Area 1 Flashcards
In order for a CPA to remain independent regarding unsolicited financial interests (eg unexpected inheritance) related to an attest client
must dispose of it no later than 30 days after they become aware and have the right to do so.
Independence
An objective mindset that has no actual or perceived conflicts of interest when conducting attest services on the client
When an auditor is peforming audit on the employee benefit plan annually according to Department of Labor guidelines
He must be independent in order to examine financial information filed annually with the DOL
GAO Ethics on AICPA Conceptual Framework & Code of Professional Conduct when Identifying Threats to Compliance that fall under a set of Provisions
Provisions: GAO & AICPA
Threats: undue influence threats, familiarity threats, management participation threats
7 Potential Threats to a CPA’s Independence
Adverse Interest Threat
Advocacy Threat
Familiarity Threat
Management Participation Threat
Self-Interest Threat
Self-Review Threat
Undue Influence Threat
Contingent fees prohibited for
Preparation of tax return or refund claim
Any engagement for client for whom a CPA performs:
•Audit for review of financial statements
•Compilation of financial statements used by third party (unless lack of independence disclosed)
•Examination of prospective financial information
Unpaid fees from more than 1 year before current year’s report impair independence
Applies whether or not unpaid fees are from attest services
Applies whether or not fees due have been billed
Does not apply if client is in bankruptcy
Note payable does not constitute payment
Commissions prohibited
Any sale for or to a client for whom the CPA performs:
•audit or review of financial statements
•compilation of financial statements to be used by third party (unless lack of independence disclosed)
•examination of prospective financial information
Before accepting an engagement to audit a new client, a CPA is required to obtain
The prospective client’s consent to make inquiries of the predecessor, if any.
A CPA in charge of the external audit of a nonissuer received an unexpected inheritance that includes 100 shares of the audit client’s common stock. Which of the following actions should the CPA take to avoid violating independence rules?
Sell or donate the stock within 30 days after receipt of ownership rights.
What should an auditor do to exercise due professional care?
Critically review the judgment exercised by less experienced members of the audit team.
Section 404 of SOX 2002 requires each annual report of an issuer to include
Management’s assessment of how effective internal control is over financial reporting.
Under the ethical standards of the profession, what is a “permitted loan” regardless of the date it was obtained?
Secured Automobile Loan
According to the AICPA Code of Professional Conduct, a CPA may receive a contingent fee for services
By representing a client in an IRS examination of the client’s federal income tax return.
According to the AICPA Code of Professional Conduct, which of the following circumstances is most likely to impair a CPA’s independence?
The CPA is a trustee, but not a beneficiary, of the trust that holds 15% of the client’s stock.
In this situation there is a violation of client confidentiality under the AICPA Code of Professional Conduct.
A member whose practice is primarily bankruptcy discloses the client’s name.
In response to an increased level of assessed risk of material misstatement, an auditor of a nonissuer would generally
Increase emphasis on professional skepticism when gathering and evaluating audit evidence with the audit team.
To support professional skepticism, each of the following is a potential BIAS of which auditors must be aware in their own judgments of audit evidence.
Automation
Confirmation
Overconfidence
Confirmation Bias
Tendency to seek out information that validates existing beliefs.
An attitude that includes a questioning mind and a critical assessment of audit evidence is
Professional Skepticism
Professional skepticism requires that an auditor assume that management is
Neither honest nor dishonest.
When a PCAOB auditing standard indicates that an auditor “could” perform a specific procedure, how should the auditor decide whether and how to perform the procedure?
By exercising professional judgement in circumstances.
An issuer’s auditor is banned from providing tax services to whom?
CEO
Audit engagement team members should remain alert for evidence of noncompliance with what relevant ethical requirment?
Performing professional responsibilities with the highest sense of integrity.
