Ch. 29 Professional Responsibilities

Front 1

Conduct - Integrity requires the observance of what principles?

Back 1

Objectivity
Independence
Due Care

Front 2

Conduct - Services Not Requiring Independence

Back 2

Compilation
Tax
Consulting services not banned by Sarbanes-Oxley

Front 3

Conduct - Objectivity and Independence

Back 3

"A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services."

Front 4

Conduct - Integrity

Back 4

"To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity."

Front 5

Conduct - Objectivity is a state of mind, featuring:

Back 5

Impartiality
Intellectual honesty
Freedom from conflicts of interest

Front 6

Conduct - Articles of the Principles of the Code of Professional Conduct

Back 6

Responsibilities
The Public Interest
Integrity
Objectivity and Independence
Due Care
Scope and Nature of Services

Front 7

Conduct - Scope and Nature of Services

Back 7

A member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided

Front 8

Conduct - Level of professional conduct established by Code

Back 8

Minimum levels

Front 9

Conduct - The Public Interest

Back 9

Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism

Front 10

Conduct - Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism

Back 10

In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities

Front 11

Conduct - Due Care

Back 11

A member should observe the profession's technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member's ability

Front 12

Rule 102 - Ways of solving conflicts of interest.

Back 12

They can be solved by:
Full disclosure, and
Client consent.

Front 13

Rule 102 - To avoid subordinating judgment when disagreeing with supervisor regarding proper audit procedures:

Back 13

Need do nothing further if upon reflection the member concludes that the F/S as proposed represent an acceptable alternative and do not misrepresent the facts;
Alert the appropriate level of management if upon reflection the member concludes that the F/S could be materially misstated; and
Consider resigning and communicating with regulatory authorities if problem is not addressed.

Front 14

Rule 102 - A potential conflict of interest.

Back 14

Providing tax or financial planning services for several members of a family who may have opposing interests.

Front 15

Rule 102 - Example of a Conflict of interest according to Interpretation 102-2.

Back 15

A CPA performing a professional service has a significant relationship with another person, entity, product, or service that could be viewed as impairing the CPA's objectivity.

Front 16

Rule 102 - Provisions in Rule 102.

Back 16

In the performance of any professional service, a member: shall maintain objectivity and integrity, shall be free of conflict of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others.

Front 17

Interpretation 102-1

Back 17

Not only may a member not knowingly make a false representation, but that member may not permit or direct another to make a false entry in an entity's financial statement, according to Interpretation 102-1.

Front 18

Interpretation 102-2

Back 18

A conflict of interest may occur if a CPA performing a professional service has a significant relationship with another person, entity, product, or service that could be viewed as impairing the CPA's objectivity, according to Interpretation 102-2.
A. Exception - No problem if --
1. Full disclosure to client, and
2. Client consents.

Front 19

B. Examples of potential conflicts of interest --

Back 19

1. A member is asked to perform litigation services for a plaintiff in a lawsuit against one of the firm's audit clients;
2. A member has provided tax planning advice to a married couple that is now divorcing and is asked by both parties to provide services during the divorce proceedings;
3. In giving financial advice, a member suggests that the client invest in a business in which the member has a financial interest;
4. A member provides tax or financial planning services for several members of a family who may have opposing interests;

Front 20

B. Examples of potential conflicts of interest --

Back 20

5. A member has a significant financial interest in a company that is a major competitor of a client for which the member performs management consulting services;
6. A member serves on a city's board of tax appeals, which considers matters involving several of the member's tax clients;
7. A member has been approached to provide services to the potential buyer of real estate owned by a client of the member's firm;
8. A member refers a tax or financial planning client to an insurance broker which refers clients to the member under an exclusive arrangement to do so;
9. A member recommends or refers a client to a service bureau in which the member or partners in the member's firm hold material financial interests.

Front 21

IV. Interpretation 102-3

Back 21

Provides that a member must respond accurately to his or her employer's external accountant's inquiries. SOX, of course, makes it a crime to lie to outside auditors.

Front 22

V. Interpretation 102-4

Back 22

Consider the situation where an auditor disagrees with his or her supervisor regarding the proper recording of transactions or preparation of financial statements.

Front 23

VI. Interpretation 102-5

Back 23

Reminds members who teach or engage in research and scholarship that their activities are professional services and should be rendered with objectivity and integrity, that they shall be free of conflicts of interest, and that they shall not knowingly misrepresent facts or subordinate their judgment.

Front 24

Interpretation 102-6

Back 24

Client advocacy can raise interesting dilemmas. Interpretation 102-6 recognizes that a member may be requested by a client to perform tax or consulting services that involve acting as an advocate for the client, and that auditors may be asked to be advocates in support of their clients' positions on accounting or financial reporting issues.

Front 25

General Standards - Implication of an agreement to perform professional services.

Back 25

The member has the necessary competence to perform those services according to professional standards, applying his or her knowledge and skill with reasonable care and diligence, but the member does not assume a responsibility for infallibility of knowledge or judgment.

Front 26

General Standards - Interpretation of the Standard of Planning and Supervision.

Back 26

Adequately plan and supervise the performance of professional services.

Front 27

General Standards - General Standards

Back 27

Professional Competence
Due Professional Care
Planning and Supervision
Sufficient Relevant Data

Front 28

General Standards -A. Professional Competence

Back 28

Undertake only those professional services that the member or member's firm can reasonably expect to be completed with professional competence;

Front 29

General Standards - B. Due Professional Care

Back 29

Exercise due professional care in the performance of professional services;

Front 30

General Standards - C. Planning and Supervision

Back 30

Adequately plan and supervise the performance of professional services;

Front 31

General Standards - D. Sufficient Relevant Data

Back 31

Obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed.

Front 32

Rule 203 - Examples of when an auditor may depart from GAAP.

Back 32

New legislation
New form of business transaction.

Front 33

Rule 203 - Steps to be taken when departing from GAAP.

Back 33

Disclose Departure
Disclose approximate effects of departure, and
Explain why GAAP compliance would mislead.

Front 34

Rule 203 - Interpretation 203-1.

Back 34

CPAs are allowed departure from SFAS only when results of SFAS will be misleading.

Front 35

B. Interpretation 203-2

Back 35

FASB and GASB Interpretations are covered by Rule 203.

Front 36

C. Interpretation 203-3 --

Back 36

A member shall not state affirmatively that financial statements or other financial data of an entity are presented in conformity with GAAP if such statements or data contain any departure from an accounting principle promulgated by a body designed by the AICPA to establish such principles that has a material effect on the statements or data taken as a whole.

Front 37

Responsibilities to Clients - Federal tax preparers' privilege (Sec. 7525) exceptions.

Back 37

Criminal matters
Matters not before the IRS or federal courts in cases brought by or against U.S.
Tax advice on state or local matters
Written tax shelter advice.

Front 38

Responsibilities to Clients - CPAs should not disclose client confidences except under certain conditions.

Back 38

They may be disclosed when:
Client consents
GAAP requires disclosure
Enforceable subpoena
Ethical examination
Peer review
Other members of firm "need to know."

Front 39

Responsibilities to Clients - Rule 301.

Back 39

A member in public practice shall not disclose any confidential client information without the specific consent of the client.

Front 40

Responsibilities to Clients - Variable Fees.

Back 40

A member's fees may vary depending on various factors, including the complexity of services rendered.

Front 41

Responsibilities to Clients - Features of accountant-client privilege in states where recognized.

Back 41

Protects client, not CPA
Waivable by client
Waiver as to part is waiver as to all.

Front 42

Responsibilities to Clients - Public Authority Exception.

Back 42

A fee is not regarded as contingent if fixed by the courts or other public authorities.

Front 43

Responsibilities to Clients - A fee is not regarded as contingent if fixed by the courts or other public authorities.

Back 43

Public Authority Exception.

Front 44

Rule 501 - Acts relating to client's request for return of records.

Back 44

Return client-provided records w/in 45 days
May keep client records prepared by CPA if bill not paid
May keep supporting records if bill not paid
CPA's working papers need not be turned over.

Front 45

Rule 501 - Interpretation 501-2.

Back 45

Discrimination (on basis of race, color, religion, sex, age, or national origin) and harassment (sexual and other forms) are discreditable acts.

Front 46

Rule 501 - Interpretation 501-4.

Back 46

Negligently making (or permitting or directing another to make) false or misleading journal entries is a discreditable act.

Front 47

Rule 501 - Interpretation 501-6.

Back 47

Soliciting or knowingly disclosing the May 1996 or later Uniform CPA Examination questions and/or answers without the written authorization of the AICPA is a discreditable act.

Front 48

Rule 501 - Rule 501- Five Acts Discreditable.

Back 48

Discrimination and Harassment in Employment Practices; Failure to Follow Standards and/or Procedures or Other Requirements in Governmental Audits; Negligence in the Preparation of Financial Statements or Records; Failure to Follow Requirements of Governmental Bodies, Commissions, or Other Regulatory Agencies in Performing Attest or Similar Functions; Solicitation or Disclosure of CPA Examination Questions.

Front 49

Rule 502 - Interpretation 502-2.

Back 49

CPAs may normally engage in accurate advertising ("commercial speech").

Front 50

Rule 502 - Examples of false, misleading or deceptive acts.

Back 50

Creating false or unjustified expectation of favorable results
Implying the ability to influence a court or agency
Estimating a fee knowing that the amount charged will likely be much higher.

Front 51

Rule 502 - Prohibited by Rule 502.

Back 51

Solicitation by coercion, over-reaching or harassment.

Front 52

Rule 503 - Prohibited Commissions

Back 52

When member also performs:
Audit or review of a financial statement; or
Compilations to be used by third parties; or
Examination of prospective financial information.

Front 53

Rule 503 - Contingent Fees

Back 53

Prohibited for performing:
Any work for attest client
Preparation of tax return or refund
Correcting an omission in original return.

Front 54

Rule 503 - Disclosure

Back 54

Accepting a permitted commission or referral fee must be disclosed to the client.

Front 55

Rule 505 - Interpretation 505-2

Back 55

Member may own interest in separate business that performs nonaudit services for clients.
If member controls the separate business, entity must comply with Code of Professional Conduct.
If member does not control the separate business, Code applies to member but not to the entity.

Front 56

Rule 505 - Interpretation 505-3

Back 56

Majority of financial interests in attest firm must be owned by CPAs
If CPAs who own the attest firm remain financially responsible, public interest will be considered protected.

Front 57

Rule 505 - Member Restrictions

Back 57

A member may practice public accounting only in a form of organization (proprietorship, partnership, professional corporation, limited liability company, limited liability partnership, etc.) permitted by state law whose characteristics conform to AICPA resolutions.

Front 58

Responsibilities in Consulting - Consultants must serve client while maintaining these duties.

Back 58

Integrity
Objectivity
(But not) Independence.

Front 59

Responsibilities in Consulting - Statements on Standards for Consulting Services.

Back 59

SSCS.

Front 60

Responsibilities in Consulting - Types of Consulting Services.

Back 60

Consultations, Advisory Services, Implementation Services, Transaction Services, Staff and Other Support Services, Product Services.

Front 61

Responsibilities in Consulting - To provide counsel in a short time frame based mostly, if not entirely, on existing personal knowledge about client.

Back 61

Consultation.

Front 62

Responsibilities in Consulting - To provide services related to a specific client transaction, generally with a third party.

Back 62

Transaction Services.

Front 63

Responsibilities in Consulting - In applying SSCSs, a member performing consulting services must use

Back 63

Professional judgment.

Front 64

Responsibilities in Consulting - Items about which a consultant should communicate with client.

Back 64

Conflicts of interest
Significant reservations about engagement, and
Significant engagement findings.

Front 65

A. Consultations --

Back 65

To provide counsel in a short time frame based mostly, if not entirely, on existing personal knowledge about client.

Front 66

B. Advisory Services --

Back 66

To develop findings, conclusions, and recommendations for client consideration and decision-making.

Front 67

C. Implementation Services --

Back 67

To place an action plan into effect.

Front 68

D. Transaction Services --

Back 68

To provide services related to a specific client transaction, generally with a third party.

1. Examples -- Insolvency services, valuation services, information related to financing, analysis of a possible merger or acquisition, litigation services.

Front 69

E. Staff and Other Support Services --

Back 69

To provide appropriate staff and possibly other support to perform tasks specified by the client.
1. Examples -- Data processing, facilities management, computer programming, bankruptcy trusteeship, and controllership activities.

Front 70

F. Product Services --

Back 70

To provide the client with a product and associated professional services in support of the installation, use, or maintenance of the product.

1. Examples -- Sale, delivery, installation, and implementation of training programs, computer software, and systems development methodologies.

Front 71

Responsibility in consulting services

Back 71

1. Professional Competence;
2. Due Professional Care;
3. Planning and Supervision;
4. Sufficient Relevant Data.

Front 72

SEC - Audit services that CPAs may not provide to public company audit clients.

Back 72

- Bookkeeping or other services related to the accounting records of financial statements
- Financial information systems design and implementations
- Appraisal or valuation services, fairness opinions, or contributions-in-kind reports
- Actuarial services
- Internal audit outsourcing services
- Management functions or human resources
- Broker or dealer, investment adviser, or investment banking services
- Legal services and expert services unrelated to the audit.

Front 73

SEC - Where AICPA rules conflict with PCAOB rules, who wins?

Back 73

PCAOB.

Front 74

SEC - Who must be rotated under Sarbanes Oxley?

Back 74

Lead audit partner and reviewing partner (5-on/5-off)
Other partners playing a significant role (7-on/2-off).

Front 75

SEC - Lead audit partner and reviewing partner (5-on/5-off)
Other partners playing a significant role (7-on/2-off).

Back 75

This is prohibited for selling nonaudit services.

Front 76

SEC - Requirement of audit firm rotation.

Back 76

Not required by Sarbanes-Oxley.

Front 77

SEC - PCAOB is an acronym for this.

Back 77

Public Company Accounting Oversight Board.

Front 78

SEC - Who hires, compensates, and fires auditors of public companies?

Back 78

The audit committee (composed entirely of independent directors) performs these actions.

Front 79

Sarbanes and PCAOB - The PCOAOB is to establish standards for:

Back 79

Auditing
Quality Control
Ethics
Independence.

Front 80

Sarbanes and PCAOB - Agency that oversees PCAOB.

Back 80

SEC.

Front 81

Sarbanes and PCAOB - PCAOB must do annual audits of firms that do at least how many public company audits each year?

Back 81

100 public company audits.

Front 82

Sarbanes and PCAOB - PCAOB's basic functions.

Back 82

Registering Public Accounting Firms
Setting up Standards
Inspect Public Accounting Firms
Investigating violations
Enforcing Compliance.

Front 83

D. Registration with the PCAOB --

Back 83

1. In order to prepare, issue, or participate in the preparation or issuance of any audit report with respect to any public company, a public accounting firm must register with the PCAOB.

Front 84

D. Registration with the PCAOB -- 2. Information to be disclosed will include:

Back 84

a. Names of all audit clients in the past year;
b. Annual fees for audit and nonaudit services received from each client;
c. A statement of firm quality control policies;
d. A list of all accountants associated with the firm who participated in the audits;
e. Information relating to criminal, civil, or administrative proceedings pending against the firm or any associated person in connection with any audit report;

Front 85

D. Registration with the PCAOB -- 2. Information to be disclosed will include:

Back 85

a. Names of all audit clients in the past year;
b. Annual fees for audit and nonaudit services received from each client;
c. A statement of firm quality control policies;
d. A list of all accountants associated with the firm who participated in the audits;
e. Information relating to criminal, civil, or administrative proceedings pending against the firm or any associated person in connection with any audit report;

Front 86

Gov't Acct Office - GAO standards address these issues.

Back 86

Independence
Ethical Principles
Public Interest
Integrity
Objectivity
Proper use of government information, resources & position
Professional Behavior.

Front 87

Gov't Acct Office - GAO is an acronym for this.

Back 87

Government Accountability Office.

Front 88

Gov't Acct Office - AO is an acronym for this.

Back 88

Auditing Organization.

Front 89

Gov't Acct Office - GAO guidelines apply to those who audit these entities.

Back 89

Government entities
Entities that receive government grants.

Front 90

Gov't Acct Office - Government entities
Entities that receive government grants.

Back 90

Personal Impairments
External Impairments
Organizational Impairments.

Front 91

Gov't Acct Office - When assessing impact of nonaudit services on audit, GAO rules insist on this.

Back 91

AOs must not provide NAS that involve performing management functions or making management decisions; and
AOs must not audit their own work or provide NAS in cases where the NAS are significant to the subject matter of the audit.

Front 92

DOL - EBSA is an acronym for this.

Back 92

Employee Benefits Security Administration.

Front 93

DOL - Primary independence concerns for DOL Independence rules.

Back 93

Financial ties
Employment ties.

Front 94

DOL - DOL is an acronym for this.

Back 94

Department of Labor.

Front 95

DOL - ERISA is an acronym for this.

Back 95

Employee Income Retirement Security Act.

Front 96

IFAC - PABS is an acronym for this.

Back 96

Professional Accountants in Business.

Front 97

IFAC - PAPPS is an acronym for this.

Back 97

Professional Accountants in Public Practice.

Front 98

IFAC - Number of countries that have adopted IFAC Code.

Back 98

Over 100 countries ahve aqdopted this.

Front 99

IFAC - IESBA is an acronym for this.

Back 99

International Ethics Standards Board for Accountants.

Front 100

IFAC - What is the basis of the IFAC Code?

Back 100

It is principles-based.

Front 101

IFAC - Clearly Insignificant.

Back 101

Trivial and Inconsequential.

Front 102

IFAC - Categories of Threats to Independence.

Back 102

Self-Interest Threats
Self-Review Threats
Advocacy Threats
Familiarity Threats
Intimidation Threats.

Front 103

IFAC - IFAC is an acronym for this.

Back 103

IFAC is an acronym for this.

Front 104

IFAC - Two types of safeguards against threats to Independence.

Back 104

Created by profession, legislation or regulation
Present in the workplace
Firm-wide
Engagement-specific.

Front 105

IFAC - Fundamental Principles of IFAC Code.

Back 105

Integrity
Objectivity
Professional Competence
Due Care
Confidentiality
Professional Behavior.

Front 106

IFAC - IFAC Role.

Back 106

It is the global voice for accounting profession.

Front 107

IFAC - Role of PEEC.

Back 107

It monitors IFAC activities and gives U.S. input to IESBA.

Front 108

Responsibilities in Consulting Services

Back 108

I. SSCS
Consulting services that CPAs provide to their clients are governed by Statements on Standards for Consulting Services (SSCS).
II. Consulting Services under SSCS
Consulting services governed by these standards can include one or more of the following types of consulting services:
A. Consultations --
B. Advisory Services --
C. Implementation Services -D. Transaction Services --
E. Staff and Other Support Services --
F. Product Services --

Front 109

A. Consultations --

Back 109

Definition
Consultations : To provide counsel in a short time frame based mostly, if not entirely, on existing personal knowledge about client.
1. Examples -- Reviewing and commenting on client business plan, suggesting software for further client investigation.

Front 110

B. Advisory Services --

Back 110

Definition
Advisory Services : To develop findings, conclusions, and recommendations for client consideration and decision-making.
1. Examples -- Operational review and improvement study, analysis of accounting system, strategic planning assistance, information system advice.

Front 111

C. Implementation Services --

Back 111

Definition
Implementation Services : To place an action plan into effect.
1. Examples -- Installing and supporting computer system, executing steps to improve productivity, assisting with mergers.

Front 112

D. Transaction Services --

Back 112

Transaction Services : To provide services related to a specific client transaction, generally with a third party.
1. Examples -- Insolvency services, valuation services, information related to financing, analysis of a possible merger or acquisition, litigation services.

Front 113

E. Staff and Other Support Services --

Back 113

Staff and Other Support Services : To provide appropriate staff and possibly other support to perform tasks specified by the client.
1. Examples -- Data processing, facilities management, computer programming, bankruptcy trusteeship, and controllership activities.

Front 114

F. Product Services --

Back 114

Product Services : To provide the client with a product and associated professional services in support of the installation, use, or maintenance of the product.
1. Examples -- Sale, delivery, installation, and implementation of training programs, computer software, and systems development methodologies.