A6 Professional Responsibilities PT 1

Question 1

what are the 6 principles of the AICPA code of Professional Conduct?

Answer 1

1. Responsibility
2. Public Interest
3. Integrity
4. Objectivity and Independence
5. Due Care
6. Scope and Nature of Services

Question 2

Under the AICPA Code of Professional Conduct, independence is impaired:

Answer 2

1. If a member has direct financial interest with attestation clients without regard to materiality.
2. If a member has a material indirect financial interest in the client.
3. If a member of a member’s immediate family member has a loan or from the client.
4. If a member accepts more than a token gift.
5. If a member is an employee of or makes management decisions on behalf of the client.
6. If the client is overdue more than one year in the payment of professional fees to the member; or
7. If there is actual or threaten litigation between the member and the client.

Question 3

Under the AICPA Code of Professional Conduct, when is independence impaired by employment relationships?

Answer 3

1. An individual who was formerly employed by the client participates on the engagement team or is in a position to influence
2. An immediate family member or close relative is employed in a key position by the client.
3. 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 a firm’s business decisions and the amount due to the individual are immaterial to the firm.

Question 4

Generally, independence rules apply to a covered member and their spouse and dependents. According to SEC rules, what independence rule apply to close relatives?

Answer 4

1. has an accounting role or financial reporting oversight role with the SEC audit client (e.g. the family member is a treasurer, CFO, accounting supervisor, or controller. or
2. Owns more than 5% of a client’s equity securities or controls the client.

Note: Independence is also considered to be impaired if any partner’s close family member controls an SEC audit client.

Question 5

What independence rules apply to close relatives?

Answer 5

1. Employment by a client in a key position (except for covered members who provide only non-attest services to a client_
2. Aware that the close relative has a financial interest in the client that either:

A) Was material to the relative’s net worth or

B) Enables the relative to exercise significant influence over the client.

Question 6

Examples of acts considered discreditable to the professional include:

Answer 6

1. Failure to return records to a client after the client makes demand.
2. Determination by a court or administrative agency of discrimination or harassment in public practice.
3. Negligence in preparing F/S or records
4. Failing to follow GAAS and other applicable standards of gov’t agencies unless the member discloses that the standards were not followed and the reasons for noncompliance
5. Solicitation or disclosure of CPA exam Q&A
6. Failure to timely file a personal or firm tax return or to timely remit payroll or other taxes collected on behalf of others.

7, Marketing a member’s abilities to provide professional services or making claims about the member’s experience or qualifications in a manner that is false, misleading or deceptive.

8. Member whose employment relationship is terminated and takes or retains (a) originals or copies from the firm’s client files or (b) proprietary information w/o the firm’s permission, unless the member has a contractual arrangement with the firm allowing such action.
9. Disclosing confidential information obtain from a prospective client or non-client without consent.

Question 7

In what circumstances must a CPA disclose confidential client information w/o the consent of the client?

Answer 7

1. It is necessary to comply with a valid subpoena or summons.
2. As part of a quality review of the CPA’s professional practices authorized by the AICPA.
3. In response to any inquiry made by the ethics division or the trial board of the AICPA, or by a duly-constituted investigative body of a state CPA society.

Question 8

When are contingent fees prohibited?

Answer 8

1. Audit of F/S
2. Reviews of F/S
3. Examinations of prospective financial information.

Question 9

When are contingent fees permitted?

Answer 9

1. Compilations of F/S expected to be used by third parties only if the member includes a statement that the member is not independent.
2. Fees are not regarded as being contingent when they are fixed by courts or other public authorities or in tax matters, if they are based on the result of court proceedings or the findings of gov’t agencies (e.g., a contingent fee is permitted when representing a client in an examination of a tax return by an IRS agent)

Question 10

Explain the conceptual framework approach utilized by the AICPA code of professional conduct.

Answer 10

The conceptual framework approach requires entiities to:

1. Identify threats to compliance with fundamental principles.
2. Evaluation the significance of the threat
3. Apply safeguards to eliminate threats or reduce threats to an acceptable level, whenever possible.

Note: IFAC’s Code of Ethics and GAGAS Conceptual Framework for Independence utilize a similar approach

Question 11

Identify threats to compliance with fundamental principles included within the AICPA Code of Pro. Conduct.

Answer 11

1. Adverse interest threat
2. Advocacy threat
3. Familiarity threat
4. Management participation threat
5. Self-interest threat
6. Self-review threat
7. Undue influence threat