Flashcards in CPAExcl 11-Independence Deck (92)
Describe the provisions in Rule 102 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.
In the performance of any professional service, a member: shall maintain objectivity and integrity, shall be free of conflict of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others.
List the ways in which conflicts of interest can be resolved.
They can be solved by:
1. Full disclosure, and
2. Client consent.
Describe an example of a conflict of interest according to the AICPA's Interpretation 102-2.
A CPA performing a professional service has a significant relationship with another person, entity, product, or service that could be viewed as impairing the CPA's objectivity.
What must an auditor do to avoid subordinating judgment when disagreeing with a supervisor regarding proper audit procedures?
1. Need do nothing further if upon reflection the member concludes that the F/S as proposed represent an acceptable alternative and don't misrepresent facts;
2. Alert the appropriate level of management if upon reflection the member concludes that the F/S could be materially misstated; and
3. Consider resigning and communicating with regulatory authorities if problem is not addressed.
Give an example of a potential conflict of interest.
Providing tax or financial planning services for several members of a family who may have opposing interests.
How do the provisions of the American Institute of Certified Public Accountants (AICPA) Standard of Planning and Supervision apply to practitioners performing professional services?
The American Institute of Certified Public Accountants (AICPA) Standard of Planning and Supervision requires the practitioner to adequately plan and supervise the performance of professional services.
What does an agreement with a practitioner to perform professional services imply?
The member practitioner has the necessary competence to perform those services according to professional standards, applying his or her knowledge and skill with reasonable care and diligence, but the member does not assume a responsibility for infallibility of knowledge or judgment.
List the general standards regarding audits that are promulgated by the American Institute of Certified Public Accountants (AICPA).
1. Professional Competence;
2. Due Professional Care;
3. Planning and Supervision;
4. Sufficient Relevant Data.
What steps should be taken when departing from Generally Accepted Accounting Principles (GAAP)?
1. Disclose Departure;
2. Disclose approximate effects of departure; and
3. Explain why GAAP compliance would mislead.
Under what two circumstances may an auditor depart from Generally Accepted Accounting Principles (GAAP)?
1. New legislation;
2. New form of business transaction.
Describe the provisions in Interpretation 203-1 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.
CPAs are allowed departure from SFAS only when results of SFAS will be misleading.
List the circumstances under which a CPA may disclose client confidences.
They may be disclosed when:
1. Client consents;
2. GAAP requires disclosure;
3. Enforceable subpoena;
4. Ethical examination;
5. Peer review;
6. Other members of firm "need to know."
Describe the public authority exception regarding contingent fees.
A fee is not regarded as contingent if fixed by the courts or other public authorities.
List the exceptions to which federal tax preparers' privileges are not honored as outlined in the Internal Revenue Code (IRC) Section 7525.
1. Criminal matters;
2. Matters not before the IRS or federal courts in cases brought by or against U.S.;
3. Tax advice on state or local matters;
4. Written tax shelter advice.
Describe the provisions in Rule 301 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.
A member in public practice shall not disclose any confidential client information without the specific consent of the client.
Define "variable fees".
Fees that may vary depending on various factors, including the complexity of services rendered.
List the features of "accountant-client privilege" in states where such privileges are recognized.
1. Protects client, not CPA;
2. Waivable by client;
3. Waiver as to part is waiver as to all.
List the types of safeguards in the conceptual framework outlined in the Principles of the Code of Professional Conduct.
1. Professional, Legislative, or Regulatory;
2. Client Safeguards;
3. Firm Safeguards, such as quality control.
To what type of work does the American Institute of Certified Public Accountants (AICPA) rules apply?
The rules apply to attest work.
List the four major areas of concern related to independence under the Principles of the Code of Professional Conduct.
1. Employment Ties;
2. Financial Ties;
4. Family Ties.
List the types of activities to which independence rules do not apply under the Principles of the Code of Professional Conduct.
1. Tax Work;
What activities are included in the category of attest work?
1. Audit or review of F/S;
2. Compilation of F/S expected to be used by third parties; or
3. Examination of prospective financial information.
Who are considered to be in a Position to Influence (PTI) as outlined in the Principles of the Code of Professional Conduct?
1. Evaluate the performance or recommend compensation of attest engagement partner (AEP);
2. Directly supervise the AEP and all successively senior levels;
3. Consult with team during engagement;
4. Provide quality control or other oversight.
List the "covered members" outlined in the Principles of the Code of Professional Conduct.
1. Team Members;
2. Those in a Position to Influence (PTI) team members;
3. Other Partners in the Office (OPIOs);
4. Ten-Hour People;
5. The Firm;
6. Any entity controlled by the above.
Define "Financial Interest".
An ownership interest in an equity or a debt security issued by an entity (including options and derivatives).
Does entertainment provided by a client to the auditor impair independence?
Not necessarily. Independence is not impaired if entertainment provided by the client is "reasonable under the circumstances."
What client action can cause independence to be impaired?
The client having an unpaid bill from the audit from the previous 12 months.
Under the Principles of the Code of Professional Conduct, what type of financial interest impairs independence?
1. Direct and Material;
2. Indirect and Material;
3. Direct and Immaterial;
4. But not: Indirect and Immaterial.
List the type of permitted loans from financial institution clients that will not impair independence.
2. Certain de minimis loans that are small and collateralized.