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According to the ethical standards of the profession, would a CPA’s independence be impaired if the CPA was contracted with a client to supervise the client’s office personnel.
YES - Supervising client employees in normal circumstances impairs independence. Supervising client personnel is a type of management function. Assuming management responsibilities impair independence, but providing advice, research, and recommendations does not.
During an audit of the financial statements of a company, the CFO provides a spreadsheet to the audit team that contains a number of errors that are material to the financial statements. Under what circumstances would this situation be a violation of the rules of the Sarbanes-Oxley Act of 2002 on improper influence on the conduct of audits?
The audit team discovers the errors through alternate procedures when they discern that the spreadsheet was improperly manipulated by the CFO.
It is unlawful for (1) any officer or director of an issuer to do any act (2) to fraudulently influence, coerce, manipulate, or mislead any auditor performing an audit if (3) the purpose is to render the financial statements materially misleading. The CFO is not excused by failure to affect the audit.
Under the AICPA’s conceptual framework for independence, the member-client relationship is evaluated to determine whether independence in fact and appearance is jeopardized. This is considered
A risk-based approach
.The risk-based approach evaluates the risk that a CPA is not independent or is perceived by a reasonable and informed third party with knowledge of all relevant information as not independent. That risk must be reduced to an acceptable level to establish independence. Risk is acceptable when threats are acceptable. They may be acceptable because of the types of threats and their potential effect. Moreover, threats may be sufficiently mitigated or eliminated by safeguards. Threats are acceptable when it is not reasonable to expect that they will compromise professional judgment.
Conduct Rule 501 states that a member of the AICPA shall not commit an act discreditable to the profession. Is Withholding as a result of nonpayment of fees for a completed engagement adjusting and closing journal entries not reflected in the client’s books consider such an act?
YES --- The member’s duty to return client-provided records is absolute. However, the duty to return other information not reflected in the client’s books and records is not absolute. For example, the duty to return supporting records for an issued work product is conditional upon payment of fees with respect to information such as adjusting, closing, combining, or consolidating entries. Supporting records contain information not in the client’s books and records without which its financial information is incomplete. They are produced by the member and are not otherwise available to the client.
A member of the AICPA owns an interest in a separate business that performs tax services. If the member does not control the business, who must comply with the Code of Professional Conduct?
The member only.
A member in public practice may own an interest in a separate business that performs the services for which standards are established, e.g., if the member, individually or with his or her firm or members of the firm, controls the separate business (as defined by the FASB Codification), the entity and all its owners and employees must comply with the Code. Absent such control, the member, but not the separate business, its other owners, and its employees, would be subject to the Code.