The AICPA Code of Professional Conduct M7

Question 1

What DOES NOT impair independence under the Indepence Rule?

Answer 1

• Membership in a social club in which membership requirements involve acquisition of a pro-rata share of equity does not impair independence because such equity is not considered to be a direct financial interest. The member, however, should not serve in any management capacity.
• Mortgage loans made BEFORE Feb. 5 2001
• A immaterial indirect financial interest is permissible.
• Fully collateralized auto loans with the financial institution.

Question 2

What makes independence impaired?

Answer 2

• Sr. Management from the audit firm working for one of our clients.
• If the CPA has any loan to or from the client after Feb 5, 2001. A loan includes a guarantee of a loan.
• Any direct or material indirect financial interest.
• Leasing property to a client result in an indirect financial interest that impairs a CPA’s independence
• If fees are owed for more than one year, the auditor is considered to be a creditor of the client.
• Auditor who is appointed the stock transfer agent of a corporation.
• If the client is the auditor’s only tenant, the auditor definitely has a financial interest in the client’s well-being.

Question 3

What does the AICPA code of professional conduct consider close relatives?

Answer 3

• Parent
• Sibling
• Non-dependent child

Question 4

What is the audit partner rotational requirements?

Answer 4

• Must stay off 5 years when off.

Question 5

How can an auditor exercise due professional care?

Answer 5

The General Standards Rule applies to all engagements, specifically including audits. Due professional care requires a CPA to critically review the work done by others.

Question 6

What may justify a departure from GAAP?

Answer 6

• Unusual circumstances, if compliance would cause the financial statements to be misleading.
• The Code of Conduct specifically recognizes new legislation
• The evolution of a new form of business transaction as events that may justify departure.

Question 7

What is in the Confidential Client Information Rule?

Answer 7

• An ethics ruling related to the Confidential Client Information Rule states that it is permissible for a member to disclose the name of a client without the client’s consent unless the disclosure of the client’s name results in the release of confidential information.
• The specific example given in the ethics ruling states that if a member’s practice is limited to bankruptcy matters, the disclosure of a client’s name suggests that the client may be experiencing financial difficulties, which could be confidential client information.
  *Confidential client information cannot be disclosed without the client’s consent.

Question 8

When are contingent fees prohibited?

Answer 8

• Contingent fees are specifically prohibited for audits and
  reviews of financial statements or examinations of prospective financial information.

Question 9

When are contingent fees permissable?

Answer 9

• Fees are not regarded as being contingent when they are fixed by courts or other public authorities or in tax matters, if they are based on the results of court proceedings or the findings of governmental agencies.
• Further, contingent fees are permitted for compilations only if the member includes a statement that the member is not independent.