Aud Module 1: Professional Responsibilities

Front 1

AICPA Code of Professional Conduct prefixes

Back 1

ET
pg 49

Front 2

6 articles of the principles section of the AICPA Code of Professional Conduct

Back 2

I. Responsibilities
II. The Public Interest
III. Integrity
IV. Objectivity and Independence
V. Due Care
VI. Scope and Nature of Services
pg 49

Front 3

7 types of threats to independence

Back 3

1) Self review threat
2) Advocacy threat
3) Adverse interest threat
4) Familiarity threat
5) Undue influence threat
6) Financial self-interest threat
7) Management participation threat
pg 51

Front 4

Describe self review threat

Back 4

Reviewing evidence that resulsts from the member's own work
pg 51

Front 5

Describe Advocacy threat

Back 5

Actions promoting the client's interests or positions
pg 51

Front 6

Describe Adverse interest threat

Back 6

Actions or interests between the member and the client that are in opposition (Ex litigation between the client and the member)
pg 51

Front 7

Describe Familiarity threat

Back 7

Members having a close or longstanding relationship with client or knowing individuals or entities who performed nonattest services for the client (EX a member of th attest engagement team whose spouse is in a key position at the client)
pg 51

Front 8

Describe Undue influence threat

Back 8

Attempts by a cleint's management (or others) to coerce the member or exercise excessive influence over the member (ex threat to replace the member over a disagreement regarding an accounting principle)
pg 51

Front 9

Describe Financial self interest threat

Back 9

Potential benefit to a member from a financial interest in or some financial relationship with, an attest client (having a direct or material indirect financial interest in the client)
pg 51

Front 10

Describe Management participation threat

Back 10

Assuming the role of management or performing management functions for the attest client (EX serving as an officer of the client)
pg 51

Front 11

Describe the 3 safeguards that mitigate or eliminate threats to independece

Back 11

1-Safeguards created by the profession, legislation, or regulation (EX required CPE on independence and ethics)
2-Safeguards implemented by the client (EX an effective governance structure including an active audit committee)
3-Safeguards implemented by the firm (EX quality controls for attest engagements)
pg 51

Front 12

Independence is impaired if:

Back 12

-Had or committed to acquire any direct or material indirect financial interest in the client
-Was a trustee, executor, or admin of a trust or estate with direct or material indirect financial interest in client
-Had a joint closely held investment that was material to the covered member
-Except as permitted in ET 101-5, had a loan to or from the client, any officer of director of the client, or any individual owning 10% or more of the client's outstanding equity securities or other ownership interests

-During the period of enegagement, a partner of employee of the firm or their immediate family owned more than 5% of a client's outstanding ownership interests or stock

-During engagement or period covered by financial statements, was a member of management, promoter, underwriter, or voting trustee, trustee for any pension or profit-sharing trust of the client
pg 51

Front 13

Will the member still be independent if an individual in a covered member's immediate family is employed by the client in a position other than a key position?

Back 13

Yes
pg 52

Front 14

Define 'covered member'

Back 14

1)An individual on the attest engagement team
2)Individual in a position to influence the attest engagement
3)Partner or manager who provides nonattest services to the attest client
4)A Partner in the office in which the lead attest engagement partner primarily practices in connection w the attest engagement
5)The firm, including the firm's employee benefit plans
OR
6)An entity whose operating, financial, or accounting policies can be controlled by any of the individuals or entities described above or by two or more such individuals or entities if they act together
pg 52

Front 15

Does the period of professional engagement end each period and recommence with the next engagement or is it an ongoing engagement until the formal end?

Back 15

Ongoing engagement until the formal end
pg 53

Front 16

Who are 'close relatives'?

Back 16

Parent, sibling, nondependent child
pg 53

Front 17

Who are 'immediate family'?

Back 17

Spouse, spousal equivalent, or dependent (whether or not related)
pg 53

Front 18

Is indpendence impaired if nonattest services are performed prior to the period of of the professional audit engagement and related to periods prior to the current audit?

Back 18

No
pg 53

Front 19

When performing nonattest services, what are two things the client must do?

Back 19

-Assume all management responsiblities (or have capability of assuming)
-Establish in writing an understanding with the client that describes your nonattest work for the client (can be in same letter used for engagement or a seperate letter)
pg 53-54

Front 20

12 general activities that impair independence
*Yaeger said test question*

Back 20

1-setting policies or strategic direction for the client
2-Directiong or accepting responsibility for actions of client employees (except as allowed for using the work of internal auditors)
3-Authorizing, executing, or consummating transactions
4-Preparing source documents
5-Having custody of assets
6-Deciding which recommendations are to be given priority or implemented
7-Reporting ot those in charge with governance on behalf of management
8-Accepting responsibility ofr managing a client's project
9-Accepting responsibility for preparing client financial statements
10-Serving as stock transfer agent, registrar, or general counsel
11-Accepting responsibility for designing, implementing, or maintaining internal control
12-Performing evaluations of internal control as part of the company's monitoring activities
pg 54

Front 21

CPA is a director of nonprofit org where board is large and representative of community leadership is not lacking independece of if: (4 conditions)

Back 21

1-Position purely honorary
2-Position identified as honorary on external materials
3-CPA particpation restricted to use of name
4-CPA does not vote or participate in management affairs (go to meetings, vote, make decisions, etc)
pg 43
ET 101-4

Front 22

ET 101-5 is about what?

Back 22

Laons from financial institution clients and related terminology
pg 54

Front 23

Described the 4 ways independence is not impaired by certain 'grandfathered' home mortgage, and other secured loans obtained from financial institution clients

Back 23

1-obtained prior to Jan 1, 1992
2-Obtained when independence was not required and the institution subsequently became an attest client
3-Obtained when independence was not required and the loan was sold to an attest client
4-Obtained prior to the CPA joining the CPA firm for which the financial institution is an attest client
pg 54

Front 24

4 types of loans that never affect your independence

Back 24

1-auto loans and leases collateralized by auto
2-Loans of surrender value under an insurance policy
3-"Passbook loans" (borrowings fully collateralized by cash deposits as same fin. institution)
4-Aggregate outstanding balances from credit card and overdraft accounts that are reduced to $10,000 on a current basis
pg 54-55