AICPA Part 1

Question 1

AICPA ruling requires a CPA acting as a witness to…

Answer 1

NOT be an advocate but give their position objectively

Question 2

personal loans, student loans and home mortgage (fully secured loan) or immaterial unsecured loan will…

Answer 2

NOT impair independence so long as it was obtained BEFORE the client became an attest client

Question 3

an auto loan will…

Answer 3

NOT impair independence regardless to when it was obtained

Question 4

what are the 5 elements necessary to prove negligence & be successful in a negligence lawsuit

Answer 4

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

Question 5

Contingent fees

Answer 5

Are priced based on the outcome of the services provided

Question 6

advisory services are allowable as long as CPA….

Answer 6

does NOT make decisions on behalf of the client

Question 7

What is partner equivalent

Answer 7

having the responsibility for the conduct of an attest agreement OR authority to bind the firm to conduct an attest engagement without partner approval

Question 8

if more than ________ of a trust’s assets are in a represented client’s shares, independence is __________

Answer 8

10%; impaired

Question 9

client records…

Answer 9

1. must be returned within 45 days of client’s request
2. cannot be withheld even for unpaid fees, litigation or incomplete
3. are property of the client
   documents prepared by the CPA generally remain the property of the CPA

Question 10

is independence required at the time a loan is obtained?

Answer 10

no; and if it becomes fully secured by the attest/audit period, it is grandfathered in by the code of professional conduct

Question 11

the standard of receiving gifts relative to independence are…

Answer 11

judged by their significance to the recipient

Question 12

the impact of entertainment upon independence is…

Answer 12

judged by it being reasonable in the circumstances

Question 13

a covered member may hold..

Answer 13

no direct financial interest in an audit client

Question 14

If a financial, consulting or employment relationship with an entity is any of these 3 things, an independence issue exists

Answer 14

1. controlled by the attest client
2. that controls a client when a client is material
3. in which the client has a direct and material financial interest

Question 15

independence rules must be met during the period covered by….

Answer 15

the financial statements AND the professional engagement

Question 16

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..

Answer 16

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

Question 17

Bookkeeping services __________ impair independence from nonissue clients

Answer 17

DO NOT; so long as they do not involve making managerial decisions on behalf of the client

Question 18

independence is not impaired by immediate family’s participation if the following safeguards are met:

Answer 18

1. CPA is not on engagement team and not in a position to influence engagement
2. immediate family member is not a trustee for the ESOP and cannot participate in the selection of investment options
3. 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

Question 19

if services are rendered under normal terms, procedures and requirements and the assets in the account are immaterial to the CPAs worth, independence is

Answer 19

NOT impaired

Question 20

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…

Answer 20

1. making inquires of successor auditors
2. reading subsequent financial stmts

Question 21

there are 7 exceptions to the rule on confidential client information

Answer 21

1. comply with subpoena or summons
2. comply with quality control peer review
3. comply with laws and regulations
4. initiate, pursure or defend against actual or potential lawsuits
5. initiate or respond to complaints with AICPA or trial board
6. secure legal advice from an attorney
7. permit electronic preparation or submission of client’s TR

Question 22

principle of due care requires…

Answer 22

CPAs to consult with experts, does not require specialty accreditation

Question 23

If a CPA has direct financial interest (having ownership and control) OR
material indirect financial interest (having ownership rights but not control)…

Answer 23

independence is impaired

Question 24

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?

Answer 24

1. the balance is fully insured
2. any uninsured amounts are not material to the members worth
3. any uninsured amounts considered material are reduced to an immaterial level within 30 days

Question 25

there are 7 threats to a CPAs independence

Answer 25

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

Question 26

What 3 characteristics define attest?

Answer 26

1. due care,
2. objectivity and integrity,
3. AND independence in both fact and appearance

Question 27

What 2 characteristics are defined by non-attest work (all other work)?

Answer 27

1. due care,
2. AND integrity and objectivity

Question 28

members in public practice are the most..

Answer 28

restrictive applicable provisions to apply if employed in multiple jurisdictions of business

Question 29

3 main steps to apply the Conceptual Framework

Answer 29

1. identify threats
2. evaluate the significance of the threats
3. identify and apply safeguards

Question 30

if a service provided is viewed as involving a high degree of subjectivity, independence is

Answer 30

impaired