ch 2 review Flashcards
AICPA members in public practice are
employed by a public accounting firms
there are extra rules in public accounting like
have to be independent and bound by client confidentiality
threats:
relationships or circumstances that could compromise a member’s compliance with the rules
self-review threat:
put in position of auditing your own work
advocacy threat:
promote a client’s interest to point of compromising our own integrity or idenpendence
familiarity threat:
long term/ close relationships which causes the auditor to be too sympathetic or accepting client work
undue influence threat:
subordinate our judgement to a client because of the client’s expertise or aggressive personality
self-interest threat
auditor benefits from a financial interest or relationship with client (exception for mutual fund)
adverse interest threat
auditor’s interest are opposed to client’s interest (ex: litigation with client)
management participation threat
auditor cannot take on the role of management
safeguards
actions or other measures that may eliminate a threat or reduce a threat to an acceptable level
three categories of safeguards
- created by profession, legislation, or regulation
- implemented by client
- implemented by firm
1.200 of independence says
“a member in public practice shall be independent in the performance of professional services as required by standard promulgated by bodies designated by the Council”
what types of services must one be independent for?
attestation and audit
independence rules apply to _________________
covered members
what are covered members
- all members of the audit team
- review partner/ QCR
- partners in the same office as the leas and review partners of the audit
- other accounting firm employees that consult on the audit
- immediate fam members of ALL OF ABOVE
- close relatives (parents and siblings
these are examples of what:
- direct or material indirect investment in the client
- joint investment with a client that is material (business relationship)
- loans to and from client
- cannot be trustee or executor of estate that invests in client
activities and situations that impair independence
difference between independence in fact and appearance
fact- following the rules
appearance- what does the public think
the three basic principles of the PCAOB/ SEC additional independence guideline
- audit own work
- function in the role of management
- serve in advocacy role for client
what are services that an auditor of a public company cannot provide
-bookeeping
-financial information design/ implementation
- investment advising
- HR
-management
- actuarial service
-legal and expert unrelated to audit
- internal audit services
what is audit partner rotation
lead partner and review partner must rotate off client after 5 years. “stay off” for 5 years and then rotate back on
“cooling off period”
if a former member of the audit team is now employed by client in a “financial reporting oversight role” then auditing firm cannot audit client for 1 year (for public clients)
public company client must publicly disclose ________ and ________ paid to the auditors in SEC filings
audit fees; other fees
can auditors provide consulting services to their client if it is private?
yes if there are safeguards implemented by the client
is there a cooling off period for a private company?
no but safeguards must be put in place by the company
a member shall comply with the following standards and with any interpretations thereof…
- professional competence
- due professional care
- planning and supervision
- sufficient relative data
what are act discreditable
breaking the law (felony)
- state board can revoke/ suspend your license
contingent fees
CPA only gets paid for certain outcomes- NOT allowed with audit/ attest clients
commissions
must be disclosed- okay for non-attest engagements (NOT allowed for attest clients)
confidential versus privileged
confidential is for CPAs and privileged is for attorneys
exceptions to confidentiality
- have to comply with a subpoena
- comply with investigative/ disciplinary body (FBI; SEC, PCAOB, state board)
- comply with peer review by AICPA/ state society
what is peer review
being reviewed by AICPA/ state society once every 3 years if working on private companies (self regulated)
