MIPP - Non-idenpendence rules Flashcards
examples of conflicts
- simultaneously advising two clients trying to acquire same company
- preparing valuation of assets to two clients who are simultaneously the potential seller and buyer of same asset
- representing both a husband and wife in divorce
- advising client to invest in business owned by a member relatives
- advising client on acquisition of assets that firm also seeks to acquire
- providing forensic acct services to one client to assist iit in deciding whether to sue another client
- providing personal financial planning services to several members of family knowing to have conflicts of interest
- referring a client to a service provider that, in turn, refers clients to member under an exclusive arrangement
when an actual conflict is identified by a member…
conceptual framework should be applied and engagements should be refused or terminated if risk of violation is unacceptably high.
disclosure of conflict should be disclosed to…
conflicts should be disclosed to clients and affected thrid parties, even if threats to compliance are at an acceptable level
director positions
objectivity is threatened when a member serves as a client entity’s director
it is preferable to serve as a mere consultant to a client’s board
Conceptual framework should be applied to determine whether threat to objectivity is unacceptably high
gifts and entertainment - when is objectivity and integrity threatened
objectivity and integrity are threatened if client (including officers, directors, and 10% shareholders) give gifts or entertainment to the firm or its members
what procedures are taken when members have disagreements with superior over how to record potential earnings, or other issue
- evaluate if threat is at unacceptable level, would result in MM or legal violation.
- discuss matter with superior
- if discussion does not resolve disagreement, talk to supervisor’s boss
- if after discussion up the chain, the right thing is not going to be done, invoke the following safeguards
- -do org’s policies and procedures have any addl requirements for reporting differences of opinion
- -determine whether there is a duty to report to external authorities
- consult legal counsel
- -fully document situation - consider quitting if threat is not reduced to acceptable level
client advocacy
- members doing attest work may not advocate for their attest clients
- members providing non-attest services may advocate for their clients, but should be careful and conservative so as to preserve credibility and avoid the “zealous” advocacy that lawyers often provide
use of a third party service provider
-threats to objectivity and integrity
- outsourcing work to third party service providers can threaten objectivity or integrity
- there is no problem if the third party service provider provides only administrative support (record storage, software application hosting, authorized efile transmittal services)
- if substantive services are outsourced, clients should be notified, preferably in writing, before any confidential information is provided to the third party service provider
- if client objects, the member should: not outsource or decline the engagement.
competence of a member means that…
means that the member or his/or her staff has appropriate technical qualifications and the member can supervise and evaluate quality of work performed
if competence doesn’t exist, what should cpa do
decline an engagement unless you have necessary knowledge or can acquire it through research or consolation with others
-if you employ a specialist to provide consulting services, you should have the ability to define the tasks and evaluate the results.
what should a member do before using third party service providers
- ensure any third party service providers you use have the required professional qualifications, technical skills and needed resources
- adequately plan and supervise third party service providers services and obtain the data needed to evaluate the job
circumstances justifying departure include
- new legislation
- evolution of a new for of business
departure from gaap is permitted when other accounting principles apply
- financial reporting frameworks generally accepted in foreign country
- frameworks prescribed by contract
- other special purpose frameworks required by law or by domestic or foreign regulatory agency
discreditable acts
members shall not commit discreditable acts
client provided records
records given by the client to the member
member prepared records
example, adjusting, closing, combining or consolidating journal entries and supporting schedules and comments that the member proposed or prepared as part of an engagement
member’s work product
deliverables set forth in the engagement letter such as a tax return
working papers
are all other items prepared solely for purposes of engagement, including items prepared by both the member (audit program, analytical review schedules, and statistical sampling and analysis) and the client (papers prepared at the member’s request and reflecting testing or other work done by the member)
what is the proper treatment of requests from client with respect to client provided records
should be delivered to the client at the client’s request, even if client has not paid its bill to the member
what is the proper treatment of requests from client with respect to member prepared records
related to a completed and issued work product should be delivered to the client at client’s request, except that they may be withheld if fees are due for that specific work product
what is the proper treatment of requests from client with respect to work products
should be delivered to client at client’s request, except that they may be withheld under four circumstances
- fees are due for that specific work product
- work product is incomplete
- to comply with professional standards (withholding an audit report because of unresolved audit issues)
- if threatened or outstanding litigation exists concerning the engagement or the member’s work
what is the proper treatment of requests from client with respect to working papers
are member’s property and need not be provided to client (unless some regulation or contractual provision requires production)
can members charge a fee for producing records?
yes a reasonable fee for time and expense incurred
within how many days should document requests should be honored?
45 days
can members receive contingent fees
members shall not receive contingent fees for any service performed for client for whom he or she performs any of the following attest svc:
- fs audit or review
- fs compilation reasonably expected to be used by a third party that does not disclose a lack of independence
- examination of prospective financial information
can member prepare an original or amended tax return or claim for a tax refund for a contingent fee for any client, even a non attest client?
no
definition of contingent fee
a fee established for the performance of any service pursuant to an arrangement in which no fee will be charged unless a specific finding or result is attained, or in which the amount of the fee is otherwise dependent upon the finding or result of such service… excludes fees fixed by courts or other public authorities, or in tax matters, if determined based on the results of judicial proceedings or the finding of government agencies
when can member work for contingent fee
member may do tax work for non-attest clients in exchange for contingent fees if internal revenue service rules are not to the contrary (which sometimes are)
examples of some permitted contingent fees in tax area include
- representing a client before a revenue agent examining the client’s income tax return
- filing an amended federal or state income tax return claiming a refund based on a tax issue that is the subject of a test case involving a different taxpayer
- filing an amended federal or state income tax return (or refund claim) claiming a tax refund in an amount that will be examined by a tax authority, such as the joint committee on taxation
- helping a client obtain a private letter ruling or influencing the drafting of a regulation or statute
can a member charge a contingent fee is a member prepared an amended return claiming a refund because of an error in the original return?
no
are referral fees and commissions allowed for attest clients?
prohibited for attest clients
are referral fees and commissions permitted for non-attest clients?
permitted, but must be disclosed
disclosure confidential information is allowed where:
client consents
disclosure is permitted by law and authorized by employer
disclosure is required by law (subpoena or summons,)
members may have responsibility or right to disclose information, when not prohibited by law to: ‘
-initiate ethics complaint AICPA, state board, etc
-comply with professional standards and other ethical req.
-report potential concerns regarding questionable accounting, auditing, other matters to the employer’s confidential complaint hotline or those charged with gov
disclosure of confidential information is permitted on behalf of employer to
=obtain financing from lenders
- communicate with vendors, clients and customers
- communicate with external accountant, attorneys, regulators and others
if taking on a new client would likely lead to disclosure of confidential information from an existing, identifiable client, the member should…
not take on new client without informed consent from the existing client
when member withdraws from an engagement due to irregularities in a client’s tax return the member should…
if contracted by a potential successor firm, suggest that the potential successor firm contact the client to ask permission to discuss all matters freely with a successor
if a member prepares a tax return for a married couple, both are clients, so if during a divorce one spouse directs the member to withhold joint tax information from the other, the member may…
provide information to both spouses. when receiving conflicting directions from the spouses the member should seek an attorneys advice.
if third party such as trade association or member of academia asks a member to disclose confidential information for purposes of publication or the like, the member should…
obtain the client’s specific consent, preferably in writing before disclosing
members who are directors of organizations must be cautious because their fiduciary duty to the organization might…
conflict with their duty to clients who might for example be customers of the organization. the threats and safeguards conceptual framework should be utilized
ownership of a separate business
a member may own an interest in a separate business that performs accounting, tax, or consulting services, but if the member controls the separate business, then its owners and professional employees must comply with the code for issues such as commissions and referral fees. And regarding an attest client, independence rules would have to be complied with as well. but if a members interest is not a controlling one, then the code’s provisions apply to him but not to the separate firm or its employees.
designation partner should be used by
members of a firm who are legally partners
what is the responsibility of a nonmember practitioners to the code
if a member becomes an employee of a firm made up of one or more nonmembers, he or she still must comply with the code. and if the member is a partner in the firm, he or she is responsible for firm’s professional employees
attest engagement performed with a former partner
two former partners may continue to jointly perform an attest engagement, but to make it clear that a partnership no longer exists, they should present their report on plain paper (no letterhead)
if a firm does attest work
- cpas must own a majority of its financial interests
- cpa must remain responsible, financially and otherwise for a firm’s attest work
cpa’s are responsible for compliance with laws and regulations, for enrollment in an aicpa approved practice monitoring program, for
compliance with independence rules and for compliance with all other applicable standards within their firms
if two firms merge, they may use in the newly formed firm’s name …
the name of retired or other partners in either or both of the former firms
cpa member who is in partnership with non-cpa may
sign reports n the firm’s name
affix the designation CPA to his or her own signature if it is clear that the firm is not holding itself out as entirely comprised of cpas
firms within a network may share a common brand or common initials as part of their firm name without misleading. to be part of a network, firms should share one or more of the following with other network firms:
- common control among the firms
- profits or costs
- common business strategy
- significant portions of professional resources
- common quality control policies and procedures
disclosure of client’s confidential information may not be made to any party without either a court order or the consent of the client, unless the requesting party is
quality review board state CPA regulatory body.
valid court order
client consents to disclosure
whenever professional obligations otherwise require it
which firms must have a majority of their financial interests owned by cpas
attest firms
not firms that identify themselves as members of aicpa
