Video Study Cards Flashcards
Adverse Interest Threat
The threat that a member will not act with objectivity because the member’s interests are opposed to the client’s interests
- The client has expressed an intention to commence litigation against the member
- A client or officer, director, or significant shareholder of the client participates in litigation against the firm
- A subrogee asserts a claim against the firm for recovery of insurance payments made to the client
- A class action lawsuit is filed against the client and its officers and directors and the firm and its professional accountants
The advocacy threat
The threat that a member will promote a client’s interests or position to the point that their objectivity or independence is compromised 1. A member provides forensic accounting services to a client in litigation or a dispute with third parties 2. A firm acts as an investment adviser for an officer, a director, or a 10 percent shareholder of a client 3. A firm underwrites or promotes a client’s shares 4. A firm acts as a registered agent for a client 5. A member endorses a client’s services or products
Familiarity threat
The threat that, due to a long or close relationship with a client, a member will become too sympathetic to the client’s interests or too accepting of the client’s work or product 1. A member’s immediate family, close relative, or close friend is employed by the client 2. A former partner or professional employee joins the client in a key position and has knowledge of the firm’s policies and practices for the professional services engagement 3. Senior personnel have a long association with a client 4. A member has a significant close business relationship with an officer, a director, or a 10 percent shareholder of a client
Management Participation Threat
The threat that a member will take on the role of client management or otherwise assume management responsibilities, such as may occur during an engagement to provide nonattest services
Self Interest threat
The threat that a member could benefit, financially or otherwise, from an interest in, or relationship with, a client or persons associated with the client 1. The member has a financial interest in a client, and the outcome of a professional services engagement may affect the fair value of that financial interest 2. The member’s spouse enters into employment negotiations with the client 3. A firm enters into a contingent fee arrangement for a tax refund claim that is not a predetermined fee 4. Excessive reliance exists on revenue from a single client
Self Review Threat
The threat that a member will not appropriately evaluate the results of a previous judgment made, or service performed or supervised by the member, and that the member will rely on that service in forming a judgment as part of another service 1. The member relies on the work product of the member’s firm 2. The member performs bookkeeping services for a client 3. A partner in the member’s office was associated with the client as an employee, an officer, a director, or a contractor
Undue Influence Threat
The threat that a member will subordinate their judgment to an individual associated with a client, or any relevant third party, due to that individual’s reputation or expertise, aggressive or dominant personality, or attempts to coerce or exercise excessive influence over the member 1. The firm is threatened with dismissal from a client engagement 2. The client indicates that it will not award additional engagements to the firm if the firm continues to disagree with the client on an accounting or tax matter 3. An individual associated with a client or any relevant third party threatens to withdraw or terminate a professional service unless the member reaches certain judgments or conclusions
Safeguards
Effective safeguards fall into three broad categories: 1. Safeguards created by the profession, legislation, or regulation 2. Safeguards implemented by the client - It is not possible to rely solely on safeguards implemented by the client to eliminate or reduce significant threats to an acceptable level 3. Safeguards implemented by the firm, including policies and procedures to implement professional and regulatory requirements
Professional Safeguards
Safeguards created by the profession, legislation, or regulation 1. Training and continuing education requirements on independence and ethics 2. Professional standards and the threat of discipline 3. External review of a firm’s quality control system 4. Legislation establishing prohibitions and requirements for a firm or a firm’s professional employees 5. Competency and experience requirements for professional licensure
Client Safeguards
Safeguards implemented by the client that would operate in combination with other safeguards (see Code for more examples) 1. The client’s personnel have suitable skills, knowledge, or experience to make managerial decisions, and consult third-party resources as needed 2. The tone at the top emphasizes the client’s commitment to fair financial reporting and compliance with the applicable laws, rules, regulations, and corporate governance policies 3. Policies and procedures are in place which address ethical conduct and compliance with applicable laws, regulations, rules, and corporate governance policies
Firm Safeguards
Safeguards implemented by the firm (see Code for more examples) 1. Firm leadership that stresses the importance of complying with the rules and the expectation that engagement teams will act in the public interest 2. Policies and procedures that are designed to implement and monitor engagement quality control 3. Documented policies regarding the identification of threats to compliance with the rules, the evaluation of the significance of those threats, and the identification and application of safeguards that can eliminate identified threats or reduce them to an acceptable level
Effectiveness of Safeguards
The effectiveness of a safeguard depends on many factors, including: 1. The facts and circumstances specific to a particular situation 2. The proper identification of threats 3. Whether the safeguard is suitably designed to meet its objectives 4. Who applies the safeguard 5. The parties who will be subject to the safeguard 6. How the safeguard is applied 7. How the safeguard interacts with a safeguard from another category 8. The consistency with which the safeguard is applied
Responsibilities Principle
- Exercise sensitive, moral, and professional judgment 2. Cooperate with each other 3. Maintain the public’s confidence 4. Carry out the profession’s special responsibilities for self-governance
Public Interest Principles
- Serve the public interest - Public consists of clients, credit grantors, governments, employers, investors, and the business and financial community 2. Honor the public trust 3. Demonstrate a commitment to professionalism
Integrity
- Perform all professional responsibilities with the highest sense of integrity 2. Be honest and candid within the constraints of client confidentiality 3. Service and the public trust should not be subordinated to personal gain and advantage 4. In the absence of specific rules or in the face of conflicting opinions, a member should test decisions and deeds by asking: a. Am I doing what a person of integrity would do? b. Have I retained my integrity? 5. Integrity also requires a member to observe the principles of objectivity and independence, and of due care
