Ethics

Question 1

What is a covered member?

Answer 1

Anyone who must maintain independence with respect to an attest client because of their role or relationship to the audit. This includes:

1. Individuals on the audit engagement team
2. Those in the chain of command over the audit team or involved in the audit
3. Partners, principals, or shareholders in the office conducting the audit who participate significantly
4. Any professional providing services to the audit client
5. The firm itself
6. Immediate family members (spouse and dependents) of the above individuals

Question 2

Does an audit engagement partner serving on an advisory board for a client impair independence?

Answer 2

No, serving on an advisory board does not impair independence as long as the advisory board is purely advisory and does not have management authority or decision-making power.

Question 3

Does participating in a mutual fund that owns shares in a client impair independence?

Answer 3

Typically No -This is an indirect financial interest because you own shares in the mutual fund, not directly in the client. Independence is only impaired if the indirect interest is material.

Question 4

What is a mutual fund?

Answer 4

An investment vehicle that pools money from many investors to buy a diversified portfolio of stocks, bonds, or other securities. It is managed by professional fund managers who make all the investment decisions on behalf of the investors.

Question 5

Does having a bank account balance in a bank client impair independence?

Answer 5

Having a bank account balance in a bank client does not impair independence as long as the balance is below the federally insured amount (typically $250,000 under FDIC insurance).

Question 6

Does getting inheritance of stock of a client impair independence?

Answer 6

Getting an inheritance of stock in a client does not automatically impair independence if these conditions are met:

1. The stock was unsolicited (you didn’t ask for it).
2. Stock is disposed of within 30 days after having the right to do so
3. Not participating in the attest engagement while holding the stock
4. The inherited amount is immaterial

Question 7

Who is considered a covered family member?

Answer 7

• Immediate family: Your spouse and dependents (those on your tax return).
• Close relatives: Parents, siblings, and nondependent children.

Question 8

What is an adverse interest threat?

Answer 8

Risk that you won’t be objective because your interests are OPPOSED to the client’s or employer’s interests.

Question 9

What is an advocacy threat?

Answer 9

Risk that a member will PROMOTE a client’s or employer’s interests to the point that their objectivity or independence is compromised.

Question 10

What is a familiarity threat?

Answer 10

Risk that a close or long RELATIONSHIP with a client or employer causes a member to be too sympathetic or accepting, impairing objectivity.

Question 11

What is a self-interest thread?

Answer 11

Risk that a member could BENEFIT PERSONALLY, financially or otherwise, which may compromise objectivity.

Question 12

What is a self-review threat?

Answer 12

Risk that a member will not appropriately evaluate the results of their OWN PREVIOUS WORK or judgments when forming an opinion or making decisions.

Question 13

What is an undue influence threat?

Answer 13

Risk that EXTERNAL PRESSURES/INFLUENCES will affect a member’s ability to make independent and objective judgments.

Question 14

According to SOX Title II, Auditor Independence, the lead audit partner and concurring partner must rotate off the audit every ____ year(s).

Answer 14

5

Question 15

According to SOX Title I, Public Company Accounting Oversight Board, audit documentation must be maintained for ____ year(s).

Answer 15

7

Question 16

According to the SEC, other audit partners should rotate off the audit engagement after no more than ____ year(s).

Answer 16

7

Question 17

According to the SEC, lead partners and concurring partners are subject to a ____ year “time-out” period before returning to an engagement.

Answer 17

5

Question 18

Under SEC rules, covered persons include the audit engagement team and individuals within the audit chain of command. This includes any other partner, principal, shareholder, or managerial employee of the firm who provided ____ or more hours of non-audit services.

Answer 18

10

Under SEC rules, covered persons include the audit engagement team and individuals within the audit chain of command. This includes any other partner, principal, shareholder, or managerial employee of the firm who provided 10 or more hours of non-audit services.

Question 19

A cool-off period of ____ year(s) is required before a member of an issuer’s audit engagement team may begin working for a registrant in a key position.

Answer 19

1

Question 20

The PCAOB will conduct annual inspections of registered public accounting firms that regularly provide audit reports for more than ____ issuer(s).

Answer 20

100

Question 21

Independence is considered impaired if a covered member’s aggregate outstanding balance from consumer loans has a balance greater than $____ after payment of the most recent monthly statements made by the due date or within any available grace period.

Answer 21

10,000

Question 22

According to the AICPA Code of Professional Conduct, a firm engaged to provide attest services to the public must be owned by greater than ____% of CPAs.

Answer 22

50

Question 23

Auditors of nonissuers must maintain audit documentation for at least ____ year(s) from the report release date.

Answer 23

5

Question 24

Auditors of nonissuers must assemble final audit documentation within ____ day(s) following the report release date.

Answer 24

60

Question 25

Auditors of issuers must assemble final audit documentation within ____ day(s) following the report release date.

Answer 25

14

Question 26

Auditors of issuers must maintain audit documentation for at least ____ year(s) from the report release date.

Answer 26

7