AUD- Professional Responsibilities Flashcards
What engagements are covered by the AICPA Code of Professional Conduct?
Covers all professional engagements and is the minimum standard of conduct
Member should additionally follow specific standards for a specific engagement
What must an accountant have under the AICPA Code of Professional Conduct?
Integrity Objectivity No Conflicts of Interest No known misrepresentations of facts No outsourcing of judgment
What are threats and safeguards to independence?
Safeguards > Threats = Independence
Threats > Safeguards = No Independence
What are the threats to independence?
Self-Review (Auditing own work)
Advocate of the Client
Adverse Interest (Lawsuit against Client)
Too familiar with Client – could impair the appearance of Independence to public
Undue influence on Client - On Board of Directors, exception being an Honorary board position
What are the Safeguards to independence?
Offset the threats
Safeguards are created by Legislation (SOX), Client (Audit Committee), Accounting Firm (Policies)
What are the characteristics of a Covered Member?
On the engagement team, have Significant influence on Audit, such as:
Reviewing Partner
Managing Partner in CPA Firm
Firm Personnel who does more than 10 hours of non-attest work (Income Taxes)
Partner sharing office with another Partner who oversees an engagement
Financial Interest in Client by Covered Member (Auditor on Engagement)
What are the requirements for a Covered Member?
No direct financial interest
No Material indirect financial interest
Firm personnel who are not Covered Members cannot own more than 5% of stock
Covered Member’s immediate family cannot own more than 5% of stock or be employed in Key positions. If Covered member is aware of this, it will impair independence.
Cannot make management decisions.
All requirements apply during the period of the professional engagement, and as long as they are a client.
What happens when a Covered Member disagrees with a Supervisor?
If Supervisor’s position is still GAAP/GAAS, defer to Supervisor
If Supervisor’s position is not GAAP/GAAS, report to higher levels of management
If management ignores you, consider leaving the firm
When is independence required?
Audit
Review
Attestation Engagement
What are the requirements for Non-attest engagements?
Agreement must be in writing.
Independence not required - Must state if you are not independent
Applicable engagements: Consulting, Compilation
Which standards apply to consulting engagements?
Consulting engagements are covered by Statements on Standards for Consulting Services (SSCS)
Requirements: Competence, Due Care, Planning, Supervision, Obtain Sufficient Data, Must Serve Client Interest, Must have written or oral agreement, must communicate with client.
List some common consulting engagements.
Advisory Services
Transaction Services
Management Consulting
Implementation Services
What is the rule concerning contingent fees for a covered member?
Not allowed if Member also performs services where independence is required
Commissions or referral fees for Covered Members are not allowed
Example – Audit firm gets a commission for recommending to Client that they implement a new A/P System…NOT Allowed
If a firm performing non-attest work doesn’t also perform Covered Member services (aka – Independence not
required), then Firm can get a commission on referring products/services, but they must disclose to the Client
Tax Preparation - Payment according to refund amount is disallowed
When are contingent fees allowed?
When fees are structured relative to judicial proceedings.
Example: IRS audit, or filing an amended tax return subject to tax case with a different taxpayer.
How should recommendations and suggestions by a covered member to a client be handled?
Client must carry them out - covered member cannot perform management functions.
Client must assign someone of competence to oversee the non-attest engagement and CPA must be satisfied that this has occurred.
