AICPA Part 1 Flashcards
AICPA ruling requires a CPA acting as a witness to…
NOT be an advocate but give their position objectively
personal loans, student loans and home mortgage (fully secured loan) or immaterial unsecured loan will…
NOT impair independence so long as it was obtained BEFORE the client became an attest client
an auto loan will…
NOT impair independence regardless to when it was obtained
what are the 5 elements necessary to prove negligence & be successful in a negligence lawsuit
CAMPS
1. Casual relationship: plaintiff suffered harm because of CPA’s action
2. Absence of reasonable due care: CPA didn’t use the same skill and care an ordinary prudent CPA would use in performing services under the same set of circumstances 
3. Material misstatement: CPAs work contained material misstatements
4. Privity: CPA has a duty only to clients or intended/foreseen third party (only they who can sue)
5. Suffered loss: the plaintiff suffered financial loss
Contingent fees
Are priced based on the outcome of the services provided
advisory services are allowable as long as CPA….
does NOT make decisions on behalf of the client
What is partner equivalent
having the responsibility for the conduct of an attest agreement OR authority to bind the firm to conduct an attest engagement without partner approval
if more than ________ of a trust’s assets are in a represented client’s shares, independence is __________
10%; impaired
client records…
- must be returned within 45 days of client’s request
- cannot be withheld even for unpaid fees, litigation or incomplete
- are property of the client
documents prepared by the CPA generally remain the property of the CPA
is independence required at the time a loan is obtained?
no; and if it becomes fully secured by the attest/audit period, it is grandfathered in by the code of professional conduct
the standard of receiving gifts relative to independence are…
judged by their significance to the recipient
the impact of entertainment upon independence is…
judged by it being reasonable in the circumstances
a covered member may hold..
no direct financial interest in an audit client
If a financial, consulting or employment relationship with an entity is any of these 3 things, an independence issue exists
- controlled by the attest client
- that controls a client when a client is material
- in which the client has a direct and material financial interest
independence rules must be met during the period covered by….
the financial statements AND the professional engagement
If fees remain unpaid/unbilled for any professional service (not solely attest services) provided for more than 1 year prior to the CY’s report date..
Independence is impaired
no attest report can be issued until fees are paid; does not apply if client is in bankruptcy; note payable DOES NOT constitute payment
Bookkeeping services __________ impair independence from nonissue clients
DO NOT; so long as they do not involve making managerial decisions on behalf of the client
independence is not impaired by immediate family’s participation if the following safeguards are met:
- CPA is not on engagement team and not in a position to influence engagement
- immediate family member is not a trustee for the ESOP and cannot participate in the selection of investment options
- if the spouse or dependent receives a financial interest in an attest client through an ESOP, it must be disposed of no later than 30 days after the right to do so is obtained
if services are rendered under normal terms, procedures and requirements and the assets in the account are immaterial to the CPAs worth, independence is
NOT impaired
in order to reissue its last audit report without an independence problem, a CPA can assess the effects of recent facts on the original report by…
- making inquires of successor auditors
- reading subsequent financial stmts
there are 7 exceptions to the rule on confidential client information
- comply with subpoena or summons
- comply with quality control peer review
- comply with laws and regulations
- initiate, pursure or defend against actual or potential lawsuits
- initiate or respond to complaints with AICPA or trial board
- secure legal advice from an attorney
- permit electronic preparation or submission of client’s TR
principle of due care requires…
CPAs to consult with experts, does not require specialty accreditation
If a CPA has direct financial interest (having ownership and control) OR
material indirect financial interest (having ownership rights but not control)…
independence is impaired
What are the 3 conditions that have to exist in order for the employee(s) of the CPA firm to have an account with an audit client who is a bank?
- the balance is fully insured
- any uninsured amounts are not material to the members worth
- any uninsured amounts considered material are reduced to an immaterial level within 30 days
there are 7 threats to a CPAs independence
U SAS FAM
1. adverse interest threat
2. advocacy threat
3. familarity threat
4. management participation threat
5. self-interest threat
6. self-review threat
7. undue influence threat
What 3 characteristics define attest?
- due care,
- objectivity and integrity,
- AND independence in both fact and appearance
What 2 characteristics are defined by non-attest work (all other work)?
- due care,
- AND integrity and objectivity
members in public practice are the most..
restrictive applicable provisions to apply if employed in multiple jurisdictions of business
3 main steps to apply the Conceptual Framework
- identify threats
- evaluate the significance of the threats
- identify and apply safeguards
if a service provided is viewed as involving a high degree of subjectivity, independence is
impaired
