Auditor Independence Flashcards
three independence standard setters
SEC, PCAOB, AICPA
AICPA rules apply to…
all attest services including f/s audit and review
SEC and PCAOB rules apply to..
audits of SEC registrants
two other organizations for specialized audits
GAO for government, DOL for employee benefit plan audits
auditor must be both independent in ____ and ____
appearance and in fact
independence in fact means the auditor is actually….
unbiased
independence in appearance is…
what a third party would perceive as being independent
most independence rules stem from independence in…
appearance
all covered persons must be…
independent
covered persons include…
audit engagement team, “chain of command”, partners & managers providing more than 10hours of non audit services, all other partners located in the office that the partner in charge is located
chain of command refers to…
anyone who overseeing partner on the case
partners in charge rotate…
every 5 years
a covered employee cannot..
be employed by the client
if someone takes a position with the client, they must…
remove themself from the engagement during negotiations, one year cooling off period before taking a FROR
when a client takes a position with public accounting firm, one cannot..
be on the attest engagement for however many years they will be on the f/s
from PCAOB to accounting firm, you have to…
apply to a one year cooling off period
who is considered immediate family?
spouse and dependent children
immediate family mist follow all rules as a covered person except…
- can be employed by a client (but not FROR)
- limited provisions in participation in employee stock ownership and equity compensation plans
who is considered close relatives?
parents, siblings, non dependent children
independence for close relatives is generally impaired if..
individual is employed as FROR at client or has an investment that is material to his/her net worth or enables significant influence over client
a covered person and immediate family members are not permitted to have…
- direct financial interest in an attest client (both material and immaterial) Includes beneficial ownership interests
- material indirect financial interest in the client
for a material indirect financial interest in the client, must not…
be able to participate in the intermediary’s investment decisions
for SEC clients, material indirect financial interest in the client investments cannot exceed…
20% of the intermediary’s total investments
after identifying an independence violation, must…
dispose of any proscribed investments immediately
bank accounts are allowed if..
an uninsured portion is immaterial to covered persons net worth
bank account FDIC limit is
$250000
brokerage accounts are allowed if…
the risk of loss is immaterial to the covered persons net worth
brokerage account SIPC limit is
$500000
what loans are allowed?
auto loans/lease, loans fully secured with insurance policy, mortgages that are grandfathered, and loans fully secured by cash deposits at the same institution
credit card balances are permitted if…
current balance is less than $10000
insurance policies are permissible provided…
covered person did not receive preferential treatment in obtaining the policy (for public entities)
does SEC allow joint business ventures between covered and client?
no
does AICPA allow joint business ventures between covered and client?
yes
primary concern of non attest services
self-audit threat to independence in fact
AICPA is more ____ to non-attest services
lenient
what fees are prohibited for f/s audits and reviews?
contingent fees and commissions
unpaid prior-year professional fees..
impair independence
cannot start current year audit until last years is paid because…
there cannot be leverage against auditors
