MIPP Introduction and Conceptual Framework

Question 1

Conceptual Framework

Answer 1

Where the code’s rules and interpretations do not provide a clear answer to a particular situation, members should always apply the threats-and safeguards Conceptual Framework in order to determine whether threats to a member’s compliance with the rules (independence and otherwise) can be reduced to an acceptable level by application of safeguards.

Question 2

3 main steps to applying Conceptual Framework

Answer 2

1. Identify threats
2. Evaluate the significance of the threats
3. Identify and apply safeguards.

Question 3

1. Adverse interest threats

Answer 3

a. Client sues or threatens to sue firm

b. Subrogee makes claim against firm to recover payments it made to client.

Question 4

2. Advocacy threats

Answer 4

a. Members provides forensic accounting services to client in lawsuit with third party
b. Firm acts as investment advisor, underwriter, promoter, or registered agent for a client.

Question 5

3. Familiarity threats

Answer 5

a. Member’s spouse, parent, sibling, or close friend is employed by the client.
b. Former firm partner joins client in a key position

Question 6

4. Management participation threats

Answer 6

a. Member takes on role of client management

Question 7

5. Self-interest threats

Answer 7

a. Member has a financial interest in a client that may be affected by outcome of professional services the firm is providing
b. Firm relies excessively on revenue from a single client

Question 8

6. Self-review threast

Answer 8

a. Member relies on work product of own firm
b. Member does client’s bookkeeping.
c. Partner in firm was an officer or director of client

Question 9

7. Undue of influence threats

Answer 9

a. Client threatens to fire firm or to withhold future business unless firm accedes to client’s wishes
b. Client’s major shareholder threatens to withdraw or terminate a professional service unless the member reaches desired conclusion.

Question 10

1. Safeguard created by the profession, legislation, or regulation

Answer 10

a. Ethics education and training requirements, including continuing professional education (CPE)
b. Professional standards and threat of discipline
c. External reviews of a firm’s quality controls
d. Legislation regulating firm’s professionals
e. Licensure requirements
f. Professional resources, such as ethics hotlines

Question 11

2. Safeguards implemented by the client

Answer 11

a. Knowledgeable and experienced managers
b. Appropriate tone at the top regarding ethics and compliance
c. Appropriate policies and procedures for compliance and fair reporting.
d. Appropriate ethics policies and procedures
e. Appropriate governance structure, including an active audit committee
f. Policies to prevent client from hiring a firm to provide services that would impair independence or objectivity

Question 12

3. Safeguards implemented by the firm

Answer 12

a. Strong leadership emphasizing compliance and acting in the public interest
b. Policies and procedures to implement and monitor engagement quality control
c. Designation of qualified senior manager to oversee firm’s quality control system
d. An effective internal disciplinary system
e. Rotation of engagement team senior personnel
f. Policies precluding partners from being compensated for selling nonattest serviceds to attest client.