The Code of Professional Conduct

Question 0

Advocacy threat: definition and example.

Answer 0

Actions promoting the client’s interests or position. Example: promoting a client’s securities

Question 1

Self-review threat: definition and example

Answer 1

Reviewing evidence that results from member’s own work. Example: preparing documents for an audit client

Question 2

Adverse interest threat: definition and example.

Answer 2

Actions or interests between the member and client that are in opposition. Example: litigation between the client and member

Question 3

Familiarity threat: definition and example

Answer 3

Members having a close or longstanding relationship with client or knowing individuals or entities who performed nonattest services for the client. Example: a member of the attest engagement team whose spouse is in a key position at the client

Question 4

Undue influence threat: definition and example

Answer 4

Attemps by a client’s management (or others) to coerce the member or exercise excessive influence over the member. Example: threat to replace the member over a disagreement regarding an accounting principle

Question 5

Financial self-interest threat: definition and example

Answer 5

Potential benefit to a member from a financial interest in, or some financial relationship with, an attest client. Example: servicing as an officer of the client.

Question 6

Management participation threat: definition and example

Answer 6

Assuming the role of management or performing management functions for the attest client. Example: servicing as an officer of the client.

Question 7

What are three types of safeguards against threats to independence and some examples for each type?

Answer 7

1. Safeguards created by the profession, legislation, or regulation (eg. required continuing education on ind. and ethics)
2. Safeguards implemented by the client. (eg. effective governance structure, including active audit committee)
3. Safeguards implemented by the firm. (eg. quality controls for attest engagements)

Question 8

What are the 6 requirements for the Code of Professional Conduct?

Answer 8

1. Responsibilities
2. The Public Interest
3. Integrity
4. Objectivity and Independence
5. Due Care
6. Scope and Nature of Services