Other Ethics Codes Flashcards
Audit Firms are not allowed to provide which services to public companies
Any non audit service, other than tax work.
Exception to tax services
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
Requirement to perform tax services
- pre-approved by the clients audit committee
2. disclosed in the clients periodic reports filed with the SEC
Rotation Rules
Audit partner and reviewing partner must rotate off after 5 years. cool down period is 5 years.
Audit Compensation
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
Audit Committee requirements
*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.
1 year cool off period
C exect. positions being filled by audit firm employees must wait one full year from the end of the current audit cycle.
SOX created what organization
PCAOB, who is overseen by the SEC
Principle functions of PCAOB
- Register public accounting firms.
- 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.
- Conduct inspections of registered public accounting firms.
- Conduct investigations and disciplinary proceedings concerning registered public accounting firms and associated persons.
- 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.
- 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.
3 new standards set by PCAOB for public accounting firms
- retain documentation for 7 years
- must have a concurring partner on each report
- must have report on ICs
Inspections are performed by the PCABO
annually for firms auditing more than 100 issuers
every 3 years for companies auditing 100 or less
Government Accountability Office guidelines apply to those
who conduct audits of government entities in compliance with generally acceptable government auditing standards (GAGAS)
GAO: independence and ethical principles
independent
- the pubic interest
- integrity
- objectivity
- proper use of government information, resources, and position
- professional behaivor
Audit organizations and individuals must be free from 3 types of independence impairments
- personal impairments
- external impairments
- organizational impairments
Personal Impairment Examples
Family relationships Financial interests Employment relationships Prospective employment Self-review Bias
External Impairments
Entity putting pressure on, or limiting audit work (scope limitations)
- threat of replacing auditors
Organizational Impairments
- audit function located within the reporting line
- auditor is assigned or takes on responsibilities that affect operations of the area under audit
Who Regulates Employee Benefit Plans
Department of Labor
- Employee benefits Security Administration (EBSA) pursuant to;
- Employee Retirement Income Security Act (ERISA)
IESBA is what:
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)
IFAC’s Fundamental Principles
- Integrity
- Objectivity
- Professional Competence and Due Care
- Confidentiality
- Professional Behaivor
IFAC Code’s involves identifying which types of threats
Ones that are not clearly insignificant (insig. = trivial and inconsequential)
5 types of Threats
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.
Safeguards created by the profession, legislation or regulation
- education, training, and experience requirements for entry into the profession;
- continuing professional development requirements;
- corporate governance regulations;
- professional standards;
- professional or regulatory monitoring and disciplinary procedures;
- external review by a legally empowered third part of the reports, returns, communications, or information produced by a professional accountant.
Firm-wide Environment Safeguards
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.
Engagement-Specific work environment safeguards
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.
