Professional Responsibilities Flashcards
Covers all professional engagements and is the minimum standard of conduct
Member should additionally follow specific standards for a specific engagement
Professional Responsibilities - Audit
Integrity
Objectivity
No Conflicts of Interest
No known misrepresentations of facts
No outsourcing of judgment
Professional Responsibilities - Audit
Safeguards > Threats - Independence
Threats > Safeguards - No Independence
Professional Responsibilities - Audit
Self-Review (Auditing own work)
Advocate of the Client
Adverse Interest (Lawsuit against Client)
Too familiar with Client - could impair the appearance of Independence to public
Undue influence on Client - On Board of Directors- exception being an Honorary board position
Professional Responsibilities - Audit
Offset the threats
Safeguards are created by Legislation (SOX)- Client (Audit Committee)- Accounting Firm (Policies)
Professional Responsibilities - Audit
On the engagement team- have Significant influence on Audit- such as:
Reviewing Partner
Managing Partner in CPA Firm
Firm Personnel who does more than 10 hours of non-attest work (Income Taxes)
Partner sharing office with another Partner who oversees an engagement
Financial Interest in Client by Covered Member (Auditor on Engagement)
Professional Responsibilities - Audit
No direct financial interest
No Material indirect financial interest
Firm personnel who are not Covered Members cannot own more than 5% of stock
Covered Member’s immediate family cannot own more than 5% of stock or be employed in Key positions. If Covered member is aware of this- it will impair independence.
Cannot make management decisions.
All requirements apply during the period of the professional engagement- and as long as they are a client.
Professional Responsibilities - Audit
If Supervisor’s position is still GAAP/GAAS- defer to Supervisor
If Supervisor’s position is not GAAP/GAAS- report to higher levels of management
If management ignores you- consider leaving the firm
Professional Responsibilities - Audit
Audit
Review
Attestation Engagement
Professional Responsibilities - Audit
Agreement must be in writing.
Independence not required - Must state if you are not independent
Applicable engagements: Consulting- Compilation
Professional Responsibilities - Audit
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.
Professional Responsibilities - Audit
Advisory Services
Transaction Services
Management Consulting
Implementation Services
Professional Responsibilities - Audit
Not allowed if Member also performs services where independence is required
Commissions or referral fees for Covered Members are not allowed
Example - Audit firm gets a commission for recommending to Client that they implement a new A/P System…NOT Allowed
If a firm performing non-attest work doesn’t also perform Covered Member services (aka - Independence not
required)- then Firm can get a commission on referring products/services- but they must disclose to the Client
Tax Preparation - Payment according to refund amount is disallowed
Professional Responsibilities - Audit
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.
Professional Responsibilities - Audit
Client must carry them out - covered member cannot perform management functions.
Client must assign someone of competence to oversee the non-attest engagement and CPA must be satisfied that this has occurred.
Professional Responsibilities - Audit
Must have definite objectives
Must have specific procedures planned
Must have a basis for recommendations
Must have recommendations communicated
Must have action steps to implement
Professional Responsibilities - Audit
Departure from GAAP is appropriate if GAAP would cause Financial Statements to be misleading- then it must be explained/disclosed.
Professional Responsibilities - Audit
Member may disclose confidential info when client isn’t following GAAP
OR
If they receive a subpoena - CPAs are not Attorneys- so there is no CPA-Client privilege
Professional Responsibilities - Audit
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!
Professional Responsibilities - Audit
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.
Professional Responsibilities - Audit
It is an Act Discreditable.
Professional Responsibilities - Audit
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
Professional Responsibilities - Audit
Monitors CPA Firms who audit SEC clients - All SEC Audit firms must register
Issues standards for firms to follow - usually stricter than AICPA standards
Professional Responsibilities - Audit
If Client pays a contingent fee (i.e. based on outcome)
With Marketing or Planning engagements
Aggressive Tax Strategies
Firm does tax work for Client employee involved with audit oversight or their
family
Professional Responsibilities - Audit
Client Audit Committee must approve non-audit work performed by Firm
Firm must disclose any potential independence issues to Audit Committee
Professional Responsibilities - Audit
GAO - Government Accountability Office
Professional Responsibilities - Audit
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
Professional Responsibilities - Audit
