Professional Responsibilities and Ethics

Question 1

direct financial interest

Answer 1

ownership of any equity interest, being a debtor to, or a creditor of a client

Question 2

material indirect financial interest

Answer 2

holding an equity interest, being a debtor to, or a creditor of a client through some means other than direct ownership, such as owning a material interest in an investment fund that holds a material equity interest in the client

Question 3

attest service

Answer 3

a service performed by a CPA for a client that requires the CPA to be independent, including reviews, audits & attestation engagements (i.e. examinations, reviews and agreed-upon procedures engagements)

Question 4

nonattest services

Answer 4

services that do not require the CPA to be independent, including compilation and preparation engagements, tax services, consulting services & bookkeeping services

Question 5

confidentiality

Answer 5

a CPA’s duty not to disclose info about the client w/o the client’s permission, except in certain circumstances, such as in response to a valid subpoena, peer review or an AICPA trial board

Question 6

workpapers

Answer 6

an auditor’s documentation that describes the work performed, the evidence obtained and the conclusions drawn to support the auditor’s report. they are confidential info. they are required to be maintained by the auditor for at least 7 yrs under PCAOB requirements and 5 yrs under GAAS

Question 7

more likely than not standard

Answer 7

a greater than 50% likelihood that a tax position will be sustained in an audit on the basis of its merits

Question 8

substantial authority standard

Answer 8

approx. 40% likelihood that a tax position will be sustained on the basis of its merits

Question 9

realistic possibility standard

Answer 9

approx. 33% likelihood that a tax position will be sustained on the basis of its merits

Question 10

reasonable basis standard

Answer 10

approx. 20% likelihood that a tax position will be sustained on the basis of its merits

Question 11

confidentiality exceptions

Answer 11

confidentiality of client info & working papers must normally be maintained, however, exceptions include:

• valid subpoena
• IRS administrative subpoena
• court order (except in rare states w/ privilege statue)
• quality control or peer review request from PCAOB or other accountants
• when seeking counsel from an attorney or assisting a liability insurance carrier’s defense of the CPA against an actual or potential claim

Question 12

public company accounting oversight board (PCAOB)

Answer 12

created by SOX to oversee the audits of public companies & other issuers of publicly traded securities

Question 13

private securities litigation reform act of 1995

Answer 13

designed to limit frivolous lawsuits, it imposes requirements to include audit tests to detect related-party transactions, illegal acts and going concern doubts (RIG)

Question 14

securities & exchange commission (SEC)

Answer 14

govt agency responsible for enforcing federal securities laws, established to protect investors

Question 15

government accountability office (GAO)

Answer 15

govt agency responsible for investigating how the federal govt spends taxpayer money and to ensure the accountability of the federal govt

Question 16

generally accepted government auditing standards (GAGAS)

Answer 16

standards established by the GAO, also called the “yellow book”, for auditors performing govt financial and performance audits

Question 17

federal

Answer 17

relating to the central govt as distinguished from the separate units that constitute a federation

also relates to a system of govt in which several states form a unity but remain dependent in internal affairs