Ethical Requirements of SEC and PCAOB M8

Question 1

How many years should a Registered Firm keep workpapers and documents?

Answer 1

Seven years (issuer) / (5 years non-issuer)

Question 2

What is PCAOB responsible of?

Answer 2

• The Public Company Accounting Oversight Board was established by the Sarbanes-Oxley Act of 2002.
• It is tasked with registering public accounting firms.
• Establishing rules relating to the preparation of audit reports.
• Conducting inspections, investigations, and disciplinary proceedings.

Question 3

What should resgistered firms report to the audit comittee (only)?

Answer 3

• The critical accounting policies and practices used.
• To provide a written statement regarding their independence.
• A schedule of unadjusted audit differences.
• Any alternative accounting treatments discussed with management.

Question 4

What is required of a auditor per SEC and PCAOB who audits the financials of a issuer?

Answer 4

• Auditor must maintain audit documentation for at least seven years.
• Auditor must monitor independence from issuers that it audits.
• Auditor must describe in audit reports the scope of testing of the issuer’s internal control structure and procedures.
• Auditor must provide a concurring or second partner review of each audit report

Question 5

What is the relationship between PCAOB and SEC?

Answer 5

• The PCAOB is subject to oversight by the SEC
• Only accounting firms registered with the PCAOB may prepare audit reports for SEC issuers.

Question 6

What are the rotation procedures for partners on engagements?

Answer 6

• The lead (or coordinating) audit partner or the reviewing audit partner must rotate off the audit every five years.
• On the other hand, SEC Standards reference both the maximum number of years a lead or concurring partner may perform audit services (5 years) and the maximum number of years other audit partners may perform audit services before audit rotation is required (7 years).

Question 7

When can a member of the firm work for the client?

Answer 7

• After 1 year
• This only applies to financial employees, CEO, CFO, CAO, etc.

Question 8

What services can an auditor provide issuer with or without pre-approval from the Audit Commitee?

Answer 8

WITHOUT PRE-APPROVAL

• Non-audit services that do not exceed five percent of total
  revenues from an audit client do not require audit committee preapproval as long as the services are brought to the audit committee’s attention and approved before the completion of the audit.

WITH PRE-APPROVAL

• All audit, review, attestation, tax and significant non-audit services.
• Non-audit services related to internal control over financial
  reporting.

Question 9

What are the communication requirements for an auditor performing tax services for issuer?

Answer 9

The auditor must communicate to the audit committee, in writing, regarding the proposed tax services and related fees, and must discuss with the audit committee the potential effects of the proposed tax services on the firm’s independence.

Question 10

What services are explicitly prohibited to perform on a issuer?

Answer 10

Tax services related to:
* contingent fee arrangements
* confidential tax transactions
* certain aggressive tax transactions

Question 11

What non-audit services violates PCAOB Independen Rule?

Answer 11

• Tax services to corporate officers of the audit client.
• An engagement in which the fee is dependent upon the results of the audit (a contingent fee).
• Provide to audit clients any tax services related to certain aggressive tax transactions.