Professional Responsibilities Flashcards
Describe the Public Interest article from the Principles of the Code of Professional Conduct.
Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism.
Integrity requires the observance of what principles?
- Objectivity; 2. Independence; 3. Due Care.
Describe the Responsibilities article from the Principles of the Code of Professional Conduct.
In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.
Describe the objectivity and independence principles of integrity.
“A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services.”
List the Articles of the Principles of the Code of Professional Conduct.
- Responsibilities; 2. The Public Interest; 3. Integrity; 4. Objectivity and Independence; 5. Due Care; 6. Scope and Nature of Services.
Describe the Integrity article from the Principles of the Code of Professional Conduct.
“To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.”
Describe the concept of due care as it relates to Principles of the Code of Professional Conduct.
A member should observe the profession’s technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member’s ability.
List the features of objectivity.
- Impartiality; 2. Intellectual honesty; 3. Freedom from conflicts of interest.
List the services that can be performed by the auditor that do not require independence.
- Compilation; 2. Tax; 3. Consulting services not banned by Sarbanes-Oxley.
How should the scope and nature of services to be provided be determined in relationship to the Principles of the Code of Professional Conduct?
A member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided.
What level of professional conduct is established by the Code?
Minimum levels have been established.
List the types of activities to which independence rules do not apply under the Principles of the Code of Professional Conduct.
Tax Work; Consulting.
List the four major areas of concern related to independence under the Principles of the Code of Professional Conduct.
Employment Ties; Financial Ties; Consulting; Family Ties.
List the types of safeguards in the conceptual framework outlined in the Principles of the Code of Professional Conduct.
Professional, Legislative, or Regulatory; Client Safeguards; Firm Safeguards, such as quality control.
What activities are included in the category of attest work?
Audit or review of F/S; Compilation of F/S expected to be used by third parties; or Examination of prospective financial information.
To what type of work does the American Institute of Certified Public Accountants (AICPA) rules apply?
The rules apply to attest work.
Who are considered to be in a Position to Influence (PTI) as outlined in the Principles of the Code of Professional Conduct?
Those who: Evaluate the performance or recommend compensation of attest engagement partner (AEP); Directly supervise the AEP and all successively senior levels; Consult with team during engagement; Provide quality control or other oversight.
List the “covered members” outlined in the Principles of the Code of Professional Conduct.
Team Members; Those in a Position to Influence (PTI) team members; Other Partners in the Office (OPIOs); Ten-Hour People; The Firm; Any entity controlled by the above.
Under what conditions can non-covered members create independence problems?
They can create problems if they: Are partners or professional employees of the firm, who Own more than 5% of audit client’s stock or hold certain key positions.
Does a blind trust preserve independence?
No. A blind trust does not preserve independence.
Does entertainment provided by a client to the auditor impair independence?
Not necessarily. Independence is not impaired if entertainment provided by the client is “reasonable under the circumstances.”
List the type of permitted loans from financial institution clients that will not impair independence.
Grandfathered; Certain de minimis loans that are small and collateralized.
Do gifts from a client to the auditor impair independence?
Not necessarily. While gifts can impair independence, independence is not impaired if the value is “clearly insignificant.”
Under the Principles of the Code of Professional Conduct, what type of financial interest impairs independence?
Direct and Material; Indirect and Material; Direct and Immaterial; But not: Indirect and Immaterial.
Define “Financial Interest”.
An ownership interest in an equity or a debt security issued by an entity (including options and derivatives).
What client action can cause independence to be impaired?
The client having an unpaid bill from the audit from the previous 12 months.
What type of lease does not violate independence rules?
Operating lease.
What is the cooling off period as defined under Sarbanes-Oxley?
It is one year for lead partner, concurring partner, or team member who provides more than 10 hours of work.
Under what circumstances can a covered member audit a charity and remain on the Board of Directors of said charity?
Position is purely honorary; Position is identified as honorary; Contributes no more than use of name; and Does not vote or participate in management affairs.
What client relationships should a covered member avoid to ensure independence is not impaired?
Covered members should not be: Trustees of trust with financial interest in client; Trustee of client pension fund; Director of client; Officer of Client; Promoter of Client stock; Voting trustee of client.
Independence is impaired if audit firm employee is approached by client regarding a job, unless what actions are taken?
Required actions by audit firm employee: Person promptly reports such offer; and Removes self from engagement until offer is rejected.
What independence safeguards need to be in place by an audit firm if a former employee accepts a position with a client?
Former employee cannot be in a position to influence accounting firm’s operations or financial policies or participate or appear to participate in firm’s affairs. Amounts due former employee from firm not variable; ongoing attest team considers appropriateness of modifying engagement procedures; firm assesses whether existing team members can continue to be skeptical; firm reviews subsequent attest engagement if person went to client within one year.
List some independence safeguards if a client employee moves to the audit firm.
Client employee Cannot be on team or PTI; Can be OPIO or 10-hour person if dissociate from client.
List the actions auditors should avoid in order to preserve independence.
Performing management functions; Making management decisions; Appearing to do these things; Taking custody of client assets.
List the activities forbidden by Sarbanes-Oxley for public company audit clients.
Bookkeeping or other services related to the accounting records of financial statements Financial information systems design and implementations Appraisal or valuation services, fairness opinions, or contributions-in-kind reports Actuarial services Internal audit outsourcing services Management functions or human resources Broker or dealer, investment adviser, or investment banking services Legal and expert services unrelated to audit.
List some examples of improper consulting activities that an auditor can partake in on behalf of an audit client.
Authorizing, executing or consummating a transaction on client’s behalf; Preparing source documents evidencing occurrence of transactions; Taking custody of client assets; Supervising client employees’ normal recurring activities; Reporting to board on management’s behalf; Establishing or maintaining internal controls.
Define “close relatives” (as defined for independence purposes).
Parent; Sibling; Nondependent child.
Define “key positions” (as defined for independence purposes).
Primary responsibility for significant accounting functions; Primary responsibility for preparation of F/S; Ability to exercise influence over contents of F/S.
Define “immediate family members” (as defined for independence purposes).
Spouse; Spousal equivalent; Dependents (whether or not related).
Describe the provisions in Rule 102 under the American Institute of Certified Public Accountant’s (AICPA) Code of Professional Conduct.
In the performance of any professional service, a member: shall maintain objectivity and integrity, shall be free of conflict of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others.
Describe an example of a conflict of interest according to the AICPA’s Interpretation 102-2.
A CPA performing a professional service has a significant relationship with another person, entity, product, or service that could be viewed as impairing the CPA’s objectivity.
What must an auditor do to avoid subordinating judgment when disagreeing with a supervisor regarding proper audit procedures?
Need do nothing further if upon reflection the member concludes that the F/S as proposed represent an acceptable alternative and don’t misrepresent facts; Alert the appropriate level of management if upon reflection the member concludes that the F/S could be materially misstated; and Consider resigning and communicating with regulatory authorities if problem is not addressed.
List the ways in which conflicts of interest can be resolved.
They can be solved by: Full disclosure, and Client consent.
Give an example of a potential conflict of interest.
Providing tax or financial planning services for several members of a family who may have opposing interests.
