Auditor Independence

Question 1

three independence standard setters

Answer 1

SEC, PCAOB, AICPA

Question 2

AICPA rules apply to…

Answer 2

all attest services including f/s audit and review

Question 3

SEC and PCAOB rules apply to..

Answer 3

audits of SEC registrants

Question 4

two other organizations for specialized audits

Answer 4

GAO for government, DOL for employee benefit plan audits

Question 5

auditor must be both independent in ____ and ____

Answer 5

appearance and in fact

Question 6

independence in fact means the auditor is actually….

Answer 6

unbiased

Question 7

independence in appearance is…

Answer 7

what a third party would perceive as being independent

Question 8

most independence rules stem from independence in…

Answer 8

appearance

Question 9

all covered persons must be…

Answer 9

independent

Question 10

covered persons include…

Answer 10

audit engagement team, “chain of command”, partners & managers providing more than 10hours of non audit services, all other partners located in the office that the partner in charge is located

Question 11

chain of command refers to…

Answer 11

anyone who overseeing partner on the case

Question 12

partners in charge rotate…

Answer 12

every 5 years

Question 13

a covered employee cannot..

Answer 13

be employed by the client

Question 14

if someone takes a position with the client, they must…

Answer 14

remove themself from the engagement during negotiations, one year cooling off period before taking a FROR

Question 15

when a client takes a position with public accounting firm, one cannot..

Answer 15

be on the attest engagement for however many years they will be on the f/s

Question 16

from PCAOB to accounting firm, you have to…

Answer 16

apply to a one year cooling off period

Question 17

who is considered immediate family?

Answer 17

spouse and dependent children

Question 18

immediate family mist follow all rules as a covered person except…

Answer 18

1. can be employed by a client (but not FROR)
2. limited provisions in participation in employee stock ownership and equity compensation plans

Question 19

who is considered close relatives?

Answer 19

parents, siblings, non dependent children

Question 20

independence for close relatives is generally impaired if..

Answer 20

individual is employed as FROR at client or has an investment that is material to his/her net worth or enables significant influence over client

Question 21

a covered person and immediate family members are not permitted to have…

Answer 21

1. direct financial interest in an attest client (both material and immaterial) Includes beneficial ownership interests
2. material indirect financial interest in the client

Question 22

for a material indirect financial interest in the client, must not…

Answer 22

be able to participate in the intermediary’s investment decisions

Question 23

for SEC clients, material indirect financial interest in the client investments cannot exceed…

Answer 23

20% of the intermediary’s total investments

Question 24

after identifying an independence violation, must…

Answer 24

dispose of any proscribed investments immediately

Question 25

bank accounts are allowed if..

Answer 25

an uninsured portion is immaterial to covered persons net worth

Question 26

bank account FDIC limit is

Answer 26

$250000

Question 27

brokerage accounts are allowed if...

Answer 27

the risk of loss is immaterial to the covered persons net worth

Question 28

brokerage account SIPC limit is

Answer 28

$500000

Question 29

what loans are allowed?

Answer 29

auto loans/lease, loans fully secured with insurance policy, mortgages that are grandfathered, and loans fully secured by cash deposits at the same institution

Question 30

credit card balances are permitted if...

Answer 30

current balance is less than $10000

Question 31

insurance policies are permissible provided...

Answer 31

covered person did not receive preferential treatment in obtaining the policy (for public entities)

Question 32

does SEC allow joint business ventures between covered and client?

Answer 32

no

Question 33

does AICPA allow joint business ventures between covered and client?

Answer 33

yes

Question 34

primary concern of non attest services

Answer 34

self-audit threat to independence in fact

Question 35

AICPA is more ____ to non-attest services

Answer 35

lenient

Question 36

what fees are prohibited for f/s audits and reviews?

Answer 36

contingent fees and commissions

Question 37

unpaid prior-year professional fees..

Answer 37

impair independence

Question 38

cannot start current year audit until last years is paid because...

Answer 38

there cannot be leverage against auditors