Flashcards in AUD- Professional Responsibilities Deck (27)
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?
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 Safeguards to independence?
Offset the threats
Safeguards are created by Legislation (SOX), Client (Audit Committee), Accounting Firm (Policies)
What are the characteristics of a Covered Member?
On the engagement team, have Significant influence on Audit, such as:
Managing Partner in CPA Firm
Firm Personnel who does more than 10 hours of non-attest work (Income Taxes)
Partner sharing office with another Partner who oversees an engagement
Financial Interest in Client by Covered Member (Auditor on Engagement)
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.
What happens when a Covered Member disagrees with a Supervisor?
If Supervisor's position is still GAAP/GAAS, defer to Supervisor
If Supervisor's position is not GAAP/GAAS, report to higher levels of management
If management ignores you, consider leaving the firm
When is independence required?
What are the requirements for Non-attest engagements?
Agreement must be in writing.
Independence not required - Must state if you are not independent
Applicable engagements: Consulting, Compilation
Which standards apply to consulting engagements?
Consulting engagements are covered by Statements on Standards for Consulting Services (SSCS)
Requirements: Competence, Due Care, Planning, Supervision, Obtain Sufficient Data, Must Serve Client Interest, Must have written or oral agreement, must communicate with client.
List some common consulting engagements.
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
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!
What are the rules with respect to CPA firm names?
CPA firm names must not be misleading.
If partner dies, remaining partner has two years to change name if partnership dissolved. If partner dies and more than one partner still remains (i.e. 1 dies and you still have 2 or more partners...you don't need to change the name)
All Partners/Shareholders must be members of the AICPA in order to hold themselves out as members of the AICPA. Non-CPAs can be owners, but 2/3 of Ownership must be CPAs. Non-CPA owner must not be involved with the accounting, and is still bound by AICPA code of conduct, must maintain CPE requirements and have Bachelor's degree.
What is the consequence of disclosing CPA exam material post-1996?
It is an Act Discreditable.
What are the consequences for a CPA who commits an Act Discreditable?
Licenses are granted at the State level
If State revokes certificate, AICPA Ban
Felony Conviction, AICPA Ban
Prepares Fraudulent Tax Return, AICPA Ban
Intentionally failing to file return, AICPA Ban
SEC can get involved with discipline
What are the functions of the PCAOB?
Monitors CPA Firms who audit SEC clients - All SEC Audit firms must register
Issues standards for firms to follow - usually stricter than AICPA standards
When is independence impaired under PCAOB standards?
If Client pays a contingent fee (i.e. based on outcome)
With Marketing or Planning engagements
Aggressive Tax Strategies
Firm does tax work for Client employee involved with audit oversight or their
Who must approve non-audit work performed by a firm for a client?
Client Audit Committee must approve non-audit work performed by Firm
Firm must disclose any potential independence issues to Audit Committee
Which organization is in charge of determining if federal funds are being misappropriated?
GAO - Government Accountability Office