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AUD > Professional Responsibilities > Flashcards

Professional Responsibilities Flashcards

1
Q

What engagements are covered by the AICPA Code of Professional Conduct?

A

Covers all professional engagements and is the minimum standard of conduct

Member should additionally follow specific standards for a specific engagement

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2
Q

What must an accountant have under the AICPA Code of Professional Conduct?

A

Integrity
Objectivity
No Conflicts of Interest
No known misrepresentations of facts
No outsourcing of judgment

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3
Q

What are threats and safeguards to independence?

A

Safeguards > Threats - Independence

Threats > Safeguards - No Independence

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4
Q

What are the threats to independence?

A

Self-Review (Auditing own work)Advocate of the ClientAdverse Interest (Lawsuit against Client)Too familiar with Client - could impair the appearance of Independence to publicUndue influence on Client - On Board of Directors- exception being an Honorary board position

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5
Q

What are the Safeguards to independence?

Who creates the safeguards?

A

Offset the threatsSafeguards are created by Legislation (SOX)- Client (Audit Committee)- Accounting Firm (Policies)

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6
Q

What are the characteristics of a Covered Member?

A

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)

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7
Q

What are the requirements for a Covered Member?

A

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.

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8
Q

What happens when a Covered Member disagrees with a Supervisor?

A

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

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9
Q

When is independence required?

A

Audit

Review

Attestation Engagement

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10
Q

What are the requirements for Non-attest engagements?

ie) Consulting / Compilation

A

Agreement must be in writing.Independence not required - Must state if you are not independentApplicable engagements: Consulting- Compilation

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11
Q

Which standards apply to consulting engagements?

A

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.

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12
Q

List some common consulting engagements.

A

Advisory Services

Transaction Services

Management Consulting

Implementation Services

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13
Q

What is the rule concerning contingent fees for a covered member?

A

Not allowed for non attest services

Not allowed if Member also performs services where independence is requiredCommissions or referral fees for Covered Members are not allowedExample - Audit firm gets a commission for recommending to Client that they implement a new A/P System…NOT AllowedIf a firm performing non-attest work doesn’t also perform Covered Member services (aka - Independence notrequired)- then Firm can get a commission on referring products/services- but they must disclose to the ClientTax Preparation - Payment according to refund amount is disallowed

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14
Q

When are contingent fees allowed?

A

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.

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15
Q

How should recommendations and suggestions by a covered member to a client be handled?

A

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.

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16
Q

What are the requirements for Personal Financial Planning Engagements?

A

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

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17
Q

When is a GAAP departure appropriate?

A

Departure from GAAP is appropriate if GAAP would cause Financial Statements to be misleading- then it must be explained/disclosed.

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18
Q

When may a covered member disclose confidential information?

A

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

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19
Q

What is the effect of not returning all client-provided documents upon request?

A

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!

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20
Q

What are the rules with respect to CPA firm names?

A

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.

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21
Q

What is the consequence of disclosing CPA exam material post-1996?

A

It is an Act Discreditable.

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22
Q

What are the consequences for a CPA who commits an Act Discreditable?

A

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

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23
Q

What are the functions of the PCAOB?

A

Monitors CPA Firms who audit SEC clients - All SEC Audit firms must register

Issues standards for firms to follow - usually stricter than AICPA standards

24
Q

When is independence impaired under PCAOB standards?

A

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

25
Q

Who must approve non-audit work performed by a firm for a client?

A

Client Audit Committee must approve non-audit work performed by Firm

Firm must disclose any potential independence issues to Audit Committee

26
Q

Which organization is in charge of determining if federal funds are being misappropriated?

A

GAO - Government Accountability Office

27
Q

What rules must auditors follow for governmental audits?

A

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

28
Q

Define statements on Auditing Standards

A

Outlines CPA responsibilities when performing audits

29
Q

Define AICPA Code of Professional Conduct

A

Outline the profession’s rules of conduct and auditor’s responsibility to the profession

30
Q

Define International Standards on Auditing

Who issue these statements?

A

The series of international standards on auditing financial statements issued by the International Auditing and Assurance Standards Board

31
Q

Who is a covered member?

A

A covered member is an indiviual on the attest engagement team once they provide 10 hours of non attest functions (they work on audit)

32
Q

The PCAOOB is overseen by?

A

SEC

33
Q

The international standards on auditing are issued by

A

The international federation of accountants

34
Q

Who issues the financial reporting releases?

A

SEC

35
Q

Who publishes the journal of accountancy, accounting trends and techniques, and industry audit guides?

A

AICPA

36
Q

Members of a public practice require which characteristics?

A

Indepdence and Objectivity

*For non public only objectivity is required

37
Q

Name 3 impairments that the GAO standards identify

A

Personal, external, and organizational

38
Q

Does an auditor of the group of financial statements refer to the component auditor?

A

Yes, but not in conformity with International Auditing Standards

39
Q

A contingent fee cannot be paid when…

A
  • Audit or review of financial statements
  • Compilation of financial statements expected to be relied upon by a third party
  • Examination of prospective financial information
40
Q

Audit reports of which organizations includes section titles? Which don’t?

A

International auditing and assurance standards board

PCAOB

41
Q

What is meant by generally accepted accounting standards

A

Statements on auditing standards issued by the Auditing Standards Board

42
Q

The nature and extent of a firm’s quality control depends on?

A

Practice, organization, an cost-benefit relationships

43
Q

If fraud risk factor, what risk is it also considered to be?

A

Increases audit risk

44
Q

What is a sale on consignment?

A

Goods are left in the possession of another party to sell

45
Q

What does cost of goods sold signify?

A

Increase in sales

Direct cost attributable to the production of the goods sold by a company

46
Q

What does Risk of Material Misstatement signify

A

IR x CR

If the company is healthy

47
Q

What is risky in terms of coporate governance, managment, and stockholders

A

Dont have all 3 be dominated by one person

A stockholder can be management since a stockholder will work as management in the best interest of the company since they also own the company

48
Q

To who does an internal auditor report to in order to decrease RMM?

A

Audit committee rather than to top management

The internal auditor would be more objective

49
Q

If a company has strong financial presence in its history which allows them to often dictate the terms or conditions of the suppliers, what happens to RMM?

A

It will increase because it may result in inappropriate or non-arm’s-length transactions

50
Q

Significance of audit committee in terms of independence?

A

Audit committee should not be a part of managment

51
Q

Can an auditor serve on the board of directors?

A

No, they must be independent

They only can communicate with the board of directors

52
Q

Statements on Auditing Standards VS AICPA Code of Professional Conduct

A

Responsibility when performing audits

Auditor’s responsibility to the profession

53
Q

Can you tell if a negative confirmation was received by a client?

A

Yes, if the auditor puts a return address then it will be sent back if confirmation was not received

54
Q

What kind of written communication must an auditor provide in a compilation and in a review

A

Written communication (can be engagement letter)

Written communication (can be engagement letter) and Management representation letter

55
Q

Which is an authoritative body designated to promulgate attestation standards?

A

Auditing Standards Board

56
Q

What are the characteristics of PCAOB members?

A

5 full time members, 2 of which are CPAs all appointed by the SEC

AUD (8 decks)

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