A8 Ethical Requirements

Question 1

PCAOB Makeup

Answer 1

PCAOB consists of exactly 2 CPA’s and 3 non CPA’s. Sox Act requires the PCAOB to perform an annual inspection of each registered public firm that regularly provides audit reports for more than 100 issuers.

The Inspection is done once every 3 years for registered firms that issue 100 or fewer reports.

Once every year for those that provide more than 100 reports.

Question 2

Employment with Audit Clients

Answer 2

An audit team member may not accept employment as a CEO, CFO, accounting officer, or controller of an audit client that files with the SEC for one year. This is to discourage fraud.

Question 3

Audit Committee Members

Answer 3

These are to be members of the issuer’s BOD but must also otherwise be independent. Independence criteria speaks to audit committee member not accepting compensation from the issuer for consulting or advisory services, & members may not be an affiliated person of the issuer.

Question 4

Form 10 - K

Answer 4

This form is an annual report required by the SEC that gives a comprehensive summary of a company’s financial performance.

Question 5

Improper Influence

Answer 5

This occurs when an officer or director of an issuer fraudulently influences, coerces, manipulates, or misleads the auditor for the purpose of rendering the FS materially misleading.

Question 6

SOX Act 2022

Answer 6

With the intent to imporve accuracy & reliability of financial information, the act was formed by congress as a result of the shortfalls from Enron, WorldCom, Global Crossing, etc.

Question 7

Purpose of PCAOB

Answer 7

Established to examine auditors via the SOX act. Title I of the act details the Public Companies Accounting Oversight Board.

Board is subject to oversight by the SEC & is tasked with registering public accounting firms that perform audits for issuers, establishes rules for them & conduct investigations.

Sanctions can be imposed ($750K for individuals & $1.5 million for registered firms for misconduct)

Question 8

Annual Inspections

Answer 8

Done for firms that reports more than 100 issuers once per year.

Done every 3 years for those that report fewer.

Question 9

Fines & Imprisonment

Answer 9

Anyone who alters, destroys, or conceals records with the intent to impeded, obstruct, or influence ad investigation will be fined, imprisoned (up to 20 years) or both

Question 10

Document Retention

Answer 10

Auditors should retain all audit & review workpapers for 7 years the the audit was conducted. Failure to do so will result in fines, imprisonment (up to 7 years) or both