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61 Cards in this Set

  • Front
  • Back
General Decision Making Framework
1. structure problem
(2. assess consequences 3. assess risks)
4. evaluate information/evidence gathering alternatives
5. conduct sensitivity analysis
6. gather information/evidence
7. make decision about problem
high quality decisions
unbiased, meet expectations of users, in compliance w/ professional standards, based on sufficient factual information to justify decision
Importance of ethical decision making
professional integrity based on personal moral standards and reinforced by codes of conduct:
-maintain public trust
-monetary benefits from public trust
ethical problem
morally or ethically required to act in way conflicting with personal self interest
ethical dilemma
conflicting moral duties or obligations
Ethical theories
Utilitarian theory
-identification of potential problem
-identify potential impact of actions on stakeholders
-assess "goodness" of each action
-assess greatest good for greatest number
Rights Theory
evaluating actions based on fundamental rights of parties involved-
highest order rights: life, autonomy, dignity
second order: granted by government
third order: social rights
lowest-level: nonessential interests or tastes
ethical framework
-identify issue/s
-identify affected parties and their rights
-determine most important rights
-develop alternative actions
-evaluate likely consequences of each possible action
-assess consequences of each action, including greatest good for greatest number and whether rights framwork would cause any action to be eliminated
-decide appropriate action
SOX Titles
Title 1: PCAOB
Title 2: Auditor Independence
Title 3: Corporate Responsibility
Title 4: Enhanced financial disclosure
Section 5: Analysts conflict of interest
Section 6: Commission Resources and Authority
Section 7: Studies and Reports
Section 8: Corporate and Criminal Fraud Accountability
Title 9: White-Collar Crime Penalty Enhancements
Title 10: Corporate Tax Returns
Title 11: Corporate Fraud and Accountability
SOX 101
establishment and administrative provisions:
-nonprof, non governmental
-5 members w/ integrity and reputation-commitment to interest of public
-authority to set audit standards and inspect registered CPA firms
SOX 102
accounting firms auditing public companies must register with PCAOB
SOX 103
Regarding firms auditing public companies:
-establish/adopt rules on conduct of audits and audit firm quality control standards
-audit firms must describe scope of internal control tests
SOX 104
PCAOB will:
-inspect registered acct firms auditing more then 100 issuers
-every 3 yrs inspect acct firms auditing less than 100 issuers
-publicly report results of inspections
SOX 105
PCAOB will:
-adopt disciplining procedures for registered firms
-require firms to provide documentation and testimony necesary to conduct investigations
-sanction firms for noncooperation
SOX 108
Accounting Standards:
SEC recognize GAAP established by standard setter meeting Act's criteria
SOX 201
registered firms may not perform services outside scope of audit: bookkeeping, system design, appraisal services, internal audit (tax only w/ preapproval)
SOX 203
Audit partner rotation: lead and reviewing partnater must rotate every 5 yrs
SOX 204
Auditor reports ot Audit Committees:
-critical acct policies and practices
-alternative treatments of financial information with GAAP considered by mgmt and preferred by acct firm
-significant written communication b/w firm and mgmt
SOX 207
mandatory rotation of public accounting firms studied by Comptroller General of US (GAO)
SOX 301
Audit Committees:
-directly responsible for appointment, compensation, and oversight of registered firm
-each member must be independent
-must establish "whistleblowing" mechanism
-authority to engage their own independent counsel
-issuers must adequatly fund committee
SOX 302
Corporate Responsibility (CEO, CFO must sign off on report)
-certify quarterly and annual reports filed with SEC: no untrue statements of material facts, disclosures and financials fairly presented
-establish and maintain effective internal controls
-design, asses, disclose material deficiencies in controls
SOX 906
penalties for corporate directors who knowingly provide incorrect certification
SOX 401
disclosures in periodic reports:
-accordance with GAAP
-material off-BS transactions and other unconsolidated entities must be disclosed
-SEC issue new rules on pro forma figures, study off-BS transactions and use of SPE's
SOX 404
mgmt assessment of internal controls-annual reports:
- responsibility of mgmt for establishing and maintaining adequate internal control structure + procedures
-assessment of effectiveness of structure + procedures
-each registered acct firm must attest and report on mgmt assessment not the subject of seperate engagement (integrated audit)
International Ethics Standards Board for Accountants (IESBA)
5 fundamental principles:
-professional competence and due care
-professional behavior
straight forward and honest in performing services
no bias, conflict of interest, or undue influence of others to override judgments
professional competence and due care
maintain professional knowledge and skill, act diligently and in accord with technical and professional standards
respect confidentiality of information, don't disclose info to third parties w/o proper authority unless legal or professional right/duty to do so, don't use for personal advantage
professional behavior
comply w/ relevant laws and regulations and avoid action that discredits profession
Formal self-regulatory mechanisms for professional conduct
- if not covered by codes, use common sense, moral value, and framework outlined to resolve situation
Code/Principles of Professional Conduct: AICPA
-public interest
-objectivity and independence
-due care
-scope and nature of services
AICPA Rules of Conduct
detailed guidance reflecting broad principles- specifically enforceable under bylaws of AICPA- most apply to ALL cpa's
Rules of Conduct: Rule 101
Rules of Conduct: Rule 102
integrity and objectivity
Rules of Conduct: Rule 201
General Standards:
-professional competence
-due professional care
-planning and supervision
-sufficient relevant data
Rules of Conduct: Rule 202
compliance w/ standards
Rules of Conduct: Rule 203
Accounting Principles-
compliance with gaap and materiality
Rules of Conduct: Rule 302
contingent fees:
-no professional services for contingent fees by member's who perform an audit or review of financials, a compilation of financial statements used by third party, examination of prospective financial information
-may not prepare orginial or amended tax return for refund for a contingent fee
Rules of Conduct: Rule 501
member shall not commit an act discreditable to profession
Rules of Conduct: Rule 502
Advertising and other forms of solicitation:
-members in public practice may not seek clients by advertising/soliciting in false, misleading, or deceptive manner
-coercion, overreaching, or harassing solicitation is prohibited
Rules of Conduct: Rule 503
Commissions and Referral fees:
a. prohibited commissions:
-refer/recommend client any product or service
-refer/recommend product or service supplied by client
b. disclosure of permitted commissions
c. disclosure of permitted referral fees
Rules of Conduct: Rule 505
Form of Organization or Name
- member can't practice under firm with misleading name
-firm may not designate iteself as members of AICPA unless ALL CPA owners are members
Independence: Financial Interest
-applies only to covered members and immediate family- directly or indirectly
covered members
-individual on the attest engagement team
-individual in position to influence attest engagement
-partner in office in which lead attest engagement partner primarily practices in connection with attest engagement
direct financial interest
financial interest owned directly by, or under the control of, an individual or entity or beneficially owned through an investment vehicle, estate, or trust when beneficiary controls the intermediary or has authority to supervise participant in investment decision (5%)
indirect financial interest
beneficiary neither controls the intermediary nor has the authority to supervise or participate in investment decisions (5%)
Family Relationships
covered member's independence impaired if:
family member/close relative employed by audit client in key position (i.e. CEO, CFO, chief accountant, member of BOD, chief internal audit exec, treasurer)
limits on types and amts of loans covered members may obtain from financial institution that is also audit client- no large loans, or loans for investment purposes
allowable: "normal" loans-standard terms (i.e. auto loan or lease)
Performing non-audit services
mgmt must not cede decision making authority to CPA (daily operations)
Allowable circumstances for communicating confidential information
-assure adequacy of accounting disclosures required by GAAP/GAAS
-comply w/ subpoena,summons, law, gov't regulation
-relevant info for outside quality review to AICPA, PCAOB or state board of accountancy
-to initiate complaint or respond to inquiry to/for relevant authority
privileged communication
confidential info cannot be subpoenaed by court to be used against client- allowed for lawyers but (in most cases) not auditors
contingent fee
fee established for the performance of any service in which a fee will not be collected unless a specified finding or result is attained, or amount of fee depends on the finding or result of such service
Goals of independence
1. high quality audits by minimizing external factors influncing auditors judgments- professional skepticism and willingness to decide in unbiased and objective manner
2. promote investor confidence
Impaired auditor independence-SEC- Regulation S-X Rule 2-01
Relationships that:
-create mutual or conflicting interest between accountant and client
-accountant audits his own work
-accountant acts as mgmt or employee of client
-acct advocates for client
Regulation S-X Rule 2-01- prohibited non-audit services
-bookkeeping or other services related to accounting records of client
-financial info systems design and implemenatation
-appraisal and valuation services, fairness opinions, or contribution-in-kind reports
-actuarial services
-internal audit outsourcing services
-mgmt functions
-human resources
-broker-dealer, investment adviser, or investment banking services
-legal service
-expert services unrelated to audit
Prohibited tax-related services
-tax services to certain members of mgmt and immediate family members in financial oversight roles
-services related to marketing, planning,, or operating in favor of tax treatment of confidential transactions based on aggressive interpretations of applicable laws and regulations
Major Threats to Independence
-compensation schemes
-Who is the client? (stakeholders)
- Familiarity w/ client
-Time Pressures
-Rationalizing behavior
-providing non-audit services
Managing threats to independence
-establishing and monitoring codes of conduct
-developing appropriate compensation schemes
-high-level reviews of decisions in accepting/retaining clients
-separating consulting activities from audit activities
-performing w/in-firm reviews of audit work and documentation-perfroming reviews and inspections w/in profession
concurring partner
audit partner who is not otherwise conneted with the audit client or involved in the conduct of the audit engagement who provides an independent review of the engagement prior to issuance of an audit opinion