Chapter 19 Flashcards
Ethics
Moral obligations set by society. Doing the right thing! Does it pass the Mom Test!
Professionalism
What people expect to get when you tell them you are a CPA. Based on competence, unquestioned integrity. Most valuable asset is your integrity.
Ethical Standards Sources for Private Company and Public Company Audits
Where to follow the ethic rules:
Private-AICPA.
Public- PCAOB, SEC, and ISB.
Code of Professional Conduct (4 levels)
1) Principles. 2) Rules. 3) Interpretations. 4) Rulings.
- Principles (6)
We are responsible to the public interest!
Responsibilities, the public interest, integrity, objectivity and independence, due care, and scope and nature of services.
- Rules of Conduct
Specific rules we must follow.
Independence, integrity and objectivity, and confidential client information.
- Interpretations
Interpretations of the rules.
- Rulings
Specific rules toward factual situations of the interpretations.
Independence-General (Related to type of services provided)
Must be independent for F/S audit and review.
For a compilation you DO NOT need to be independent, must tell reader though.
Do not need to independent for a tax client or consulting as that is all you do.
Independence-Individual: Covered Member-
Apply to spouse and dependent
Member/Staff of the engagement team. Can influence the engagement team. A partner who provides more than 10 hours of service. Any partner in the firm who serves an audit client. Firm must be independent. All partners must be independent of all clients of the firm!
Independence-Individual: Direct or Indirect Financial Interest
Direct: a covered member owns stock, bonds, etc. in client. Must come off the engagement and you are fine.
Indirect: Think of a mutual fund and Ford Co. example. If you own more than 5% you have a problem, if you own less than 5% you are OK. Somebody owns it but you have an interest!
Blind Trusts
DO NOT WORK FOR CPA’S
Exceptions assuming normal terms! (4 exceptions)
Can not get a special interest discount!
1) Car loan/lease (collateralized by vehicle).
2) CSV of insurance policy (collateralized by policy)
3) Cash Deposit at lending institution (collateralized by deposit account): At least equal to the amount in bank acct.
4) Credit Card ($10,000), kept current at month end. Mortgages NOT allowed as exceptions. Insurance policies generally OK.
Client Employee moves to Audit Firm that does the audit (Either Public or Nonpublic)
(Look at sheet). Client–>Audit Firm.
CPA moves to Client (Nonpublic Company, Key Position)
Disassociate yourself from the firm. Cash out 401K, insurance policy etc.
CPA moves to Client (Public Company, Key Position)
One year cooling off period before you can start work.
Two ways: Resign from firm and take one year vacation or Taken of the engagement, then put on other clients for the year then resign from the firm.
If not going to a Key Position (Either Public or Nonpublic company)
All you do is disassociate yourself from the firm.
What is a Key Position? (Financial Oversight Role)
Primary responsibility for significant accounting functions, have the ability to influence the F/S. Based on what you do! Not the title necessarily! Very judgemental.
Rules (Independence-Firms) Non-Audit Services (Nonpublic Company Audit Client)
Can’t perform mgmt functions. Can’t make decisions for them, we can give them advice. External auditor can also be the internal auditor, but need another staff!
Rules (Independence-Firms) Non-Audit Services (Public Company Audit Client)
Never be auditing our own work. Never serve as an advocate for our client. External auditor CAN NOT be also the Internal auditor! Look at 9 things on other side too!
9 Things that Cause Independence Problems! (Can’t do)
Keep books. Major IT consulting. Actuarial work. Mgmt functions. Expert Services. Legal Services. Broker or dealer, investment services. Appraisal or valuation services. IA outsourcing activities.
5 Year Rule
Be partner for 5 years on, 5 years off.
7 years for consulting partners, roll off for two.
Communication with Audit Committee (AC)
Meet at least once a quarter. Discuss all critical accounting issues. Talk about any accounting correspondences with mgmt. Hiring/Firing.
Rule 301: Limited Circumstances where you can discuss confidential client info without client permission (5 of these)
Valid Subpoena.
Meet disclosure requirements.
Disciplinary hearings.
Quality Control Reviews/Board Reviews/CPA. Purchase/Sale of practice.
Rule 302: Contigent Fees
Not allowed! No A then B fee!
Rule 502: Advertising
It is ok as long as advertising done is appropriate (factual).
Rule 503: Commissions/Refferals
Can’t receive a fee for recommending a service firm from one client to another. Can make the recommendation but you can not get paid for it! Take nothing from your client is the bottom line!
Quality Control Reviews-PCAOB
PCAOB: QCR are responsible for public companies. Inspects all registered firms that does more than 100 public co. audits, they need to be reviewed every year!
Quality Control Reviews-AICPA
AICPA: QCR are responsible for nonpublic companies.
Less than 100, must be reviewed once every 3 years!
Quiet Comments
Not for public viewing. Impacts entirety of the firm, get one year to fix them. If not fixed, they become public!
