Study Unit 2 - Professional Responsibilities Flashcards
What are the six principles of the AICPA Code of Professional Conduct?
- Responsibilities
- The public interest
- Integrity
- Objectivity and independence
- Due care
- Scope and nature of services
What re the seven threats to auditor independence?
- Adverse interest
- Advocacy
- Familiarity
- Management participation
- Self-interest
- Self-review
- Undue influence
According to the professional ethics executive committee, what are the two forms of independence of a member in public practice?
A member must have
1. Independence of mind (I.e., be intellectually honest) and
2. Independence of appearance (I.e., be recognized as independent).
What is a covered member?
- Individuals
- On the attest engagement team
- Who can influence the engagement
- Partners
- Who provide >10 hours of nonattest services to a client
- In the office where the lead engagement partner primarily practices
- The account firm
- The accounting firm’s employee benefits plans
Give examples of when the independence of an auditor is impaired.
The independence of an auditor is impaired when a covered member has the following interest in or relationships with the client:
* Direct financial interest
* Material indirect financial interest
* Loans to or from attest client (except auto loans or credit card balance < $10,000)
* Unpaid fees
* Gifts or entertainment from attest client
* Performs certain nonattest services
* Immediate family subject to Independence Rule
* Simultaneously employed or acting as an employee, director, officer, management, etc.
* Formerly employed as an officer, director, promoter, underwriter, etc.
* Subsequently associated with an attest client in a key position
* Trustee or executor of an estate that has a direct or material indirect financial interest
What types of services, if provided to attest client, do not impair auditor independence?
- Tax preparation services
- Advisory services
- Business risk consulting
- Corporate finance consulting
When may a conflict of interest be permittted?
A conflict of interest may be permitted in certain circumstances if disclosure is made to, and consent is obtained from, the appropriate parties.
What are the four general standards relating to the performance of professional services?
- Professional competence
- Due professional care
- Adequate planning and supervision
- Sufficient relevant data
When is a material departure from generally accepted accounting principles (GAAP) justified?
A material departure from GAAP is justified when
* The financial statement or data would have been is leading, due to unusual circumstances, without a departure from GAAP.
* New legislation or evolution of a new form of business transaction exists.
What are the exceptions of the Confidential Client Information Rule?
A ember in public service must not disclose confidential client information unless it involves
* Professional obligations
* The duty to comply with a valid subpoena
* An official review of the member’s professional practice
* The member’s right to initiate a complaint with or respond to any inquiry made by an appropriate investigative or disciplinary body
What is an auditor’s right to withhold regarding (1) client-provided records, (2) working papers, (3) auditor’s working products, and (4) auditor-prepared records?
Type Right to withhold
Client-provided records None
Working papers Absolute barring legal or contractual exception
Auditor’s work products If fees due, work product incomplete, need to
comply with standards, or litigation exists
Audits-prepared records If fees due
Give examples of acts that are discreditable to an auditor’s profession.
- Failure to return records upon request
- Discrimination and harassment
- Failure to follow the requirements of governmental bodies
- Failure to follow applicable audit standards
- Negligence
- Failure to file a tax return or pay tax
- Inappropriately disclose or use confidential information
- False, misleading, or deceptive acts
What is the Contingent Fees Rule over auditors’ responsibilities?
A member in public practice must not perform for a contingent fee any of the following professional services:
* An audit, review, or complication of financial statements
* An examination of prospective financial statements
* Preparation of
* An original tax return
* An amended tax return
* A claim for a tax refund
The member also must not receive a contingent fee from a client for which the member performs any of these services.
According to the Commissions and Referral Fees Rule, what are prohibited commissions?
Prohibited commissions are those received when a member in public practice recommends or refers to a client’s products while also performing for that client (1) an audit, (2) a review, (3) a compilation, or (4) an examination of prospective financial information.
When is a firm allowed to designate itself as “members of the AICPA”?
A firm can designate itself as “members of the AICPA” only if all CPA owners are members.
