Independence Flashcards
Reasons for disclosing client information include
Comply with a subpoena
Cooperate in an official review of the professional practice
Discharge professional obligations
Any surviving partner upon the death of a partner (don’t need client’s consent)
If audit fees are long past due, is independence impaired?
Yes. This is considered a loan. Fees outstanding more than 1 year prior to the current year’s report are considered a loan.
Length of time required for a key officer to be removed from the audit of a client so that independence is not impaired. Key officer is now working for the former client.
Firm is independent if the partner did not participate in the audit of an issuer during the YEAR before the beginning of the current audit.
Situations that impair independence
Cross-claims filed by co-defendants(CPA and the client) when their interests are opposed
Firm and the client have a MATERIAL cooperative arrangement (joint participation in a business activity)
When the CPA assumes MANAGEMENT responsibilities
A home mortgage impairs independence
If an individual participating on the engagement team has a close relative (sibling, parent, or nondependent child) who holds a key position with an attest client
Providing tax services to a person in a financial reporting oversight role
Under the Integrity and Objectivity Rule does a CPA not in public practice have to be independent?
No. The independence applies to CPAs in PUBLIC practice. All CPAs must maintain integrity and objectivity and be free of conflicts of interest.
Contingent fees are permitted under which circumstances:
If the CPA provides investment advisory services with the fee based on a % of the client’s portfolio; Fee can’t be renewed more often than quarterly
Features of the AICPA Code of Professional Conduct include:
Serving the public interest and honor the public trust
When is a covered member’s independence IMPAIRED?
If a lease meets ALL the criteria of a FINANCE lease because it is considered a LOAN
ANY DIRECT or MATERIAL INDIRECT FINANCIAL interest in the client
A BLIND trust is a DIRECT FINANCIAL interest (Beneficiary is also the grantor)
Distinguish between the principles and rules of the AICPA Code:
Principles are goal oriented (commitment to honorable behavior)
Rules provide more specific guidance( bylaws require memeber to adhere to the Rules
Example of an indirect financial interest
An investment by a CPA in a corporate client’s regulated mutual fund (Underlying investments in the fund are indirect interests)
Nonaudit services prohibited by SOX are permitted when:
If the activity is approved in advance by the audit committee of the issuer
APS (Alternative practice structure) includes those who have to adhere to the independence rules just like covered members. These include:
Individuals employed or leased by the new firm
Entities subject to significant influence by a direct superior
Situations that DO NOT impair independence:
A CPA receives an inheritance of stock from a client but sells or donates the stock within 30 days (gift was unsolicited)
If a CPA is retained as the auditor of a credit union of which it is a member (deposits must be fully insured)
Tax compliance services preapproved by the audit committee
CPA designs an information system for a bank that is unrelated to its accounting records
Who is included in the definition of a covered member:
An individual on the attest engagement team
An individual who can influence the engagement
A partner/manager who provides more than 10 hours of nonattest services to a client
The accounting firm
A partner in the office where the lead engagement partner primarily practices in relation to the engagement
The covered member’s immediate family is subject to the INDEPENDENCE RULE
How often does the PCAOB inspect large firms?
Annually: The inspection also involves a quality control assessment
Violations will be reported to the SEC
