AUD-Concepts

Question 1

Permitted Indirect Interests

Answer 1

to own 5% or less of a diversified investment company,

Question 2

Direct Investment Conflict of Interest

Answer 2

The accounting firm, any of its covered persons, or any of their immediate family members (IFMs) may NOT have direct investments in an audit client, such as owning stocks, bonds, notes, options, and so on

Question 3

Employee Compensation and Benefit Plans Conflict of Interest

Answer 3

Participation in benefits program, provided that the financial interest (other than unexercised employee stock options) is disposed of no later than 30 days after the person has the right to dispose of the financial interest

Question 4

Employment at Audit Client of Former Employee of Accounting Firm

Answer 4

A former partner, principal shareholder, or professional employee at an accounting firm is not independent unless
-was not a member of the audit engagement team during the one-year period preceding the date of the initiation of the audit.

Question 5

How to Handle GAAP Departure

Answer 5

To depart from GAAP:
1. Demonstrate that following GAAP would mislead investors, and then
2. Describe the departure,
3. its approximate effects, and
4. The reasons why compliance would mislead.

Question 6

Examples of Permitted Contingent Fees

Answer 6

Examples of some permitted contingent fees in the tax area include:
-Representing a client before a revenue agent examining the client’s income tax return
-Filing an amended federal or state income tax return claiming a refund based on a tax issue that is the subject of a test case involving a different taxpayer
-Filing an amended federal or state income tax return (or refund claim) claiming a tax refund in an amount that will be examined by a tax authority, such as the Joint Committee on Taxation
-Helping a client obtain a private letter ruling or influencing the drafting of a regulation or statute

Question 7

Examples of Contingent Fees NOT PERMITTED

Answer 7

Contingent fees are not permitted for a client for whom he or she performs any of the following attest services:
- A financial statement audit or review,
- A financial statement compilation reasonably expected to be used by a third party that does not disclose a lack of independence, or
- An examination of prospective financial information.
- If a member prepared an amended return claiming a refund because of an error in the original return

Question 8

Is Independence Impaired for a Covered Member who is also a Member of Audit Client Social Club?

Answer 8

No, as long as the membership is primarily social, there is no problem