AUD 2: Professional Responsibilities and Ethics Flashcards
What are some services that a CPA may perform in carrying out a consulting service for a client?
I. Analysis of the client’s accounting system
II. Review of the client’s prepared business plan
III. Preparation of information for obtaining financing
Deliberate underbidding
When a CPA represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representations that the actual fee would be much higher.
Working Papers
The accountant owns the working papers but they contain information about client’s that is considered confidential. As a result, the information may not be disclosed without the client’s permission unless it falls under one of the exceptions: (1) Valid subpoena, (2) IRS administrative subpoena, (3) Court order, or (4) Quality Control peer review
Loans that do NOT impair independence
Loans that may be obtained from a financial institution client without impairing a CPA’s independence include: (1) automobile loans collateralized by the automobile, (2) loans fully collateralized by the cash surrender proceeds of a life insurance policy, (3) loans fully collateralized by cash deposits at the same institution, (4) and credit card and overdraft reserve loans that do no exceed $10,000.
Which events justify a departure from a Statement of Financial Accounting Standards?
Departure from the requirements of a Statement of Financial Accounting Standards issued by the FASB may be justified when conforming would produce misleading financial statements. This might be the case if: there is (1) New legislation or (2) Evolution of a new form of business transaction.
SOX 404
Requires that management acknowledge its responsibility for establishing and maintaining adequate internal control over financial reporting and that management assess the effectiveness of internal control as of the end of the period.
According to the AICPA Code of Professional Conduct, under which of the following circumstances may a CPA receive a contingent fee for services?
A CPA may only preform engagements for contingent fees if they involve representing a client in an examination of a income tax return or filing an amended income tax return claiming a refund. No other services may be preformed by a CPA for a contingent fee.
Contingent fee for amended tax returns permitted when:
Either (1) the tax refund is being claimed based on a tax issue that is subject to a test case or with respect to which the taxing authority is developing a position, or (2) the claimed tax refund exceeds the threshold for review by the Joint Committee on Internal Revenue Taxation or state taxing authority.
Tax practitioner should support:
a tax position which he or she believes in goof faith has at least a reasonable basis, generally understood as a 20% likelihood, of being sustained on its merits. Merely being arguable does not necessarily meet the reasonable basis threshold. (Supporting a position with a realistic possibility 33% of success is preferable)
According to the AICPA Code of Professional Conduct, which nonaudit services is a CPA prohibited from performing for an audit client?
Provided the general requirements for performing nonattest services are met, the accountant may preform most bookkeeping services and many tax services without impairing independence. When serving in a tax advocacy role, such as representing the client in tax court, independence would be impaired.
