AUD 6.7 - The AICPA Code Of Professional Conduct

Question 1

This governs any service that a member of the AICPA performs including audits, special reports, compilations, reviews, services performed on financial forecasts and projections as well as attestation engagements

Answer 1

The AICPA’s Code of Professional Conduct

Question 2

A professional code of conduct is a distinguishing mark of a profession that:

Answer 2

Accepts a high degree of responsibility toward the public

Question 3

The AICPA code of professional conduct is separated into three parts:

Answer 3

Public practice
In business
Other members

Question 4

What principles provide the framework that is the basis for the AICPA code of conduct?

Answer 4

Responsibilities
Public interest
Integrity
Objectivity and independence
Due care
Scope and nature of services

Question 5

Objectivity applies to what and independence applied to what?

Answer 5

Objectivity applies to all services
Independence applies to attestation service only (audit, special reports, and review)

Question 6

Other member (retired or unemployed) only need to follow what rule of the code of conduct?

Answer 6

Acts discreditable rule

Question 7

Members in business only need to follow what rules of the code of conduct?

Answer 7

Integrity and objectivity rule
General standards rule
Compliance with standards rule
Accounting principles rule
Acts discreditable rule

Question 8

What rules must members in public practice follow of the code of conduct?

Answer 8

ALL of the rules

Question 9

Who is considered part of the “covered members”, “immediate family”, and “close relatives”

Answer 9

Covered members - audit team and office/boss (chain of command)
Immediate family - spouse and dependents (living under your roof)
Close relatives - parents, siblings, and adult kids (people you must invite to your wedding)

Question 10

Under the independence rule of the AICPA code of conduct, when is independence not required? Who must maintain independence?

Answer 10

Independence is not required for compilations and non-attest services
Covered members and immediate family must b independent

Question 11

Independence is impaired if a covered member:

Answer 11

Has direct financial interest of a material indirect financial interest in an attestation client

Question 12

What are examples of direct financial interest?
What are examples of indirect financial interest?

Answer 12

Direct: stock ownership, even if its a blind trust. Partnership with the member as a general partner. Member is a trustee.
Indirect: owns shares in a mutual fund. Owns a direct financial interest in Company A and Company A has a direct financial interest in the attestation client

Question 13

Independence is impaired if a covered member of immediate family has:

Answer 13

A loan to or from the client

Question 14

Independence is not impaired in a financial institution client by:

Answer 14

Car loans fully collateralized
Credit cards with a balance below 10,000
A bank that is fully insured by the government (FDIC limit below 250,000)

Question 15

Independence is impaired by employment relationships such as:

Answer 15

Individual was formerly employed by the client and participates on the engagement team when the engagement covers any period of their employment with the client

An immediate family member or close relatives improvement with a client in a key position

Parter or professional employee leaves the firm and is employed by the client in a key position within one year of the engagement

A member of the engagement team is seeking or discussing potential employment with the client

Question 16

Examples of activities with an attestation client that impair independence (AICPA) include:

Answer 16

Booking activities that include authorizing, executing, or consummating
Custody of the clients assets
Supervising client employees
Financial information systems design and implementation
Appraisal, valuation, or actuarial services
Management of internal audit activities
Litigation services
Expert witness services

Question 17

Does being a member of or an honorary trustee impair independence? Does membership in the same trade association impair independence?

Answer 17

No
No

Question 18

If a client is more than one year overdue in the payment of professional fees:

Answer 18

Independence is impaired

Question 19

A member in public practice may not disclose any confidential client information without the specific consent of the client except for several exceptions:

Answer 19

1. Subpoena or summons
2. Part of a quality review
3. Ethics division or the trial board of the AICPA or disciplinary body of a state CPA society requests
4. Legal defense team

Question 20

Contingent fees are not allowed unless:

Answer 20

They are fixed by the courts
Or
They are based on the results of court proceedings

Question 21

Commissions and referral fees are only allowed when performing:

Answer 21

Compilation, tax, or advisory services

(Must be disclosed)

Question 22

If all the partners except one have died or left the firm, the remaining partner may:

Answer 22

Continue o practice under the partnership name for up to two years after becoming a sole practitioner

Question 23

There are three conceptual frameworks included in the AICPA code of professional conduct:

Answer 23

Conceptual framework for members in public practice
Conceptual framework for independence
Conceptual framework for members in business

Question 24

The conceptual framework approach to the AICPA code of conduct requires initiatives to follow what three steps?

Answer 24

1. Identify threats
2. Evaluate significance of threats
3. Apply safeguards to eliminate threats

Question 25

What are the 7 threats to compliance with the fundamental principles of the AICPA code of conduct?

Answer 25

1. Adverse interest threat 2. Advocacy threat 3. Familiarity threat 4. Management participation threat 5. Self-interest threat 6. Self-review threat 7. Undue influence threat