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Flashcards in Professional Responsibilities Deck (27)
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What engagements are covered by 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?

  • 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 the threats to independence?

  • 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?

  • 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?

  1. If Supervisor's position is still GAAP/GAAS- defer to Supervisor
  2. If Supervisor's position is not GAAP/GAAS, report to higher levels of management
  3. If management ignores you- consider leaving the firm


When is independence required?

  • Audit
  • Review
  • Attestation Engagement


What are the requirements for Non-attest engagements?

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


Applicable engagements: 

  • Consulting
  • Compilation


Which standards apply to consulting engagements?

Statements on Standards for Consulting Services (SSCS)



  • Competence
  • Due Care
  • Planning & Supervision
  • Obtain Sufficient Data
  • Serve Client Interest
  • written or oral agreement
  • communicate with client.


List some common consulting engagements.

  • Advisory Services
  • Transaction Services
  • Management Consulting
  • Implementation Services


What is the rule concerning contingent fees for a covered member?

  • 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 ClientTax Preparation - Payment according to refund amount is disallowed


When are contingent fees allowed?

When fees are structured relative to judicial proceedings.



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?

  • 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


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 info when client isn't following GAAP


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?

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!


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. 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.


What is the consequence of disclosing CPA exam material post-1996?

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?

  • Monitors CPA Firms who audit SEC clients
  • All SEC Audit firms must register
  • Issues standards for firms to follows, 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


Who must approve non-audit work performed by a firm for a client?

  • Client Audit Committee must approve non-audit work performed by Firm
  • Firm must disclose any potential independence issues to Audit Committee


Which organization is in charge of determining if federal funds are being misappropriated?

GAO - Government Accountability Office


What rules must auditors follow for governmental audits?

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