Securities and Exchange Commission (SEC) Flashcards

1
Q

What qualifications does the SEC require for a CPA to be able to audit a public company?

A
  • Registered and in good standing under the laws of the state
  • Independent and capable in exercising impartial judgement
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2
Q

Does the SEC define family relationships the same as the AICPA?

A

No but close.

Define: IFMS are the same. Instead of close relative, the SEC defines it as close family members.

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3
Q

Who is a covered member under the AICPA?

A

Audit team members, PTIS, 10-hour employees, OPIOS, The firm itself, any entity controlled by the first five

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4
Q

Who are covered persons under the SEC?

A
  • Audit team members
  • Chain of command (PTIS)
  • 10 hour persons
  • OPIOS
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5
Q

How do you define direct investments?

A
  • 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
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6
Q

Do investments by someone who is not a CP impair independence?

A

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.

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7
Q

May the firm, CPS or their IFMS own material indirect interests in an audit client?

A

No, only interests that are both indirect and immaterial are permitted

5% or less of a diversified mutual fund = immaterial

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8
Q

May the firm, CPS or their IFMS borrow money from or loan money to an audit client, its officers & directors, or its 10% shareholders?

A

NO, with exceptions:

  • May borrow from a financial institution under normal procedures and terms:
  • Auto loan collateralized by the car
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9
Q

May the firm, CP or their IFMS have a savings or checking account at a financial institution client?

A

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
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10
Q

May the firm, CPS or their IFMS have a credit card by an audit client?

A

Yes, if less than balance of $10,000

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11
Q

May the firm, CPS or their IFMS buy insurance products from an audit client?

A

No. Insurance policies are permitted only if

  • obtained before the person became a CP and
  • Likelihood of the insurer becoming insolvent is remote
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12
Q

What are the rules on unsolicited financial interests acquired by the firm, CPS, or the IFMS?

A

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
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13
Q

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?

A

NO!!!!!!

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14
Q

Employment relationships- May an accounting firm employee go to work for an audit client in an accounting or financial reporting role?

A

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)

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15
Q

Can an audit client employee come to work for an accounting firm?

A

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.

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16
Q

May an auditor provide a NAS to a public company?

A

Only if they are not an audit client

17
Q

May an auditor provide NAS to a private company?

A

Yes, no restrictions

18
Q

Under the SEC, list the NAS services that cannot be provided to a public company?

A
  • 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
19
Q

Is it okay to prepare an audit clients tax return?

A

Yes, it is allowed under the SEC.

20
Q

Under the SEC, may an accountant accept contingent fees or commission from a public company audit client?

A

No, not for ANY SERVICE OR PRODUCT (AT ALL)

21
Q

Must public companies rotate their outside audit firms from time to time?

A

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)
22
Q

What is the role of the audit client’s audit committee?

A
  • Hiring of the auditor

- The auditor’s provision of the NAS

23
Q

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:

A
  • 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