Accountants' Professional Responsibilities Flashcards
How do AICPA standards affect accountants?
Since AICPA membership is voluntary, accountants can choose to place additional duties upon themselves beyond laws and regulations
How many articles are in the Principles of Conduct section of the AICPA Code of Professional Conduct?
Six
What is Article I of the Principles of Conduct?
Responsibilities – to use professional and moral judgment, to all who use their services, to improve accounting, and so on
What is Article II of the Principles of Conduct?
Public Interest – a commitment to integrity and objectivity for the public over personal gain
What is Article III of the Principles of Conduct?
Integrity – being honest within the boundaries of client confidentiality, being objective and independent
What is Article IV of the Principles of Conduct?
Objectivity & Independence – objectivity always required, independence (in fact and appearance) required for audit and attestation services
What is Article V of the Principles of Conduct?
Due Care – following standards, improving the quality of one’s services, the “quest for excellence”
What is Article VI of the Principles of Conduct?
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
If an accountant has an immaterial financial interest in a client, does that impair independence?
Yes, even though it’s immaterial
What kind of lease with a client would impair independence?
Capital lease
An operating lease would not impair independence
How can an accountant be involved with a nonprofit organization without impairing independence?
By having a merely honorary position on the board of directors or as a trustee (or whatever position he has)
What are grandfathered loans?
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
What kinds of personal loans do not impair independence?
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)
Does litigation between the client and the firm threaten independence?
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
When would a financial interest in a nonclient impair independence?
If the nonclient is a parent or subsidiary of the client
What are contingent fees?
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.
What are the two rules which AICPA members NOT in the practice of public accounting must still follow?
(1) Being objective
(2) Not committing acts discreditable to the profession
What are some examples of discreditable acts?
(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
When are CPAs forbidden from gaining commissions or referral fees with respect to their client?
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
When can a firm use the designation “Members of the AICPA” in its name?
Only when all of its CPA owners are AICPA members
What are the first four of the seven PCAOB rules that affect public accounting firms?
(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”)
What are the last three of the seven PCAOB rules that affect public accounting firms?
(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
What are the two primary principles of GAO standards?
(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
What is the main difference between the GAO and AICPA standards?
The GAO is generally stricter in requiring all nonaudit services to be immaterial relative to the subject matter of the audit
