AUD 2 - Professional Responsibilities & Ethics Flashcards Preview

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Flashcards in AUD 2 - Professional Responsibilities & Ethics Deck (53):
1

What is the 3-step process of the Conceptual Framework Approach regarding to Independence?

  1. Identify the threats
  2. Evaluate the significance of identified threats
  3. Identify & apply safeguards

2

What are the 7 threats to Idependence?

 

MUFASSA

  1. Self-Review - Auditing own work
  2. Self-Interest - acct has financial interest in client (stocks)
  3. Adverse Interest - Filing a lawsuit against the client
  4. Advocacy - Accountant promoting client's interest/position
  5. Familiarity - impair appearance to the public
  6. Undue Influence - attempts by mgmt/others to excercise an excessive amount of influence over the accountant
  7. Management Participation - acct takes mgmt role

3

Safeguards

(to Independence)

 

What are the 3 different kinds?

Safeguards are controls that eliminate or reduce threats. Safeguards are considered effective if they eliminate a threat or reduce it to an acceptable level.

There are three different kinds of safeguards:

  1. Safeguards imposed by requirements of the profession OR legislation/regulation
    • ​​Such as SOX
  2. Safeguards result from client's characteristic or policies
    • ​​Corporate governance
  3. Safeguards implemented by the CPA firm
    • ​​Policies (Quality Ctrl)

4

Whom is a Covered Member?

Covered members are persons in a position with the potential to influence audit decisions, including:

  • Individuals on engagement team.
  • Individuals who supervise or evaluate the engagement partner.
  • Partners who provide non-attest services to the client.

 

A covered member would be any of the following (must be independent of the audit client):

  • A member of an attest engagement team.
  • A partner or manager providing more than 10 hours of nonattest services to the attest client within a fiscal year.
  • The audit firm & its employee benefit plan.
  • A partner in the same office in which the lead engagement partner for the attest engagement practices.

5

What types of engagements may a Covered Member perform?

A Covered Memeber:

  • Must maintain Independence for Attestation Engagements (ERAS)
    • Examinations - Audits
    • Reviews
    • Agreed-upon procedures
    • Special Reports
  • Need not be independent for:
    • Taxes
    • Consultations
    • Preparations engagements
    • Compilations (when lack of indpendence is indicated)

6

Direct Financial Interest

vs.

Material Indirect Financial Interest

NOTE:  If both are owned by the Auditor, he/she is NOT considered independent.

 

Direct Financial Interest - Ownership of any equity interest, being a debtor to, or a creditor of a client. 

  • Materiality is not applicable. Example: Even if an auditor has only 1 stock in the audit client, the auditor is not independent since he/she has a direct/control over that financial interest.

 

Material Indirect Financial Interest - Holding an equity interest, being a debtor to, or a creditor of a client through some means other than direct ownership, such as owning a material interest in an investment fund that holds a material equity interest in the client. 

7

Consulting Services

 

Consists of what 3 services? (PIA)

Consulting services consists of:

  • Product or Technical assistance services
  • Implementation services,
  • Advisory services

 

NOTES:

  • Independence NOT needed.
  • A written or oral understanding w/ the client should be established.

8

Valuation Services

Valuation Servrices - Involves in the valuation of business, ownership interest, securities, or intangible assets. Examples:

  • Purchase price allocations
  • Goodwill Impairment

9

Personal Financial Planning Services

Personal Financial Planning Services - Assisting clients in identiying & establishing personal financial goals & resources. Services may include cash flow, risk & mgmt, investment planning, tax planning. 

10

Tax Services

What are the 4 Reporting & Disclosure requirements?

The practitioner should not recommend a position or prepare or sign a tax return taking a position that the practitioner does not have a good faith belief that has substantial authority in favor of being sustatined on the basis of the merits of the position. 

  • More Likely Than Not - Greater than 50%
  • Substantial Authority - Approximately 40%
  • Realistic Possibility - Approximately 33% 
  • Reasonable Basis - Approx 20% probability of success

11

Employment with Audit Client

(Procedures)
 

Prior to leaving & After employed?

Prior to leaving:

  • Must inform audit firm of conversations w/ client about possible employment
  • Immediately be removed from the audit
  • Once removed, the audit firm must review the work performed by the auditor planning on leaving

 

After Employed by the Audit Client:

  • Audit firm must consider modifying the audit plan
  • Assure remaining audit team is objective
  • The next annual audit must be separately reviewed by an audit frim professional uninvolved in the previous audit. 

12

Contingent Fees

&

Commissions/Referral

CPA may not accept a contingent fee for:

  • Audit or Review
  • Compilation of FS
  • Examinations

 

CPA may accept a contingent fee for:

  • Representing a client in an examination of an income tax refund
  • Filing an amended income tax refund claiming a refund

 

A CPA may accept commission/referrals for:

  • from Non-Attest engagement client
  • Payment fully disclosed to client
    • No commission if required to be independent

13

When may an auditor/member accept commission & referral fees? (2)

  • Non-attest engagement client
  • Payment fully disclosed to client
    • No commission if req'd to be independent for the service provided.

14

Working Papers

 

What are the 4 exceptions to Confidentiality?

Information is considered confidential, NOT priviliaged. Must not reveal information without client permission with certain exceptions:

  1. Valid subpoena or summons
  2. IRS Administrative subpoena
  3. Court order
  4. Quality control peer review program
    • Cannot give infor to another CPA, no professional courtesy
    • May NOT take copes of client's files when leavng the firm.

15

Sarbanes-Oxley Act of 2002

(SOX)

 

What are the first 4 Titles?

An act created in an effort to restore investor confidence by requiring mgmt of public companies to be responsible for the accuracy of the entity's financial statements & increasing penalties for fraudulent activity.

 

First 4 Titles are:

  • Title 1 - Public Accounting Oversight Board (sections)
  • Title 2 - Auditor Independence
  • Title 3 - Corporate Responsibility
  • Title 4 - Enhanced Financial Disclosures

16

Private Securities Litigation Reform Act of 1995

(RIG)

Designed to limit frivolous lawsuits, it imposes requirements to include audit tests to detect matters such as:

  • Related-party transactions
  • Illegal acts
  • Going concern doubts

17

Privacy Acts

 

Federal Privacy Disclosure Rules - Gramm Leach-Bliley Act

vs.

The Financial Services Modernization Act of 1999

Gramm Leach - When performing tax/financial planning, the FTC requires certain disclosures be made in writing or electronically to all clients

  • The categories of personal info to be collected, disclosed, and to which third parties this info may be disclosed
  • The CPA's policy on sharing info of past clients & the policy regarding protecting the confidentiality, security & integrity of the info. 

 

Financial Services Modernization Act of 1999 - Prohibits financial institutions from sharing private personal info to nonaffiliated third parties w/o prior notice to the client. 

18

How long must Work Papers be kept?

 

Auditor's documentations kept for atleast 7 years under PCAOB & 5 years under GAAS that describes the work performed, evidence obtained, & the conclusions drawn to support the auditor's report. Workpapers are considered confidential information.

19

PCAOB Standards (AS)

 

Responsible for standards related to? (4)

The PCAOB is responsible for standards related to:

  1. Auditing
  2. Attestation
  3. Quality Control
  4. Ethics Standards
    • Independence
    • Integrity & Objectivity

20

International Ethics Standards Board for Accountants

(IESBA)

 

Contains what 3 parts?

Establishes ethic standards for accountants internationally, including requirements for auditor independence.

The IESBA contains 3 parts:

  1. General Application
  2. Professional Accountants in Public Practice
  3. Professional Accountants in Business

21

International Auditing & Assurance Standards Board

(IAASB)

Responsible for developing international auditing standards (ISA), international standards on assurance engagements (ISAE), international standards on quality control (ISQC), & practice statements. 

22

Securities & Exchange Commission

(SEC)

Government agency responsible for enforcing federal securities laws, established to protect investors. 

23

Government Accountability Office

(GAO)

Government agency responsible for investigating how the federal government spends taxpayer money & to ensure the accountability of the federal governmnet.

24

Generally Accepted Goverment Accounting Standards

(GAGAS)

Standards established by GAO, also called "the Yellow Book", for auditors of government entities.

25

SOX - Title 1

 

101

SOX Title 1 - Public Accounting Oversight Board (sections)

  • 101 - Establishes the board, consists of 5 full time members, exactly 2 are CPAs, all appointed by the SEC
  • 102 - Requires public acctg firms to register with the PCAOB
  • 103 - Authorizes the board to establish standards, quality control standards, & ethics standards to be used by registered acctg firms in the preparation & issuance of audit reports. 
    • Standards either by the AICPA or the PCAOB or a combination of the two
    • Must keep workpapers for 7 years from report release date
    • A second partner is required to review all audit reports
    • Audit reports must describe the scope of testing for I/C
  • 104 - Provides for Quality Control Peer Review Inspections to be conducted by the board
    • Must be performed every year for firms that provide more than 100 audit reports annualy
    • Atleast every 3 years if less than 100 annualy
  • 105 - Gives Board authority to conduct investigations & obtain all relevant info
    • Power to suspend auditors
    • Revoke registration of acctg firms
    • Impose penalties
  • 106 - Regulates foreign public acctg firms furnishing an audit report to an issuer & requires them to comply with the board requests
  • 107 - Gives SEC oversight & enforcement authority over the Board & its decisions
  • 108 - Amends the Securities Act of 1933 to allow the SEC to adopt the accounting standards established by a standard setting body such as FASB.
  • 109 - Calls for funding of the Board & the designated accounting standard-setting body (FASB) to be funded from fees imposed upon public companies

26

SOX - Title 1

 

102

SOX Title 1 - Public Accounting Oversight Board (sections)

  • 101 - Establishes the board, consists of 5 full time members, exactly 2 are CPAs, all appointed by the SEC
  • 102 - Requires public acctg firms to register with the PCAOB
  • 103 - Authorizes the board to establish standards, quality control standards, & ethics standards to be used by registered acctg firms in the preparation & issuance of audit reports. 
    • Standards either by the AICPA or the PCAOB or a combination of the two
    • Must keep workpapers for 7 years from report release date
    • A second partner is required to review all audit reports
    • Audit reports must describe the scope of testing for I/C
  • 104 - Provides for Quality Control Peer Review Inspections to be conducted by the board
    • Must be performed every year for firms that provide more than 100 audit reports annualy
    • Atleast every 3 years if less than 100 annualy
  • 105 - Gives Board authority to conduct investigations & obtain all relevant info
    • Power to suspend auditors
    • Revoke registration of acctg firms
    • Impose penalties
  • 106 - Regulates foreign public acctg firms furnishing an audit report to an issuer & requires them to comply with the board requests
  • 107 - Gives SEC oversight & enforcement authority over the Board & its decisions
  • 108 - Amends the Securities Act of 1933 to allow the SEC to adopt the accounting standards established by a standard setting body such as FASB.
  • 109 - Calls for funding of the Board & the designated accounting standard-setting body (FASB) to be funded from fees imposed upon public companies

27

SOX - Title 1

 

103

SOX Title 1 - Public Accounting Oversight Board (sections)

  • 101 - Establishes the board, consists of 5 full time members, exactly 2 are CPAs, all appointed by the SEC
  • 102 - Requires public acctg firms to register with the PCAOB
  • 103 - Authorizes the PCAOB to establish standards, quality control standards, & ethics standards to be used by registered acctg firms in the preparation & issuance of audit reports. 
    • Standards either by the AICPA or the PCAOB or a combination of the two
    • Must keep workpapers for 7 years from report release date
    • A second partner is required to review all audit reports
    • Audit reports must describe the scope of testing for I/C
  • 104 - Provides for Quality Control Peer Review Inspections to be conducted by the board
    • Must be performed every year for firms that provide more than 100 audit reports annualy
    • Atleast every 3 years if less than 100 annualy
  • 105 - Gives Board authority to conduct investigations & obtain all relevant info
    • Power to suspend auditors
    • Revoke registration of acctg firms
    • Impose penalties
  • 106 - Regulates foreign public acctg firms furnishing an audit report to an issuer & requires them to comply with the board requests
  • 107 - Gives SEC oversight & enforcement authority over the Board & its decisions
  • 108 - Amends the Securities Act of 1933 to allow the SEC to adopt the accounting standards established by a standard setting body such as FASB.
  • 109 - Calls for funding of the Board & the designated accounting standard-setting body (FASB) to be funded from fees imposed upon public companies

28

SOX - Title 1

 

104

SOX Title 1 - Public Accounting Oversight Board (sections)

  • 101 - Establishes the board, consists of 5 full time members, exactly 2 are CPAs, all appointed by the SEC
  • 102 - Requires public acctg firms to register with the PCAOB
  • 103 - Authorizes the board to establish standards, quality control standards, & ethics standards to be used by registered acctg firms in the preparation & issuance of audit reports. 
    • Standards either by the AICPA or the PCAOB or a combination of the two
    • Must keep workpapers for 7 years from report release date
    • A second partner is required to review all audit reports
    • Audit reports must describe the scope of testing for I/C
  • 104 - Provides for Quality Control Peer Review Inspections to be conducted by the board
    • Must be performed every year for firms that provide more than 100 audit reports annualy
    • Atleast every 3 years if less than 100 annualy
  • 105 - Gives Board authority to conduct investigations & obtain all relevant info
    • Power to suspend auditors
    • Revoke registration of acctg firms
    • Impose penalties
  • 106 - Regulates foreign public acctg firms furnishing an audit report to an issuer & requires them to comply with the board requests
  • 107 - Gives SEC oversight & enforcement authority over the Board & its decisions
  • 108 - Amends the Securities Act of 1933 to allow the SEC to adopt the accounting standards established by a standard setting body such as FASB.
  • 109 - Calls for funding of the Board & the designated accounting standard-setting body (FASB) to be funded from fees imposed upon public companies

29

SOX - Title 1

 

105

SOX Title 1 - Public Accounting Oversight Board (sections)

  • 101 - Establishes the board, consists of 5 full time members, exactly 2 are CPAs, all appointed by the SEC
  • 102 - Requires public acctg firms to register with the PCAOB
  • 103 - Authorizes the board to establish standards, quality control standards, & ethics standards to be used by registered acctg firms in the preparation & issuance of audit reports. 
    • Standards either by the AICPA or the PCAOB or a combination of the two
    • Must keep workpapers for 7 years from report release date
    • A second partner is required to review all audit reports
    • Audit reports must describe the scope of testing for I/C
  • 104 - Provides for Quality Control Peer Review Inspections to be conducted by the board
    • Must be performed every year for firms that provide more than 100 audit reports annualy
    • Atleast every 3 years if less than 100 annualy
  • 105 - Gives Board authority to conduct investigations & obtain all relevant info
    • Power to suspend auditors
    • Revoke registration of acctg firms
    • Impose penalties
  • 106 - Regulates foreign public acctg firms furnishing an audit report to an issuer & requires them to comply with the board requests
  • 107 - Gives SEC oversight & enforcement authority over the Board & its decisions
  • 108 - Amends the Securities Act of 1933 to allow the SEC to adopt the accounting standards established by a standard setting body such as FASB.
  • 109 - Calls for funding of the Board & the designated accounting standard-setting body (FASB) to be funded from fees imposed upon public companies

30

SOX - Title 1

 

106

SOX Title 1 - Public Accounting Oversight Board (sections)

  • 101 - Establishes the board, consists of 5 full time members, exactly 2 are CPAs, all appointed by the SEC
  • 102 - Requires public acctg firms to register with the PCAOB
  • 103 - Authorizes the board to establish standards, quality control standards, & ethics standards to be used by registered acctg firms in the preparation & issuance of audit reports. 
    • Standards either by the AICPA or the PCAOB or a combination of the two
    • Must keep workpapers for 7 years from report release date
    • A second partner is required to review all audit reports
    • Audit reports must describe the scope of testing for I/C
  • 104 - Provides for Quality Control Peer Review Inspections to be conducted by the board
    • Must be performed every year for firms that provide more than 100 audit reports annualy
    • Atleast every 3 years if less than 100 annualy
  • 105 - Gives Board authority to conduct investigations & obtain all relevant info
    • Power to suspend auditors
    • Revoke registration of acctg firms
    • Impose penalties
  • 106 - Regulates foreign public acctg firms furnishing an audit report to an issuer & requires them to comply with the board requests
  • 107 - Gives SEC oversight & enforcement authority over the Board & its decisions
  • 108 - Amends the Securities Act of 1933 to allow the SEC to adopt the accounting standards established by a standard setting body such as FASB.
  • 109 - Calls for funding of the Board & the designated accounting standard-setting body (FASB) to be funded from fees imposed upon public companies

31

SOX - Title 1

 

107

SOX Title 1 - Public Accounting Oversight Board (sections)

  • 101 - Establishes the board, consists of 5 full time members, exactly 2 are CPAs, all appointed by the SEC
  • 102 - Requires public acctg firms to register with the PCAOB
  • 103 - Authorizes the board to establish standards, quality control standards, & ethics standards to be used by registered acctg firms in the preparation & issuance of audit reports. 
    • Standards either by the AICPA or the PCAOB or a combination of the two
    • Must keep workpapers for 7 years from report release date
    • A second partner is required to review all audit reports
    • Audit reports must describe the scope of testing for I/C
  • 104 - Provides for Quality Control Peer Review Inspections to be conducted by the board
    • Must be performed every year for firms that provide more than 100 audit reports annualy
    • Atleast every 3 years if less than 100 annualy
  • 105 - Gives Board authority to conduct investigations & obtain all relevant info
    • Power to suspend auditors
    • Revoke registration of acctg firms
    • Impose penalties
  • 106 - Regulates foreign public acctg firms furnishing an audit report to an issuer & requires them to comply with the board requests
  • 107 - Gives SEC oversight & enforcement authority over the Board & its decisions
  • 108 - Amends the Securities Act of 1933 to allow the SEC to adopt the accounting standards established by a standard setting body such as FASB.
  • 109 - Calls for funding of the Board & the designated accounting standard-setting body (FASB) to be funded from fees imposed upon public companies

32

SOX - Title 1

 

108

SOX Title 1 - Public Accounting Oversight Board (sections)

  • 101 - Establishes the board, consists of 5 full time members, exactly 2 are CPAs, all appointed by the SEC
  • 102 - Requires public acctg firms to register with the PCAOB
  • 103 - Authorizes the board to establish standards, quality control standards, & ethics standards to be used by registered acctg firms in the preparation & issuance of audit reports. 
    • Standards either by the AICPA or the PCAOB or a combination of the two
    • Must keep workpapers for 7 years from report release date
    • A second partner is required to review all audit reports
    • Audit reports must describe the scope of testing for I/C
  • 104 - Provides for Quality Control Peer Review Inspections to be conducted by the board
    • Must be performed every year for firms that provide more than 100 audit reports annualy
    • Atleast every 3 years if less than 100 annualy
  • 105 - Gives Board authority to conduct investigations & obtain all relevant info
    • Power to suspend auditors
    • Revoke registration of acctg firms
    • Impose penalties
  • 106 - Regulates foreign public acctg firms furnishing an audit report to an issuer & requires them to comply with the board requests
  • 107 - Gives SEC oversight & enforcement authority over the Board & its decisions
  • 108 - Amends the Securities Act of 1933 to allow the SEC to adopt the accounting standards established by a standard setting body such as FASB.
  • 109 - Calls for funding of the Board & the designated accounting standard-setting body (FASB) to be funded from fees imposed upon public companies

33

SOX - Title 1

 

109

SOX Title 1 - Public Accounting Oversight Board (sections)

  • 101 - Establishes the board, consists of 5 full time members, exactly 2 are CPAs, all appointed by the SEC
  • 102 - Requires public acctg firms to register with the PCAOB
  • 103 - Authorizes the board to establish standards, quality control standards, & ethics standards to be used by registered acctg firms in the preparation & issuance of audit reports. 
    • Standards either by the AICPA or the PCAOB or a combination of the two
    • Must keep workpapers for 7 years from report release date
    • A second partner is required to review all audit reports
    • Audit reports must describe the scope of testing for I/C
  • 104 - Provides for Quality Control Peer Review Inspections to be conducted by the board
    • Must be performed every year for firms that provide more than 100 audit reports annualy
    • Atleast every 3 years if less than 100 annualy
  • 105 - Gives Board authority to conduct investigations & obtain all relevant info
    • Power to suspend auditors
    • Revoke registration of acctg firms
    • Impose penalties
  • 106 - Regulates foreign public acctg firms furnishing an audit report to an issuer & requires them to comply with the board requests
  • 107 - Gives SEC oversight & enforcement authority over the Board & its decisions
  • 108 - Amends the Securities Act of 1933 to allow the SEC to adopt the accounting standards established by a standard setting body such as FASB.
  • 109 - Calls for funding of the Board & the designated accounting standard-setting body (FASB) to be funded from fees imposed upon public companies

34

SOX - Title 2

 

201

SOX Title 2 - Auditor Independence

  • 201 - Prohibits any registered public accounting firm from providing the following non-audit services to Audit clients
    • Bookkeeping or other services related to the accounting records
    • Financial info systems design or implementation
    • Appraisal/valuation services, fairness opinions
    • Actuarial services
    • Internal audit outsourcing services
    • Mgmt functions or human resources
    • Broker/dealer investment advisor
    • Legal/Expert Services
      • Tax Services are still permissable
  • 202 - Requires the issuer's audit committee to preapprove all auditing & non-auditing services to be provided to an issuer
  • 203 - Establishes mandatory & substantive rotation of audit partner & partner responsible for review every 5 years
  • 204 - Requires audit firm to report to the client's audit committee:
    • Critical accounting policies & practices
    • Alternative acctg treatments
    • Material written communications between auditor's firm & management of the issuer
  • 206 - Prohibits the audit firm from providing audit services for issuer if the CEO, controller, CFO, or any person serving in the equivalent capacity was employed in the audit practice of the firm during the 1 year period prior to the audit

35

SOX - Title 2

 

202

SOX Title 2 - Auditor Independence

  • 201 - Prohibits any registered public accounting firm from providing the following non-audit services to Audit clients
    • Bookkeeping or other services related to the accounting records
    • Financial info systems design or implementation
    • Appraisal/valuation services, fairness opinions
    • Actuarial services
    • Internal audit outsourcing services
    • Mgmt functions or human resources
    • Broker/dealer investment advisor
    • Legal/Expert Services
      • Tax Services are still permissable
  • 202 - Requires the issuer's audit committee to preapprove all auditing & non-auditing services to be provided to an issuer
  • 203 - Establishes mandatory & substantive rotation of audit partner & partner responsible for review every 5 years
  • 204 - Requires audit firm to report to the client's audit committee:
    • Critical accounting policies & practices
    • Alternative acctg treatments
    • Material written communications between auditor's firm & management of the issuer
  • 206 - Prohibits the audit firm from providing audit services for issuer if the CEO, controller, CFO, or any person serving in the equivalent capacity was employed in the audit practive of the firm during the 1 year period prior to the audit

36

SOX - Title 2

 

203

SOX Title 2 - Auditor Independence

  • 201 - Prohibits any registered public accounting firm from providing the following non-audit services to Audit clients
    • Bookkeeping or other services related to the accounting records
    • Financial info systems design or implementation
    • Appraisal/valuation services, fairness opinions
    • Actuarial services
    • Internal audit outsourcing services
    • Mgmt functions or human resources
    • Broker/dealer investment advisor
    • Legal/Expert Services
      • Tax Services are still permissable
  • 202 - Requires the issuer's audit committee to preapprove all auditing & non-auditing services to be provided to an issuer
  • 203 - Establishes mandatory & substantive rotation of audit partner & partner responsible for review every 5 years
  • 204 - Requires audit firm to report to the client's audit committee:
    • Critical accounting policies & practices
    • Alternative acctg treatments
    • Material written communications between auditor's firm & management of the issuer
  • 206 - Prohibits the audit firm from providing audit services for issuer if the CEO, controller, CFO, or any person serving in the equivalent capacity was employed in the audit practive of the firm during the 1 year period prior to the audit

37

SOX - Title 2

 

204

SOX Title 2 - Auditor Independence

  • 201 - Prohibits any registered public accounting firm from providing the following non-audit services to Audit clients
    • Bookkeeping or other services related to the accounting records
    • Financial info systems design or implementation
    • Appraisal/valuation services, fairness opinions
    • Actuarial services
    • Internal audit outsourcing services
    • Mgmt functions or human resources
    • Broker/dealer investment advisor
    • Legal/Expert Services
      • Tax Services are still permissable
  • 202 - Requires the issuer's audit committee to preapprove all auditing & non-auditing services to be provided to an issuer
  • 203 - Establishes mandatory & substantive rotation of audit partner & partner responsible for review every 5 years
  • 204 - Requires audit firm to report to the client's audit committee:
    • Critical accounting policies & practices
    • Alternative acctg treatments
    • Material written communications between auditor's firm & management of the issuer
  • 206 - Prohibits the audit firm from providing audit services for issuer if the CEO, controller, CFO, or any person serving in the equivalent capacity was employed in the audit practive of the firm during the 1 year period prior to the audit

38

SOX - Title 2

 

206

SOX Title 2 - Auditor Independence

  • 201 - Prohibits any registered public accounting firm from providing the following non-audit services to Audit clients
    • Bookkeeping or other services related to the accounting records
    • Financial info systems design or implementation
    • Appraisal/valuation services, fairness opinions
    • Actuarial services
    • Internal audit outsourcing services
    • Mgmt functions or human resources
    • Broker/dealer investment advisor
    • Legal/Expert Services
      • Tax Services are still permissable
  • 202 - Requires the issuer's audit committee to preapprove all auditing & non-auditing services to be provided to an issuer
  • 203 - Establishes mandatory & substantive rotation of audit partner & partner responsible for review every 5 years
  • 204 - Requires audit firm to report to the client's audit committee:
    • Critical accounting policies & practices
    • Alternative acctg treatments
    • Material written communications between auditor's firm & management of the issuer
  • 206 - Prohibits the audit firm from providing audit services for issuer if the CEO, controller, CFO, or any person serving in the equivalent capacity was employed in the audit practive of the firm during the 1 year period prior to the audit

39

SOX - Title 3

 

301

SOX Title 3 - Corporate Responsiblity

  • 301 - Makes audit committee, which must be independent, responsible for appointment, compensation, & oversight of any audit work
    • Allows the SEC to de-list any issuer not in compliance w/ Title 3
  • 302 - Requires principal executive & principal financial officers to certify, in each annual or quarterly report:
    • They have reviewed the report
    • Report does not contain any untrue stmt of material fact or ommission of a material fact
    • Financial position & results of operations are fairly presented
  • 303 - Prohibits an officer/director of an issuer to fraudulently influence, coerce, manipulatte, or mislead the auditor
  • 304 - (Clawback Rule) Requires executives of an issuer to forfeit any bonus or incentive based pay or profits from the sale of stock, rec'd in the 12 months period after the date of issuance of FS subject to an earnings re-statement
  • 305 - The SEC may bar any person who has violated federal securities laws from serving as an officer or director of an issuer
  • 306 - Prohibits trading by officers/directors during blackout periods established between the end of a quarter & the earnings report date

40

SOX - Title 3

 

302

SOX Title 3 - Corporate Responsiblity

  • 301 - Makes audit committee, which must be independent, responsible for appointment, compensation, & oversight of any audit work
    • Allows the SEC to de-list any issuer not in compliance w/ Title 3
  • 302 - Requires principal executive & principal financial officers to certify, in each annual or quarterly report:
    • They have reviewed the report
    • Report does not contain any untrue stmt of material fact or ommission of a material fact
    • Financial position & results of operations are fairly presented
  • 303 - Prohibits an officer/director of an issuer to fraudulently influence, coerce, manipulatte, or mislead the auditor
  • 304 - (Clawback Rule) Requires executives of an issuer to forfeit any bonus or incentive based pay or profits from the sale of stock, rec'd in the 12 months period after the date of issuance of FS subject to an earnings re-statement
  • 305 - The SEC may bar any person who has violated federal securities laws from serving as an officer or director of an issuer
  • 306 - Prohibits trading by officers/directors during blackout periods established between the end of a quarter & the earnings report date

41

SOX - Title 3

 

303

SOX Title 3 - Corporate Responsiblity

  • 301 - Makes audit committee, which must be independent, responsible for appointment, compensation, & oversight of any audit work
    • Allows the SEC to de-list any issuer not in compliance w/ Title 3
  • 302 - Requires principal executive & principal financial officers to certify, in each annual or quarterly report:
    • They have reviewed the report
    • Report does not contain any untrue stmt of material fact or ommission of a material fact
    • Financial position & results of operations are fairly presented
  • 303 - Prohibits an officer/director of an issuer to fraudulently influence, coerce, manipulatte, or mislead the auditor
  • 304 - (Clawback Rule) Requires executives of an issuer to forfeit any bonus or incentive based pay or profits from the sale of stock, rec'd in the 12 months period after the date of issuance of FS subject to an earnings re-statement
  • 305 - The SEC may bar any person who has violated federal securities laws from serving as an officer or director of an issuer
  • 306 - Prohibits trading by officers/directors during blackout periods established between the end of a quarter & the earnings report date

42

SOX - Title 3

 

304

SOX Title 3 - Corporate Responsiblity

  • 301 - Makes audit committee, which must be independent, responsible for appointment, compensation, & oversight of any audit work
    • Allows the SEC to de-list any issuer not in compliance w/ Title 3
  • 302 - Requires principal executive & principal financial officers to certify, in each annual or quarterly report:
    • They have reviewed the report
    • Report does not contain any untrue stmt of material fact or ommission of a material fact
    • Financial position & results of operations are fairly presented
  • 303 - Prohibits an officer/director of an issuer to fraudulently influence, coerce, manipulatte, or mislead the auditor
  • 304 - (Clawback Rule) Requires executives of an issuer to forfeit any bonus or incentive based pay or profits from the sale of stock, rec'd in the 12 months period after the date of issuance of FS subject to an earnings re-statement
  • 305 - The SEC may bar any person who has violated federal securities laws from serving as an officer or director of an issuer
  • 306 - Prohibits trading by officers/directors during blackout periods established between the end of a quarter & the earnings report date

43

SOX - Title 3

 

305

SOX Title 3 - Corporate Responsiblity

  • 301 - Makes audit committee, which must be independent, responsible for appointment, compensation, & oversight of any audit work
    • Allows the SEC to de-list any issuer not in compliance w/ Title 3
  • 302 - Requires principal executive & principal financial officers to certify, in each annual or quarterly report:
    • They have reviewed the report
    • Report does not contain any untrue stmt of material fact or ommission of a material fact
    • Financial position & results of operations are fairly presented
  • 303 - Prohibits an officer/director of an issuer to fraudulently influence, coerce, manipulatte, or mislead the auditor
  • 304 - (Clawback Rule) Requires executives of an issuer to forfeit any bonus or incentive based pay or profits from the sale of stock, rec'd in the 12 months period after the date of issuance of FS subject to an earnings re-statement
  • 305 - The SEC may bar any person who has violated federal securities laws from serving as an officer or director of an issuer
  • 306 - Prohibits trading by officers/directors during blackout periods established between the end of a quarter & the earnings report date

44

SOX - Title 3

 

306

SOX Title 3 - Corporate Responsiblity

  • 301 - Makes audit committee, which must be independent, responsible for appointment, compensation, & oversight of any audit work
    • Allows the SEC to de-list any issuer not in compliance w/ Title 3
  • 302 - Requires principal executive & principal financial officers to certify, in each annual or quarterly report:
    • They have reviewed the report
    • Report does not contain any untrue stmt of material fact or ommission of a material fact
    • Financial position & results of operations are fairly presented
  • 303 - Prohibits an officer/director of an issuer to fraudulently influence, coerce, manipulatte, or mislead the auditor
  • 304 - (Clawback Rule) Requires executives of an issuer to forfeit any bonus or incentive based pay or profits from the sale of stock, rec'd in the 12 months period after the date of issuance of FS subject to an earnings re-statement
  • 305 - The SEC may bar any person who has violated federal securities laws from serving as an officer or director of an issuer
  • 306 - Prohibits trading by officers/directors during blackout periods established between the end of a quarter & the earnings report date

45

SOX - Title 4

 

401

SOX Title 4 - Enhanced Financial Disclosures

  • 401 - Req's all FS prepared in accordance w/ GAAP to reflect all material adjustments identified by the auditors
  • 402 - Prohibits personal loans to directors, executive, or officers
  • 403 - Req's directors, officers, & principal shareholders to disclose the amount of all equity securities in which they hold a beneficial interest & any changes in their interest since the previous filing
  • 404 - Req's that mgmt acknowledge its responsiblity for establishing & maintaining adequate I/C over financial reporting & that mgmt asses the effectiveness of I/C
  • 405 - Exempts investment companies registered under the Investment Company Act of 1940 from sections 401, 402, 403
  • 406 - Req's an issuer to disclose whether or not it has adopted a code of ethics for senior financial officers, & if not, the reasons for not having done so
  • 407 - Must disclose whether atleast 1 member of the audit committee is a "financial expert"
  • 408 - Provides for enhanced review of periodic disclosures by the Board
  • 409 - Req's issuers to disclose material changes in the financial condition or operations on a rapid & current basis

46

SOX - Title 4

 

402

SOX Title 4 - Enhanced Financial Disclosures

  • 401 - Req's all FS prepared in accordance w/ GAAP to reflect all material adjustments identified by the auditors
  • 402 - Prohibits personal loans to directors, executive, or officers
  • 403 - Req's directors, officers, & principal shareholders to disclose the amount of all equity securities in which they hold a beneficial interest & any changes in their interest since the previous filing
  • 404 - Req's that mgmt acknowledge its responsiblity for establishing & maintaining adequate I/C over financial reporting & that mgmt asses the effectiveness of I/C
  • 405 - Exempts investment companies registered under the Investment Company Act of 1940 from sections 401, 402, 403
  • 406 - Req's an issuer to disclose whether or not it has adopted a code of ethics for senior financial officers, & if not, the reasons for not having done so
  • 407 - Must disclose whether atleast 1 member of the audit committee is a "financial expert"
  • 408 - Provides for enhanced review of periodic disclosures by the Board
  • 409 - Req's issuers to disclose material changes in the financial condition or operations on a rapid & current basis

47

SOX - Title 4

 

403

SOX Title 4 - Enhanced Financial Disclosures

  • 401 - Req's all FS prepared in accordance w/ GAAP to reflect all material adjustments identified by the auditors
  • 402 - Prohibits personal loans to directors, executive, or officers
  • 403 - Req's directors, officers, & principal shareholders to disclose the amount of all equity securities in which they hold a beneficial interest & any changes in their interest since the previous filing
  • 404 - Req's that mgmt acknowledge its responsiblity for establishing & maintaining adequate I/C over financial reporting & that mgmt asses the effectiveness of I/C
  • 405 - Exempts investment companies registered under the Investment Company Act of 1940 from sections 401, 402, 403
  • 406 - Req's an issuer to disclose whether or not it has adopted a code of ethics for senior financial officers, & if not, the reasons for not having done so
  • 407 - Must disclose whether atleast 1 member of the audit committee is a "financial expert"
  • 408 - Provides for enhanced review of periodic disclosures by the Board
  • 409 - Req's issuers to disclose material changes in the financial condition or operations on a rapid & current basis

48

SOX - Title 4

 

404

SOX Title 4 - Enhanced Financial Disclosures

  • 401 - Req's all FS prepared in accordance w/ GAAP to reflect all material adjustments identified by the auditors
  • 402 - Prohibits personal loans to directors, executive, or officers
  • 403 - Req's directors, officers, & principal shareholders to disclose the amount of all equity securities in which they hold a beneficial interest & any changes in their interest since the previous filing
  • 404 - Req's that mgmt acknowledge its responsiblity for establishing & maintaining adequate I/C over financial reporting & that mgmt asses the effectiveness of I/C
  • 405 - Exempts investment companies registered under the Investment Company Act of 1940 from sections 401, 402, 403
  • 406 - Req's an issuer to disclose whether or not it has adopted a code of ethics for senior financial officers, & if not, the reasons for not having done so
  • 407 - Must disclose whether atleast 1 member of the audit committee is a "financial expert"
  • 408 - Provides for enhanced review of periodic disclosures by the Board
  • 409 - Req's issuers to disclose material changes in the financial condition or operations on a rapid & current basis

49

SOX - Title 4

 

405

SOX Title 4 - Enhanced Financial Disclosures

  • 401 - Req's all FS prepared in accordance w/ GAAP to reflect all material adjustments identified by the auditors
  • 402 - Prohibits personal loans to directors, executive, or officers
  • 403 - Req's directors, officers, & principal shareholders to disclose the amount of all equity securities in which they hold a beneficial interest & any changes in their interest since the previous filing
  • 404 - Req's that mgmt acknowledge its responsiblity for establishing & maintaining adequate I/C over financial reporting & that mgmt asses the effectiveness of I/C
  • 405 - Exempts investment companies registered under the Investment Company Act of 1940 from sections 401, 402, 403
  • 406 - Req's an issuer to disclose whether or not it has adopted a code of ethics for senior financial officers, & if not, the reasons for not having done so
  • 407 - Must disclose whether atleast 1 member of the audit committee is a "financial expert"
  • 408 - Provides for enhanced review of periodic disclosures by the Board
  • 409 - Req's issuers to disclose material changes in the financial condition or operations on a rapid & current basis

50

SOX - Title 4

 

406

SOX Title 4 - Enhanced Financial Disclosures

  • 401 - Req's all FS prepared in accordance w/ GAAP to reflect all material adjustments identified by the auditors
  • 402 - Prohibits personal loans to directors, executive, or officers
  • 403 - Req's directors, officers, & principal shareholders to disclose the amount of all equity securities in which they hold a beneficial interest & any changes in their interest since the previous filing
  • 404 - Req's that mgmt acknowledge its responsiblity for establishing & maintaining adequate I/C over financial reporting & that mgmt asses the effectiveness of I/C
  • 405 - Exempts investment companies registered under the Investment Company Act of 1940 from sections 401, 402, 403
  • 406 - Req's an issuer to disclose whether or not it has adopted a code of ethics for senior financial officers, & if not, the reasons for not having done so
  • 407 - Must disclose whether atleast 1 member of the audit committee is a "financial expert"
  • 408 - Provides for enhanced review of periodic disclosures by the Board
  • 409 - Req's issuers to disclose material changes in the financial condition or operations on a rapid & current basis

51

SOX - Title 4

 

407

SOX Title 4 - Enhanced Financial Disclosures

  • 401 - Req's all FS prepared in accordance w/ GAAP to reflect all material adjustments identified by the auditors
  • 402 - Prohibits personal loans to directors, executive, or officers
  • 403 - Req's directors, officers, & principal shareholders to disclose the amount of all equity securities in which they hold a beneficial interest & any changes in their interest since the previous filing
  • 404 - Req's that mgmt acknowledge its responsiblity for establishing & maintaining adequate I/C over financial reporting & that mgmt asses the effectiveness of I/C
  • 405 - Exempts investment companies registered under the Investment Company Act of 1940 from sections 401, 402, 403
  • 406 - Req's an issuer to disclose whether or not it has adopted a code of ethics for senior financial officers, & if not, the reasons for not having done so
  • 407 - Must disclose whether atleast 1 member of the audit committee is a "financial expert"
  • 408 - Provides for enhanced review of periodic disclosures by the Board
  • 409 - Req's issuers to disclose material changes in the financial condition or operations on a rapid & current basis

52

SOX - Title 4

 

408

SOX Title 4 - Enhanced Financial Disclosures

  • 401 - Req's all FS prepared in accordance w/ GAAP to reflect all material adjustments identified by the auditors
  • 402 - Prohibits personal loans to directors, executive, or officers
  • 403 - Req's directors, officers, & principal shareholders to disclose the amount of all equity securities in which they hold a beneficial interest & any changes in their interest since the previous filing
  • 404 - Req's that mgmt acknowledge its responsiblity for establishing & maintaining adequate I/C over financial reporting & that mgmt asses the effectiveness of I/C
  • 405 - Exempts investment companies registered under the Investment Company Act of 1940 from sections 401, 402, 403
  • 406 - Req's an issuer to disclose whether or not it has adopted a code of ethics for senior financial officers, & if not, the reasons for not having done so
  • 407 - Must disclose whether atleast 1 member of the audit committee is a "financial expert"
  • 408 - Provides for enhanced review of periodic disclosures by the Board
  • 409 - Req's issuers to disclose material changes in the financial condition or operations on a rapid & current basis

53

SOX - Title 4

 

409

SOX Title 4 - Enhanced Financial Disclosures

  • 401 - Req's all FS prepared in accordance w/ GAAP to reflect all material adjustments identified by the auditors
  • 402 - Prohibits personal loans to directors, executive, or officers
  • 403 - Req's directors, officers, & principal shareholders to disclose the amount of all equity securities in which they hold a beneficial interest & any changes in their interest since the previous filing
  • 404 - Req's that mgmt acknowledge its responsiblity for establishing & maintaining adequate I/C over financial reporting & that mgmt asses the effectiveness of I/C
  • 405 - Exempts investment companies registered under the Investment Company Act of 1940 from sections 401, 402, 403
  • 406 - Req's an issuer to disclose whether or not it has adopted a code of ethics for senior financial officers, & if not, the reasons for not having done so
  • 407 - Must disclose whether atleast 1 member of the audit committee is a "financial expert"
  • 408 - Provides for enhanced review of periodic disclosures by the Board
  • 409 - Req's issuers to disclose material changes in the financial condition or operations on a rapid & current basis