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REG > Ethics &professional Responsibilities > Flashcards

Ethics &professional Responsibilities Flashcards

1
Q

More likely than not

A

> 50%

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2
Q

Substantial Authority

A

> 33% but

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3
Q

Reasonable basis

A

> 20%

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4
Q

Negligence

A

Failure to make reasonable attempt to comply with provision of IRS law

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5
Q

Tax shelter

A

Plan/ arrangement of entity to avoid/ evasion of federal income tax

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6
Q

Tax preparer

A

Person prepare federal tax returns for a Fee/ compensation

Dont have to be CPA or EA

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7
Q

Tax preparer will be penalized if

A

Fail to provide client copy of return
Fail to sign tax return claim
Fail to retain records properly (3yrs)
Fail to provide his tax ID on client return
Fail to file correct inf returns
Help in aiding &abetting to underest tax liab
Wrongful disclose client confidential infor

Never endorse/negotiate/cash client check
Never hold client records &must return if client request
Fail to Diligent in determine EIC credit for clients:
RICE record, inquiry reasonable, computation wordsheet, eligibility checklist

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8
Q

Tax preparer can disclose client infor without consent only when

A 
Order by Court/Subpoena
Quality peer review/CPA society voluntary Quality Control
Prepare client tax return
sEC audits
If client consent

Defense of a lawsuit brought by client
Official investigation by Aicpa/ state trial broad
Can show to prospective purchaser of CPA firm but cant disclose confidential infor
GAAP/GAAS require discloses

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9
Q

Cir 230- general rules of Practice-position of authority same as Aicpa codeof professional conduct & IRC

A

Address potential “Conflict of interest”

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10
Q

Tax prepare only charge Contingent fees when

A

IRS examination or audit

Claim solely for a refund of interest or penalties

A judicial proceeding arising under the IRC

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11
Q

When tax practitioner has knowledge of omission/error by client

A

Must advise client promtly of any non compliance , error, omission in the return and advise the consequences under the law

Must consider withdraw if client refuses to fix

DONT have to notify IRS directly regarding of error

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12
Q

Practitioner must not give written federal tax advice if

A

Based on Unreasonable/ frivolous factual or legal assumption

Unreasonable relies upon stm of findings

Not consider all the relevant facts

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13
Q

Sanctions- disbar, suspend any practitioner from practice before IRS if

A

Being convicted of any criminal offense/felony under Federal law

Fails to comply Cir 230

Intend to defraud, willingly &knowingly mislead or threaten clients

Not acting in Good faith

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14
Q

State Broad of Accountancy

A

Only it can gives and revoke licenses to CPA

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15
Q

Penalty of misconduct for CPA by SBOA

A 
Suspension of license
Monetary fine
Probation
Censure
Require continuing CPEs

No jail as a penalty

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16
Q

Aicpa & State CPA societies action

A

Can suspend or terminate CPA membership but CANNOT suspense or revoke CPA license

Membership can be suspended without hearing

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17
Q

IRS disciplinary action

A

Provide criminal penalties for any person in fraudulent

Imprisoned
Prohibit an accountant from practicing before IRS
Impose Fines

18
Q

PCAOB- subj to oversight by SEC

A

Composed by 2CPAs and 3non CPAs

Responsibilities:
Register public acct prepare audit reports for issuers
Establish rules to prepare audit report
Conduct inspections, investigations&disciplinary proceedings

Inspect ANNUALLY- public acct firm audit >100 audits

Every 3YEARS-

19
Q

Financial expert

A

Knowledge of GAAP
Application of GAAP
Experience with internal control
Understanding of audit committee functions

20
Q

Best defense of CPA in Breach of Contract

A

Client failed to cooperate

21
Q

CPA best defense under Sec 11 of Security act 1933 for omission of material fact in registration stm

A

Due diligence

Purchaser wasnt in privity of contract with CPA is not a valid defense for CPA

22
Q

Under 1933 ACT, plaintiff must prove
LAMM
NO SCI ENTER or RECKLESS

A

Purchase the stock & suffer a loss/damage

Material misrepresentation or omission of fact in FS

NO NEED to prove Scienter or Reckless disregard for the truth

Plaintiff must sue within 1 yr of discovery the mistake and within 3yrs of the offering date

23
Q

CPA recklessly departed from the std of due care while performing an audit will be liab to

A

3rd parties for gross negligence

24
Q

Primary authoritative source

A 
IRC
Statutory provisions
Reg
Revenue rulings
US Treasury department
Court Cases
25
Q

Civil liab for money damage under Sec 10b & Rule 10b5 under Act 1934, plaintiff must show
LAMMSR
MUST SHOW Scienter or Reckless

A

Purchaser or seller of stock

Suffer a loss

Material misrepresentation or omission of fact in acct’s report

Must show SCIENTER or RECkLESS, intent to deceive– Negligence is not enough

Must show RELIANCE

Liab if CPA act without GOOD FAITH

26
Q

If a tax preparer leave a question unanswered and reasonable ground exist for not answering the question

A

He need not provide an explanation for the omission

27
Q

3rd party primary beneficiary of audited FS rule applied to CPA liab

A

CPA will be liab for negligence only to primary 3rd parties

28
Q

Attest services

A

Audit FS
Review FS
Examination of prospective FA
Engagement performed in accordance with PCAOB

29
Q

Membership of Aicpa suspend without hearing

A

License is revoked by state as a discipline measure

Convicted of crime punishable

Filing fraudulent tax return

Fail to file his require tax return

Conviction for misdemeanor would NOT result in Automatic expulsion

30
Q

Fraud against accountant (actual fraud)

MS RID

A

Material misrepresentation

Scienter, intent to deceive- intentionally &knowingly

Reasonable reliance

Intent to rely

Damage

31
Q

Constructive fraud -Gross negligence

MS RID

A

Material misrepresentation

Reckless disregard to the truth

Reasonable reliance

Intent to rely

Damage

32
Q

Accountant is liable for Negligence

4 elements of negligence

A

Fail to exercise Duty of care

Breach the contract: fail to follow Requirement stds

Client suffer damages

Causality caused to client

33
Q

Ultramares rules- minority view

A

Accountants are liable for negligence to the 3rd parties beneficiaries:

If they were in privity with them
Knew the specific name of reliance 3rd parties

34
Q

Majority view

A

Accountants are liable for negligence to foreseen users and any foreseen class of users:

If accountant knew there are group rely on their work
Any member of group can sue to recover damage

35
Q

Plaintiffs who are suing for fraud, constructive fraud or gross negligent which involves RECKLESS

A

NOT need to show PRIVITY of contract

36
Q

Viable defense against 3rd parties

A

Lack of privity

37
Q

In preparing tax return

A

CPA may in good faith rely upon infor furnished by the client or 3rd parties without further verification

38
Q

Private Securities Litigation Reform Act

Under 1934 Act, when perform an Audit, CPA should design procedures to:

A

Detect illegal acts

Identify related party transactions that material to FS

Evaluate whether there is substantial doubt about ability to going concern

39
Q

When CPA detect of illegal act

A

Must inform the issuer’s Audit committee

If Audit committee fail to take action, then report to the BoD
Then BoD have to report with Sec within 1day and furnish CPA with copy of notice

If BoD fail to do so then CPA has to directly notify to SEC within 1day and resigns from the Audit

If client sue then show workpaper to court that u r not liable for breach of confidentiality with client

40
Q

Registration statements contains PANS

A

Prospectus

Audited FS

Names of issuer, directors and underwriters

Basis Securities informations

41
Q

Independence in fact and appearance in audit and attestation service

Independence is impair if

A

Auditor is either :
+ employee of an audit client or
+ able to make management decision on behalf of the client

EXCEPTION: Advisory capacity is not impair independence

REG (18 decks)

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