Professional Responsibilities & Ethics

Question 1

Conceptual Framework approach of AICPA code of concepts

Answer 1

1) Identify Threats
2) Evaluate the significance of identified threats
3) Identify and apply safeguards

Question 2

7 categories of threats identified in AICPA code of professional conduct

Answer 2

1) Self-Review
2) Advocacy
3) Adverse Interest
4) Familiarity
5) Undue Influence
6) Self-Interest
7) Management participation

Question 3

Safeguards

Answer 3

Controls that eliminate or reduce threats, ranging from prohibitions against circumstances that create threats to procedures that counteract the potential risk associated with a threat. Safeguards are considered effective if they eliminate a threat or reduce it to an acceptable level.

Question 4

Covered Member would be any of the following:

(Independence is the ability to act with integrity and objectivity and applies to a covered member and to the member’s immediate family including the member’s spouse or spousal equivalent, and all dependents , whether related or not)

Answer 4

• A member of an attest engagement team or an individual in a position to influence the attest engagement
• A partner, partner equiv., or manager providing more than 10 hours of nonattest services to the attest client within a fiscal year.
• A partner or equiv in the same office in which the lead engagement partner for the attest engagement practices
• The firm and its employee benefit plan
• An entity under the control of any one of the other covered members described and 2 or more of those individuals or entities acting together.

*With agreed-upon procedure engagements only, covered members may be limited to those participating in or directly supervising the engagement, and individuals consulting with the engagement team on technical or industry-related issues.

Question 5

When unpaid fees impair independence

Answer 5

When fees for services that were performed more than 1 year before the date of the current-year report remain unpaid this creates a threat to independence that cannot be reduced to an acceptable level.

Question 6

Direct or Material Financial Interest

Answer 6

A member who possesses or has a commitment to acquire a direct or material indirect financial interest in an attest client creates a self-interest threat that cannot be reduced to an acceptable level and the member’s independence would be impaired.

The same would be true if a partner or professional employee of the firm, including the partner’s immediate family or any group of those individuals acting together, owned more than 5% of an attest client during the period of the attest engagement.

Question 7

To ensure that the audit report for an issuer is prepared in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the report must

Answer 7

Attest and report on the internal control assessment made by the management of the issuer.

The auditor does not attest to the efficiency and effectiveness of the issuer’s internal controls but on management’s ASSERTIONS regarding internal controls.

Question 8

Employment with Audit client - PRIOR TO LEAVING

Answer 8

• Must inform audit firm of conversation with client about possible employment
• Immediately be removed from the audit.
• Once removed, the audit firm must review the work performed by the departed auditor

Question 9

Employment with Audit client - AFTER EMPLOYED by the audit client

Answer 9

• Audit firm must consider modifying the audit plan

* Assure remaining audit team is objecitve

Question 10

Litigation between a CPA and an attest client that will NOT impair independence

Answer 10

Independence will not be impaired by litigation that is not related to the client’s attestation engagement and is not material to either the CPA or the attest client.

Question 11

General Standards for Consulting Services

TPPC

Answer 11

• Professional Competence
• Due Professional Care
• Planning & Supervision
• Sufficient relevant data

Question 12

Integrated Audits

Answer 12

Auditor reports on audits of both the financial statement and on internal control over financial reporting for public audit clients.

Eliminated a significant portion of the accounting profession’s system of self-regulation.

Question 13

How often does PCAOB Quality Control Peer Review Inspections occur

Answer 13

• Must be performed every year for firms that provide more than 100 audit reports annually
• At least every 3 years if 100 or less annually

Question 14

PCAOB prohibits any registered public accounting firm from providing the following non-audit services to Audit client

Answer 14

• Bookkeeping or other services related to the accounting records
• Financial info systems design or implementation
• Appraisal or valuation services, or providing fairness opinion or contribution-in-kind reports
• Actuarial services
• Internal audit outsourcing services
• Management functions or human resources
• Broker or dealer investment advisor or investment banking services
• Legal services and expert services that are unrelated to the audit
• Any other service the board determines impermissible

Tax services allowed if preapproved by the audit committee and disclosed by the SEC