Other Ethics Codes

Question 1

Audit Firms are not allowed to provide which services to public companies

Answer 1

Any non audit service, other than tax work.

Question 2

Exception to tax services

Answer 2

Cannot provide tax services to public companies with tax shelters.
Also cannot provide tax services to a person in a Financial Reporting Oversight Role (CFO) at the audit client

Question 3

Requirement to perform tax services

Answer 3

1. pre-approved by the clients audit committee

2. disclosed in the clients periodic reports filed with the SEC

Question 4

Rotation Rules

Answer 4

Audit partner and reviewing partner must rotate off after 5 years. cool down period is 5 years.

Question 5

Audit Compensation

Answer 5

Under SOX, a public company audit firm is not independent if any partner earns or receives compensation based on that partner selling NAS to an audit client

Question 6

Audit Committee requirements

Answer 6

*Audit firm is selected and compensated by the audit committee, not management,

Audit Firm reports to audit committee:

a. all critical accounting policies and practices to be used;
b. all alternative treatments of financial information within GAAP that have been discussed with management officials, ramifications of the use of such alternative disclosures, and the treatment preferred by the accounting firm; and
c. other material written communications between the accounting firm and the issuer’s management, such as any management letter or schedule of unadjusted differences.

Question 7

1 year cool off period

Answer 7

C exect. positions being filled by audit firm employees must wait one full year from the end of the current audit cycle.

Question 8

SOX created what organization

Answer 8

PCAOB, who is overseen by the SEC

Question 9

Principle functions of PCAOB

Answer 9

1. Register public accounting firms.
2. Establish auditing, quality control, ethics, independence, and other standards relating to the preparation of audit reports, or adopt such standards as proposed by existing professional groups or new advisory committees.
3. Conduct inspections of registered public accounting firms.
4. Conduct investigations and disciplinary proceedings concerning registered public accounting firms and associated persons.
5. Enforce compliance with SOX, the PCAOB’s rules, professional standards, and the securities laws relating to the preparation of audit reports by registered public accounting firms and associated persons.
6. Perform such other services as the PCAOB or the SEC determines are necessary or appropriate to promote high professional standards, protect investors or further the public interest.

Question 10

3 new standards set by PCAOB for public accounting firms

Answer 10

• retain documentation for 7 years
• must have a concurring partner on each report
• must have report on ICs

Question 11

Inspections are performed by the PCABO

Answer 11

annually for firms auditing more than 100 issuers

every 3 years for companies auditing 100 or less

Question 12

Government Accountability Office guidelines apply to those

Answer 12

who conduct audits of government entities in compliance with generally acceptable government auditing standards (GAGAS)

Question 13

GAO: independence and ethical principles

Answer 13

independent

1. the pubic interest
2. integrity
3. objectivity
4. proper use of government information, resources, and position
5. professional behaivor

Question 14

Audit organizations and individuals must be free from 3 types of independence impairments

Answer 14

1. personal impairments
2. external impairments
3. organizational impairments

Question 15

Personal Impairment Examples

Answer 15

Family relationships
Financial interests
Employment relationships
Prospective employment
Self-review
Bias

Question 16

External Impairments

Answer 16

Entity putting pressure on, or limiting audit work (scope limitations)
- threat of replacing auditors

Question 17

Organizational Impairments

Answer 17

• audit function located within the reporting line

- auditor is assigned or takes on responsibilities that affect operations of the area under audit

Question 18

Who Regulates Employee Benefit Plans

Answer 18

Department of Labor

• Employee benefits Security Administration (EBSA) pursuant to;
• Employee Retirement Income Security Act (ERISA)

Question 19

IESBA is what:

Answer 19

The International Ethics Standards Board for Accountants (IESBA), one of the International Federation of Accountants (IFAC)’s standard-setting agencies, promulgated the Code of Ethics for Professional Accountants (the IFAC Code)

Question 20

IFAC’s Fundamental Principles

Answer 20

1. Integrity
2. Objectivity
3. Professional Competence and Due Care
4. Confidentiality
5. Professional Behaivor

Question 21

IFAC Code’s involves identifying which types of threats

Answer 21

Ones that are not clearly insignificant (insig. = trivial and inconsequential)

Question 22

5 types of Threats

Answer 22

Self-interest threats – The threat that a financial or other interest will inappropriately influence the professional accountant’s judgment or behavior. An auditor should obviously not own stock in an audit client.
2.
Self-review threats – The threat that a professional accountant will not appropriately evaluate the results of a previous judgment made or service performed by the professional accountant, or by another individual within the professional accountant’s firm or employing organization, on which the accountant will rely when forming a judgment as part of providing a current service. An auditor should not audit its own work.
3.
Advocacy threats – The threat that a professional accountant will promote a client’s or employer’s position to the point that the professional accountant’s objectivity is compromised.
4.
Familiarity threats – The threat that due to a long or close relationship with a client or employer, a professional accountant will be too sympathetic to their interests or too accepting of their work.
5.
Intimidation threats – The threat that a professional accountant will be deterred from acting objectively because of actual or perceived pressures, including attempts to exercise undue influence over the professional accountant.

Question 23

Safeguards created by the profession, legislation or regulation

Answer 23

1. education, training, and experience requirements for entry into the profession;
2. continuing professional development requirements;
3. corporate governance regulations;
4. professional standards;
5. professional or regulatory monitoring and disciplinary procedures;
6. external review by a legally empowered third part of the reports, returns, communications, or information produced by a professional accountant.

Question 24

Firm-wide Environment Safeguards

Answer 24

a. Leadership of the firm that stresses the importance of compliance with the fundamental principles.
b. Leadership of the firm that establishes the expectation that members of an assurance team will act in the public interest.
c. Policies and procedures to implement and monitor quality control of engagements.
d. Using different partners and engagement teams with separate reporting lines for the provision of non-assurance services to an assurance client.
e. A disciplinary mechanism to promote compliance with policies and procedures.

Question 25

Engagement-Specific work environment safeguards

Answer 25

a. Having a professional accountant who was not involved with the non-assurance service review the non-assurance work performed or otherwise advise as necessary.
b. Having a professional who was not a member of the assurance team review the assurance work performed or advise as otherwise necessary.
c. Consulting an independent third party, such as a committee of independent directors, a professional regulatory body, or another professional accountant.
d. Discussing ethical issues with those charged with governance of the client.
e. Involving another firm to perform or re-perform part of the engagement.