Professional Responsibilities & Ethics Flashcards
What consulting services may a CPA perform for a client?
Analysis of client’s accounting system
Review of clients prepared business plan
Preparation of information for obtaining financing
What is the threat of self-review?
When the accountant performs some form of evaluation of matters that were previously influenced by the accountants judgment. (IE auditing your own bookkeeping services.)
What is the advocacy threat?
When the accountant’s actions effectively promote a client’s interests or position. (endorsing products of a client. Providing investment advice for an officer holding 10% or more of the client’s shares.)
What is the adverse interest threat?
When the interest of the client are in conflict with the interests of the accountant. (IE litigation between the client and accountant.)
What is the threat of familiarity?
Close and longstanding relationship with a client, potentially causing the accountant to become too sympathetic to the client’s interest or too trusting. (IE a spouse/family member is employed by the client. Senior firm personnel have a long-standing relationship with the client.)
What is the threat of undue influence?
Results from attempts by management or others to exercise an excessive amount of influence over the accountant. (IE client pressures to limit an engagement to reduce fees. Client threatens to replace CPA as a result of disagreement.)
What is the threat of self-interest?
When the accountant has opportunity to obtain a potential benefit from an interest in, or another relationship with a client. (IE contingent fee, CPA has financial interests in the client which can be affected by results of services provided.)
What is the threat of management participation?
When the CPA takes on the role of management for the client or performs management functions on behalf of the client.
Do unpaid fees create a threat to independence?
Only if the unpaid fees are greater than one year. (Unless a client is in bankruptcy) This is because the CPA will be a payable on the financial statements. This threat to independence cannot be reduce down to an acceptable level.
What was the PCAOB established?
Established in 2002 as part of Sarbanes-Oxley
When can a CPA receive a contingent fee for services?
When representing a client in an examination (IRS) of the client’s federal income tax return, or filing an amended income tax return claiming a refund. No other services may be performed by a CPA for a contingent fee.
Under SOX, how many consecutive years can an audit partner lead an audit for an issuer?
Audit partners need to be rotated at least every 5 years. (Section 203 of SOX)
When is materiality a factor when considering financial interest in a client?
Materiality is not a factor when an indirect financial interest exists.
Materiality is not a factor when a direct financial interest exists.
A CPA’s independence is impaired by any direct and any material indirect financial interest in an attest client.
