Professional Responsibilities

Question 1

What engagements are covered by the AICPA Code of Professional Conduct?

Answer 1

• Covers all professional engagements and is the minimum standard of conduct
• Member should additionally follow specific standards for a specific engagement

Question 2

What must an accountant have under the AICPA Code of Professional Conduct?

Answer 2

• Integrity
• Objectivity
• No Conflicts of Interest
• No known misrepresentations of facts
• No outsourcing of judgment

Question 3

What are threats and safeguards to independence?

Answer 3

• Safeguards > Threats - Independence
• Threats > Safeguards - No Independence

Question 4

What are the threats to independence?

Answer 4

• 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

Question 5

What are the Safeguards to independence?

Answer 5

Offset the threats

Safeguards are created by:

• Legislation (SOX)
• Client (Audit Committee)
• Accounting Firm (Policies)

Question 6

What are the characteristics of a Covered Member?

Answer 6

• 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)

Question 7

What are the requirements for a Covered Member?

Answer 7

• 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.

Question 8

What happens when a Covered Member disagrees with a Supervisor?

Answer 8

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

Question 9

When is independence required?

Answer 9

• Audit
• Review
• Attestation Engagement

Question 10

What are the requirements for Non-attest engagements?

Answer 10

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

Applicable engagements:

• Consulting
• Compilation

Question 11

Which standards apply to consulting engagements?

Answer 11

Statements on Standards for Consulting Services (SSCS)

Requirements:

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

Question 12

List some common consulting engagements.

Answer 12

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

Question 13

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

Answer 13

• 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

Question 14

When are contingent fees allowed?

Answer 14

When fees are structured relative to judicial proceedings.

Example:

IRS audit- or filing an amended tax return subject to tax case with a different taxpayer.

Question 15

How should recommendations and suggestions by a covered member to a client be handled?

Answer 15

• 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.

Question 16

What are the requirements for Personal Financial Planning Engagements?

Answer 16

• 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

Question 17

When is a GAAP departure appropriate?

Answer 17

Departure from GAAP is appropriate if GAAP would cause Financial Statements to be misleading

• then it must be explained/disclosed.

Question 18

When may a covered member disclose confidential information?

Answer 18

Member may disclose confidential info when client isn’t following GAAP

OR

If they receive a subpoena

• CPAs are not Attorneys- so there is no CPA-Client privilege

Question 19

What is the effect of not returning all client-provided documents upon request?

Answer 19

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!

Question 20

What are the rules with respect to CPA firm names?

Answer 20

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 partners…you 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.

Question 21

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

Answer 21

It is an Act Discreditable.

Question 22

What are the consequences for a CPA who commits an Act Discreditable?

Answer 22

• 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

Question 23

What are the functions of the PCAOB?

Answer 23

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

Question 24

When is independence impaired under PCAOB standards?

Answer 24

• 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

Question 25

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

Answer 25

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

Question 26

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

Answer 26

GAO - Government Accountability Office

Question 27

What rules must auditors follow for governmental audits?

Answer 27

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