Section 1 Flashcards
MIPP
Member in Public Practice- Works for a public firm. Highest level of strict guidelines
Conceptual Framework
Similar to the Declaration of Independence, this is the tool used to create the accounting rules. If there is not a clear rule on a particular situation, you can fall back on the conceptual framework.
How can we ensure a Members compliance with accounting/auditing rules are at an “acceptable level”?
By applying the AICPA’s conceptual framework which is built around using Threats and Safeguards to reduce risk of non-compliance to an acceptable level.
What is an “acceptable level”?
A level at which a reasonable and informed third party who is aware of the relevant information would be expected to conclude that a member’s compliance with the rules is not compromised.
What are the 7 categories of threats
- Adverse interest threats- sued by client or like their insurance company
- Advocacy threats- we’re advocating on their behalf while performing attest work
3.Familiarity threats-Self, or close relative/friend works or in key role at business - Management participation threats- Member takes on role of client management.
5.Self-interest threats- Member has financial interests in how biz does or relies on biz as larges income source
6.Self-review threats- We do their books but also audit that work - Undue influence threats- Threats to firm in respect to specific outcome
What are the 3 types of safeguards
- Safeguards created by the profession, legislation, or regulation. Examples:
Ethics education and training requirements
Professional standards and threat of discipline
External reviews of a firm’s quality controls
Legislation regulating firm’s professionals
Licensure requirements
Professional resources, such as ethics hotlines - Safeguards implemented by the client. The client has, for example:
Knowledgeable and experienced managers
Appropriate tone at the top regarding ethics and
compliance
Appropriate policies and procedures for compliance and
fair reporting
Appropriate ethics policies and procedures
Appropriate governance structure, including an active audit
committee
Policies to prevent client from hiring a firm to provide
services that would impair independence or objectivity - Safeguards implemented by the firm. Examples:
Strong leadership emphasizing compliance and acting in the
public interest
Policies and procedures to implement and monitor
engagement quality control
Designation of qualified senior manager to oversee firm’s
quality control system
An effective internal disciplinary system
Rotation of engagement team senior personnel
Policies precluding partners from being compensated for
selling Non attest services to attest client
What should you do if you disagree with a supervisors decision on how to proceed on an engagement?
- Evaluate whether the threat is at an “unacceptable level”. If not, do nothing further
- Significant threat, the member should discuss the matter with the supervisor.
- Go over the supervisor’s head.
- Figure out if you need to share with authorities and document everything.
- Consider leaving, though it is not required
Are members required to take specific steps to identify conflicts of interest of other network firms?
No, but should apply the conceptual framework if they know or have reason to know that a conflict exists or might arise.
Member-prepared records
member was not specifically engaged to prepare and are not in the client’s books and records, rendering the client’s financial information incomplete. They are client records created by the member, needed to do the work so the member does them to start the engagement. Ex/ Adj, closing, consolidating JEs, schedules, etc.
Working papers
The actual work done to complete the engagement. Our hard work that we were hired for.
Indemnification
Compensation for harm or loss. Security against legal liability for one’s actions. Members need to be liable for their actions and cannot move that liability elsewhere in an engagement letter/agreement.
Contingent, Referral & Commissions Fees Are NEVER allowed when…
The client is an attest client
Contingent Fees are allowed when…
- there is a tax amendment that will be reviewed by an authority
- It is NOT the member getting rewarded to correct a mistake
What is required for Referral or Commission Fees to be okay?
- Non-attest client
- Must be disclosed in writing
When is client information disclosure allowed
Disclosure may not be made to any party without either a court order or the consent of the client, unless the requesting party is a state CPA regulatory body.
