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Flashcards in Professional Responsibilities and Ethics Deck (19)
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1

What are the 7 categories of threats to independence in the Code?

Self review
Advocacy
Adverse interest
Familiarity
Undue influence
Self interest
Management participation

2

Who is considered a covered member?

Member of attest engagement or can influence attest engagement
Partner providing more than 10 hours of neonates services
Partner in the same office
Firm and its employee benefit plan

3

What is considered a threat to independence regarding financial interests?

Any member who has a direct or material indirect financial interest
If covered member owns more than 5 percent of attest client during engagement

4

What should CPA do if receive unsolicited financial interest?

Dispose of within 30 days
Do not participate on attest engagement while have interest

5

What are the independence rules for mutual funds?

Ownerships of shares is direct financial interest
Ownership of underlying investments can be direct or indirect depending on ownership amount
<=5 percent = immaterial indirect
>5 percent = must be evaluated

6

What are independence rules for retirement plans?

Investments in firm sponsored plan is direct financial interest
Defined benefit plans are financial interest if member is trustee
ESOPs are indirect financial interests
Share based compensation are direct financial interests

7

What are independence rules for partnership and LLC interests?

General pship - direct interest
Limited pship - indirect interest
LLC - direct interest if ability to control, indirect in no ability

8

What are independence rules for 529 plans?

Account owner = direct interest
Beneficiaries = no interest

9

What are independence rules for trusts and estates?

Not independent if:
Member can make investment decisions
Trust or estate owned >10 percent of attest client's equity
Trust or estate assets >10 percent of attest client
If CPA is grantor of trust and has control = direct interest, materiality not a factor

10

What are independence rules for employee benefit plans?

Ok if:
CPA is required to participate
CPA does not influence plan
CPA may not serve in certain roles

11

What are independence rules for bank accounts etc?

Ok if:
Balance if fully insured
Aggregate of uninsured amounts are not material to CPA
Insurance policies are obtained under normal terms
CPA does not participate in investment decisions for policies

12

What are independence rules for loans?

Ok if:
Loan obtained under normal terms
Loan obtained prior to attest engagement
Loan has been maintained current
Collateral value equals outstanding balance on mortgage

13

What loans do not threaten independence?

Auto loans collateralized by auto - does not matter when obtained loan
Loans fully collateralized by cash surrender value of insurance policy or cash deposits
Credit cards with balance

14

What are independence rules for family members?

Immediate family = spouse and dependents
Ok if not in key position or have influence in benefit plan

Close relatives = parents, siblings, nondependent children
Ok if not in key position or no known material financial interest

15

What are independence rules for employment with attest client?

Prior to leaving:
Must inform audit firm about possible employment
Immediately be removed from audit
Once removed, audit firm must review work performed by auditor
After employed with client:
Audit firm MUST consider modifying audit plan
Next annual audit must be separately reviewed by person uninvolved

16

When can CPA perform nonattest services without impairing independence?

Must meet all 3:
1) Client agrees to accept management responsibilities, evaluate results, and accept responsibility
2) CPA does not take management role
3) Document agreement in writing

17

What are Acts Discreditable?

Discrimination and harassment
Failing to file tax return or pay tax
Retaining client records to enforce payment
Deliberately underbidding
Negligence in preparing F/S
Filing fraudulent tax return for self or client
Commission of felony
Must adhere to requirements of government bodies
Disclosing CPA exam questions
False, misleading, or deceptive promotion
Inappropriate use of CPA credential

18

What non-audit services to audit clients are prohibited under SOX?

Bookkeeping
Financial info systems design or implementation
Appraisal or valuation services
Actuarial services
Internal audit outsourcing services
Management or HR functions
Investment banking
Legal services
Tax services ok if preapproved by audit committee

19

What does SOX Section 404 require?

Requires management to acknowledge its responsibility for establishing and maintaining adequate ICFR and assess effectiveness of I/C as of the end of the period

Also requires auditor to examine design and operating effectiveness of ICFR