AUD 6.8 - Ethical Requirements Of The SEC And PCAOB

Question 1

The PCAOB is composed of how many members?

Answer 1

5
2 must be CPAS and 3 must not be CPAS

Question 2

Who audits the audit firms that audit public clients?

Answer 2

The PCAOB

Question 3

SOX Title 1 deals with?

Answer 3

The PCAOB that has the duty to:
Register public accounting firms that prepare issuer audits
Establish rules relating to the preparation of audit reports for issuers
Conduct inspections, investigations, and disciplinary proceedings

Question 4

Who receives annual PCAOB inspections?
Who receives PCAOB inspections every 3 years?

Answer 4

Annual - firms that provide audit reports for over 100 issuers
Every 3 years - firms that provide audit reports for 100 or fewer issuers

Question 5

Each registered PCAOB firm must maintain audit documentation for how long? Do they need to have concurring or second partner review?

Answer 5

7 years
Yes

Question 6

SOX Title II deals with?

Answer 6

Auditor independence

Question 7

A registered public accounting firm that performs SEC audits may not provide the following services to the audit client:

Answer 7

Bookinging
Financial information system design and implementation
Appraisal and valuation services
Actuarial services
Management functions or HR services
Internal audit outsourcing services
Broker, dealer, investment adviser, or investment banker services
Legal services
Expert witness services

Question 8

What service is permissible for registered public accounting firms for an audit client?

Answer 8

Corporate Tax services if approved by the audit committee

Question 9

The lead audit or coordinating partner and reviewing partner must rotate off the audit client how often?

Answer 9

Every 5 years

Question 10

The audit firm cannot employee the issuer’s CEO, CFO, Controller, CAO for how long after the engagement?

Answer 10

One year period preceding the audit

Question 11

SOX Title III deals with?

Answer 11

Improper influence on conduct of audits

Question 12

All types of direct financial investments and material indirect investments impair an auditors independence. Examples of such investments include:

Answer 12

Stocks, bonds, notes, options, or other securities
Beneficial ownership of more than 5 percent
Service as a voting trustee

Question 13

Other financial interest that impair auditors independence include:

Answer 13

Loans to or from an auto client
Savings and checking accounts with balanced exceeding $250,000
Broker-dealer accounts if the account includes assets other than cash
Futures commission merchant accounts
Credit card balances in excess of $10,000
Insurance products
Financial interest in an investment company complex that includes an audit client

Question 14

Other audit partners that are not the lead partner or the concurring partner, must rotate of the engagement how often?

Answer 14

Every 7 years

Question 15

Lead partners and concurring partners are subject to a timeout period for how long before returning to an engagement? Other partners that are not the lead or concurring partner are subject to a timeout period of how long?

Answer 15

Lead and concurring - 5 years
Others - 2 years

Question 16

Who is exempt from the partner rotation requirement?

Answer 16

Small firms with fewer than 5 clients who are issuers and have fewer than 10 partners

Question 17

Preapproval by the audit committee is not required for what services?

Answer 17

Non-audit service that do not exceed 5 percent of total revenues from the audit client