SEC, PCAOB, GAO, DOL Flashcards
Financial reporting oversight role FROR
role in which a person is in position to or does exercise influence over contents of FS or anyone who prepares them. examples. director, ceo, president, cfo, coo, general counsel, cao, controller, director of internal audit, director of financial reporting, treasure
audit and professional engagement period
includes period covered b any FS being audited or reviewed and period of engagement. professional eng period begins at earlier of when cpa signs an initial eng ltr or begins audit and ends when audit client or cpa notifies SEC that client is no longer the cpa for audit client
close family member
person's spouse, spousal equivalent, parent, dependent, nondependent child sibling
covered persons
partners
principals
shareholders
employees of accounting firm
audit engagement team definition
all partners
principals
shareholders
professional employees participating in audit, review or attest eng
immediate family member
person’s spouse
spousal equivalent
dependent
to be qualified to audit public company a cpa must
- be registered and in good standing under the laws of his or her state
- must be and appear to be independent and capable of exercising objective and impartial judgment
direct investment
cpa firm,
any of its covered persons or
any of their immediate family members may not have direct investment in adult client such as: owning stocks bonds notes, options
direct investment includes one through an intermediary if
firm, covered person or IMF alone or together either supervise or participate in intermediary’s investment decision
-intermediary is a non-diversified mutual fund that has invested 20% or more its money in audit client
five percent investments
independence is impaired if any partner, principal shareholder or professional of firm (an any of their IFM and CFM) owns 5% ore more of client’s stocks
trustee of a trust
independence is impaired if cpa firm or any CP or IFM serve as voting trustee of trust or executors of estate containing an audit client’s securities, unless they have no authority to make investment decisions for the trust or estate
material indirect interest
as with aicpa code, cpa firms, cp and their IFM may not only not have direct financial interest in audit client (material or not) they may not have indirect interests that are material. it is permitted for these persons to own 5% or less of diversified investment company, even if company owns some shares of audit client
related entities - independence is destroyed if firm, cp or ifm:
have any direct or material indirect investment in entity that is not audit client where
a. audit client has investment in that entity that is material to audit client and has ability to exercise significant control over that entity
b. entity has investment in audit client that is material to entity that has ability to exercise significant influence over audit client
have any material inv in entiy over which audit client is able to exercise sig inf
have ability to exercise sig inf over entity that has ability to exercise sig infl over audit client
define other financial relationships where independence is impaired if firm or its covered persons or IFMs have a relationship with:
- loans/debtor creditor relationships
- savings and checking accounts
- broker dealer accounts
- credit cards
- insurance products
CP or IMF have a relationship with loans/debtor creditor relationships and independence
impaired. any loan to or from audit client, its officers or directors, or its 10% owners, except the following loans obtained from financial institution under normal lending procedures, terms and requirements
1. automobile loans and leases collateralized y the automobile
2. loans fully collateralized by cash surrender value of insurance polity
3. loans fully collateralized by cash deposits at the same financial institution
4. mortgage loan collateralized by borrower’s primary residence provided the loan was not obtained while cp was a cp
savings and checking accounts - covered person - independence issues
impaired..any savings, checking or similar account at a bank, savings and loan, or similar institution that is an audit client if the account has a balance that exceeds the amount insurable by FDIC, except that an accounting firm may have an uninsured balance provided that the likelihood of institution experiencing financial difficulties is remote
broker dealer relationship with CP and IMF - independence issues
independence impaired if brokerage or similar accounts maintained with broker dealer that is audit client:
any such account includes assets other than cash or securities
-the value of assets in accounts exceeds amount protected by securities investor protection corporation (SPIC) which is 500k for securities and 250k for cash
credit cards relationship with CP IMF - independence issue
impaired if any aggregate outstanding credit card balance is >10,000 owed to a lender that is audit client
insurance policies relationship with CP IMF independence issue
impaired if any individual policy issued by an issuer that is an audit client, unless:
- policy was obtained when cp ws not a cop
- likelihood of insurer becoming insolvent is remote
independence exceptions for covered members who have relationships with
- inheritance and gifts
- new audit engagement
- employee compensation and benefit plan
inheritance and gifts given to CP or IMF
any person who acquires an unsolicited financial interest will not lose independence if he or she disposes of the interest as soon as practicable, but always less than 30 days after the person has knowledge of and the right to dispose of the interest
new audit engagement - relationship with CP or IMF
a person has financial interest that would normally impair independence but that person did not audit client’s FS previous year and disposes of interest before signing eng ltr or commenting any audit procedures
employee compensation and benefit plan - CP and IMF
if IFM has an impermissible financial interest in audit client that was unavoidable consequence of participation in employer’s EBP, provided that financial interest (other than un-exercised employee stock options) is disposed of as soon as practicable but no later than 30 days after person has the right to dispose financial interest. exception applies to IMF of OPIO and 10 hour person
audit clients financial relationships
cpas are not independent in these cases
- investments by audit client in accounting firm
2 cpa engages audit client to be underwriter, broker dealer, promoter for securities issued by cpa firm
employment relationships - cpa is not independent if he has employment relationship with audit client such as:
- employment at audit client of accountant
- employment at audit client of certain relatives of accountant
- employment of audit client of former employee of accounting firm
- employment at accounting firm of former employee of audit client
independence issues - employment at audit client of former employee of accounting firm
independence is impaired if a former partner, principal shareholder or professional employee at accounting firm is in accounting or in financial reporting oversight role, unless
does not influence acct firm’s operation or financial policies
has no capital balances in accounting firm
has no financial arrangement with accounting firm other than the one providing for regular payment of a fixed dollar amount (retirement plan)
former partner, principal, shareholder or professional employee of firm is FROR at audit client unless not a member of audit eng team during one year proceeding date of audit initiation
audit cycle runs may 15-may 14. sandy is on audit team. she resigns on june 15. when can she work for audit client
she must wait until end of current audit cycle, then allow one year before she can go work for audit client. if she quit on may 14th, she could have started may 15 of next year.
if individual worked for audit firm but didn’t participate in audit, is there a problem if he goes and works for audit client?
no
a person who provided 10 hours or fewer hours of attest services, is there a problem if he goes and works for audit client?
no issue
a former officer, director or employee of audit client becomes a partner, shareholder or professional employee of accounting firm, no independence unless
individual does not participate in, and is not in a position to influence audit FS covering any period he or she was employed by audit client
non audit services not permitted by sox provisions, implemented by SEC
- bookkeeping svc
- financial information system design and implementation
- appraisal or valuation svc
- actuarial svc
- internal audit outsourcing svc
- mgt functions
- human resources
- broker dealer
- legal svc
- expert services unrelated to audit
contingent fees per SEC
accountant is not independent if it provides any svc or product ot public company audit client for a contingent fee or commission