Professional Responsibilities

Question 1

What is a situation that would impair firm independence?

Answer 1

The firm and the client have a material cooperative arrangement

Why?: Because a “cooperative arrangement,” involves joint participation in a business activity

Question 2

What should I consider in terms of appropriateness in order to accept an engagement?

Answer 2

Whether:

(1) The service stretches the bounds of performance standards
(2) The service compromises credibility
(3) The service exceeds sound and reasonable professional practice

Question 3

How has the Sarbanes-Oxley Act of 2002 strengthened auditor independence?

Answer 3

By requiring that management of a public company:

• Select auditors through audit committees

Question 4

How often should the PCAOB inspect a registered public accounting firm that regularly issues audit reports?

Answer 4

Every 3 years if:

• accounting firm regularly issues audit reports to 50 issuers

Every Year if:

• accounting firm regularly issues audit reports to 100 issuers

Question 5

What non-attest services can a firm offer an attest client (e.g. responsible party) without affecting independence?

Answer 5

Non-attest services that do not relate directly to the subject matter of the attest engagement (e.g. designing the financial information system)

Question 6

How would my independence to the client be impaired as an auditor?

Answer 6

If I serve as an executor and trustee of the estate of an individual who owned the majority of the stock of a closely held client corporation (e.g. holdings in the client exceed 10% of the estate’s assets)

Note: Mere designation as a trustee or executor does not impair independence, but actual service does

Question 7

What is an example of a “self-interest threat?”

Answer 7

A contingent fee arrangement

E.g. This fee arrangement may create a self-interest threat

Question 8

What is a true statement regarding Accountant Working papers?

Answer 8

The accountant owns the working papers but;

• Generally may not disclose them without the client’s consent or a court order

Question 9

What is a situation that would impair CPA Independence?

Answer 9

Determining which recommendations for improving internal control should be implemented

Note: Performing non-attest services for a nonpublic attest client generally does not impair independence if;

• AICPA member does not assume management responsibilities

Question 10

What is required for a CPA firm to designate itself as “Members of the American Institute of Certified Public Accountants” on its letterhead?

Answer 10

All CPA owners must be members