exercise sensitive professional and moral judgments in all their activities
Key points in Article IV-Objectivity and Independence
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.”
Key points in Article VI-Scope and Nature of Services
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
Rules
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
Rule 101-independence
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).
Independence Impaired by Financial Interests
(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..
Independence NOT Impaired by Financial Interests
(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
Independence Impaired by Employment Relationships
(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.
Independence NOT Impaired by Financial Interests
(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
Independence Impaired by Employment Relationships
(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.
Rule 201-General Standards
1- Professional Competence
2- Due Professional Care
3- Planning and Supervision
4- Sufficient Relevant Data
Rule 202-Compliance with Standards
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
Rule 203-Accounting Principles
GAAP in general
Rule 301-Confidential Client Information
A member shall not disclose any confidential client information without the specific consent of the client
EXCEPTION for Confidential Client Information
1- subpoena or summons
2- part of a quality review
3- inquiry either made by the ethics division or the trial
Rule 302-Contingent Fees
Contingent fees performing services where
The fee amount is dependent upon the finding or result obtained.
Rule 50S- Form of Organization and Name
(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.
Rule 501-Discreditable Acts
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
Rule 502-Advertising and Other Forms of Solicitation
1- Create false or unjustified expectations of favorable results
2- Intentionally underestimate fees
Rule 503-Commissions and Referral Fees
(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.
Rule 505-Form of Organization and Name - The Use of Misleading Firm Names is Not Allowed
1- “Members of the AICPA” require all of its CPA owners are members of the Institute.
Rule 505-Form of Organization and Name - If all partners except one have died or left the firm
The remaining partner continue to for up to two years
Rule 505-Form of Organization and Name -Ownership of CPA Firms for
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
II. THE SARBANES-OXLEY ACT OF 2002
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).
SOX Title I-Public Company Accounting Oversight Board (PCAOB) duties and main activates
1- Register public accounting firm for issuers
2- Establish rules related to the audit reports for issuers
3- Conduct inspections, investigations
SOX Title I - Application for registration
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.
SOX Title I - Registered Firm Must Adhere to the Following Auditing Standards
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
SOX Title I - Quality Control Standards Required of Registered Firms
1- Professional ethics
2- Independence from issuers that
3- Supervise audit work.
SOX Title I - Investigations and Sanctions
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
SOX Title II-Auditor Independence - (prohibited services)
(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.
SOX Title II-Auditor Independence ( main characteristics)
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.
SOX Title III - Improper Influence on Conduct of Audits
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
SOX Title IV- Required Disclosures
1- Material adjustments
2- All material off-balance sheet transactions
SOX Title IV - Officers, Directors, or 10% + Shareholders
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.
SOX Title IV - Management Assessment of Internal Controls Form 1O-K and 10-0 reports
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 .
U.S. SECURITIES AND EXCHANGE COMMISSION (SEC)
See Ref (A6 -1 )- Summary of Independence standards
PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD (PCAOB)
See Ref (A6 -1 )- Summary of Independence standards
DEPARTMENT OF LABOR (DOL)
See Ref (A6 -1 )- Summary of Independence standards
IFAC CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS -
See Ref (A6 -1 )- Summary of Independence standards
LICENSING AND DISCIPLINARY SYSTEMS - State Boards of Accountancy
1- vary from state to state. 2-require successful completion of the CPA examination 3- A residency requirement 4- Educational requirements; 5- Experience requirements
LICENSING AND DISCIPLINARY SYSTEMS - Disciplinary Power of State Boards
there are three broad categories of misconduct:
1- Misconduct while performing accounting services
2- Misconduct outside the scope of accounting services
3- Criminal conviction
LICENSING AND DISCIPLINARY SYSTEMS - five penalties that a state board of accountancy may impose for professional misconduct:
(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
LICENSING AND DISCIPLINARY SYSTEMS - American Institute of Certified Public Accountants (AICPA) and State CPA Societies
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.
LICENSING AND DISCIPLINARY SYSTEMS - Disciplinary Action by the AICPA and State CPA Societies
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.
