AUD 6.09 - Ethical Requirements of SEC and PCAOB

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  1. The PCAOB oversees audits of which types of companies?
    Public only (issuers)
  2. SOX Title I created which entity?
  3. SOX Title I established the role of the PCAOB to include
    • Registration of public accounting firms
    • Establishing the rules related to preparation of audit reports
    • Inspecting, investigating, and invoking disciplinary action concerning registered public accounting firms
  4. A PCAOB inspection occurs how frequently
    • If you audit >100 issuers, the inspection is every year
    • If you audit <100 issuers, the inspection is every 3 years
  5. True / False: only registered firms can audit an SEC issuer
  6. How long must audit documentation be retained under the PCAOB rules?
    Minimum of 7 years
  7. For quality purposes, the PCAOB mandates this type of review of each audit report.
    Concurrent or second partner review
  8. What are the SOX Title II services that are prohibited when auditing an issuer
    • Bookkeeping
    • Financial information systems design and implementation
    • Appraisal and valuation services
    • Actuarial services
    • Management functions or HR services
    • Internal audit outsourcing services
    • Services as a broker, dealer, investment adviser, or investment banker
    • Legal services
    • Expert services unrelated to the audit
  9. True / False: Tax services (doing the corporate tax return) provided to an issuer are permissible if approved by the CEO and CFO.
    • False
    • It is permissible but only if preapproved by the audit committee
  10. The audit engagement partner must rotate from the client how frequently
    Every 5 years
  11. The reviewing partner must rotate from the client how frequently
    Every 5 years
  12. SOX states it is a conflict of interest if a partner of the firm leaves the firm and becomes employed as a senior manager (CFO, CEO, CAO, etc) within what period of time.
    One year
  13. SOX states it is a conflict of interest if a senior manager (CFO, CEO, CAO, etc) leaves the company and becomes employed in a registered firm within what period of time.
    One year
  14. When determining independence of a registered auditor, SOX considers these conceptual framework items.
    • Is there a mutual or conflicting interest between the auditor and client
    • Is the auditor acting as management for the client
    • Does the engagement place the auditor in a position of auditing his own work
    • Is the auditor acting as an advocate for the audit client
  15. According to the SOX, what types of financial relationships impair the auditor’s independence?
    • All direct investments and material indirect investments
    • Loans to/from an audit client or its upper management of >10% of the audit client’s equity securities
    • Savings and checking account balances that exceed the amount insured by the FDIC
    • Broker-dealer accounts if other than cash or securities, or more than the insured amount
    • Futures commission merchant accounts
    • Credit card balances >$10,000
    • Insurance products issued by an audit client
  16. Direct investments in a client include:
    • Any stocks, bonds, notes, options, or other securities, even if held through an intermediary
    • Beneficial ownership of more than 5% of the client’s equity securities
    • Serve as a voting trustee of a trust containing securities of the client
    • Serve as the executor of an estate containing securities of the client
  17. Who is a covered person.
    Anyone in the chain of command, including review or quality control, performance evaluation, or a managerial employee who provided >10 hours of service or expects to provide >10 hours on a recurrent basis, plus all other partners in which the lead audit partner practices
  18. True / False: You receive client’s stock in an inheritance and dispose of the stock as soon as possible. The auditor may not participate in the audit during the period the stock is held.
    • False
    • The auditor could not control its receipt and disposed of the stock as soon as practicable
  19. What types of employment relationships impair independence
    • Client officer joins the CPA firm
    • Family works for the client
    • CPA firm employee joins the client as an executive (requires 1 year cooling-off period)
  20. True / False: For an auditor of an issuer, the auditor may accept contingency fees when the fee is set by the courts.
    • False
    • All contingency fees impair independence
  21. True / False: The audit committee and only the audit committee can approve audit services for a issuer.
  22. What types of information are required reporting to the audit committee?
    • Critical accounting principles and practices used
    • Alternative accounting treatments discussed with mgmt and the ramifications of the use of the alternatives, and which treatment was preferred by the audit firm
    • Material written communications between the audit firm and management, including
    • ** the management letter
    • ** the schedule of unadjusted audit differences (SOAP = Summary of Adjustments Passed)
  23. True / False: Auditor independence is impaired if an audit partner earns or receives compensation based on selling engagements to an audit client for services other than audit, review, or attest.
  24. True / False: The auditor of a client may perform tax preparation for the officers or other senior managers of the client
    • False
    • The auditor may be engaged to prepare tax returns for the entity, but not for its employees
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AUD 6.09 - Ethical Requirements of SEC and PCAOB
2017-07-21 13:43:58
audit AUD

Becker Review 2017
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