Term
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Definition
| The Principles provide the framework for the Rules- goal-oriented but nonbinding. |
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Term
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Definition
responsibilities
public interest
integrity
objectivity and independence
due care
scope and nature of services |
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Term
| Where are principles listed? |
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Definition
| The AICPA Code of Professional Conduct, which applies to professional services performed by AICPA members. |
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Term
| (professional) responsibilities |
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Definition
| all members should exercise sensitive professional and moral judgments when carrying out the professional responsibilities. |
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Definition
| all members should act to benefit the public interest, honor the public trust, and demonstrate commitment to professionalism. |
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Term
| objectivity and independence |
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Definition
Independence in fact (mind) and appearance (no conflicts of interest).
A member in public practice need be independent. A member not in public practice need not be independent. |
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Definition
| all members must adequately plan and supervise activities for which they are responsible, and follow technical and ethical standards. |
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Term
| scope and nature of services |
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Definition
| a member in public practice should follow the AICPA Code in determining the nature and scope of services. |
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Term
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Definition
| AICPA Interpretations provide guidelines for the scope and application of the Rules. |
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Term
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Definition
| Ethics Rulings apply the Rules and Interpretations to specific facts to determine whether a violation exists. |
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Term
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Definition
| Rules of Conduct are mandatory for all members. |
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Term
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Definition
Independence.
A member in public practice shall be independent when performing professional services (auditing and attestation services) as required by standard-setting bodies.
Independence (intellectual honesty and free of conflicts of interest).
Independence is impaired if a covered member has certain interests or relationships. |
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Term
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Definition
Integrity and Objectivity.
A member shall maintain objectivity and integrity, be free of conflicts of interest, not knowingly misrepresent facts, and not subordinate his/her judgment to others when performing professional services. |
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Definition
General Standards.
Undertake only these services that the member can reasonably expect to complete with professional competence.
Exercise due professional care when performing professional services.
Adequately plan and supervise performance of professional services.
Obtain sufficient relevant data to provide a reasonable basis for conclusions in relation to any professional service. |
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Term
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Definition
Compliance with Standards.
A member who performs professional services shall comply with standards issued by designated bodies. |
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Definition
Accounting Principles.
Expressing an opinion/positive assurance.
Stating that he/she is not aware of any material modifications that should be made to achieve conformity w/GAAP (limited assurance).
Rule 203 applies to all members, whether or not in public practice, regarding any affirmative statements about GAAP conformity. |
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Term
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Definition
Confidential Client Information.
A member in public practice shall not disclose confidential client information without the client's consent. |
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Term
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Definition
Contingent Fees
A member in public practice shall not perform for a contingent fee audits, compilations, or examinations, original or amended tax returns, or a claim for a tax refund. |
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Definition
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Term
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Definition
Advertising and Other Forms of Solicitation
Advertising can't be false, misleading, or deceptive manner. |
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Term
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Definition
Commissions and Referral Fees
Conduct Rule 503 applies in part (Referrals) to all members and in part (Commissions) only to members in public practice. |
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Term
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Definition
Form of Organization and Name
A member may practice public accounting only in a form of organization allowed by law or regulation that conforms with resolutions of the AICPA Council.
The firm name must not be misleading.
Must all be CPAs to be designated all AICPA members. |
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Term
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Definition
An individual on the engagement team or who can influence the engagement,
A partner or manager who provides nonattest services,
A partner in the office where the lead engagement partner primarily practices in relation to the engagement, and
The accounting firm, including employee benefit plans. |
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Term
| independence impairment on loans |
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Definition
Occurs if a covered member has a direct financial interest in a client.
Independence is impaired if a covered member has loans to or from a client or its officers, directors, or 10+% owners. |
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Term
| exceptions to independence loan rule |
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Definition
Certain loans from a client financial institution. These include auto loans, loans fully collateralized by cash surrender value of insurance, loans fully collateralized by cash deposits, and credit cards with a total outstanding balance of $10,000 or less on a current basis by the payment due date.
Some loans are grandfathered. |
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Term
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Definition
Material indirect financial interest.
Covered member is trustee of trust or executor of estate.
Member has material joint, closely held investment.
Member is partner that owns 5+% of client.
Member is associated w/client as officer, director, management, employee, promoter, underwriter, etc.
Member was formerly associated w/client in any of the above capacities.
Member's spouse or dependents are subject to Rule 101.
Member has a close relative with a key position in attest client.
Former partner or professional employee of firm is employed by or associated w/client in key position, but not if person is no longer active w/CPA firm and retirement compensation has been fixed. |
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Term
| services provided to attest clients that impair independence |
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Definition
Appraisal, valuation, or actuarial
Expert witness
Internal audit
Tax advocacy
Recruiting, hiring, firing |
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Term
| litigation and independence |
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Definition
Not impaired if litigation issue is not related to engagement work and is not material.
Not when shareholders sue both client and auditor.
Not if member holds an honorary directorship or trusteeship of non-profit that is a client. |
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Term
| family members and independence |
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Definition
All of the following hold true so long as the covered member cannot influence the engagement.
As a result of his/her permitted employment, an immediate family member of a covered member may participate in a benefit plan that is an attest client.
An immediate family member may hold a direct or material indirect financial interest in an attest client so long as there are no other options.
An immediate family member may participate in a share-based compensation arrangement as long as shares are disposed of A.S.A.P. |
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Term
| services provided to attest clients that DO NOT impair independence |
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Definition
Consulting (where client is responsible for decisions)
Tax preparation and compliance
Business risk advising
Providing general advice based on audit findings
Bookkeeping, payroll processing, or other recordkeeping functions. |
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Term
| auditor independence in government auditing |
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Definition
Auditor of F/S of governmental entity must be independent of the entity, unless
the auditor explicitly relies on reports by other auditors on such entity
the reporting entity is not financially accountable for it and the required disclosure does not include financial information.
neither the member nor a member of his/her immediate family should occupy a key position with the disclosed entity
An auditor who is not auditing the primary government must be independent only on the statements reported on. |
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Term
| independence rules for APSs |
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Definition
apply when the “traditional CPA firm” is closely aligned with another organization that performs other professional services.
Direct superiors of covered members are subject to the same independence rules as covered members.
Indirect superiors may not have a material financial interest in or significant influence over an attest client. |
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Term
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Definition
| Restricted-use reports may be issued on agreed-upon procedures, internal control, prospective financial information, compliance, pro forma financial information, and MD&A. |
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Term
| independence & restricted-use reports |
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Definition
The practitioner must be independent of the party responsible for the subject matter of restricted-use reports.
Independence impaired with material cooperative arrangement. |
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Term
| cooperative arrangement & examples |
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Definition
exists when a member's firm and a client jointly participate in a business activity.
To enhance their capabilities to provide professional services, firms frequently join larger groups, such as membership associations (networks), that are separate legal entities otherwise unrelated to their members.
Partners or professional employees of a firm may seek employment as an adjunct faculty member of a client educational institution. |
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Term
| knowing misrepresentations of facts (102) |
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Definition
Knowingly making materially false and misleading entries in financial statements or records.
Failing to make corrections in materially false or misleading statements or records when the member has such authority, or
Signing a document with materially false or misleading information. |
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Term
| conflict of interest exception (102) |
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Definition
A conflict or interest may be permitted in certain circumstances if disclosure is made to and consent is obtained from the appropriate parties.
However, an independence objection cannot be overcome by disclosure and consent. |
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Term
| obligations to employer's external accountant (102) |
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Definition
| no intentional misrepresentations. |
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Term
| What should a member do when the member and his/her supervisor disagrees on a particular issue? (102) |
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Definition
Nothing if the supervisor's alternative position does not distort the facts.
Consult the higher supervisor if material misstatement occurs.
If appropriate action still has not been taken, the member should consider the continuing relationship with the employer, obligation to communicate with third parties, and desirability of consulting legal counsel. |
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Term
| proficiency requirements (201) |
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Definition
Adequate technical training
Education
Experience
Proper supervision
Objectivity
Seasoned and independent judgment |
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Term
| due professional care (201) |
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Definition
Used to plan and perform the audit and prepare the report.
Shows competence.
Involves professional skepticism.
Allows auditor to obtain reasonable assurance. |
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Term
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Definition
involves technical qualifications and the ability to supervise and evaluate the work.
In some cases, additional research and consultation is a normal part of performing services. However, if a member cannot gain sufficient competence, a more competent member should be found. |
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Term
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Definition
| Expressing an opinion (stating affirmatively) that the F/S of any entity are presented in conformity with GAAP (positive assurance). |
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Term
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Definition
| Stating that he/she is not aware of any material modifications that should be made to achieve conformity w/GAAP |
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Term
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Definition
| A departure is material if it has a material effect on the F/S or data as a whole. |
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Term
| Can assurance ever be provided if a material departure exists? (203) |
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Definition
However, in some cases, a member may be provide assurance about conformity with GAAP despite a material departure.
To do so, the member must be able to demonstrate that, due to unusual circumstances, the F/S or data would have been misleading without a departure from GAAP.
The member must describe the departure; its approximate effects, if practicable; and the reasons compliance with the principle would be misleading. |
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Term
| What events may justify departures from established accounting principles? What events do not? (203) |
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Definition
Events that may justify departures from established accounting principles are new legislation or evolution of a new form of business transaction.
An unusual degree of materiality or conflicting industry practices ordinarily does not justify departures. |
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Term
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Definition
Comply with a valid subpoena or summons or with applicable laws and regulations
Discharge his/her professional obligations
Cooperate in an official review of his/her professional practice
Initiate a complaint w/or respond to any inquiry made by an appropriate investigate or disciplinary body. |
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Term
| review of a member's practice (301) |
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Definition
| The rule against disclosure of confidential information does not prohibit the review of a member's practice as part of a purchase, sale, or merger of the practice. |
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Term
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Definition
| established as part of an agreement under which the amount of the fee is dependent upon the finding or result |
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Term
| When are fees not contingent? |
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Definition
They are fixed by public authorities
In tax matters, they are based on results of judicial proceedings, or the findings of governmental agencies. |
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Term
| client-provided records (501) & what should be done with them |
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Definition
accounting or other records belonging to the client that were provided to the member by or on behalf of the client.
Must be returned after a client request even if fees have not been paid or the state in which the member practices grants a lien on certain records.
Cannot be withheld. |
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Term
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Definition
are the member's property and need not be made available to the client or others unless required by statute, regulation, or contract.
Can be withheld barring legal or contractual exception. |
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Term
| client records prepared by the member (501) |
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Definition
| include accounting and other records that the member was engaged to prepare. They may be withheld if fees due to the engagement is incomplete. |
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Term
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Definition
contain information produced by the member that is not in the client's records, without which its financial information is incomplete. They may be withheld if fees due to the engagement is incomplete.
Records also must be given to a client who suffers a loss because of an act of war or natural disaster.
The member may charge a reasonable fee, retain copies, and provide records in any format unless one is specified. Comply within 45 days. |
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Term
| acts discreditable besides withholding records unfairly |
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Definition
discrimination and harassment
following GAAP, GAAS, or what is applicable and not hiding material departures.
Cheating on CPA exam.
Negligence.
Failure to file a tax return or pay tax.
Regulate entities and limitation of liability. |
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Term
| limitation of liability agreements (501) |
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Definition
| Members are prohibited from providing services under limitation of liability agreements. |
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Term
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Definition
Making materially false and misleading entries in the F/S or records,
Failing to correct materially false and misleading statements, or
Signing a document with materially false and misleading information. |
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Term
| obtaining clients through third parties (502) |
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Definition
Members are permitted to render services to client of third parties.
If the third party obtained its clients through advertising, the members must determine all promotional efforts were within the Rules of Conduct. |
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Term
| prohibited commissions are those received when a member in public practice... |
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Definition
Recommends or refers to a client any product or service or any product/service to be supplied by a client.
Also performs for the client an audit, review, compilation reasonably expected to be used by a third party if the member's lack of independence is not disclosed, or examination of PFI. |
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Term
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Definition
| must be disclosed to any person or entity to whom the member recommends or refers a related product or service. |
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Term
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Definition
not considered commissions and are permitted if disclosed to the client.
Acceptance of a referral fee for recommending or referring any service of a CPA to anyone.
Payment of a referral fee to obtain a client. |
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Term
| requirements to be recognized as a CPA firm by the AICPA (505) |
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Definition
| CPAs own a majority of the firm, are responsible for all services, non-CPA owner is an active firm member, non-CPA owners can't call themselves CPAs, can't do anything else illegal. |
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Term
| ownership of a separate business (505) |
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Definition
Member practicing public accounting may own an interest in a separate business that performs the services for which standards are established.
If member controls separate business, the entity must comply with the AICPA Code. |
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Term
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Definition
CPAs remain responsible, financially and otherwise for the attest work to protect the public interest.
CPAs own the majority of financial interests, but substantially all revenues paid to another entity.
CPA owners are financially responsible for firm. |
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Term
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Definition
Register public accounting firms
Oversee the audit of public companies that are subject to the securities laws
Establish or adopt standards on auditing, quality control, ethics, and independence.
Inspect audit firms
Conduct investigations and disciplinary proceedings concerning, and impose sanctions on issuers. |
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Term
| PCAOB inspection of audit firms (3 components) |
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Definition
Examine selected audit and review engagements;
Evaluate the system of quality;
Test audit, supervisory, and quality control procedures. |
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Term
| preapproval of services (PCAOB) |
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Definition
| Audit committees ordinarily must preapprove the services performed by accountants (permissible nonaudit services and all audit, review, and attest engagements). |
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Term
| explicit approval vs. approval in accordance with detailed policies and procedures (PCAOB) |
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Definition
Approval must be either explicit or in accordance with detailed policies and procedures.
If approval is based on detailed policies and procedures, the audit committee must be informed, and no delegation of its authority to management is allowed. |
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Term
| disclosure of fees (PCAOB) |
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Definition
| An issuer must disclose in its proxy statement or annual filing fees paid to the accountant segregated into four categories- audit, audit-related, tax, and all others for the 2 most recent years. |
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Term
| rotation of partners (SOX, PCAOB) |
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Definition
| The lead and concurring (reviewing) audit partners must rotate every 5 years, with a 5-year time-out period. Other audit partners must rotate every 7 years, with a 2-year time-out. |
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Term
| communications with the audit committee- what must be included (PCAOB) |
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Definition
The firm must include
All critical accounting policies and practices;
All material alternative accounting policies and practices within GAAP that were discussed with management; and
Other material written communications with management, such as representations and schedules of unadjusted audit differences. |
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Term
| communications with the audit committee- what must be done (PCAOB) |
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Definition
These communications must be prior to filing the audit report with the SEC.
The firm must discuss the potential effects of the services on the independence and document the discussion. |
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Term
| prohibited nonaudit services (PCAOB) |
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Definition
Appraisal and other valuation services
Designing and implementing financial IS
Internal auditing or actuarial functions
Management services
HR services
Bookkeeping
Expert services not pertaining to the audit
Investment banking or advisory services
Broker-dealer services
Preapproved compliance tax engagements are not prohibited. |
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Term
| audit committee requirements (PCAOB) |
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Definition
Each member of the audit committee must be an independent member of the BOD.
Must be directly responsible for appointing, compensating, and overseeing the work of the auditor.
At least one member must be a financial expert. |
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Term
| PCAOB interim independence standards |
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Definition
| AICPA Rule 101 plus specific independence rules. |
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Term
| Management's F/S Responsibility |
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Definition
| The CEO and CFO of a public company must provide a statement to accompany the audit report. This statement certified the appropriateness of the financial statements and disclosures, but a violation of this requirement must be knowing and intentional. |
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Term
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Definition
| SOX imposes penalties of fines and imprisonment, extends the statute of limitations on securities fraud claims, and makes it a felony to create or destroy documents to impeded a federal investigation. |
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Term
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Definition
| International Federation of Accountants |
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Term
| fundamental principles of IFAC Code of Ethics for Professional Accountants |
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Definition
integrity- straightforward and honest
objectivity- no bias, conflict of interest
professional competence and due care
confidentiality
professional behavior- avoid acts discreditable |
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Term
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Definition
eliminate or reduce threats to an acceptable level
Created by profession, legislation, or regulation and are in the work environment. |
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Term
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Definition
Professional Appointment. Before accepting a new client, a professional accountant must determine whether acceptance would create and threats to compliance with the fundamental principles.
The principle of professional competence and due care imposes an obligation on a professional accountant to provide only those services s/he is component to perform. |
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Term
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Definition
| Professional accountant must take reasonable steps to identify circumstances that could pose a conflict of interest. |
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Term
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Definition
| Second Opinions. Could create threats. |
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Term
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Definition
Fees and Other Types of Remuneration Should not to be too low or too high.
Client should be aware of the terms of engagement, the basis on which fees are charged, and which services are covered by the fees.
Referral fee and commissions can be charged, but not contingent fees. |
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Term
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Definition
Marketing Professional Services
A professional accountant must not bring the profession into disrepute in marketing. |
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Term
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Definition
Gifts and Hospitality
A professional accountant may be offered gifts and hospitality from a client as long as it is inconsequential. |
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Term
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Definition
Custody of Client Assets
Accountant must not assume custody of client assets unless permitted by law. |
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Term
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Definition
| Objectivity in all services provided. |
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Term
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Definition
| Independence: Audits and Reviews |
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Term
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Definition
| it must be independent of the audit clients of the other firms within the network. |
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Term
| What causes independence threats? |
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Definition
Usu. not inadvertent violations.
Mergers/acquisitions do.
Family and personal relationships, along with familiarity and intimidation.
Lending to audit client.
Serving as director or officer of an audit client.
Using same senior personnel on an audit over a long time period. |
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Term
| services that create an independence threat |
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Definition
Internal audit services to audit client create a self-review.
Providing services to an audit client involving the design or implementation of IT systems creates a self-review threat.
Litigation support services may include activities such as acting as an expert witness, calculating estimated damages, and assisting with document preparation may create a self-review or advocacy threat.
Acting in an advocacy role for an audit client in resolving a dispute or litigation when the amount involved are material to the F/S could create unfixable threats.
Tax planning or advisory services
corporate finance
fees remain overdue for a long time
commissions |
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Term
| services that DO NOT create an independence threat |
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Definition
Tax return preparation
The firm may generally provide such recruiting services as reviewing applicants |
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