AICPA Final

• Professional organizations
• Federal governmental entities
• State governmental entities

• AICPA
• State CPA society
• IFAC

IFAC

• Empowered by Congress to regulate financial reporting by publicly-held companies
• Establish and enforce rules on accounting and auditing
• Rules on auditor independence

• Created by SOX
• Overseen by the SEC
• Establish rules with respect to auditing and attestation engagements, quality control of audits, and independence.

Issue rules with respect to government audits. Yellow Book

Issues rules with respect to the audit of employee benefit plans

The most restrictive requirements

• All members, including those in:
• Public practice
• Private industry
• Government
• Education

Rules or standards governing the conduct of members of a profession.

Acceptance of responsibility to the public.

The collective well-being of the people and institutions the profession serves

• Responsibilities
• Public interest
• Integrity
• Objectivity and Independence
• Due Care
• Scope and Nature of Services

Exercise sensitive professional and moral judgement in all your activities

• Act in a manner that:
• Serves the public interest
• Honors the public trust bestowed on you
• Demonstrates your commitment to professionalism

In order to maintain and broaden public confidence, you must perform all your professional responsibilities with the highest sense of integrity

• Maintain objectivity and be free of conflicts of interest in discharging your professional duties. You are:
• Impartial
• Intellectually honest
• Free of conflicts of interest

Be independent in fact and in appearance. You are not involved in relationships that may appear to impair your objectivity.

• Follow the technical and ethical standards of the profession.
• Always try to improve: your competence and the quality of your service
• Carry out your professional responsibilities to the best of your ability.

Observe all the principles in determining the scope and nature of services you will provide.

• In performing professional services, you must:
• Maintain objectivity and integrity
• Be free of conflicts of interest
• Not knowingly misrepresent facts or subordinate your judgement to others.

• Misleading entries in financial statements
• You fail to correct financial statements that are false and misleading when you have the authority to record an entry.
• You sign, permit, or direct someone else to sign a document that has materially false and misleading information.

In preparing financial statements or records, you can't knowingly misrepresent information.

• Consider whether the approach your boss wants is an acceptable alternative that doesn't materially misrepresent the facts. (If so done, else step 2)
• If you still disagree, make your concerns known to appropriate higher level of management.
• If the appropriate actions are not taken:
• Consider you continuing relationship with the employer
• Consider responsibilities you may have to communicate to third parties.
• Consult with your lawyer.

Whether your objectivity is impaired.

Your objectivity is not considered to be impaired if the gift or entertainment is reasonable in the circumstances

• Nature of
• occasion giving rise to it
• Cost or value
• Nature, frequency, and value of other gifts
• Whether entertainment was associated with active conduct of business
• Who participated

• You believe you can perform it with objectivity
• You disclose the relationship to your client, employer, and other appropriate parties
• Obtain consent

• Not necessarily.
• Must: disclose to both and have an agreement from both to let you represent the other.

• Observe the technical and ethical standards of the accounting profession
• Always strive to improve your competence and service quality
• Carry out your professional responsibilities to the best of your ability

• Do your job with competence and diligence
• Perform services to the best of your abilities
• Serve the best interest of those for who services are performed

By evaluating whether your education, experience, and judgment are adequate

• Render services promptly and carefully
• Be thorough
• Observe technical and ethical standards

When otherwise would make information misleading.

• If your client specifically allows it.
• To comply with requirements of other professional standards.
• To respond to a valid subpoena or summons or to comply with a law or regulation.
• In conjunction with a peer review
• To initiate a complaint with or respond to inquires made in connection with an investigation or disciplinary proceeding.

Acts that could harm the good name or reputation of the accounting profession

Promptly

• Records prepared by you
• Supporting records

• Inform the client
• Oversee the provider's work and ensure that all applicable professional standards are met
• Enter into a contractual agreement with the contractor to maintain confidentiality

• You can't advertise in a manner that is false, misleading, or deceptive
• You can't solicit through the use of coercion, over-reaching, or harassing conduct.

• Use only a form of organization that's permitted by law or regulation
• Firm name can't be misleading
• Firm name can include past owners
• Can't designate your firm as a member of the AICPA if not all owners are AICPA members

• Identify threats to independence that arise from the circumstances
• Consider whether there are safeguards that could reduce or eliminate threats
• If you can't reduce or eliminate the threat, your independence is impaired

Anyone in the firm who must avoid certain financial and business relationships with an attest client to maintain independence

• The firm
• An individual on the client's attest engagement team
• A partner/manager in the firm who provides 10+ hours of non-attest services to an attest client
• Partners who practice in the same office in which the lead engagement partner practices
• Individuals in a position to influence the engagement

Immediate family members

• Spouse
• Dependents

• If the covered member is one because they are a partner/manager who provides 10+ hours of non-attest services
• They are a partner in the same office in which the lead attest partner practices, but they don't influence the engagement.

Yes, as long as they don't hold a key position

• Has primary responsibility for significant accounting functions that support material components of the FS
• Has primary responsibility for preparing the FS
• Can exercise influence over the content of the financial statements

• Non-dependent children
• Brothers and sisters
• Parents

• On the client's attest engagement team
• Able to influence the attest engagement
• A partner in the office with the lead engagement partner

• Financial statement audits
• Financial reviews
• Other attestation services

• A compilation
• Tax preparation and advice
• Financial planning

• Begins when a firm accepts a new attest client
• Continues through professional engagement
• Ends when the firm/client terminates the professional engagement.

Not for covered members.

If material to the covered member's net worth

• A direct financial interest in the mutual fund
• An indirect financial interest in the companies whose stock makes up the mutual fund portfolio (5% or less is not material)

Apply to a covered member's immediate family

Independence is not considered impaired as long as you dispose of the interest as soon as possible but no later than 30 days after you became aware.

Impaired if they participated in the attest engagement or was in a position of influence for any period that covered his affiliation with the client.

• Disposing of any financial interests in the client
• Collecting/repaying any loans to/from the client
• Ceasing to participate in the client's benefit plans
• Liquidating/transferring all vested benefits in the client's compensation and benefit plans.

Usually

One entity owns more than 50% of outstanding voting stock

No

If the subsidiary is material to the parent

When the investor owns 20-50% of the investee

No

• An attest client
• Any officer or director of the attest client
• A stockholder of the attest client who has an interest of 10%+ in the client

• Car loans
• Credit cards where the balance is reduced each credit cycle to $10,000 or less
• Loans that are fully collateralize by cash deposits

If it is material to the covered member's worth

All partners and professional employees, not just covered members.

Use a memo or engagement letter to document in writing a clear understanding with the client

• Objectives
• Services to be performed
• CPA's responsibilities
• Client's acceptance of its responsibilities
• Any limitations of the engagement

• Doesn't impair independence as long as you've established a clear understanding
• In violation of Rule 202

• Designate someone with suitable skill, knowledge, and/or experience
• Evaluate the adequacy and results of services
• Make management decisions and perform management functions.

• Authorizing transactions, or exercising authority on behalf of the client
• Preparing source documents that evidence the occurrence of a transaction
• Having custody of client assets
• Supervising client employees in performing normal activities

• Recording transactions for which management has determined the appropriate accounting classifications or posting them to the general ledger
• Preparing FS based on information in the trial balance
• Posting client-approved entries to a client's trial balance
• Proposing standard, adjusting, or correcting journal entries

• Determining or changing journal entries, accounting codings, or classification without obtaining client approval
• Authorizing or approving transactions
• Preparing source documents
• Making changing to source documents without client approval

• that trust or estate had or was committed to acquire any:
• Direct financial interest in an attest client
• Material indirect financial interest in an attest client

• A director, officer, employee, or any capacity equivalent to a member of management
• A promoter, underwriter, or voting trustee

• Has a financial interest in an attest client exceeding 5% of the entity's outstanding securities
• Is a director, officer, or employee of the client
• Is a promoter, underwriter, or voting trustee of the client
• Is a trustee of any pension or profit-sharing trust of the client.

• Your a member of the attest engagement team or
• Someone who can influence the engagement

Cut all financial and professional ties to the firm

• Takes legal action
• Threatens to take legal and you think its probable they will.

• Threatens legal action that does not relate to performance of an attest engagement; and
• Amount involved is not material to either you or the client

Clause in the engagement letter indicating that the client would release you from liability and costs resulting from knowing misrepresentations by management.

When the client asks you to agree to indemnify them for costs that relate to legal action that arises directly or indirectly from client acts.

• You don't charge the client unless a specific result attained; or
• The amount of the fee depends on the results.

• Audit or review of FS
• Compilation of FS when you do not disclose a lack of independence in the report
• Examination of prospective FS

• An original or amended tax return
• A claim for a tax refund

• Fixed by courts or other public authorities
• For taxes, if they're determined based on the results of judicial proceedings or findings of governmental agencies

A fee you receive for recommending someone's products or services to someone else.

• Recommend someone else's products or services to a client
• Recommend a client's products or services to someone else.
• Perform services for your client

Yes, unless the client is bankrupt.

• You are not independent in fact; or
• You are not independent in appearance.

• Does the relationship create a mutual or conflicting interest between the firm and client?
• Does it place the firm in a position where it subsequently audits its own work?
• Does the firm effectively act as management or as an employee of the client?
• Does it place the firm in a position where it acts as an advocate for the client?

Members of the attest engagement team

Regardless of materiality

• Yes, if it was taken out before you were a covered member; and
• The likelihood of the insurer becoming insolvent is remote

If the balance does not exceed federal or state insurance limtis

• If it results as an unavoidable consequence of participation in the employer's benefit plan; and
• It is disposed of as soon as practicable and within 30 days

• Parents
• Non-dependent children
• Siblings

• In a key position with the client
• No exceptions

A one year cooling off period before a former employee can be in a position of financial reporting oversight for an audit client.

• Bookkeeping
• Valuation, appraisal, and actuarial services
• Financial information system design
• Human resources services
• Legal services
• Expert services
• Internal audit services

The client pays a fee to an advisory and then agrees not to disclose the advisory's strategy, tax treatment, or structuring. The secrecy suggests a potentially abusive transaction.

One whose significant purpose is tax avoidance.

Yes

Members of the clients management who are in financial reporting oversight roles, or to their immediate families.

• Lead and concurring partners - 5 on 5 off
• Other audit partners - 7 on 2 off
• Exceptions for firms with < 6 public clients and < 10 partners

The selling of non-audit services to audit clients

All services before they can be performed.

A contractual clause that releases you from liability for your own negligent acts

• All relationships between the auditor and the client that may reasonably be thought to bear on independence
• A statement confirming that in your professional judgement the firm is independent of the client

Governmental entities or government contracts

Pension plans

• Auditors employed by the federal government
• Auditors and audit firms in public accounting who audit a governmental entity or government contract.

The Yellow Book

• Public interest
• Integrity
• Objectivity
• Professional behavior
• Proper use of government information, resources, and position

• All owners, partners, or shareholders in the firm
• All professional employees who participate in the audit
• All professional employees who are located in an office that participates in a significant portion of the audit.

If you maintain financial records for the employee benefit plan.