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Flashcards in CPAExcl 11-Independence Deck (92)
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31

Under what conditions can non-covered members create independence problems?

They can create problems if they:

Are partners or professional employees of the firm, who
Own more than 5% of audit client's stock or hold certain key positions.

32

Do gifts from a client to the auditor impair independence?

Not necessarily. While gifts can impair independence, independence is not impaired if the value is "clearly insignificant."

33

Does a blind trust preserve independence?

No. A blind trust does not preserve independence.

34

Independence is impaired if audit firm employee is approached by client regarding a job, unless what actions are taken?

Required actions by audit firm employee:

1. Person promptly reports such offer; and
2. Removes self from engagement until offer is rejected.

35

List some independence safeguards if a client employee moves to the audit firm.

Client employee

1. Cannot be on team or PTI;
2. Can be OPIO or 10-hour person if dissociate from client.

36

What independence safeguards need to be in place by an audit firm if a former employee accepts a position with a client?

Former employee cannot be in a position to influence accounting firm's operations or financial policies or participate or appear to participate in firm's affairs.
Amounts due former employee from firm not variable; ongoing attest team considers appropriateness of modifying engagement procedures; firm assesses whether existing team members can continue to be skeptical; firm reviews subsequent attest engagement if person went to client within one year.

37

What is the cooling off period as defined under Sarbanes-Oxley?

It is one year for lead partner, concurring partner, or team member who provides more than 10 hours of work.

38

Under what circumstances can a covered member audit a charity and remain on the Board of Directors of said charity?

1. Position is purely honorary;
2. Position is identified as honorary;
3. Contributes no more than use of name; and
4. Does not vote or participate in management affairs.

39

What client relationships should a covered member avoid to ensure independence is not impaired?

Covered members should not be:

1. Trustees of trust with financial interest in client;
2. Trustee of client pension fund;
3. Director of client;
4. Officer of Client;
5. Promoter of Client stock;
6. Voting trustee of client.

40

List the actions auditors should avoid in order to preserve independence.

1. Performing management functions;
2. Making management decisions;
3. Appearing to do these things;
4. Taking custody of client assets.

41

List the activities forbidden by Sarbanes-Oxley for public company audit clients.

Bookkeeping or other services related to the accounting records of financial statements
Financial information systems design and implementations
Appraisal or valuation services, fairness opinions, or contributions-in-kind reports
Actuarial services
Internal audit outsourcing services
Management functions or human resources
Broker or dealer, investment adviser, or investment banking services
Legal and expert services unrelated to audit.

42

List some examples of improper consulting activities that an auditor can partake in on behalf of an audit client.

1. Authorizing, executing or consummating a transaction on client's behalf;
2. Preparing source documents evidencing occurrence of transactions;
3. Taking custody of client assets;
4. Supervising client employees' normal recurring activities;
5. Reporting to board on management's behalf;
6. Establishing or maintaining internal controls.

43

Define "close relatives" (as defined for independence purposes).

1. Parent;
2. Sibling;
3. Nondependent child.

44

Define "immediate family members" (as defined for independence purposes).

1. Spouse;
2. Spousal equivalent;
3. Dependents (whether or not related).

45

Define "key positions" (as defined for independence purposes).

1. Primary responsibility for significant accounting functions;
2. Primary responsibility for preparation of F/S;
3. Ability to exercise influence over contents of F/S.

46

Describe the provisions of Interpretation 501-2 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.

Discrimination (on basis of race, color, religion, sex, age, or national origin) and harassment (sexual and other forms) are discreditable acts.

47

Describe the provisions of Interpretation 501-4 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.

Negligently making (or permitting or directing another to make) false or misleading journal entries is a discreditable act.

48

List the actions that an auditor may take when a client requests a return of their records.

1. Return client-provided records w/in 45 days;
2. May keep client records prepared by CPA if bill not paid;
3. May keep supporting records if bill not paid;
4. CPA's working papers need not be turned over.

49

Describe the provisions of Interpretation 501-6 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.

Soliciting or knowingly disclosing the May 1996 or later Uniform CPA Examination questions and/or answers without the written authorization of the AICPA is a discreditable act.

50

List the five discreditable acts outlined in Rule 501 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.

(1) Discrimination and Harassment in Employment Practices; (2) Failure to Follow Standards and/or Procedures or Other Requirements in Governmental Audits; (3) Negligence in the Preparation of Financial Statements or Records; (4) Failure to Follow Requirements of Governmental Bodies, Commissions, or Other Regulatory Agencies in Performing Attest or Similar Functions; (5) Solicitation or Disclosure of CPA Examination Questions.

51

List some examples of false, misleading or deceptive acts.

1. Creating false or unjustified expectation of favorable results;
2. Implying the ability to influence a court or agency;
3. Estimating a fee knowing that the amount charged will likely be much higher.

52

What action is prohibited by Rule 502 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct?

Solicitation by coercion, over-reaching or harassment.

53

Describe the provisions of Interpretation 502-2 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.

CPAs may normally engage in accurate advertising ("commercial speech").

54

Under what circumstances are commissions prohibited?

When member also performs:

1. Audit or review of a financial statement; or
2. Compilations to be used by third parties; or
3. Examination of prospective financial information.

55

Under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct, what actions should be taken by the member regarding commission or referral fees?

Accepting a permitted commission or referral fee must be disclosed to the client.

56

Under what circumstances are contingent fees prohibited?

Contingent fees are prohibited for performing:

1. Any work for attest client;
2. Preparation of tax return or refund;
3. Correcting an omission in original return.

57

Describe the provisions of Interpretation 502-2 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.

1. Member may own interest in separate business that performs nonaudit services for clients;
2. If member controls the separate business, entity must comply with Code of Professional Conduct;
3. If member does not control the separate business, Code applies to member but not to the entity.

58

Describe the provisions of Interpretation 505-3 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.

1. Majority of financial interests in attest firm must be owned by CPAs;
2. If CPAs who own the attest firm remain financially responsible, public interest will be considered protected.

59

Describe the provisions in Rule 505 under the American Institute of Certified Public Accountant's (AICPA) Code of Professional Conduct.

A member may practice public accounting only in a form of organization (proprietorship, partnership, professional corporation, limited liability company, limited liability partnership, etc.) permitted by state law whose characteristics conform to AICPA resolutions.

60

For what type of service is compensation prohibited for auditors of public companies?

Compensation for selling nonaudit services is prohibited.