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Audit Final: Chapter 19

Terms in this set (48)

Ethics
Doing the right thing based on morals. Does it pass the mom test?
Professionalism
Behaving in the way your job entails, doing what people expect you to do in your profession.
Being an accountant requires...
integrity and professionalism, because we SELL integrity! Need unquestioned character and integrity... how we handle the small things in life indicates how we'll handle the big things.
Professionalism and Ethics Standards: Private Company Source
AS from ASB (and AICPA). GAAS from AICPA and ISB.
Professionalism and Ethics Standards: Public Company Source
PCAOB, ISB, and really strict standards from the SEC
Code of Profesional Conduct: Principles
very soft, unenforceable. 6 standards: 1: Sensible and moral judgement. 2: Work for Public (public interest). 3: Integrity at the highest level. 4: Be objective and independent. 5: Practice Due Care. 6: Scope and nature of service.
Code of Profesional Conduct: Rules
Our minimal standards. These are enforceable! Huge rule list, we list several important ones in chap 19 and 20 flashcards.
Code of Profesional Conduct: Interpretations
They are interpretations of the rules, they are very detailed. May have pages-long interpretations for a 1-sentence rule.
Code of Profesional Conduct: Rulings
Interpretations of interpretations... even worse than interpretations. They are also super detailed.
Individual Independence Rules: Who follows all of them?
Audits and reviews follow all of them. Tax return servicers it depends.
Individual Independence Rules: Covered Member
First stepd to determining independence. Covered members are any partner for all of the p/s clients, members of the audit team, mangager of the team, manager/partner helping more than 10hours, the firm, people that influencethe audit team, and spouses and family of each of these.
Individual Independence Rules: Direct or indirect finanical interest
A covered member must see if they have either of thse. Direct would be that individual owns stock, bonds, or loans to the client. Indirect would be like you have money in a trust that has invested in the client.
Individual Independence Rules: Blind Trusts
For congress blind trusts are okay, but for accountants its STILL not acceptable!
Individual Independence Rules: Exceptions, assuming normal terms...
Car loan/lease collateralized by vehicle, CSV of insurance policy collateralized by policy, Cash deposit at lending institution collateralized by deposit account, Credit card up to $10k kept current at end of month.
Individual Independence Rules: Mortgages as Exceptions?
They are NOT allowed as exceptions.
Individual Independence Rules: Insurance Policies as Exceptions?
Insurance policies are genrerally okay unless they have an investment option.
Individual Independence Rules: Client employee (non-public or public company) moves to audit firm that does the audit-years at client
The audit years at client must have passed before they can join the engagement team. Usually a 3-year lag because most F/S report current year as well as the 2 prior years. If you worked in 2009 and 2009 is somehow still on their F/S you can't work for the client.
Individual Independence Rules: CPA moves to client (non-public company, Key Position)
If you take a key-position you must disconnect yourself from the firm (remove insurance from firm, switch to a new 401k, etc)
What is a Key Position / Financial Reporitng Oversight Role?
Someone with the ability to oversee financial reporting. It is NOT dependent on the title, but the responsibility the position has. Could even be head of HR if they report directly to the CEO, etc.. Position with firm beforehand doesn't matter. Can't have an interest in the firm if you're in a key position.
Individual Independence Rules: CPA moves to client (public company, Key Position)
can't move to the client for one year after having worked on or for that client. This is the "cooling off" period. Either quit the firm for a year or notify the firm and stay off the client. Firm will probably treat you well because they'd want you as a happy firm alumni on their client.
Individual Independence Rules: CPA moves to any client, not a Key Position
no issue.
Individual Independence Rules: Informing firm
Even if it's just your friend moving to the client and not you, you still have to tell the firm, because you now know, and are now involved. If you help your friend hide the fact that they are going to work for the client that they are on, even if you're not on the client it can still affect your integrity.
Firm Independence Rules: Non-audit Services, Non-Public Client Audit
Can't perform management functions, but can provide advice.
Firm Independence Rules: Non-audit Services, Public Client Audit
Never be in a position to be auditing your own work. Can't be serving as management or a client advocate. See: 9 Deadly Sins
The 9 Deadly Sins
Bookkeeping/similar activities, Financial Information Systems Design and Implementation, Appraisal or valuation services / fairness opinions / contribution-in-kind reports, Actuarial Services, Internal Audit outsourcing Services, Management functions or HR, Broker / dealer / investment adviser / investment banking servies, legal services, expert services
The 9 Deadly Sins: Easiest 4 to remember for exam
Bookkeeping, Actuarial Services, Legal Services, Expert Services
Firm Independence Rules: Taxes
Iffy. Audit client? Can do tax accruals and COMPANY tax returns (but no tax returns for key-figures). For all clients: no tax-shelter consulting.
Firm Independence Rules: 5-Year Rule
Partners can only be on an engagement for 5 years. 5 years on, 5 years off. Getting to know the client in the last year so that transition is smooth doesn't count as long as that partner doesn't make any audit decisions.
Firm Independence Rules: Communication with Audit Committee
Meet with AC every quarter, review all significant communications. AC determines the payment, etc (obv we are free to decline services if we want more or something)
Firm Independence Rules: Consulting Partners
7 years on the client, 2 years off.
Other Rules: Rule 102
Maintain Integrity!
Other Rules:
Rules 102, 201, 202, 203.
Rules Definitely on the Exam:
301, 302, 503
Rule 102
Maintain Integrity
Rule 201
Essentially, follow GAAS. Specifically, do/have the following: Professonal Copmetence, Due Professional Care, Planning and Supervision,. Sufficient Relevant Data.
Rule 202
Use approved Accounting Standards. (members of the AICPA must comply with professional standards).
Rule 203
Can't say F/S conforms to GAAP if they don't.
Rule 301***
Limited Circumstances wher eyou can discuss confidential client information without client permission. Circumstances: W/P subpoened, disciplinary action against the firm, quality control reviews, limited items if selling the audit practice (fees, audit hours, etc).
Rule 302***
Contingent Fees are disallowed. Preformance/result-based. BUT you can adjust fees for complexity of the audit and whatnot (public company is more risky, can increase price).
Rule 501
Can be removed from the profession (just from the AICPA) if you do any of the following (there are more but I've only listed the easiest): Discrimination and harrassment in employment practices, Failure to follow standards in government audits, failure to file tax return or pay tax liability, financial interests, confidential information obtained from employment.
Rule 503***
Comissions for referrals or anything cannot be recieved. The act of referral is allowed, because it wasn't consulting because you weren't paid to come up with the suggestion.
Rule 505
Can only practice public accounting in an approved organization form (LLPs, etc). Also can't have misleading company names.
Quality Control Reviews (QCR Reports)
A huge thorn of auditors, pretty much an audit of the firm's audit work. Is the audit work quality? Performed by either PCAOB or AICPA
Quality Control Reviews (QCR Reports): Firms of Public Companies
PCAOB does the review. Selects lots of clients of past years and looks at the workpapers, etc. Uses offices all over the country. Process lasts ~6 months. Checks for issues or deviations from typical audits / firm policy / GAAS and GAAP.
How often do Firms of Public Companies go through QCR?
If more than 100 audit reports a year, audited every year. Less than 100? Every 3 years.
Quality Control Reviews (QCR Reports): Firms with no public clients
AICPA does the review. Audited no less than once every 3 and 1/2 years, but as often as AICPA wants. Checks for same stuff as PCAOB.
Who wrote the code of professional conduct?
The AICPA
If a client has not paid a PY audit fee, when will the auditor be concidered independent?
the auditor will be independent for the current year report as long as the auditor is paid before the current year report is issued.
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