A6: Professional Responsibilties Flashcards
What are the 6 principles of the AICPA Code of Professional Conduct?
- Responsibilities
- Public interest
- Integrity
- Objectivity and independence
- Due care
- Scope and nature of services
Under the AICPA Code of Professional Conduct, Rule 101, independence is impaired:
- If a member has a direct financial interest w/ attestation clients w/o regard to materiality;
- If a member has a material indirect financial interest in the client;
- If a member or a member’s immediate family member has a loan to or from the client;
- If a member accepts more than a token gift;
- If a member is an employee of or makes MGT decisions on behalf of the client’
- If the client is overdue more than one year in the payment of professional fees to the member; or
- If there is actual or threatened litigation b/t the member and the client.
According to the AICPA Code of Professional Conduct, Rule 203, a departure from GAAp may be justified under what circumstances?
A departure from GAAP may be justified only if compliance with GAAP would cause the F/S to be misleading.
Under Rule 301, in what circumstances must a CPA disclose confidential client information w/o the consent of the client?
- It is necessary to comply w/ a valid subpoena or summons
- As part of a quality review of the CPA’s professional practices authorized by the AICPA
- 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.
What are contingent fees prohibited under Rule 302?
Contingent fees are prohibited for:
- Audits of F/S
- Reviews of F/S
- Examinations of prospective financial info.
What is an “issuer,” and what group establishes standards for audit reports of issuers?
An issuer is an entity subject to the rules of the SEC (this would include primarily public companies).
The Public Company Accounting Oversight Board (PCAOB) establishes standards for audit reports of issuers.
Title I of the Sarbanes-Oxley Act of 2002 (SOX) requires that registered firms must adhere to what auditing standards?
- Audit workpapers must be maintained for seven years
- A concurring or second partner review is required for each audit report
- The audit report must describe the scope of the testing of the issuer’s I/C
What are the PCAOB’s tax-related independence rules?
- Registered firms may not provide confidential or aggressive tax transactions to audit clients.
- Registered firms may not provide tax services to corporate officers of audit clients or their immediate family members.
- Audit committee must preapprove tax services and related fees.
Explain the conceptual framework approach under IFAC’s Code of Ethics and ID threats to compliance with its fundamental principles.
IFAC’s Code is based on a conceptual framework (vs. a set of rules) that requires entities to ID, evaluate, and address threats to compliance w/ its fundamental principles. These threats include:
- Self-interest threat
- Self-review threat
- Advocacy threat
- Familiarity threat
- Intimidation threat
What are the advantages and disadvantages of auditing with a computer?
Advantages:
- Fewer math errors due to automatic performance of math on all documents
- Automatic cross-referencing of amounts by linking each lead schedule to the working trial balance and F/S
- Automatic preparation of F/S, tax return schedules, and consolidating schedules.
- Reduction in required supervisory review time.
- Automatic performance of certain analytical review procedures.
- Enhanced client service.
- Improved morale and productivity for audit team.
Disadvantages:
- Audit documentation may not contain readily observable details of calculations.
Describe “auditing around the computer” and ID when its appropriate and not appropriate.
When auditing around the computer, the auditor does not directly test the application program, but instead tests the input data, processes the data independently, and then compares the independent results to the program results.
This method is appropriate for simple batch systems that have a good audit trail. Auditing around the computer is not appropriate when there is insufficient paper-based evidence.
List and briefly define the types of computer assisted audit techniques (CAATs) that may be used.
- Transaction tagging–electronically marks specific transactions
- Embedded audit modules–sections of program code collect data for the auditor.
- Test data–use of the client’s system to process the auditor’s data, off-line.
- Integrated test facility–use of the client’s system to process the auditor’s data, online.
- Parallel simulation–use of auditor’s system to re-process client data.
In conducting an audit of an organization receiving federal financial assistance, what additional audit procedures must be performed in addition to the general requirements of GAAs and GAGAS?
- The auditor should obtain and document an understanding of I/C established to ensure compliance with the laws and regulations applicable to the federal financial assistance.
- In some instances, tests of controls are mandated to evaluate the effectiveness of such controls.
Audits of governmental entities may draw on up to three sets of standards or supplementary requirements. What are they and what are the circumstances that surround their application?
Generally Accepted Auditing Standards (all audits)
Generally Accepted Gov’t Auditing Standards (Yellow Book audits): auditee is a gov’t, or receives financial assistance from the gov’t
OMB Circular A-133 (Single Audits of Federal Financial Assistance): an entity expending more than $500,000 in federal assistance annually
ID the additional auditor responsibilities associated with gov’t audits under GAGAS.
- Obtaining an understanding of how laws, rules, and regulations relate to F/S amounts.
- Assessing the degree to which MGT has identified laws, rules, and regulations that have a material impact on F/S amounts.
- Obtaining reasonable assurance that F/S are free from material misstatements resulting from violations of laws, rules, and regulations associated with the determination of F/S amounts.
- Communication to MGT, as appropriate, that GAAS procedures alone will not fulfill additional audit requirements related to an audit of a government or of governmental assistance.
