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Flashcards in Professional Responsibilities Deck (27):

Covers all professional engagements and is the minimum standard of conduct

Member should additionally follow specific standards for a specific engagement

Professional Responsibilities - Audit


No Conflicts of Interest
No known misrepresentations of facts
No outsourcing of judgment

Professional Responsibilities - Audit


Safeguards > Threats - Independence

Threats > Safeguards - No Independence

Professional Responsibilities - Audit


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

Professional Responsibilities - Audit


Offset the threats

Safeguards are created by Legislation (SOX)- Client (Audit Committee)- Accounting Firm (Policies)

Professional Responsibilities - Audit


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)

Professional Responsibilities - Audit


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.

Professional Responsibilities - Audit


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

Professional Responsibilities - Audit




Attestation Engagement

Professional Responsibilities - Audit


Agreement must be in writing.
Independence not required - Must state if you are not independent

Applicable engagements: Consulting- Compilation

Professional Responsibilities - Audit


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.

Professional Responsibilities - Audit


Advisory Services

Transaction Services

Management Consulting

Implementation Services

Professional Responsibilities - Audit


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 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

Professional Responsibilities - Audit


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.

Professional Responsibilities - Audit


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.

Professional Responsibilities - Audit


Must have definite objectives

Must have specific procedures planned

Must have a basis for recommendations

Must have recommendations communicated

Must have action steps to implement

Professional Responsibilities - Audit


Departure from GAAP is appropriate if GAAP would cause Financial Statements to be misleading- then it must be explained/disclosed.

Professional Responsibilities - Audit


Member may disclose confidential info when client isn't following GAAP


If they receive a subpoena - CPAs are not Attorneys- so there is no CPA-Client privilege

Professional Responsibilities - Audit


This is an act discreditable.

You MUST return all documents the client gives you even if they don't pay their bill.

If you create a document- however- like a work paper- you are not required to give the client a copy of papers you created if they haven't paid their bill

They are the firm's work papers- but are still confidential!

Professional Responsibilities - Audit


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. 1 dies and you still have 2 or more 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.

Professional Responsibilities - Audit


It is an Act Discreditable.

Professional Responsibilities - Audit


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

Professional Responsibilities - Audit


Monitors CPA Firms who audit SEC clients - All SEC Audit firms must register

Issues standards for firms to follow - usually stricter than AICPA standards

Professional Responsibilities - Audit


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

Professional Responsibilities - Audit


Client Audit Committee must approve non-audit work performed by Firm

Firm must disclose any potential independence issues to Audit Committee

Professional Responsibilities - Audit


GAO - Government Accountability Office

Professional Responsibilities - Audit


Auditors must follow both GAAS and GAS aka the Yellow Book materiality threshold is usually lower
More detail is required on working papers
More stringent CPE rules and requirements - 24 hours of continuing education must be related to governmental auditing every 2 years
Compliance with Regulations is a requirement of the Audit Report

Professional Responsibilities - Audit