MIPPS Introduction and Conceptual Framework

Question 1

Who are MIPPS?

Answer 1

Applies to CPAs in public practice, which includes performance of professional services (audit, tax, consulting) for a client by a member or the member’s firm

It also includes government auditors

Question 2

What are the three steps to applying conceptual framework? (big deal)

Answer 2

If there is no specific answer to a problem that you encounter, you need to have a framework to help you solve the problem:

1) Identify threats with the code of conduct
2) Evaluate the significance of the threats (can they be reduced to an acceptable level)
3) identity and apply SAFEGUARDS

Question 3

What are the seven types of threats to objectivity and integrity?

Answer 3

1) Adverse interest threats: Client and your opinion differ. Client sues or threatens to sue. Subrogee makes a claim against firm to recover payment made to a client.
2) Advocacy threats: Advocating for client (do not advocate for attest client but can for tax and consulting)
3) Familiarity Threats: Member’s spouse or parent is employed by the client
4) Management participation threats: Member takes on role of client management
5) Self-Interest Threats: Member has a financial interest in a client that may affect by the outcome of a professional service engagement
6) . Self-Review Threats: Member relies on work product of the member’s firm. Member performs bookeeping for the client.
7) Undue Influence Threats: Client threatens to fire firm or to withhold future business.

Question 4

Three Kinds of Safeguards:

Answer 4

When you see threats, is the threat to objectivity and integrity that it is an an unacceptable level, safeguards are in place to help you bring that threat down to an acceptable level.

Three kinds of safeguard:
1) Created by the profession, legislation, or regulation (AICPA, government, etc). The education and training requirements, professional standards and threat of discipline, external review firm’s quality control system. Legislation establishing prohibitions and requirements fora firm, competency and experience requirements.

2) Implemented by the client: Personnel with suitable skills, knowledge, or experience to make managerial decisions. The tone at the top emphasizes the client’s commitment to fair financial reporting and legal compliance, Policies and procedures are in place to achieve fair financial reporting. Bottom line: Do you have confidence in the company?
3) Implemented by the firm: Firm leadership stress compliance, policies and procedures designed to implement and monitor engagement quality control, designation of someone from scenior management to oversee the functioning of the firm’s quality control. Rotation of senior personnel who are part of the engagement team. Policies that preclude audit partners or partner equivalents from being directly compensated for selling non audit services to the attest client.