Audit #2 Flashcards
2.01 The AICPA Code of Professional Conduct can be broken down into what four parts?
- The preface (includes all members)
- Part 1 (includes public accountants)
- Part 2 (includes accountants in industry)
- Part 3 (all members including retired/unemployed)
2.01 What is included in the preface of the AICPA Code of Professional Conduct
- Overview of the code of Professional Conduct
- Structure and application of the AICPA code
- Principles of Professional Conduct
- Definitions
- Non-authoritative guidance
- New, Revised, and Pending Interpretations and Other Guidance
2.01 Which enumerated topics and subtopics apply to Part 1, Part 2 and Part 3 members?
1.000 - Introduction
1.100 Integrity and Objectivity
1.200 Independence
1.300 General Standards
1.310 Compliance with Standards
1.320 Accounting Principles
1.400 Acts Discreditable
- 500 Fees and Other Types of Remuneration
- 600 Advertising and Other Forms of Solicitation
- 700 Confidential Information
- 800 Form of Organization and Name
2.01 The Code of Conduct Preface Topic 100 specifies two key items what are they?
- Indication that CPA’s are expected to follow interpretations, and may be required to justify departures from the.
- Indication that when a CPA has multiple professional roles, the highest and most restrictive level of standards should be applied.
2.01 The Code of Conduct Topic 200 specifies what?
Topic 200 indicates its applicability of the services performed by CPA, and what few exceptions of services the Code of Conduct does not apply to.
Rules require CPA’s to: Consider, evaluate and determine
2.01 The Code of Conduct Topic 300 specifies what?
It describes the principles embedded in the code.
2.01 What Principles are described as part of Topic 300 of the AICPA Code of Conduct?
- Responsibilities - requires the application of sensitive professional and moral judgement
- Public Interest - Acting in a manner that serves the public interest (integrity, objectivity, due professional care)
- Integrity
- Objectivity and Independence - independence in fact and in appearance
- Due Care - compliance with technical and ethical standards
- Scope and Nature of Service - evaluate if services can be performed under the code of conduct
2.01 The Code of Conduct Topic 400 specifies what?
Topic 400 provides the definition for terms used throughout the code
2.01 The Code of Conduct Topic 500 specifies what?
Topic 500 specifies that only the Code is authoritative and Professional Ethics Division of the AICPA is non-authoritative guidance
2.01 The Code of Conduct Topic 600 specifies what?
Topic 600 indicates the status of new, revised or pending interpreations and other guidance
2.01 The Code of Conduct Topic 1.000 Introduction specifies what?
It introduces a conceptual framework approach to applying the code.
2.01 What does the Conceptual framework approach involve as part of Topic 1.000 of the AICPA Professional Code of Conduct?
- Identify Threat
- Evaluate the significance of identified threat
- Identify and apply safeguards
2.01 What are the seven categories of threats identified in Topic 1.210 of the AICPA Code of Conduct?
- Self Review
- Advocacy - the accountants actions effectively promote a clients interest or position - endorses product of client
- adverse interest - client and accountant were involved in litigation against each other
- familiarity
- Undue Influence - client threat to replace accountant
- Self Interest
- Management Participation - Accountant performs management function for client
2.01 The Code of Conduct Topic 1.100 specifies what?
Topic 1.100 Integrity and Objectivity is required by accountants.
2.01 The Code of Conduct Topic 1.110 specifies what?
Topic 1.110 - conflict of Interest - Before accepting an engagement or a relationship the CPA should evaluate a potential conflict of interest by identifying
2.01 The Code of Conduct Topic 1.120 specifies what?
Topic 1.120 Gifts & Entertainment
2.01 The Code of Conduct Topic 1.130 specifies what?
Topic 1.130 Preparing and Reporting Information AFRF
2.01 The Code of Conduct Topic 1.140 specifies what?
Topic 1.140 Client Advocacy - when performing certain non-attest services for a client, such as tax consulting services may put the accountant in a position to ADVOCATE for the client and may pose a threat to the members ability to comply with the integrity and objectivity rules that should be evaluated
2.01 The Code of Conduct Topic 1.150 specifies what?
Topic 1.150 Use of a Third Party Service Provider - Before disclosing confidential information to a third party service provider, the member should inform the client, preferably in writing.
2.01 Topic 1.200 Independence
- Independence is the ability to act with integrity and objectivity
2.01 What constitutes a COVERED MEMBER?
- A member of an attest engagement team
- A partner of manager providing more that 10 hours of attest services to a client
- A partner in the same office in which the lead engagement partner for an attest engagement practices
- The firm and its employee benefit plan?
- An entity under the control of any covered member described
- with agreed-upon procedures only a covered member can participate
- Covered members include immediate family, spouse and dependents
2.01 COVERED MEMBERS must maintain independence for attest services including (ERAS)?
- Examinations/ Audits
- Reviews
- Agreed upon procedures engagement leading to findings
- special reports
2.01 COVERED MEMBERS do not need to maintain independence for what specific services?
- Compilations - Independence is expected, but not required; lack of independence must be disclosed
- Taxes
- Consultations
- FS Preparation Engagement
- Other non-attest services, such as bookkeeping or payroll
2.01 What does Topic 1.220 of the AICPA Code of Conduct cover?
Topic 1.220 covers the definition of Accounting Firms Networks and how a network is one form and requires Independence as if it was all one firm.
2.01 What does Topic 1.230 of the AICPA Code of Professional Conduct Cover?
Topic 1.230 covers unpaid fees. When fees for services are outstanding for over one year before the date of the current year report independence is NOT met.
2.01 What does Topic 1.240 of the AICPA Code of Professional Conduct cover?
Topic 1.240 Financial Interest - A member who possesses or has a commitment to acquire a direct or material financial interest in an attest client creates a conflict of interest and is NOT independent.
2.01 True or False
Ownership of 5% or less of a diversified mutual fund result in an immaterial indirect financial interest?
TRUE
2.01 True or False
Ownership of 5% or more of a diversified or un-diversified mutual fund result in an immaterial indirect financial interest?
False - further evaluation is required
2.01 True or False
Investments in a firm-sponsored plan are a direct financial interest of the firm.
True
2.01 Topic 1.245 of the AICPA Code of Professional Conduct covers what?
Topic 1.245 Trust and Estates
A member would not be independent if it acted as a trustee or executor or administrator of the estate during the period of the professional engagement.
10% threshold
Trust cannot hold more than 10% of the client’s outstanding equity
The Trust is made up of 10% of the clients equity
2.01 Topic 1.250 of the AICPA Code of Conduct covers what?
Topic 1.250 covers participation in Employee Benefits Plan
2.01 Topic 1.255 of the AICPA Code of Conduct covers what?
Topic 1.255 - Depository, Brokerage, and Other Accounts
Independent - Deposit fully secured/un-insured amount is immaterial/30 day window to reduce to immaterial level
2.01 Topic 1.260 of the AICPA Code of Conduct covers what?
Topic 1.260 Loan, Leases, and Guarantees
Unsecured loans criteria to meet independence
- Loan was obtained under the institutions normal terms, procedures, and requirements
- Loan was acquired prior to institution becoming an attest client, client was subsequently sold to attest client, prior to CPA becoming a covered member
- No changes to terms of the loan not provided for in the original agreement.
- OK - Automobile loans, loans fully collateralized, credit card overdraft protection with an aggregate balance of no more than $10K
- OK - Operating Lease, Standard Lease
2.01 Topic 1.270 of the AICPA Code of Conduct covers what?
Topic 1.270 Family Relationships with Attest Client
(Spouse / Dependents)
Close Relatives (Parents/siblings/children)
Independence
- Key Position (at client)
- Employee benefit plan (key position/ governs plan/oversee/ investment decision)
- Participates in retirement plan that holds investment in attest client ( governs plan/oversee investment decision) 30 day window.
2.01 Topic 1.275 of the AICPA Code of Conduct covers what?
- Topic 1.275 Current Employment or Association with an Attest Client
2.01 Topic 1.285 of the AICPA Code of Conduct covers what?
Topic 1.285 Gifts and Entertainment
2.01 Topic 1.290 of the AICPA Code of Conduct covers what?
Topic 1.290 Actual or Threat of Litigation
2.01 Topic 1.295 of the AICPA Code of Conduct covers what?
Topic 1.295 Covers Performance of Nonattest Services and Independence.
2.01 What are the three top threats of performing non-attest services?
- Threat of Self Review
- Threat of Management Participation
- Advocacy Threats of Independence.
2.01 To make certain that independence in not impaired when performing non-attest services for an attest client, the CPA will address three distinct components of the Code. What are those three components?
- Evaluate the cumulative effect
- Self-Review Threat
- Management Participation
-
Apply the three general requirements - enumerated in the Code.
- The client must accept its responsibilities - Assume all MANAGEMENT RESPONSIBILITIES
- The accountant’s responsibilities must be limited - NO MANAGEMENT RESPONSIBILITIES
- A written understanding must be established - Normally in the Engagement Letter
- Evaluate each specific service
2.01 What is the definition of an attest or attestation service?
- An attest service, or attestation service, is an independent review of a company’s financial statement conducted by a certified public accountant (CPA).
Topic 1.300 of the AICPA Code of Conduct covers what?
Topic 1.300 General Standards
- Professional Competency
- Due Professional Care
- Plan and Supervise
- Sufficient Relevant Data
2.01 Topic 1.400 of the AICPA Code of Conduct covers what?
Topic 1.400 Acts Discreditable
2.01 Topic 1.500 of the AICPA Code of Conduct covers what?
Topic 1.500 Fees and Other Types of Remuneration
2.01 Topic 1.600 of the AICPA Code of Conduct covers what?
Topic 1.600 Advertising and Other Forms of Solicitation
Topic 1.700 of the AICPA Code of Conduct covers what?
Topic 1.700 Confidential Information
