Licensing and Disciplinary systems

Question 1

Authority role of the State Boards of Accountancy

Answer 1

Authority—State boards of accountancy license CPAs and can prohibit non-CPAs from performing attest functions. State boards also license (and punish) CPA firms.

While the AICPA and state societies of CPAs cannot grant or take away CPA licenses, they can grant membership, take away membership, and punish members by suspensions, etc.

The AICPA has developed the Uniform Accountancy Act (UAA) to provide states with a model to regulate CPAs. Most states have adopted some or all of the UAA, ensuring that most state rules for CPAs are identical or at least similar to AICPA rules. The rules of state societies of CPAs also, naturally, substantially follow AICPA rules.

Question 2

Attest-related functions

Answer 2

1. Any audit or other engagement to be performed in accordance with SAS (Statements on Auditing Standards)
2. Any review of a financial statement to be performed in accordance with SSARS (Statements on Standards on Accounting and Review Services)
3. Any examination of prospective financial information to be performed in accordance with SSAE (Statements on Standards for Attest Engagements)
4. Any engagement to be performed in accordance with the standards of the PCAOB

Question 3

Nonattest services

Answer 3

One does not need a CPA license to perform such nonattest services as:
Preparation of tax returns
Management advisory services (consulting)
Preparing financial statements without issuing a report thereon

Question 4

Discipline

Answer 4

State boards may revoke CPA licenses and impose other penalties (such as fines) for such acts as:

1. Fraud or deceit in obtaining a certificate
2. Cancellation of a certificate in any other state for disciplinary reasons
3. Failure to comply with requirements for renewal
4. Revocation of the right to practice before any state or federal agency, including the PCAOB
5. Dishonesty, fraud, or gross negligence in performance of services or failure to file one’s own income tax returns
6. Violation of professional standards
7. Conviction of a felony or any crime involving fraud or dishonesty

Question 5

Professional Ethics Division

Answer 5

Investigates violations of AICPA Code and sanctions minor cases

Question 6

Joint Trial Board

Answer 6

Hears more serious cases
Has power to acquit, admonish, suspend, or expel
Initial decisions are made by a panel whose actions are reviewable by the full trial board, whose decisions are conclusive

Question 7

Automatic Expulsion

Answer 7

Automatic expulsion from the AICPA without a hearing results when a member has been convicted or received an adverse judgment for:
Committing a felony;
Willfully failing to file a tax return;
Filing a fraudulent tax return on own or client’s behalf; or
Aiding in preparing a fraudulent tax return for a client.

Question 8

Revocation of certificate

Answer 8

a state board of accountancy also leads to automatic expulsion.

Question 9

JEEP (Joint Ethics Enforcement Program)

Answer 9

The AICPA and most state CPA societies have agreements to split the handling of ethics complaints. The JEEP can handle violations across state lines with a single investigation, hearing, and punishment.
Typically, the AICPA handles:
Matters of national concern
Matters involving more than one state
Matters in litigation
The individual states handle the rest.
Public accounting firms and their m

Question 10

Specific performance

Answer 10

generally used when money damages will not suffice such as when the subject matter of the contract is unique or rare.

Question 11

Which of the following actions could result in the discharge of a party to a contract?

Answer 11

Prevention of performance will discharge a party from a contract. With accord and satisfaction, the satisfaction is the performance of the accord and discharges the old contract. Thus, both prevention of performance and accord and satisfaction discharge a party to a contract.

Question 12

What is the lowest amount that must have been paid as estimated taxes for the current year so that no penalty for underpayment is applicable?

Answer 12

To avoid an underpayment penalty, the corporation can pay the lower of 100% of the prior year’s tax liability or 100% of the current year’s tax liability

Question 13

Frost’s accountant and business manager has the authority to

Answer 13

Insure Frost’s property against fire loss.

An agent, such as a business manager, has implied authority to carry on the normal, day-to-day business activities of the firm. He may do things that are REASONABLY necessary to run the business but may not take extraordinary steps without express authority.

Obtaining insurance is something that is likely to fall within this type of authority. Although it may be expensive, it is the kind of thing a prudent person does to protect property. It can be strongly argued that a person who runs a business properly takes out insurance as a matter of course.

Question 14

F.O.B shipping contract

Answer 14

If the shipment terms require the seller to deliver goods under an F.O.B. destination contract, the seller is required to properly “tender” the goods to the buyer at the specific destination stated in the contract (not a destination specified by the buyer). This place can be other than the buyer’s place of business.

Question 15

Undue influence

Answer 15

Undue influence occurs when one party entering into a contract is so greatly influenced by his/her relationship with the second party of the contract that the first party does not exercise free will in entering into the contract.

Question 16

Reasonable basis

Answer 16

According to Circular 230, practitioners must not sign a tax return or claim for refund that the practitioner knows or reasonably should know contains a position that lacks a reasonable basis, is an unreasonable position, or is a willful attempt by the practitioner to understate tax liability. The reasonable basis standard comprehends at least a 20 percent probability of being sustained, while the more likely than not (more than 50 percent probability), substantial authority (40 percent probability), and realistic possibility (33 percent probability) are higher standards.

Question 17

Parole evidence rule

Answer 17

The parol evidence rule prohibits the presentation as evidence of any prior or contemporaneous oral statements pertaining to a written agreement intended by the parties to be the final and complete expression of their contract. Two of the exceptions to this rule include the following: (1) to show invalidity of the contract due to a lack of contractual capacity or reality of consent, and (2) to show the existence or failure of a condition precedent.

Question 18

Statute of frauds

Answer 18

Under The Statute of Frauds, agreements that can be performed within one year of their making can be oral. In this case the ethics audit need only span ten months and the completion of the report will take less than one additional month for a total of less than one year. We know that the report can be done in less than a month because Newell points out that even if she delays start for three months, she will still complete the ten-month audit before the fourteen-month deadline. The fact that it might take longer than a year does not require it to be in writing since it possibly could be completed within one year.