Uworld notes

Question 1

AICPA impaired examples

1. Hire or fire client employees
2. Authorize transactions
3. promote client’s products or securities
4. Prepare source docs that evidence the occurrence of a transaction.

Accepting a commission usually impairs independence. However, if the client is not an attest client, independence is unnecessary and accepting the commission is not likely to be unethical

Answer 1

Not impaired examples
1. Provide advice, research or recommendations
2. Post journal entries based on mgt’s classifications
3. Prepare FS from client’s trial balance

NOTE: if the CPA does not make managerial decisions or engage in advocacy and if the client takes responsibility for the CPA’s work, independence generally is not impaired.

Question 2

Acts discreditable to the profession

Answer 2

1. Refusal to return client records
2. Negligence in preparation of FS
3. Illegal acts
4. Solicitation or disclosure of CPA Exam questions
5. False or misleading marketing
6. Failure to follow requirements of a govt, commission or regulatory agency (e.g. PCAOB/SEC)
7. Confidential information obtained from employment or volunteer activities

Question 3

5 GAAS

Answer 3

SEJEC

S- Professional skepticism
E- Ethical requirements
J - Professional Judgement
E- Sufficient and Appropriate Audit Evidence
C - Compliance with GAAS

Question 4

Inherent Limitations of Audit

Answer 4

1. Nature of Financial reporting
2. Nature of Audit procedures
3. Timeliness of Fin reporting and the balance between benefit and cost.

Question 5

Contingent fees prohibited for :

Answer 5

1. Prep of tax return or refund claim
2. Any engagement for client for whom a CPA performs:
   (a) Audit or review of FS
   (b) Compilation of FS used by 3rd party (unless lack of independence disclosed)
   (c) Examination of prospective FS

Question 6

CPA Services requiring independence

1. Audit - Opinion
2. Examination - Opinion
3. Review - Conclusion
4. Agreed upon procedures - Findings

Answer 6

Compilation does not require independence.

But lack of independence must be disclosed.

Question 7

For each CAM identified, the audit report should include (IPAD)

1. Identification of the CAM
2. Description of the PRINCIPAL considerations that led the auditor to determine that the matter was a CAM
3. Description of how the CAM was addressed in the audit
4. Reference to the relevant FS accounts or disclosures.

Question 8

If XYZ borrowed money when she was a student and long before she became a covered person in a corp, such loan is exempt under SEC rules and creates no independence issues.

Answer 8

In another example, If it is a secured loan and a person became covered person later - no independence problem arises.

SEC rules allow an accounting firm to buy goods and services FROM A CLIENT in ordinary course of business.

Question 9

Services rendered by Third party service provider (TSP) where it does not pose a threat to INTEGRITY, OBJECTIVITY and INDEPENDENCE Rules.

Answer 9

Administrative support (e..g. record storage, software application hosting, authorized e-file transmittal services).

If TSP provides only administrative support, the CPA firm need not inform the client.