AUD 1: Ethics, Independence & Professional Conduct Flashcards
What is due care principle for AICPA Code?
Requires compliance with technical and ethical standards while continuing to endeavor to improve the CPA’s competence and quality of services, which is accomplished through a commitment to learning throughout the CPA’s professional life, and diligence in the provision of professional services enabling performance to the best of the CPA’s ability. Due care also requires a CPA to remain competent and to understand the limitations to that competence, which may result in consultation or the referral of services, and to adequately plan and supervise all professional activities for which the CPA is responsible.
What are the six principles of the Code of the AICPA?
*Responsibilities
*Public Interest
*Integrity
*Objectivity and Independence
*Due Care
*Scope and Nature of Services
What are the seven categories of threats identified in the Code?
*Self-review - auditing own work
*Advocacy - promote client’s interests
*Adverse Interest - client and auditor don’t like each other.
*Familiarity - close and longstanding relationship
*Undue Influence - exercise an excessive amount of influence
*Self-Interest - opportunity to obtain a potential benefit
*Management Participation - auditor takes on role of management or management functions.
When is objectivity and integrity impaired?
*Conflicts of Interest - when a cpa is performing professional services related to a matter for two or more clients with conflicting interests or when the the interests of the cpa or firm conflict with those of the client.
*Gifts or Entertainment - Go by the policies in place.
What is a covered member?
Is an individual, firm, or entity that can influence an attest engagement.
Who do covered members include?
*Members of the attest engagement team
*Individuals in a position to influence the attest engagement
*Partners, partner equivalents, or managers providing more than 10 hours of nonattest services to the attest client within a fiscal year
*Partners or partner equivalents in the same office in which the lead engagement partner for the attest engagement practices
*The firm or the firm’s employee benefit plan
*An entity controlled by any of the above or two or more of the above together.
Do not need to be independent for? (AICPA Code)
*Compilations - independence is expected, but not required. Lack of independence must be disclosed.
*Taxes
*Consultations
*F/S preparation engagements
*Other nonatttest services, such as bookkeeping or payroll.
Must be independent for? (AICPA Code)
*Audits
*Reviews
*Examinations
*Agreed-upon Procedures
AICPA Code rules on unpaid fees.
When fees for services that were performed more than one year before the date of the current year report remain unpaid, this creates a threat to independence that cannot be reduced to an acceptable level. This is true even if the fees have not been billed to the client and if the client has signed a note for the amount owed. This does not apply to unpaid fees due from a client in bankruptcy.
AICPA Code rules on financial interests.
Direct or material indirect financial interest.
*Mutual fund is indirect
Safeguards
-The financial interest is disposed of within 30 days of learning about and gaining the ability to dispose of the interest.
-The member does not participate on the attest engagement team during the period in which the covered member does not have the right to dispose of a material financial interest.
AICPA Code - Financial interests - Mutual funds
The response to these interests varies depending on the proportion of the mutual fund owned by the member and the diversity of the mutual fund’s holdings.
*Ownership of 5% or less of a diversified mutual fund results in an immaterial indirect interest in its investments.
*Ownership of more than 5% of a diversified fund, or an ownership interest in an undiversified fund, should be evaluated to determine if the member hold a material indirect financial interest.
AICPA Code - Financial Interests - Other
*A general partner has a direct financial interest in the partnership’s financial interests.
*A limited partner has indirect financial interest unless the limited partner controls the partnership, supervises or participates in the partnership’s investment decisions, or ability to replace the general partner or participate in investment decisions.
*Ownership interest in a limited liability company (LLC) is direct.
*Unless you dont have ability to control, supervise, or participate in the LLC’s investment decisions.
Account owner of a Section 529 prepaid tuition plan has a direct interest in plan and an indirect interest in the underlying investments.
