Professional Responsibilities 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
- Objectivity
- No Conflicts of Interest
- No known misrepresentations of facts
- No outsourcing of judgment
What are 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
- 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
What are the Safeguards to independence?
Offset the threats
Safeguards are created by:
- Legislation (SOX)
- Client (Audit Committee)
- Accounting Firm (Policies)
What are the characteristics of a Covered Member?
- 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)
What are the requirements for a Covered Member?
- 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.
What happens when a Covered Member disagrees with a Supervisor?
- 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
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?
Statements on Standards for Consulting Services (SSCS)
Requirements:
- Competence
- Due Care
- Planning & Supervision
- Obtain Sufficient Data
- Serve Client Interest
- written or oral agreement
- 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?
- 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 ClientTax Preparation - Payment according to refund amount is disallowed
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.
How should recommendations and suggestions by a covered member to a client be handled?
- 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.
