What engagements are covered by the AICPA Code of Professional Conduct?
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?
An accountant must have:
- Integrity
- Objectivity
- 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 some threats to independence?
Some threats to independence are:
- 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:
- Reviewing Partner
- 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?
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.
What types of engagements require independence?
Independence is required for:
- Audit
- Review
- Attestation Engagement
What are the requirements for nonattest engagements?
Requirements for nonattest engagements:
- Everything must be documented in writing.
- Client must still perform all management functions.
- Client must assign someone of competence to
oversee the nonattest engagement and CPA must be
satisfied that this has occurred. - Engagement must have definite objectives.
- Engagement limitations must be disclosed.
- Understanding must be reached and documented
before any nonattest work can begin. - If CPA performs more than one nonattest function,
they must be evaluated as a whole to see if
independence is impaired.
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.
What are common types of consulting engagements?
Consulting engagements include:
- Advisory Services
- Transaction Services
- Management Consulting
- Implementation Services
What is the rule concerning contingent fees for a covered member?
Contingent fees are 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 the 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?
Contingent fees are 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?
Personal Financial Planning Engagements must:
- Have definite objectives
- Have specific procedures planned
- Have a basis for recommendations
- Have recommendations communicated
- 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 information when:
- Client isn’t following GAAP, or
- 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?
What is the effect of not returning all client-provided documents upon request?
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. one dies and you still have two 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 are the rules with respect to CPA firm names?
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?
PCAOB does the following:
- 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 family
