Accountants' Professional Responsibilities

Question 1

How do AICPA standards affect accountants?

Answer 1

Since AICPA membership is voluntary, accountants can choose to place additional duties upon themselves beyond laws and regulations

Question 2

How many articles are in the Principles of Conduct section of the AICPA Code of Professional Conduct?

Answer 2

Six

Question 3

What is Article I of the Principles of Conduct?

Answer 3

Responsibilities – to use professional and moral judgment, to all who use their services, to improve accounting, and so on

Question 4

What is Article II of the Principles of Conduct?

Answer 4

Public Interest – a commitment to integrity and objectivity for the public over personal gain

Question 5

What is Article III of the Principles of Conduct?

Answer 5

Integrity – being honest within the boundaries of client confidentiality, being objective and independent

Question 6

What is Article IV of the Principles of Conduct?

Answer 6

Objectivity & Independence – objectivity always required, independence (in fact and appearance) required for audit and attestation services

Question 7

What is Article V of the Principles of Conduct?

Answer 7

Due Care – following standards, improving the quality of one’s services, the “quest for excellence”

Question 8

What is Article VI of the Principles of Conduct?

Answer 8

Scope & Nature of Services – AICPA members should be parts of firms with good quality control, determine any conflicts of interest in services provided, and so on

Question 9

If an accountant has an immaterial financial interest in a client, does that impair independence?

Answer 9

Yes, even though it’s immaterial

Question 10

What kind of lease with a client would impair independence?

Answer 10

Capital lease

An operating lease would not impair independence

Question 11

How can an accountant be involved with a nonprofit organization without impairing independence?

Answer 11

By having a merely honorary position on the board of directors or as a trustee (or whatever position he has)

Question 12

What are grandfathered loans?

Answer 12

Permissible loans/loans which do not impair independence

Generally includes loans made with an institution before legislation was enacted declaring such a loan to be harmful to independence

Question 13

What kinds of personal loans do not impair independence?

Answer 13

Generally, loans that are fully collateralized (e.g. car loan with the car itself as collateral, a loan collateralized by CSV for a life insurance policy)

Question 14

Does litigation between the client and the firm threaten independence?

Answer 14

Yes, whether real or threatened – and whether against the client or against the firm

The claim has to be generally large, whether claiming fraud on management’s behalf or shoddy work on the accountant’s behalf

Question 15

When would a financial interest in a nonclient impair independence?

Answer 15

If the nonclient is a parent or subsidiary of the client

Question 16

What are contingent fees?

Answer 16

Fees dependent upon the results of the service provided

CPAs are not allowed to perform services for contingent fees. Fees can be contingent on other things (e.g. how complex the service is), but not on results.

Question 17

What are the two rules which AICPA members NOT in the practice of public accounting must still follow?

Answer 17

(1) Being objective

(2) Not committing acts discreditable to the profession

Question 18

What are some examples of discreditable acts?

Answer 18

(1) Refusing to return a client’s records upon request
(2) Discrimination and harassment
(3) Failing to follow requirements of government bodies
(4) Soliciting or providing CPA exam questions and answers
(5) Failing to pay taxes

Question 19

When are CPAs forbidden from gaining commissions or referral fees with respect to their client?

Answer 19

If they offer (a) an audit or review, (b) a compilation that a third party will use, or (c) an examination of prospective financial information, then CPAs cannot gain anything from referrals or commissions related to the client, whether the client is buying or selling

Any permissible commissions/referral fees regarding the client should be disclosed to the client

Question 20

When can a firm use the designation “Members of the AICPA” in its name?

Answer 20

Only when all of its CPA owners are AICPA members

Question 21

What are the first four of the seven PCAOB rules that affect public accounting firms?

Answer 21

(1) Audit workpapers to support conclusions must be retained for at least seven years
(2) A second partner must review and approve audit reports
(3) Registered public accounting firms must have quality control standards
(4) Firms must attest to and report on management’s assessment of internal controls (in an “internal control report”)

Question 22

What are the last three of the seven PCAOB rules that affect public accounting firms?

Answer 22

(5) PCAOB must notify SEC and coordinate investigation with SEC over any violations of securities laws
(6) Lead audit/coordinating partner and review partner must both rotate off an audit every five years
(7) Firm must maintain communications with client audit committee, which must have at least one financial expert

Question 23

What are the two primary principles of GAO standards?

Answer 23

(1) Audit entities shouldn’t provide nonaudit services that perform management functions
(2) Audit entities shouldn’t audit their own work, or provide nonaudit services that would be material to the subject matter of their audits

Question 24

What is the main difference between the GAO and AICPA standards?

Answer 24

The GAO is generally stricter in requiring all nonaudit services to be immaterial relative to the subject matter of the audit