Professional Responsibilities Flashcards
What engagements are covered by the AICPA Code of Professional Conduct?
Covers all professional engagements and is the minimum standard of conduct
Member should additionally follow specific standards for a specific engagement
What must an accountant have under the AICPA Code of Professional Conduct?
Integrity
Objectivity
No Conflicts of Interest
No known misrepresentations of facts
No outsourcing of judgment
What are threats and safeguards to independence?
Safeguards > Threats - Independence
Threats > Safeguards - No Independence
What are the threats to independence?
Self-Review (Auditing own work)
Advocate of the Client
Adverse Interest (Lawsuit against Client)
Too familiar with Client - could impair the appearance of Independence to public
Undue influence on Client - On Board of Directors- exception being an Honorary board position
What are the requirements for a Covered Member?
No direct financial interest
No Material indirect financial interest
Firm personnel who are not Covered Members cannot own more than 5% of stock
Covered Member’s immediate family cannot own more than 5% of stock or be employed in Key positions. If Covered member is aware of this- it will impair independence.
Cannot make management decisions.
All requirements apply during the period of the professional engagement- and as long as they are a client.
When is independence required?
Audit
Review
Attestation Engagement
What are the requirements for nonattest engagements?
Everything must be documented in writing
Client must still perform all management functions
_Client must assign someone of competence to oversee the nonattest engagement and CPA must be satisfied that this has occurred
Engagement must have definite objectives
Engagement limitations disclosed
Understanding must be reached and documented before any nonattest work can begin
If CPA performs more than one nonattest function, they must be evaluated as a whole to see if Independence is impaired
List some common consulting engagements.
Advisory Services
Transaction Services
Management Consulting
Implementation Services
What is the rule concerning contingent fees for a covered member?
Not allowed if Member also performs services where independence is required
Commissions or referral fees for Covered Members are not allowed
Example - Audit firm gets a commission for recommending to Client that they implement a new A/P System…NOT Allowed
If a firm performing non-attest work doesn’t also perform Covered Member services (aka - Independence not
required)- then Firm can get a commission on referring products/services- but they must disclose to the Client
Tax Preparation - Payment according to refund amount is disallowed
When are contingent fees allowed?
When fees are structured relative to judicial proceedings.
Example: IRS audit- or filing an amended tax return subject to tax case with a different taxpayer.
How should recommendations and suggestions by a covered member to a client be handled?
Client must carry them out - covered member cannot perform management functions.
Client must assign someone of competence to oversee the non-attest engagement and CPA must be satisfied that this has occurred.
What are the requirements for Personal Financial Planning Engagements?
Must have definite objectives
Must have specific procedures planned
Must have a basis for recommendations
Must have recommendations communicated
Must have action steps to implement
When is a GAAP departure appropriate?
Departure from GAAP is appropriate if GAAP would cause Financial Statements to be misleading- then it must be explained/disclosed.
When may a covered member disclose confidential information?
Member may disclose confidential info when client isn’t following GAAP
OR
If they receive a subpoena - CPAs are not Attorneys- so there is no CPA-Client privilege
What is the effect of not returning all client-provided documents upon request?
This is an act discreditable.
You MUST return all documents the client gives you even if they don’t pay their bill.
If you create a document- however- like a work paper- you are not required to give the client a copy of papers you created if they haven’t paid their bill
They are the firm’s work papers- but are still confidential!