Code of Prof Conduct - Rules, Interpretations and Rulings

Question 1

What does ET Section 100.01 - Conceptual Framework for AICPA Independence Standards describe?

Answer 1

It describes the risk-based approach to analyzing independence that is used by the AICPA Professional Ethics Executive Committee (PEEC). A member is not independent if there is an unacceptable risk to the member’s independence. Risk is unacceptable if the relationship would comprise (or would be perceived as compromising by an informed third party) the member’s professional judgment.

Question 2

In using the Conceptual Framework, members should identify and evaluate threats (both individually and in the aggregate) to independence. Name 7 types of threats.

Answer 2

1. Self-review threat - reviewing evidence that results from the member’s own work. ex: preparing source documents for the client
2. Advocacy threat - actions promoting the client’s interests or position. ex: promoting a client’s securities
3. Adverse interest threat - actions or interests between the member and the client that are in opposition ex: litigation between the client and the member.
4. Familiarity threat - members having a close or longstanding relationship with client or knowing individuals or entities who performed nonattest services for the client. ex: a member of the attest engagement team whose spouse is in a key position at the client
5. Undue influence threat - attempts by a client’s management (or others) to coerce the member or exercise excessive influence over the member
6. Financial self-interest threat - potential benefit to a member from a financial interest, or some financial relationship with, an attest client
7. Management participation threat - assuming the role of management or performing management functions for the attest client

Question 3

After considering the threat to independence, the member should consider the safeguard that mitigate or eliminate threats to independence. What are the 3 types of safeguards?

Answer 3

1. safeguards created by the profession, legislation or regulation. ex: required continuing education on independence and ethics
2. safeguards implemented by the client. ex: effective governance structure, including an active audit committee
3. safeguards implemented by the firm. ex: quality controls for attest engagements