Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CPA AUDIT > AUD CH 2 - Professional Responsibility & Ethics > Flashcards

AUD CH 2 - Professional Responsibility & Ethics Flashcards

1
Q

What happens if the CPA does not adhere to the AICPA code of conduct (ET)?

A

The State Board of accountancy in his or her statement is suspended or revoked CPAs license

  • if felony or fraudulently filing a tax return, The AICPA can expel the member
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Purpose of the financial statement audit

A

To express an opinion on financial statements of client

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Do the 10 GAAS always stay the same?

A

Standards themselves are always the same but the specifics procedures needed To fulfill the standards will vary for each engagement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is independence according to rule 101?

A

AICPA ability to act with integrity and objectivity.

Independent means you, your spouse, Dependent kids, or dependent relatives

  • Should be maintained in both fact and appearance
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is fact of independence?

A

State of mind

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is Appearance of independence?

A

how independence appears to the public

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are some reasons for lack of independence?

A
  1. Any direct financial Interest in the client (Immediate family, 10%+)
  2. Any material indirect financial interest In the client (Close family)
  3. More than one year of on these outstanding (paid before issue of current Year report)
  4. Covered members are not independent (must be Independent)
  5. Loan from client (exceptions apply)
  6. Material litigation involving the Credibility of accountant Or management
  7. Accepts more than just a token gift
  8. Capital lease with client
  9. Immediate/close family member employed position the client
  10. FINAL responsibility for journal entries (prep of adj.’s are OK/client must review)
  11. Take the role of management responsibilities
  12. Information systems DIM (OTS software is OK, chart of accounts OK)
  13. Appraisal, valuation, and actuarial services when material
  14. Internal audit assistance services (‘outsourcing’)… (within normal scope of I/A is OK)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Covered members

A
  • Must be independent
  • All partners in the office
  • Partners or managers who provide non-attest services to be attest client
  • All members of the Audit engagement Team
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are some Circumstances that Will not impair independence?

A
  1. Consulting (not OK under PCAOB)
  2. Litigation (immaterial to both sides & do not involve trust)
  3. Loans (exceptions)
  4. Unpaid audit fees (current year only)
  5. Operating lease
  6. Social club membership
  7. Checking or savings account, CD or Money market account
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Type of loans that will not impair Independence?

A
  1. Financial institution loans
  2. Car loan/lease Collateralized by vehicles
  3. Life insurance loan
  4. Compensating balance Love (Fully collateralized by cash deposits)
  5. Credit cards and Overdraft protection (
  6. Grandfathered loans (Normal lending Practices, Current on all payments, Not modified from the original Loan agreement)
  7. Loans fully collateralized by cash balances
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Services were Independence is not Required

A
  1. Taxes
  2. Consultation
  3. Compilations (when lack of Independence is indicated)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Procedures required before an Auditor takes employment with an audit client?

A

*Independent standards Board

  1. Inform audit firm of conversations with client about possibility
  2. Immediately be removed from the Audit
  3. After removed, the audit firm let’s review the work performed by the other (Ensure professional Skepticism)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Procedures required after the Auditor takes employment with an audit client?

A
  1. Audit firm must consider modifying the audit plan
  2. Assure remaining audit team is objective
  3. The next annual audit must be separately reviewed By an audit firm professional uninvolved in the audit

(Lose client For 1 year)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Procedures required when the monitor was previously employed by audit client?

A

* Independence will be impaired if the audit covers any period during which the member was employed by the client

  1. Any member most fully disassociated from the client
    - Terminate relationships
    - Dispose of any direct or material indirect financial interest
    - Collecting or paying any loans (Except grandfathered loans)
    - exiting from all employee benefit programs (Except legally required and paid for by member)
    - Liquidating or transferring all the vested Benefits (Unless significant penalties would result)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the Three conditions for providing non-attest services without impairing Independence?

A
  1. Not assuming management responsibilities
  2. Client has agreed to responsibilities, oversee service, eval/accept results
  3. Established understanding the client (documented in writing)
    - Objectives, Services, Client responsibilities Accepted, CPA Responsibilities, Engagement limitations

* Providing advice and answering Client questions is OK (normal Relationship)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the effects of the CPA reporting to the audit committee on behalf of management regarding the internal audit function?

A

Impairs the independence of the Firm

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is the approach used by the accountant to Evaluate Independence?

A

A Risk-based approach

  1. Identify and evaluate Threats independence
  2. Determine if safeguards are effective Against threats
  3. If Safeguards do not eliminate or sufficiently Mitigate any Threats, Independence is considered Impaired
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

When is integrity and objectivity required?

A

Rule 102: performance of any professional service

  • Avoid conflicts of interest & Not knowingly misrepresent facts Or Subordinate judgment
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What must internal Auditor maintain when assisting The external auditor?

A

Competence and objectivity

(Independence is not required)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are the general standards and When do they apply?

A
  • Rule 201: For all professional engagements
  • Competency, Due professional care, Adequately plan/supervise, Reasonable basis for conclusions/Recommendations
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

When are you unable to provide positive or negative Assurance?

A

Material GAAP Departures

*Unless when following GAAP is misleading

  • May depart without modifying report Is new legislation or a new form of business transaction exists
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are the exceptions For revealing client information with client permission?

A
  1. Valid subpoena or court order
  2. Inquiry but AICPA Trial Board
  3. Quality control peer-reviewed program
    - No professional Courtesy
    - Will not take copies of client files when leaving the firm
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

When are you able to accept contingent Fees?

A

For income tax return examination Or amended Income tax returns claiming refund

BUT fee must be FIXED (Not a percentage)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

When are you unable to accept contingent Fees?

A
  • Audits
  • Reviews
  • Compilations (General use & Independent)
  • Examination prospective financial statements
  • Original or Amended tax return (examination/amended for refund OK)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What are Acts Discreditable?

A
  • Retaining client records to enforce payment
  • Deliberate underbidding
  • Negligence
  • Filing a fraudulent tax return
  • Committing a felony
  • Complying to all requirements of government bodies, Regulations, GAAP/GAAS (& PCAOB if public)
  • Solicitation or disclosure of CPA exam questions and answers
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

When are commissions and referral fees Acceptable?.

A

ONLY IF BOTH

  1. Non-attest Engagement client

AND

  1. Payment only disclosed client

(No commission if required To be independent)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

When confirmed designate itself as members of the AICPA?

A

CPA OWNERS must be members of the AICPA

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What characteristics are Required from the Auditor for a consulting service?

A

Integrity and objectivity

& General Standards (TiPPaCanoe)

(Independence is not Required)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Where the general standards of the consulting profession?

A
  1. Professional competence (T)
  2. Due professional care (P)
  3. Planning & supervision (P)
  4. Sufficient relevant data ©
  5. Client interest (I&O)
  6. Understanding With client
  7. Communication with the client
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

The types of consulting services

A
  1. Advisory
  2. Implementation
  3. Product
  4. Technical Assistance in implementing a new IT system
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What don’t the Statements on valuation services cover?

A
  1. Audits, compilations, and reviews
  2. Client-provided/ 3rd Party provided values
  3. Value economic damages
  4. Mechanical Computations that do not involve the application of valuation approaches
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What does the performance of a valuation service require?

A
  • Professional competence
  • Objectivity
  • Disclosure of potential conflicts of interest
  • Understanding with the Client
  • Disclosure of limitations In the report
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What it is issued for valuation service?

A
  1. Detailed or summary report for a valuation Engagement
  2. Calculation report For a calculation engagement
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

When may a tax practitioner recommend the tax return position?

A

Reasonable basis for the Position & Appropriately disclosed

35
Q

The financial services modernization act of 1999

A

Prohibits financial institutions from sharing private personal information to non-Affiliated third parties without prior notice to the client

*OK To share with other Financial institutions and its affiliates

36
Q

Who is the owner of working papers (Audit documentation)?

A

The accountant (Not the client) But still required to remain confidential

37
Q

Privilege statute

A

Allows the accountants refused to honor a court subpoena (certain states)

*May not be used to the accountant has already provided some information requested In the subpoena

38
Q

What is the effect of Sarbanes-Oxley On Quality peer-reviewed programs?

A

Eliminated self regulation (PCAOB Now performs) — PUBLIC ONLY

  • If more than 100 Audit reports annualy, inspection annually
  • If less than 100 Audit reports annually, inspection at least every 3 years
39
Q

What are the PCAOB fines for the individual violator?

A

$100,000

  • If intentional. $750,000
40
Q

What are the PCAOB Fines for the entity level?

A

$2 million

  • If intentional, $15 million
41
Q

What services to Audit clients are acceptable under PCAOB?

A

Tax services if pre-approved by the audit committee and disclosed as SEC

*all other Services May be performed for non-audit clients or to private companies

42
Q

What was the CEO and CFO certify Under PCAOB?

A
  1. They reviewed the report
  2. Does not contain any untrue statement Or omission Of material fact
  3. Fairly presented (Financial position results of operations)Gio
  4. DIM (within 90 days prior to report)
  5. Conclusions as to the effectiveness of internal control
43
Q

How long must a firm keep workpapers under PCAOB?

A

Seven years

44
Q

How often is the audit partner be rotated Under PCAOB?

A

Five years

45
Q

When is the SEC allowed To de-list any issuer?

A

Noncompliance with title III - Corporate responsibility

46
Q

What are the signing officers required to disclose to Auditors and Audit committee?

A
  1. Significant deficiencies in the design and operation of internal controls
  2. Any fraud that involves management Or employees involved in internal controls
47
Q

Private securities litigation Reform act of 1995

A
  1. Audit tests to detect RIG (related party, Illegal Acts, Going Concern doubts)
  2. Quick Notice of illegal acts unless clearly inconsequentia (auditor to board to SEC – 1 day each)l
48
Q

What is the penalty for security fraud By CPAs and audit clients?

A

Up to 10 years in prison

49
Q

Corporate and criminal fraud accountability act of 2002

A

Significant influence On the auditors professional environment concerning the detection Of fraud

  • Working papers seven years
  • Felony to destroy or create documents Knowingly
  • Whistleblower protection
  • Security Fraud claims (Five years from fraud, or Two years after fraud discovered)
  • Up to 10 years for securities fraud
50
Q

What portion of the PCAOB inspections report Is not made available to the public?

A

Quality control system criticisms unless the firm does not address issues within 12 months

51
Q

Engagement quality review (EQR)

A

Required for each PCAOB AUDIT, Performed by an associated person Of the firm

  • Discussions with the engagement team
  • Reviewing documentation
  • Concurring approval revisions
52
Q

Audit procedures

A

Risk assessment procedures, test of controls, and substantiative tests

(ICORRIIA)

I – Inquiry

C – Confirmation

O – Observation

R – Recalculation

R - Reperformance

I – Inspection Of Tangible assets

I – Inspection (Examination) Of records or documents

A – Analytical procedures

53
Q

IESBA

A

International standards Board for Accountants

  • Created the code of ethics for Professional accountants (The Code)
54
Q

Code of Ethics for professional accountants

A

The Code

  • More conceptual nature And has fewer provisions In the code of professional conduct (AICPA – ET)
55
Q

What are the IESBA parts?

A
  1. Part A - General application (all accountants: Ethics/Threats)
  2. Part B - Professional accountants public practice
  3. Part C - Professional accountants in business
56
Q

Blackout Trading

A

PCAOB Prohibited Securities trading By officers and directors During blackout periods

( between end of the quarter and earnings Report Date)

57
Q

IESBA Threats to compliance

A
  • Self-interest
  • Self-review
  • Advocacy
  • Familiarity
  • Intimidation
58
Q

IFAC

A

International Federation of accountant (established IAASB)

59
Q

IAASB

A

International auditing insurance standards (developed ISA)

Of the IFAC (International Federation of accountants)

60
Q

ISA

A

International Auditing Standards

61
Q

Intention of standards issued by the IAASB

A

Intended as qualitative guidelines against which professional accountants CAN COMPARE their practices and The requirements of the jurisdictions to which the accountants Belong

(Not intended as a Authoritative requirements that are expected to be complied with)

62
Q

IASB

A

International accounting standards Board (Separate body from IAASB)

  • Issues IFRS (International financial reporting standards)
63
Q

ISA vs US Auditing Standards (AICPA & PCAOB)

Applicable Framework

A

ISA: Fair presentation OR compliance framework

US: Fair Presentation framework ONLY

64
Q

ISA vs US Auditing Standards (AICPA & PCAOB)

Professional requirements

A

ISA: One category required (except in rare cases)

US: 2 Categories (Unconditional & Presumptively Mandatory)

65
Q

ISA vs US Auditing Standards (AICPA & PCAOB)

Recurring Auditor (Terms of engagement)

A

ISA: To assess if client need to be reminded

US: Requires to remind Client terms of engagement

66
Q

ISA vs US Auditing Standards (AICPA & PCAOB)

Predecessor auditor (Terms of engagement)

A

ISA: Not addressed

US: Addressed Communication with Predecessor

67
Q

ISA vs US Auditing Standards (AICPA & PCAOB)

Quality-control review

A

ISA: Required before Report is dated

US: Required before report is released

68
Q

ISA vs US Auditing Standards (AICPA & PCAOB)

Laws & Regulation (Terms of engagement)

A

ISA: Requirements when laws and regulations dictate management responsibility

US: Not applicable

69
Q

ISA vs US Auditing Standards (AICPA & PCAOB)

Copies or extracts (Documentation)

A

ISA: Not required Documentation

US: Copies or extracts of agreements or contracts required in documentation

70
Q

ISA vs US Auditing Standards (AICPA & PCAOB)

Document completion (Documentation)

A

ISA: Within 60 days of report date

AICPA: Within 60 days of report release date

PCAOB: Within 45 days of report release Date

71
Q

ISA vs US Auditing Standards (AICPA & PCAOB)

Fraud definition

A

ISA: Includes to obtain illegal and unjust advantage

US: Results in Misstatement in F/S That are the subject of an audit

72
Q

ISA vs US Auditing Standards (AICPA & PCAOB)

Brainstorming (Fraud)

A

ISA: Not addressed

US: To address internal and external fraud risk factors (& mgmt override possibility)

73
Q

Two examples of PCAOB is more restrictive than AICPA

A
  1. Prohibition against Any non-assurance services for an audit client (except tax with approval/disclosure)
  2. Requirement to disclose audit and non-audit fees earned
74
Q

GAO

A

Government accountability office (Agency of Congress)

  • Responsible for investigating how the federal government spends taxpayer money
  • Responsible for setting GAGAS (Yellow Book)
75
Q

GAGAS

A

Generally accepted Government auditing standards (Yellow Book)

76
Q

GAO independence

A

Included in the general standards

  • More restrictive requirements that apply performing an engagement in accordance with GAGAS
  • Audit organization and individual Audtior Must be independent (mind & appearance)
77
Q

Relating to evaluating Independence government auditors are expected to:

A
  1. Identify Threats to independence
  2. Evaluate that threats (Individually and collectively)
  3. Apply safeguards to eliminate or mitigate to An acceptable level

*similar to AICPA professional Standards

78
Q

GAGAS Threats to Independence

A

Yellow Book Threats to Independence

  1. Self-interest
  2. Self-review (non-assurance svc’s)
  3. Bias
  4. Familiarity
  5. Undue influence
  6. Management participation
  7. Structural
79
Q

When is an AUDITOR that works with entity that is being audited considered independent? (GAGAS)

A

All Must apply to the Head of the Audit organization

  1. Accountable to the head/governance
  2. Reports results to both head and governance
  3. Organizationally outside of the staff or line Management function of the audited unit
  4. Has access to governance
  5. Removed from political process sufficiently to avoid fear of political reprisal
80
Q

ERISA

A

Employee retirement Income security act of 1974

  • Enforced by the Department of Labor (DOL)
81
Q

IQPA

A

Independent Qualified Public Accountant

  • Required by ERISA to To audit employee benefit plans
82
Q

AICPA independence vs DOL Independence Requirements

A

DOL Independence requirements are a bit more restrictive than AICPA Requirements

  • “Independence equally important to Professional competence”
83
Q

Three types of relationships That will impair DOL Independence for auditing benefit plans (ERISA)

A
  1. Having (Or committing to acquiring) Any direct financial interest or any material in direct interest in The plan
  2. Acting as the plan sponsor, promoter, underwriter, investment Advisor, voting trustee, Director,, officer, or employee
  3. Maintain financial records For the plan

*Applied to the accountant, Accountants firm, period of the engagement, period Covered by the engagement

CPA AUDIT (16 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions