Prof Resp Flashcards
What engagements are covered by the AICPA Code of Professional Conduct?
Covers all professional engagements and is the minimum standard of conduct
Member should additionally follow specific standards for a specific engagement
What must an accountant have under the AICPA Code of Professional Conduct?
Integrity Responsibility Work in the public interest Objectivity and Independence Due care always respect the code for services
What is the effect of threats and safeguards to independence?
Safeguards > Threats = Independence
Threats > Safeguards = No Independence
What are the threats to independence?
Self-Review (Auditing own work)
Advocate of the Client (promoting client’s interest)
Adverse Interest (Lawsuit against Client)
Undue Influence (attempt to coerce)
Familiarity
Financial Self-Interest
Management participation
What are the Safeguards to independence?
Safeguards created by the profession, legislation or regulation
Safeguards implemented by the client
Safeguards implemented by the firm
What is a Covered Member?
person on the engagement team
person that can influence the engagement team
partner or manager that provides 10+ hours of non attest services
partner in the office of the lead engagement partner
the firm, including firm’s benefit plans
an entity whose operation, financial or accounting policies can be controlled by any of the above
When is independence impaired?
direct financial interest
material indirect financial interest
trustee of trust/executor/administrator of any estate committed to acquire any direct or material indirect interest in the client
loan to/from client, officer, director, 10%+ shareholder
firm personnel and/or immediate family owning 5%+ of client stock
immediate family/parent/sibling/non-dependent child in Key positions with the client
acting in a management capacity
actual/threatened litigation against the client
When is independence required?
Audit
Review
Attestation Engagement
What are the requirements for Non-attest engagements?
Agreement must be in writing.
Independence not required - Must state if you are not independent
Applicable engagements: Consulting- Compilation
Which standards apply to consulting engagements?
Consulting engagements are covered by Statements on Standards for Consulting Services (SSCS)
Requirements: Competence- Due Care- Planning- Supervision- Obtain Sufficient Data- Must Serve Client Interest- Must have written or oral agreement- must communicate with client.
List some common consulting engagements.
Advisory Services
Transaction Services
Management Consulting
Implementation Services
What is the rule concerning contingent fees for a covered member?
contingent fees are not permitted based on results of audit/review/compilation
no contingent few based on tax return
When are contingent fees allowed?
When fees are structured relative to judicial proceedings.
Example: IRS audit- or filing an amended tax return subject to tax case with a different taxpayer.
What are the requirements for Personal Financial Planning Engagements?
define objectives
plan appropriate procedures
develop basis for recommendation
develop strategies & make recommendations to achieve the goals
identify tasks for execution
When is a GAAP departure appropriate?
Departure from GAAP is appropriate if GAAP would cause Financial Statements to be misleading- then it must be explained/disclosed.
When may a covered member disclose confidential information?
compliance with enforceable subpoena or summons
aicpa review of professional practice
initiating complaint/responding to inquiry made by recognized investigative or disciplinary body
compliance with rule 202 (standards) and 203 (accounting principles)
What is the effect of not returning all client-provided documents upon request?
This is an act discreditable.
You MUST return all documents the client gives you even if they don’t pay their bill.
If you create a document- however- like a work paper- you are not required to give the client a copy of papers you created if they haven’t paid their bill
They are the firm’s work papers- but are still confidential!
What are the rules with respect to CPA firm names?
CPA firm names must not be misleading.
If partner dies- remaining partner has two years to change name if partnership dissolved. If partner dies and more than one partner still remains (i.e. 1 dies and you still have 2 or more partners…you don’t need to change the name)
All Partners/Shareholders must be members of the AICPA in order to hold themselves out as members of the AICPA. Non-CPAs can be owners- but 2/3 of Ownership must be CPAs. Non-CPA owner must not be involved with the accounting- and is still bound by AICPA code of conduct- must maintain CPE requirements and have Bachelor’s degree.
What is the consequence of disclosing CPA exam material post-1996?
It is an Act Discreditable.
What are the consequences for a CPA who commits an Act Discreditable?
Licenses are granted at the State level
If State revokes certificate- AICPA Ban
Felony Conviction- AICPA Ban
Prepares Fraudulent Tax Return- AICPA Ban
Intentionally failing to file return- AICPA Ban
SEC can get involved with discipline
What are the functions of the PCAOB?
Monitors CPA Firms who audit SEC clients - All SEC Audit firms must register
Issues standards for firms to follow - usually stricter than AICPA standards
When is independence impaired under PCAOB standards?
If Client pays a contingent fee or commission
non-audit service related to marketing, planning or opinion on a confidential transaction or aggressive tax position
Firm does tax work for Client employee/family member that is in a financial reporting oversight role at the client
Who must approve non-audit work performed by a firm for a client?
Client Audit Committee must approve non-audit work performed by Firm
Firm must disclose any potential independence issues to Audit Committee
Which organization is in charge of determining if federal funds are being misappropriated?
GAO - Government Accountability Office
What rules must auditors follow for governmental audits?
Auditors must follow both GAAS and GAS aka the Yellow Book materiality threshold is usually lower
More detail is required on working papers
More stringent CPE rules and requirements - 24 hours of continuing education must be related to governmental auditing every 2 years
Compliance with Regulations is a requirement of the Audit Report
What services is an auditor prohibited from providing to issuer clients?
bookkeeping financial IT design/implementation appraisal services internal audit outsourcing management functions actuarial services investor/broker-dealer certain tax services (tax planning for potentially abusive tax shelters)
What are the fundamental principles under IFAC/IAS
Integrity Objectivity Due Care Confidentiality Professional Behavior
