Professional Responsibilities - Wiley

Question 1

What are the independence requirements for ALL partners and staff?

Answer 1

1. MAXIMUM of 5% of investment in equity securities of client; aggregated among all staff and their immediate family
2. No simultaneous association w/CPA firm and client (as director/officer/employee/promoter)
3. Former employees of client must have already disassociated from client AND cannot participate in audits of ANY period where employed by client.

Question 2

GAAS are:

Answer 2

1. Required AND suggested procedures to gather audit evidence,
2. Pronouncements issued by the Auditing Standards Board

Question 3

What is the conceptual difference between attestation standards and GAAS?

Answer 3

For audits of historical financial statements: Attestation standards DON’T apply / while GAAS DO apply

Question 4

What does PCAOB’s standard of DUE CARE require?

Answer 4

Critical review of the judgment exercised at every level of supervision.

Question 5

What will result in automatic expulsion from AICPA?

Answer 5

1. Conviction of crime punishable by imprisonment of more than one year,
2. Member knowingly prepares OR files a fraudulent tax return for self OR client
3. Willfully failing to file required income tax return.
4. Revocation of license by state board of CPAs.

Question 6

What typically will NOT impair independence?

Answer 6

Performing non-management services, such as accounting, book keeping, or advising.

Question 7

What type of report can be issued ONLY by an accountant who is independent of client?

Answer 7

Standard report on an examination of a financial forecast (standard reports = CPA’s opinion, requiring independence)

Question 8

Which activities may be required in exercising due care?

Answer 8

Consultation with an expert may be required.

It is NEVER required to obtain a specialty accreditation.

Question 9

Expert witnesses in a trial are required by AICPA rulings to do what?

Answer 9

1. Present position objectively
2. Base position on specialized knowledge, experience, and training of a CPA.
   - -NOT ALLOWED to act as an advocate: MUST present opinion objectively

Question 10

Under what circumstances is a CPA considered independent when the CPA has a personal loan/financial relationship with a client?

Answer 10

If the CPA was NOT required to be independent when the loan was granted AND the loan is fully secured, the CPA is still considered independent.

Question 11

Client confidentiality rules prohibit a former CPA employee from taking client files for what purposes?

Answer 11

1. Assisting another firm in serving that client (without express permission from the client)
2. To gain technical expertise
   (Must have client’s permission to take confidential materials from firm)

Question 12

Who owns working papers?

Answer 12

The CPA, but generally, he cannot disclose them without client’s consent or a court order.

Question 13

What are the elements of quality control?

Answer 13

HAM LIE:
Human resources
Acceptance and continuance of client relationships
Monitoring

Leadership responsibilities for engagement performance
In-firm quality
Ethical requirements

Question 14

Quality Control Standards explicitly limit application to:

Answer 14

1. Auditing
2. Accounting
3. Review services

Question 15

When PCAOB guidance uses the word “should”, it means that:

Answer 15

The auditor must comply w/requirements UNLESS he demonstrates that alternative actions were sufficient to achieve the objectives of the standard.

Question 16

SOX requires working papers to be saved for how long?

Answer 16

7 years

Question 17

SOX lead to the establishment of what?

Answer 17

PCAOB

Question 18

What are the rules of membership on the PCAOB?

Answer 18

1. Only 2 members can be CPAs
2. It’s composed of 5 members
3. NO members can currently be active in public accounting.

Question 19

What does PCAOB have authority to issue?

Answer 19

Standards for attestation, auditing, and quality control.

NOT accounting!

Question 20

What is it called when PCAOB reviews the sufficiency of a CPA firm’s quality control system?

Answer 20

Inspection

Question 21

What is the ONLY portion of a PCAOB report that is not publicly available?

Answer 21

Reports on the CPA firm’s quality control system.

Question 22

IFAC Code of Ethics states threats to independence include what?

Answer 22

1. Self-interest
2. Advocacy
3. Intimidation
   (audit relationship on its own isn’t a threat)

Question 23

What is IFAC’s treatment of contingent fees?

Answer 23

Contingent fees are allowed, but the firm should establish appropriate safeguards around acceptance of a contingent fee.

Question 24

What are the GAO’s three types of impairment of independence?

Answer 24

1. Personal
2. Organizational
3. External

Question 25

What are GAO external impairments?

Answer 25

Pressures from outside of the auditor and the auditor’s firm (i.e. Reducing the extent of audit work due to pressures from management to reduce fees, selecting audit items based on the wishes of an employee of the organization being audited, and influence by management on the personnel assigned to the audit)

Question 26

What are the two principles for GAO independence standards for determining whether a nonaudit service impairs independence?

Answer 26

1. Auditors MUST NOT perform nonaudit services that involve performing management functions or making management decisions.
2. Auditors MUST NOT audit their own work or provide nonaudit services in situations in which the nonaudit services are significant or material to the subject matter of the audit.

Question 27

Under ERISA, from whom does the auditor need to be independent?

Answer 27

BOTH the plan, AND the sponsor of the plan.