Employment Relationships Flashcards
employment rules focus on partners and professional employees of attest firms. They may not, without impairing independence serve in these roles for attest client:
director, officer, employee, promoter, underwriter, voting trustee, or trustee for any pension or profit-sharing trust of the client’s or in any equivalent management position
employment as professors - independence issues
partners and professional employees may serve as adjunct faculty members at a college that is an attest client so long as following safeguards are all accurate regarding faculty member
- does not hold position with client
- its not on attest eng team
- is not in a position to influence
- is on part time and non tenure basis
- does not participate in any EBP sponsored by school, unless participation is required
- does not assume any management responsibilities or set policies
employment as -
honorary director or trustee of a not-for-profit organizations
-independence issues
partners and professional employees may lend prestige of their names to not for profit that is an attest client so long as the following are in place
1. position is clearly honorary
2. cannot vote
4 takes no mgt role in organization
5 externally circulated material identify position as honorary
employment as -
member of an advisory board
-independence issues
partners and professional employees may service on attest clients advisory board without impairing independence if
1. position is clearly honorary
2. cannot vote
4 takes no mgt role in organization
5 externally circulated material identify position as honorary
employment as member of governmental advisory committee
-independence issues
independence considerations do not prevent partners or professional employees from serving on citizen’s advisory committee studying possible changes in the form of a county government that is attest client, or on an advisory committee appointed to study financial status of state in which county is located
employment as -campaign manager -elected as governmental unit or running for it -political party independence issues
- campaign manager - independence considerations preclude a firm from auditing campaign org whose campaign manager is partner or professional employee of firm.
- if elected head of governmental unit or is a candidate running for that position, audit firm would not be independent in auditing that gov unit if s campaign mgr is a partner or professional employee of firm Political party - firm would not lack independence to audit joe’s political party. firm should apply threats and safeguards framework to determine whether threats to independence could be lowered to an acceptable level
member of federated fund raising organization
-independence considerations
if firm’s partner or professional employee serves as director or officer of a federated fund-raising organization such as united way, which not only gives funds to a particular local charity but also exercises control over that charity, then firm may not audit that local charity. even if united way does not exercise control, there are sufficient independence concerns that the conceptual framework should be involved.
when do independence issues arise when people who are employed by attest clients or who were associated with them as…
officers, directors, promoters, underwriters, voting trustees, or trustees for a pension fund or profit sharing fund of clients, join the firm as covered members
considering subsequent employment with attest client - when attest team member or person in a position to influence is considering employment with attest client independence is impaired unless team member
- promptly reports such consideration or offer to an appropriate person in firm
- removes himself from eng until offer is rejected or position is no longer sought
when a covered member learns that team member or person in a position to influence is considering employment with a client and has not taken steps to remove independence issues, member should…
alter the firm
- firm must consider what additional procedures may be necessary to provide reasonable assurance that person acted properly
- policy does not explicitly cover other partners in office or 10 hour people
firm’s independence will be considered impaired when a partner or professional employee goes to work for attest client in key position, unless all conditions are met:
- amounts due to former employee for ownership interest in firm and vested retirement are not material to firm, and formula used to calculate payments remains fixed
- cannot influence cpa’s operations or financial policies
- does not participate or appear to and is not associated with cpa’s firm
- eng team considers modyfing audit procedures
- cpa firm should consider whether remaining team members can stand up to former employee if they have to deal with him
- if former employee joins client in key position within one year of dissociating from cpa firm, and has sig interaction with attest eng team, an appropriate professional in firm should review subsequent eng to determine whether appropriate skepticism was maintained
appearance of participation results from such actions as:
a. former employee consults with firm
b. firm provides former employee with offer and related amenities
c. individual’s name is included in firm’s office directory
d. individual’s name is included as member of cpa in other membership lists of business, professional, or civic organizations, unless designated as retired
what are subsequent employment with attest client rules imposed by SOX
imposes stricter rules where issuer is involved.
imposes one year cooling off period that requires the lead partner, concurring partner or any other member of audit eng team who provides more than 10 hrs of audit, review of attest svc to observe a 1 yr cooling off period before going to work for a client in a financial oversight position.
positions that cannot be assumed within one year period per sox include
ceo cfo controller cao any financial oversight role position preparing fs
what is the one year cooling period per sox
one year cooling off period is that year preceding the beginning of audit, so the cooling off period actually can extend to nearly two years if member has begun on audit cycle before leaving the firm.
member of social club - independence issues
if covered member belongs to a social club, such as a country club that is an attest client
there should be no independence problem if membership is primarily a social matter
member of a trade association
-independence issues
independence is impaired if covered member belongs to a trade association that is an attest client. if a partner or professional employee is employed by or associated with a trade association in an important role (director, trustee, etc. ) independence is again impaired
member of a common interest realty association - if covered member buys interest in condominium, cooperative, or other common interest realty association, can his firm aduit association?
his firm may audit common interest realty association, only if ALL safeguards are met
- common interest realty association performs functions similar to local governments, such as public safety, road maintenance and utilities
- covered member’s annual assessment is not material to either common interest realty association or member
- liquidation of common interest realty association or sale of common assets would not result in distribution of covered member
- common interest realty association’s creditors would not be permitted to recover out of member’s assets if common interest realty association becomes insolvent
member of a credit union - when covered member is a member of credit union and became eligible to join only because of professional services he provided to credit union, is independence impaired?
independence is impaired. however if member individually qualifies to join credit union irrespective of professional services provided, then independence is not impaired
gifts
-independence issue
independence is impaired if firm, team member or someone in a position to influence accepts a gift form attest client, unless value is clearly insignificant to recipient
entertainment
-independence issue
entertainment may be accepted without impairing Independence so long as it is reasonable in circumstances.
what are reasonable circumstances with respect to entertainment
- nature of gift or entertainment
- occasion giving rise to gift or entertainment
- cost or value of gift or entertainment
- nature, frequency, and value of other gifts and entertainment
- whether entertainment was associated with active conduct of business
- whether other attest clients also participated in entertainment
- client and firm employees who participated in entertainment
litigation between client and member
-independence issues
if client (or its management) sues audit form or vice versa, key question is whether firm and client are in threatened or actual positions of material adverse interests. a minor dispute or one not related to the eng (billing dispute) would not impair independence.
when does litigation between client and member impairs independence
- attest client’s current management sues or seriously threatens to sue firm alleging deficiencies in audit work
- covered member sues client’s current management alleging fraud or deceit
litigation by client security holders
-independence issues
client shareholders filing a suit claiming securities fraud or some other wrong by both client and audit firm preemptively does not automatically impair independence. But if these are cross clients between client and its managers on one hand and the attest firm of the other (or serious risk of them), independence is impaired if there is as significant risk that a material settlement or judgment will result
other third party litigation
-independence issues
litigation by non shareholder third parties, such as lenders who might also sue auditor and/or client’s treated similarly
final resolution of litigation or other dispute…
eliminates the independence threat and reduces it to an acceptable level
independence is impaired if one of these people participates as a team member or someone in a position to influence when
attest engagement covers any period of time when the person was employed by or associated with audit client
if people become merely other partners in the office or 10 hour people then independence is not impaired so long
they disassociate themselves from client prior to becoming a covered member.
disassociation includes the following 5 steps
- ceasing to participate in all client’s health and welfare benefit plans, unless the client is legally required to allow the covered member to participate in in plan and covered member pays 100% of cost
- ceasing to participate in all other EBP by liquidating or transferring all vested benefit plans, defined contribution plans
- disposing or repaying any loans to or from client
- collecting or repaying any loans to or from client other than those specifically permitted or grandfathered by code 5. assessing other relationships with client to determine if they create threats to independence that would require applicable safeguards to reduce threats to an acceptable level
does being an advisor to client’s board of trustees impair independence?
no
does being a promoter of client’s securities impair independence
yes
does being member of client’s board of directors impair independence?
yes
does being client’s general counsel impair independence?
yes
can other partners in office receive gifts without impairing independence?
yes. regarding independence, the firm, team, members and those in a position to influence may not accept gifts from attest clients unless value of those gifts is clearly insignificant to recipient
is independence impaired if auditor joins a trade association who is a client
no when auditor does not serve in management
