Securities and Exchange Commission (SEC) Flashcards
What qualifications does the SEC require for a CPA to be able to audit a public company?
- Registered and in good standing under the laws of the state
- Independent and capable in exercising impartial judgement
Does the SEC define family relationships the same as the AICPA?
No but close.
Define: IFMS are the same. Instead of close relative, the SEC defines it as close family members.
Who is a covered member under the AICPA?
Audit team members, PTIS, 10-hour employees, OPIOS, The firm itself, any entity controlled by the first five
Who are covered persons under the SEC?
- Audit team members
- Chain of command (PTIS)
- 10 hour persons
- OPIOS
How do you define direct investments?
- The firm, CPS or IFMS either supervise or participate in the intermediary’s investment decisions
- The intermediary is a NON-DIVERSIFIED mutual fund that has invested 20% or more of its money in an audit client
Do investments by someone who is not a CP impair independence?
Sometimes.
Independence is impaired if ANY partner, principal, shareholder or professional employee of the accounting firm (and any of their CFMS) own 5% or more of an audit clients stock.
May the firm, CPS or their IFMS own material indirect interests in an audit client?
No, only interests that are both indirect and immaterial are permitted
5% or less of a diversified mutual fund = immaterial
May the firm, CPS or their IFMS borrow money from or loan money to an audit client, its officers & directors, or its 10% shareholders?
NO, with exceptions:
- May borrow from a financial institution under normal procedures and terms:
- Auto loan collateralized by the car
May the firm, CP or their IFMS have a savings or checking account at a financial institution client?
YES, but only if:
- The balance is fully insured (250,000 limit) by FDIC
- If there is an uninsured balance, the likelihood of the institution experiencing financial difficulties is remote
May the firm, CPS or their IFMS have a credit card by an audit client?
Yes, if less than balance of $10,000
May the firm, CPS or their IFMS buy insurance products from an audit client?
No. Insurance policies are permitted only if
- obtained before the person became a CP and
- Likelihood of the insurer becoming insolvent is remote
What are the rules on unsolicited financial interests acquired by the firm, CPS, or the IFMS?
An unsolicited gift or inheritance would normally impair independence is permitted so long as it is disposed of:
- As soon as practicable
- But no later than 30 days after the person learns of the interest and has the right to dispose of it
May a current partner, principal, shareholder, or professional employee of the accounting firm be employed by the audit client or service as a member of the board of directors?
NO!!!!!!
Employment relationships- May an accounting firm employee go to work for an audit client in an accounting or financial reporting role?
No, unless two requirements are met:
1) The individual:
- Does not influence the accounting firm’s operations or financial policies
- Has no capital balances in the accounting firm
- Has no financial arrangement with the accounting firm
2) Cooling off period (entire audit cycle has to pass)
Can an audit client employee come to work for an accounting firm?
Yes, but only if he or she doesn’t participate in, and is not in the chain of command, the audit of the F/S any period he or she was employed by the client.
May an auditor provide a NAS to a public company?
Only if they are not an audit client
May an auditor provide NAS to a private company?
Yes, no restrictions
Under the SEC, list the NAS services that cannot be provided to a public company?
- Bookeeping services
- Financial information systems design and implementation
- Appraisal or valuation services
- Actuarial services
- Internal audit outsourcing services
- Management functions
- Human Resources
- Legal services
- Expert services unrelated to the audit
Is it okay to prepare an audit clients tax return?
Yes, it is allowed under the SEC.
Under the SEC, may an accountant accept contingent fees or commission from a public company audit client?
No, not for ANY SERVICE OR PRODUCT (AT ALL)
Must public companies rotate their outside audit firms from time to time?
No, but accounting firms must rotate:
- Lead and conjuring audit partner every five years (stay off for five years)
- Other partners providing more than 10 hours (7 years on, 2 years off)
What is the role of the audit client’s audit committee?
- Hiring of the auditor
- The auditor’s provision of the NAS
SOX and the SEC provide that an accounting firm’s independence will not be impaired solely because the Covered Person is not independent provided that:
- The covered person did not know of the circumstances giving rise to the lack of independence
- The covered persons lack of independence was corrected promptly as possible once it became known
- The accounting firm has a quality control system in place that provides reasonable assurance that independence will be complied with
