Partnerships, 529s, Trust and Estates, Employee Benefit Plans Flashcards
Define a general partnership? How does that impact independence on an engagement?
A partner is a general parter, they can all vote, and input in investment in general partner.
If you are general partner, you have a direct financial interest and direct investment for those owned by the partnership.
If you are auditing ABC company and your partnership has interest in ABC, that breaches independence because of your direct interest.
Define limited partnership. How does that impact independence on an engagement?
Two types of partners, general and limited.
General partnership- direct interest in any investment made by the partnership
Limited- Sit on the side lines. Interest in any underlying investment owned by the partnership they are indirect UNLESS you don’t sit on the sidelines.
- If you have authority to supervise in investment decisions or
- power to replace general partner.
What are Limited Liability Company. How does that impact independence on the engagement?
What are agent managed LLCS? How does that impact independence? What are the exceptions?
Member-managed LLCS: Are like partners and are treated the same for independence purposes.
Any underlying investment is direct UNLESS they are passive by having an agent manage the LLC.
If you have the power to control or replace the agent, then the underlying interest are direct.
What are examples of a 529 plan and what is the impact on independence?
Prepaid Tuition Plans: Owner has a direct financial interest in the plan, but only an indirect interest in the underlying investments.
Savings Plan: Owner has direct financial interest in the plan AND underlying INVESTMENT BECAUSE he or she decides in which sponsor’s section 529 plan to invest and determine before investing which firms the plan has invested in.
What are the three things that could get you in trouble for serving as a trustee of a trust or executor of an estate?
1) . The covered member has the authority to make investment decisions for the trust or estate
2) The trust or estate owns or is committed to acquiring more than 10% of the client’s equity interest
3) The value of the trust’s or estate’s holding in the client exceed 10% of the total asset
What are the items that could cause an independence issues for a grantor of a trust:
1) CM member has ability to amend or revoke the trust
2) CM has authority to control the trust
3) Underlying trust investments will ultimately revert to CM as the grantor of the estate
4) supervise or participate in investment decisions
If you are a beneficiary of a trust, what are the problems that could cause independence issue?
Covered members interest is considered direct and his interest in the trust’s underlying investment is indirect
EXCEPT: If you can supervise or participate in the investment decisions, then it is a direct interest.
IMPORTANT: What is a blind trust? How does that impact independence?
Because investments will ultimately revert to the grantor and the grantor usually retains the right to amend or revoke the trust, both the trust and its investments are considered DIRECT financial interest of the CM
Participation in Employee Benefits may impact independence, how?
What are the exceptions?
Independence is impaired IF a covered member participates in a benefit plan that is an audit client or is spooned by an audit client.
TWO EXCEPTIONS:
1) When a CM is a government employee that sponsors a benefit plan and the CM is required by law to audit the plan, the it acceptable to do so if:
- CM is required to participate as a condition of employment
- Plan is offered to all employees in comparable employment conditions
- The CM is not associated with the plan in any prohibited capacity (director, officer, employee, promoter)
- The CM has no influence or control over the investment strategy, benefits, or other management activities with the plan
2) When the CM formerly associated with the audit client but no longer has met the requirements
