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46 Cards in this Set

  • Front
  • Back

Types of Lawsuits

Civil (private parties) and Criminal (Societal lawsuits)


Types of Civil Lawsuits

Tort and Contract-Broken agreements (compensatory damages)

Types of Tort

Intentional (Compensatory Damages and Punitive Damages) and Negilgence (Compensatory Damages)

Thresholds to determine the type of Tort

Intentional - you acted with the purpose of the outcome


Reckless -above careless, you create an extreme environment


Careless -> above which there are consequences

The different legal forms for companies

-Partnerships: (1) no limited liability (2) agency ->you could lose your money if anyone acting under your direction messes up (3) Joint and several liability -> people could sue the whole group or just one person



-LLP: If there is a lawsuit and someone else is at fault your personal wealth is safe, if it is your fault then your wealth is at stake



-Limited Partnership: needs to have at least one general partner who liable for mistakes, limited partners are safe except from torts



- LLC: everyone gets maximum shielding, only torts that are your fault would not protect your wealth (pay higher taxes and are harder to get bank loans)

Two Types of Professional Liability Policies and why you should buy into them

The people are heavily incentivied to win lawsuits but they don't cover intentional torts, they do cover negligence


1- Occurence: would cover the work that occurs over the period the policy was active


2- Claims Made: once you stop paying it stops covering. Thend to be cheaper but if you're goign to leave the profession than don't pick this one


What is a Tail?

-A Tail converts a claims made policy to an occurence policy

What happens if you violate the AICPA Code of Conduct

You would be called up infront of the board and may lose membership. (3/4 of these cases are independence cases)

What are the six categories of a cover members that we covered

1. Definition of a covered member


2. Financial Interests


3. Money relationships


4. Changing jobs to and from audit clients


5. Selling other services to audit clients


6. 10 short miscellaneous topics

Define Covered Member

4 Circumstances:


1. Anyone on engagement team


2. Every partner from the lead partner's hometown


3. If you do over 10 hours of non-audit work for the client


4. The Audit Firm

Direct Financial Interests

-You can't have any stock


-You can't be a trustee of a trust if the trust has any shares of an audit client


-You can't be an executor of an eestate that holds audit client's shares (can legally decline)


Estate: Asset a person leaves when they die


Executor - handles estate assets, might own some


-Running a side business that owns a piece of the property: it depends on what type of business it is (partnerships->problem, LP -> Okay if CPA is a LP and not general partner, LLC ->Always okay)

Indirect Finanical Interests

Mutual funds calculation:


(1) find 5% of households networth


(2) find percentage of the mutual fund is the audit clients stock


(3) If (1)/(2) is larger than the investment in the mutual fund than it is a conflict of interest

Money Based Relationships

Global Rule - you can't get a special deal that is better than a person in your shoes


(1) Car loans -> as long as it is a secure car loan (it is collaterized)


(2) Credit card -> as long as you don't carry a balance of more than 10,000 dollars


(3) Mortgage loan -> you can't get a new loan but if you had one before it is okay However: its okay if you acquire a mortgage for the first time as long as it was not an action of your own (such as mortgage back securities)


(4) Money Deposits -> As long as FDIC insured (FDIC is limited up to 250000 per bank per a person unless your married you can each have a 250k insured account and a 500K insured joint account)


(5) Gift -> not appropriate to have 100 dollar gift or more

Going from Corporation to an audit firm

-You can't have any overlap


-You can't audit your own work


-You got to get rid of your financial interests and you have to get rid of your benefit plans


-You can have a Cobra plan (requires your boss to keep you on health insurance for 18mo. but you pay all the costs

Going from an Audit firm to a Client

-Remove yourself from an engagement team if negotiations have begun


-Positions of influence over the financial statements (high level cositions such as CEO)


-If it is a publicly traded company there is a one year cooling off period


-Retirement benefits -> you can keep it if it is a fixed formula plan (if can't fluctuate with audit firm performance)

Other Services you can offer to Audit Clients (for Public )

Public


-You can't do book keeping services


-You can't design or implement their financial information systems


-You can't sell actuarial services


-You can't sell human resource services


-You can't give investment advice or be a broker or manage investments


- Legal services are not allowed


-Any services that you are allowed you must get approval from the board of directors

Other Services you can offer to Audit Clients (for Private )

-You can not report directly to the board of directors


-You can't have custody of clients assets or the ability to make financial transactions


-You can be an executive recruiter


-Its okay to sell (or recommend) classes of investments but you can't pick particular investments


-You can't design but you can help implement someone else's information systems

Miscellaneous 8 things

Contingent fees


Referal Fees


Fees that are over due


Coventional Lawsuit


Indemnification


Retirees


Auditing the Government


Separate code of ethics for ERISA Audits

Contingent Fees

-Not allowed for Audit work and you can't have it for any thing elese you do for an audit client. (if they are not an audit client you can have contingent fees)

Referral Fees

-You can't receive payment from a third party


If they are not an audit client you can but you have to give the firm a notice in writing (and get a signature) that you are recieving fees

Fees that are overdue

You can not have fees that are more than 1 year old or you are no longer independent

Coventional Lawsuit

If you are on opposit sides than you are no longer independent

Indemnification Agreements

-if there are legal mishaps one party will pay for all legal costs


- you can not have one with audit clients except for intentional msirepresentations by the corporation which is indemnified by the crporation

Retirees- How a firm can spend money on them without ruining independence

1. Fixed formula benefit packages


2. Pay money to maintain offices space


3. Pay for clerical support (or admin positions)

Auditing the Government

1- Can't be official of the body


2- Bonds issued by government entity is the equivalent of stock (same rules)

Separate Code of Ethics for ERISA

Made by the Department of Labor

Other Stuff

-No accountantin the firm can not be a Board of Directors


-Nobody who is an accountant in the firm, spouse, or dependent children can not hold more than five percent of the company


- A spouse who is getting paid a contingent fee by a corporation the other spouse is auditing is okay


Confidential Client Information (nonaudit)


When can you disclose?

You may disclose if...


- The client consents (written)


-Professional Liability Carier needs it to defend your case


-Attorneys


You must if...


-Court order


-AICPA or State Board of Accountancy to conduct professional reviews


-Outside firms so that you can fill out tax forms

Tax Help - Delegation

unless you have a clause that says you can't you can, however if they mess up you can be sued just as if you had done it

Client list

You can disclose if you take out clients who are assisting with bancruptcy

Do you have to work with the spouse of a client?

Yes

Contingent Fees

You can't have contingent fees for amended tax returns

How can you lose AICPA Membership?

-If you lose an employement discrimination lawsuit (including sexual harrassment)


-If you disclose questions (buyer or seller)


-If you fail to file a tax return

Firm Name

-You can keep a partner's name as part of the firm name even if they leave


- "Members AICPA" can be included only if all people who have an ownership stake in the company have to have goodstanding in the AICPA

SSTS

Statement on Standards on Tax Services

Burden of Proof

Criminal -> BARD; Beyond a Reasonable Doubt


Civil -> More likely than not


SSTS -> Realistic Possibility (33.3 percent)


Levels of Tax Assurance

-Non-frivolous -> There is some chance that your work would be sustained on review (<1/3) (you have to red flag the return for IRS)


-Frivolous - > law is indirect conflict and you can't sign your name on this at all


(Unless you don't think that standard would hold up today)

What can you assume with docuements?

That unless they are obviously fraud you can use them

If you find mistakes not in a clients favor you must..

-notfiy the client


-NOT tell the IRS

Updates

If engagement is complete and there is no contractual obligation, you do not have to update your client

3 Tax Misdeeds

-Violate the "realistic possibility" rules (250K/return)


-If you disclose confidential information (250K/return)


-If you willfully prepare a clients taxes to understate tax liability ($1000/return)

Tax Crimes

1- Willfully attempted to avoid tax (100K+5Yrs)


2- If you sign a return knowing it contains false information (100k+3yrs)


3- If you fail to obey a cour order (1k+1yr)


4- if you make personal use of client information (1k + 1yr)


5- if you fail to file a personal return (25K+1yr)

Employee vs. I.C.

Employees


-Regular hrs/wgs.


-Relationship with Boss


-Taxes are withheld


IC


-there is a lot of cheating by withholding taxes


-no benefits

Why is the differentiation important?

-There are a bunch of laws that only apply to companies with a certain limit of number of employees


-The government doesn't collect as much from IC's


-There are fees

Fees for avoiding payroll taxes

1st- they have to pay the tax (about 7.5%)


2nd- they have to pay 20% of the first number


3rd- They have to pay 1.5% of the total compensation


IF YOU FAILED TO FILE 110 1099 FORM


the 2nd and the 3rd number are doubled

To decide if they are an employee or an agent

send in a SS-8 and fill it out and email it out to the IRS to get an early rulling