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2017 Audit > Non-audit Services > Flashcards

Non-audit Services Flashcards

1
Q

covered members should monitor total amount of their nonaudit services to ensure that

A

their total involvement with client does not become so extensive that it would constitute performing a separate service

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2
Q

management responsibilities - can members assume mgt resp of attest client?

A

members must not assume any management responsibilities of attest clients.

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3
Q

general requirements for performing nonaudit services - when covered members do provide nonaudit services for attest client, if other rules do not state otherwise, independence would not be impaired if ALL safeguards are met as follows:

A

a. in order to ensure that ultimate management of the attest client stays with client’s management the members must determine that client and management have engagement letter
b. client and mgt must make informed judgment on results of member’s nonaudit services.
c. accept responsibility for making significant judgments and decisions
d. members must establish and document their understanding with attest client

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4
Q

engagement letter for non audit services

A
  1. management assumes all responsibility
  2. client oversee the service by designing an individual, preferably within senior management, who possesses the skill knowledge and/or experience to do the job. the member should assess the situation to ensure that the individual is up to the task
  3. evaluate adequacy and results of services performed
  4. accept responsibility for results for the services
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5
Q

before performing nonaudit services, members must establish and document in writing their understanding with attest client regarding

A
  1. objectives of engagement
  2. services to be performed
  3. attest client’s acceptance of its responsibilities
  4. members’ responsibilities
  5. any limitation on the engagement
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6
Q

if general requirements are met, member may provide the following nonattest services

A
  1. provide advice, research materials, and recommendations to assist management in performing its functions and making decisions
  2. attend board meetings as a nonvoting adviser
  3. interpret fs, forecasts and other analysis
  4. provide mgt with advice regarding its potential plans strategies or relationships
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7
Q

sox limits nonattest (consulting or advisory services) that attest firms may provide to attest clients that are

A

public companies

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8
Q

sox limitations on non-audit services are based on three fundamental notions

A

a. accounting firms should not audit their own work
b. auditors should not advocate for their clients,
c. accounting forms should not serve as their clients’ managers

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9
Q

sox provides that an independent auditor cannot perform the following nonaudit services for a public company audit client

A
  1. bookkeeping or other services related to accounting records of FS
  2. financial information systems design and implementation
  3. appraisal or valuation services, fairness opinions, or contributions in kind reports
  4. actuarial services
  5. internal audit outsourcing services
  6. management functions or human resources
  7. broker or dealer investment advisor or investment banking services
  8. legal services and expert services unrelated to audit
    =9. any other service that PCAOB determines is impermissible
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10
Q

sox does not prohibit attest firms from providing tax services to their attest clients, but PCAOB rules do provide that public company’s auditor’s independence is impaired regarding a tax client if the firm:

A
  1. enters into a contingent fee arrangement with audit client
  2. provides marketing, planning or opinion services in favor of tax treatment of confidential transaction, or if transactions is based on aggressive interpretation of tax law
  3. provides tax services to members of management who serve in financial reporting oversight role for a client or their immediate family
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11
Q

sox requires that rather than the audit client’s management selecting the auditors…

A

client audit committees should select, evaluate and compensate auditors.

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12
Q

audit committees are composed of

A

entirely of outside directors and presumably independent of management’s influence, must pre-approve any permitted nonaudit services (tax services).

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13
Q

when firms seeks permission of audit client audit committee to provide tax services, it must:

A
  1. describe proposed services in writing
  2. discuss with committee potential effects on independence
  3. document it in writing
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14
Q

appraisal valuation or actuarial services - results would be material to FS and services involve high degree of subjectivity - valuing employee stock option plan, business combination, or appraisals of assets and liabilities

A

independence impaired

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15
Q

appraisal valuation or actuarial services - services not requiring high degree of subjectivity - valuing client’s pension or post employment benefit liabilities

A

independence not impaired

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16
Q

appraisal valuation or actuarial services - services performed for non financial statement purpose - appraising or actuarial services for tax planning, estate and gift taxation and divorce proceedings

A

independence not impaired

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17
Q

is independence impaired?

communicate summary plan data to plan trustee

A

not impaired

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18
Q

is independence impaired?

advise client management regarding impact of plan provisions

A

not impaired

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19
Q

is independence impaired?

process transactions initiated by plan participants

A

not impaired

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20
Q

is independence impaired?

make policy decisions on client’s behalf

A

impaired

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21
Q

is independence impaired?

interpret plan for participants without management’s concurrence

A

impaired

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22
Q

is independence impaired?

make disbursements on plan’s behalf

A

impaired

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23
Q

is independence impaired?

take custody of plan assets

A

impaired

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24
Q

is independence impaired?

serve as plan fiduciary

A

impaired

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25
Q

is independence impaired?

record management approved transactions in client’s general ledger

A

not impaired

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26
Q

is independence impaired?

post client coded transactions to client’s general ledger

A

not impaired

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27
Q

is independence impaired?

prepare fs based on client’s trail balance

A

no

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28
Q

is independence impaired?

post clients approved journal entry to clients tb

A

no

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29
Q

is independence impaired?

propse standard adjusting or correcting je

A

no

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30
Q

is independence impaired?

generate unsigned checks using client’s source documents

A

no

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31
Q

is independence impaired?

process clients payroll using client provided records

A

no

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32
Q

is independence impaired?

transmit client approved payroll or other disbursement information to financial institution chosen by client

A

no

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33
Q

is independence impaired?

prepare reconciliation for client’s evaluation

A

no

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34
Q

is independence impaired?

detemine or make changes in accounting records without client approval

A

yes

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35
Q

is independence impaired?

approve or authorize client transactions

A

yes

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36
Q

is independence impaired?

prepare source documents

A

yes

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37
Q

is independence impaired?

make changes to source documents without client approval

A

yes

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38
Q

is independence impaired?

accept responsibility to authorize payment of client funds

A

yes

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39
Q

is independence impaired?

accept responsibility to sign or cosign checks

A

yes

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40
Q

is independence impaired?

maintain clients bank account take custody of client funds or make credit or banking decisions for client

A

yes

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41
Q

is independence impaired?

approve vendor invoices for payments

A

yes

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42
Q

is independence impaired?

assist management in its assessment of client’s business risk control process

A

no

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43
Q

is independence impaired?

recommend a plan for improving control processes and assisting in implementation

A

no

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44
Q

is independence impaired?

make or approve business risk decisions

A

yes

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45
Q

is independence impaired?

present business risk consideration to board on management’s behalf

A

yes

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46
Q

is independence impaired?

assist in developing corporate strategies

A

no

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47
Q

is independence impaired?

assist in identifying sources of capital meeting client’s criteria

A

no

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48
Q

is independence impaired?

introduce management to sources of capital meeting client’s criteria

A

no

49
Q

is independence impaired?

advise client in transaction negotiations

A

no

50
Q

is independence impaired?

participate in transaction negotiation in advisory capacity

A

no

51
Q

is independence impaired?

be named as financial advisory in client’s offering documents

A

no

52
Q

is independence impaired?

commit client to a transaction

A

yes

53
Q

is independence impaired?

consummate transaction on client’s behalf

A

yes

54
Q

is independence impaired?

act as a promoter, underwriter, broker dealer or guarantor of client’s securities

A

yes

55
Q

is independence impaired?

maintain custody of client’s securities

A

yes

56
Q

is independence impaired?

recommend position description or candidate specifications

A

no

57
Q

is independence impaired?

solicit screen and recommend candidates based on client approved criteria

A

no

58
Q

is independence impaired?

recommend qualified candidates based on client approved criteria

A

no

59
Q

is independence impaired?

advise employer on employee hiring or benefits

A

no

60
Q

is independence impaired?

hire or terminate client employees

A

yes

61
Q

is independence impaired?

commit client to employee compensation or benefits

A

yes

62
Q

is independence impaired?

expert witness for a client

A

yes

63
Q

is independence impaired?
expert for a large group where attest clients
a. <20% of members voting interest and claims
b. are not lead plaintiffs
c. do not have sole decision making power to select expert witness

A

no

64
Q

is independence impaired?

fact witness

A

no

65
Q

is independence impaired?

litigation consulting providing advice to attest client (without serving as expert witness)

A

no

66
Q

litigation consulting serving as trier of fact, special master, court appointed expert or arbitrator

A

yes

67
Q

is independence impaired?

litigation consulting mediator

A

no

68
Q

is independence impaired?

initial or ingrate a clients financial information system if it is off the shelf (not designated by client)

A

no

69
Q

is independence impaired?

assist in setting up client’s chart of accounts and financial statement format

A

no

70
Q

is independence impaired?

design develop install or integrate client’s information system that is unrelated to clients fs or accounting records

A

no

71
Q

is independence impaired?

provide training and instruction to client’s employees on information and control system

A

no

72
Q

is independence impaired?

perform network maintenance

A

no

73
Q

is independence impaired?

design or develop clients financial information system

A

yes

74
Q

is independence impaired?

design or develop client’s financial information system

A

yes

75
Q

is independence impaired?

make other than insignificant modifications to source code underlying client’s existing financial information system

A

yes

76
Q

is independence impaired?

supervise client personnel in the daily operation of financial information system

A

yes

77
Q

is independence impaired?

operate client’s network

A

yes

78
Q

is independence impaired?

assess whether performance complies with management policies

A

no

79
Q

is independence impaired?

identify opportunities for improvement

A

no

80
Q

is independence impaired?

recommend improvement for management consideration

A

no

81
Q

is independence impaired?
performing ongoing monitoring activities or control activities (reviewing customer credit info as part of sales process) that affects execution of transaction

A

yes

82
Q

is independence impaired?
performing separate evaluation of significant control such that member is in effect performing routine operations built into client’s business process

A

yes

83
Q

is independence impaired?
having management rely on member’s work as primary basis for client’s assertions on design of operating effectiveness of internal controls

A

yes

84
Q

is independence impaired?

determining which if any recommendations for improving internal control system should be implemented

A

yes

85
Q

is independence impaired?
approving or being responsible for overall internal audit work including determining internal audit risk and scope, project priorities, and frequency of performance of audit procedures

A

yes

86
Q

is independence impaired?
being connected with client as employee or in any management position (being listed as an employee in client’s directory)

A

yes

87
Q

is independence impaired?

recommend allocation of funds that client should invest in various asset classes

A

no

88
Q

is independence impaired?

perform bookkeeping and reporting of client’s portfolio balance

A

no

89
Q

is independence impaired?

review management of client’s portfolio by others to determine if managers are meeting client’s investment objectives

A

hno

90
Q

is independence impaired?

transmit client’s investment selection to broker

A

noq

91
Q

is independence impaired?

make investment decisions on client’s behalf

A

yes

92
Q

is independence impaired?

execute transactions to buy or sell for client

A

yes

93
Q

is independence impaired?

take custody of client assets such as security purchased by client

A

yes

94
Q

is independence impaired?
assuming cpa does not have custody or control over client’s funds and that client employee reviews and approves tax return prior to transmission to taxing authority and if required for filing signs tax return then:
preparing tax return

A

no

95
Q

is independence impaired?
assuming cpa does not have custody or control over client’s funds and that client employee reviews and approves tax return prior to transmission to taxing authority and if required for filing signs tax return then:
transmitting tax return to taxing authority

A

no

96
Q

is independence impaired?
assuming cpa does not have custody or control over client’s funds and that client employee reviews and approves tax return prior to transmission to taxing authority and if required for filing signs tax return then:
transmitting payment

A

no

97
Q

is independence impaired?

signing and filing tax return on behalf of client management if authorized by management and requirements are met

A

yes

98
Q

is independence impaired?

representing client in administrative proceedings before taxing authority

A

no

99
Q

is independence impaired?

representing client in court to resolve tax dispute

A

no

100
Q

who are members in business

A

members who are employed or engaged on a contractual or volunteer basis in an executive, staff, governance, advisor or administrative capacity in such area as industry, the public sector, education the not for profit sector and regulatory or professional bodies. this would include staff accountants, internal auditors, and other accountants not engaged in public practice

101
Q

do members in business have to worry about independence rules?

A

no. they have other responsibilities that generally mirror those of members in public practice

102
Q

what are the threats for members in business

A
  1. adverse interest threats
  2. advocacy threats
  3. familiarity threats
  4. self interest threats
  5. self review threats
  6. undue influence threats
103
Q

members in business - examples of adverse interest threats

A
  • member in business’s close relative is an investor in her employer’s closest competitor
  • member in business has sued her employer
104
Q

members in business - examples of advocacy threats

A
  • obtaining favorable financing is dependent on information that member in business includes in prospectus
  • member in business gives or fails to give information that he know will unduly influence conclusions reached by third party
105
Q

members in business - examples of familiarity threats

A
  • member in business has a long relationship with third party and therefore stops reviewing quality of third party’s work
  • member in business hires a relative as subordinate
  • member in business regularly accepts gifts or entertainment from firm that sells goods or services to member’s employer
106
Q

member in business - examples of self interest threats

A
  • member in business close relative owns stock in employer
  • member in business is eligible for performance related bonus and its value will be directly affected by member in business decisions
107
Q

member in business - self review threats examples

A
  • an internal auditor accepts work that she previously performed before she was promoted to her current position
  • member in business accepts work that she previously performed that will be the basis for providing another professional service - for example, sally gives tax advice to her client and late, while doing attest work for the client, automatically accepts the validity of tax advice
108
Q

member in business - undue influence threats include

A
  • members in business being pressured to
  • become associated with misleading information
  • deviate from company policy
  • change a conclusion regarding tax accounting position
109
Q

when attempting to eliminate these threats or reduce them to an acceptable level, members in business cannot turn to safeguards generated by their accounting form, of course, but can turn to those created by:

A
  • profession, legislation, or regulation

- their employer

110
Q

offering or accepting gifts or entertainment by members in business

A

should not accept any gifts or entertainment that would violate law or policies of other firms of their won employer. gifts or entertainment not reasonable in the circumstances would create a violation of the integrity and objectivity rule

111
Q

preparing and reporting information by members in business. they must never:

A
  • make or direct another to make false entry
  • fail to correct inaccurate financial statement or entries
  • sign or permit another to sign a document containing materially false information
112
Q

subordination of judgment - members in business

A

rules against subordination of judgment for members in business are essentially identical for those of members in public practice

113
Q

obligation of a member to his or her employer’s external accountant - members in business

A

are to be candid and no knowingly misrepresent facts or knowingly fail to disclose material facts to their employers external auditor

114
Q

educational services - members in business

A

when teaching at a university or performing other educational services, a member in business is viewed as performing professional services and therefore must act with integrity and objectivity

115
Q

what are general standards for members in business

A
  • act with professional competence
  • exercise due professional care
  • adequately plan and supervise performance of professional services
  • have sufficient relevant data to back up any conclusions or recommendations they make
116
Q

discreditable acts - members in business

A

are held to essentially the same standards as members in public practice

  • discrimination and harassment of employment
  • solicitation or disclosure of cpa exam questions and answers
  • failure to file a tax return or pay tax liability
  • negligence in preparing fs or other records
  • failure to follow rules for preparation of fs
  • entering into prohibited indemnification agreements and limited liability provisions
  • promoting or marketing their firm by use of false, misleading or deceptive ads
  • improper use of cpa credential
117
Q

who are other members

A

unemployed, retired, or otherwise not working in the profession, so most of the code that applies to members in public practice and members in business doe snot apply to them

118
Q

discreditable acts of other members

A
  • discrimination and harassment in employment practices
  • solicitation or disclosure of cpa exam
  • failure to file tax return or pay tax liability
  • improper disclosure of confidential information obtained from employment or previous volunteer work
  • false, misleading or deceptive acts in promoting or marketing services
  • improper use of cpa credentials

2017 Audit (10 decks)

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