1. Accountants are subject to the rules and regulations of (3)
    • Professional Organizations
    • Federal Governmental Entities
    • State Governmental Entities
  2. the national professinal organization for CPAs - similar to the AMA for doctors - provide resources and information to members and coordinate activities with state CPA socieities
  3. promulgates the AICPA code of professional conduct and sanctions members for violations(usually follows an action by the state board, the SEC, the PCAOB, the IRS, etc.)
    The professional ethics division of the AICPA
  4. the OSCPA in oklahoma, a statewide
    organization for CPAs - provide information and resources on national and state wide issues may advocate for(or against) legislation and or regulation
    state cpa society
  5. encourages global adoption of high ethical standards, the AICPA is a member of this - the global ethics code is a foundation for the AICPA ethics code
  6. Empowered by COngress to regulate financial reporting by publicly held companies- they also establish and enforce rules on accounting and auditing- including rules on auditor independence
  7. created by passage of SOX, overseen by the SEC, they establish rules with respect to auditing and other attestation engagements, quality control of audits, and independence of public company auditors
  8. a branch of the US treasury which is authorized by the internal revenue code to issue rules and regulations to enforce US law
  9. Issue the rules with respect to government audits, often referred to as the Yellow Book - these include ethics and independence rules that apply to individuals and entities that carry out these audits
  10. issue rules with respect to the auid of employee benefit plans - these include independence rules that apply to such auditors
  11. auditors of banks, savings and loans, credit unions, and other financial institutions are subject to separate rules promulgated by entities such as
    the FDIC FSLIC
  12. insurance is regulated by the states - audits of insurance entitites may be governed to some extent by state statutes and or rulings of state insurance commissions
    insurance regulators
  13. issues your license, frontline of oversight on ethical behavior
    state board of public accountancy
  14. state ethics codes may
    be created entirealy separately from AICPA rules, be very similar to AICPA rules, simply incorporate AICPA rules
  15. to whom does the AICPA code of professional conduct apply? All members, including those in:(4)
    • public practice
    • private industry
    • governement
    • education
  16. AICPA code of professional conduct recognizes responsibility to (3)
    • public
    • clients
    • colleagues
  17. requires responsibility more than just following the law
    helps maintain public confidence in the profession
    requires unswerving commitment to honorable behavior, even at personal sacrifice
    the AICPA code of professional conduct
  18. rules or standards governing the conduct of members of a profession
    AICPA definition of ethics
  19. the collective well being of the people and institutions the profession serves
    public interest
  20. six principles of AICPA Code
    • Responsibility
    • Public Interest
    • Integrity
    • Objectivity and Independence
    • Due Care
    • Scope and Nature of Services
  21. exercise sensitive professional and moral judgment in ALL your activities
  22. act in a manner that:
    serves the public interest
    honors the public trust bestowed on you
    demonstrates your commitment to professionalism
    public interest
  23. in order to maintain and broaden public confidence, you must perform all your professional responsibilities with the highest sense of this
  24. maintain ____ and be free of conflicts of interest in discharging your professional dutites
  25. if you work for a public accounting firms that provides audit and attestation services, you should be ______ in fact and in appearance
  26. means that you are impartial, intellectually honest, free of conflicts of interest
  27. means you are not involved in relationships that may appear to impair your objectivity
  28. follow the technical and ethical standards of the profession - always try to inprove your competence - the quality of your service - carry out your professional responsibilities to the best of your ability
    due care
  29. observe all of the preceding principles in determining the scope and nature of services that you will provide
    scope and nature of services
  30. in performing professional services, you must:
    maintaining objectivity and integrity
    be free of conflicts of interest
    not knowingly misrepresent facts or subordinate your judgement to others
    Rule 102 integrity and objectivity
  31. You CANNOT (3)
    • make misleading entries
    • fail to correct financial statements
    • sign off on someone who is making a misleading statement
  32. if you work for an entitiy that has an outside accountant or auditor -(3)
    • you must be candid
    • you cant knowingly misrepresent facts
    • you can't knowingly fail to disclose material facts
  33. 3 steps if you and your supervisor disagree about the preparation of financial statements
    • 1. consider wheter it is acceptable and doesnt misrepresent the facts
    • 2. if you still disagree make your concerns known to appropriate higher levels of management
    • 3. if not consider relationship with employer, responsibilities to communicate to third parties, consult lawyer
  34. you must consider whether your objectivity is impaired when you offer or accept gifts or entertainment to or from: (3)
    • one of your clients
    • one of your company's customers
    • one of your company's vendors
  35. your objectivity is not considered to be impaired if the gift or entertainment is _____ in the circumstances
  36. means that you should:
    observe the technhical standards of the accounting profession
    always strive to improve your competence and service quality
    carry out your professional responsibilities to the best of your ability
    due care and competence
  37. requires you to:
    do your job with competence and diligence
    perforn servuces to the best of your abilities
    serve the best interests of those for whom services are performed, consistent with the profession's responsibility to the public
    due care and diligence
  38. you should NOT indicate that a company's financial information comply with ____ if they contain any departure from an accounting principle- rare exception: information departs from _____ because to do otherwise would make it misleading
  39. exceptions when you can disclose confidential client information
    • to comply with the requirements of other professional standards
    • to respond to a valid subpoena or summons or comply with a law or regulation
    • in conjunction with a peer review
    • to iniate a complaint with or respond to inquiries made in connection with an investigation or disciplinary proceeding
  40. acts that could harm the good name or reputation of the accouting profession - illegal acts like theft or funds or insider trading obviously come under this heading - but there are less obvious issues such as client records
    acts discreditable to the profession
  41. if a client asks for his records back:
    you need to return them promptly
  42. if the engagement isn't complete and your client asks you for his records bakc you may
    withhold: records prepared by you and supporting records
  43. if you outsource services to third party service providers you must:
    • inform the client
    • oversee the providers work to ensure standards are met
    • enter into a contractual arragement with the contractor to maintain the confidentiality
  44. Rules that only aply to CPAs in public practice
    • you can't advertise in a manner that is false, misleeading, or deceptive
    • you can't solicit through the use of coercion, over-reaching, or harassing conduct
    • use only a form of organization thats permited by law
    • name can't be misleading
    • name can include names of past ownders
    • designate as member of AICPA only if ALL CPA owners are AICPA members
  45. result of ethical infractions
    • can leaad to an inverstigation by serveral bodies
    • consequences may be:
    • loss of your CPA license
    • expulsion from AICPA or OSCPA
    • Fines and lega liabilities
  46. This framework is used to set independence standards and to resolve cases where an issue is not specifically addressed.
    AICPA conceptual framework for Independence
  47. To apply the AICPA Conceptual Framework
    • •STEP 1: Identify threats to independence that arise from the circumstances
    • STEP 2: Consider whether there are safeguards that could reduce or eliminate the threat(s)
    • STEP 3: If you can’t reduce or eliminate the threat, your independence is impaired
  48. A _______________ is anyone in the firm who must avoid certain financial and business relationships with an attest client to maintain independence.
    covered member
  49. You're a covered member if you are in any category of persons who are presumed able to
    influence the attest engagement with the client
  50. List who would be a covered member
    • The firm
    • an individual on the client's attest engagement team
    • a partner or manager in the firm who provides 10 or more hours of non attest services to an attest client within any fiscal year
    • partners who practice in the same office in which the lead engagement partner practices
    • individuals in position to influence the engagement
  51. independence typically extends to the immediate family members of covered members. Immediate family includes
    • spouse or spousal equivalents
    • dependents
  52. Exception to covered member family rule
    • if and only if a covered member because they are a partner or manager who provides 10 hours or more a year of non attest service
    • they are a partner in the same office in which they lead attest partner on the engagement practices but they don't influence the engagement in any other way
  53. generally a member of your immediate family may be employed by an attest client without impairing your independence as long as he/she does not hold a
    key position
  54. an idividual who has primary responsibility for significan accounting functions that support material components of the financial statements
    has primary responsibility for preparing the financial statement
    can exercise influence over the content of the financial statements
    key positions
  55. do not rely solely on job title to determine whether an individual is in a key position look at
  56. employment of your close relatives is subject to some restrictions if you are a covered member because you are
    • on the client's attest engagement team
    • able to influence the attest engagement
    • a partner in the office with the lead engagement partner
  57. Close relatives include
    • your non dependent children
    • your brothers and sisters
    • your parents
  58. employment of your close relatives is subject to some restrictions if you are a covered member because you are
    • on the clients attest engagement team
    • able to influence the attest engagement
    • a partner in the office with the lead engagement partner
  59. if you're one of the specified covered members, then your independence would be impaired if one of your relatives is employed in a _____ _____ by your attest client
    key position
  60. employment of your close relatives is subject to some restrictions if you are a covered member because you are
    • on the clients attest engagement team
    • able to influence the attest engagement
    • a partner in the office with a lead engagement partner
  61. Independence is required when you perform
    • financial statement audits
    • financial reviews
    • other attestation services as defined in the attestation standards
  62. independence is not required if you perform
    • a compilation
    • tax preparation and advice that is not part of a financial statement audit or review
    • financial planning
    • other consulting services
  63. periods during which independence is required
    • begins when a firm accepts a new attest client
    • continues through professional engagement
    • ends when the firm or client terminates the professional engagement
  64. independence is considered impaired if a covered member has a direct __________ _________ in an attest client
    there is no _____________ threshold. Any amount impairs independence
    • financial interest
    • materiality
  65. independence is considered impaired if a covered member has a _____ _____ financial interest in an attest client
    -must be material to the covered member's net worth before it is considered to impair independence
    -no qualitative benchmark
    -requires judgment and includes both quantitative and qualitative factors
    material indirect
  66. exceptions to the investment being compared a direct financial investment
    • the covered member supervised or participated in the limited partnership's investment decisions or
    • the covered member was a general partner rather than a limited partner in the limited partnership
  67. with regard to independence owning shares in a mutual fund is
    • a direct financial interest in the mutual fund AND
    • an indirect financial interest in the companies whose stock make up the mutual fund portfolio
  68. If a mutual fund is diversified, owning __ or less of the outstanding shares of the fund would not be considered a material, indirect financial interest in the underlying investment
  69. If you acquire a financial interest unexpectedly through gift or inheritance, independence is not considered impaired as long as
    you dispose of the financial interest as soon as practicable but no later than 30 days after you become aware of the interest and have the right to dispose of it
  70. your accounting firm hires an individual who was formerly employed by your client what about independence?
    • would be impaired if this individual participated in the attest engagement or was in a position to influence the attest engagement for any period that covered his affiliation with the client
    • this rule applies to former employees of the cliented
  71. to avoid the preceding problem, persons associated with the client must disassociate themselves before becoming a covered member by
    • disposing of financial interests in the client
    • collecting or repaying any loans with the client
    • ceasing to participate in the clients benefit plans
    • liquidating or transferring all vested benefits in the client's compensation and benefit plans at the earliest date
  72. sometimes a covered member as an investment in a non client that has a significant relationship with an attest client does this impair independence
    it may
  73. The covered member ______ invest in a nonclient subsidiary of a client s the parent. For example if Papa co is the client company and baby co is a subsidiary of papa co, the covered member cannot invest in baby co
    may not
  74. presumed to exist when the investor owns 20-50% of the investee
    significat influence
  75. In general a covered member cannot loan money to a client or get a loan from a client. Independence is impaired by any loans to or from
    • an attest client
    • any officer or director of the attest client
    • a stockholder of the attest client who has an interest of 10% or more in the client
  76. With regard to independence loans that are permitted from financial institutions
    • car loans that are fully collateralized by the vehicle
    • cred cards and overdraft reserve accounts where the balance is reduced each credit cycle to $10,000 or less
    • Loans that are fully collateralized by cash deposits at the same financial institution or by the cash surrender value of a life insurance policy
  77. Independence will not be impaired by home mortgages, unsecured loans that are not material to your net worth, and other secured loans if they meet the following condidtions
    • you obtained the loan before becoming a covered member or
    • you obtained the loan before the financial institution became an attest client
  78. independence is or is not impaired if a covered member has a joint, closely held investment with an attest client that is material to the covered member's worth
    is impaired
  79. exists if the covered member and the client individually or jointly control the investment
    joint, closely-held investment
  80. are prohibited from having financial interests in an attest client that consitute more than 5% of the client's outstanding equity securities
    all partners and professional employees
  81. A memo or engagement letter should include
    • The objectives of the engagement
    • The services to be performed
    • The CPA’s responsibilities
    • The client’s acceptance of its responsibilities
    • Any limitations of the engagement.
  82. If you fail to do an engagement letter for the services with the client
    • It doesn’t impair your independence for the attest services as long as you’ve established a clear understanding with the client.
    • But you would be in violation of Rule 202, which requires that you comply with applicable standards for your profession.
  83. In nonattest services the client must accept responsibility and
    • Designate someone with suitable skill, knowledge, and/or experience (preferably someone in senior management) to oversee the services performed
    • Evaluate the adequacy and results of services; and
    • Make management decisions and perform management functions.
  84. When performing non-attest services for an attest client, you may NOT do any of these things
    • authorizing a transaction
    • preparing source documents that evidnece the occurence of a transaction
    • having custody of client assets
    • supervising client emploees in performing normal, recurring activities
  85. bookkeeping services that would not impair independence
    • recording transactions for which mgt has determined the right accounting classifications
    • preparing financial statements from info in the trial balance
    • posting client approved entries to a client's trial balance
    • proposed standard, adjusting, or correcting journal entries
  86. bookkeeping services that would impair independence
    • determining or changing journal entries etc without obtaining client approval
    • authorizing or approving transactions
    • preparing source documents
    • making changes to source documents without client approval
  87. In some instances the covered member cannot serve as trustee of a trust or admin or executor of an estate if
    that trust or estate had or was committed to acquire any direct financial interest in an attest client or material indirect financial interest in an attest client
  88. Partners and professionals in the firm may not be associated with the client as
    • a director, officer, employee, or any capacity equivalent to a member of managment
    • a promoter, underwriter, or voting trustee
  89. Independence is considered to be impaired if any parner or professional in the firm
    • has a financial interest in an attest client exceeding 5% of the entitiy's outstanding securities
    • is a director, officer, or employee of the client
    • is a promoter, underwriter, or voting trustee of the client
    • is a trustee of any pension or profit sharing trust of a client
  90. may be impaired if you accept or are even considering certain employment positions with an attest client
  91. if you assume a key position with the client there are several more steps you must take after you leave the firm in order for the firm to maintain independence:
    cut all financial and professional ties to the firm
  92. litigation events that would likely impair independence
    • if the client alleges audit deficiencies and takes legal action or threates to take legal action against the client
    • NOT if threatened legal action does not relate to performance of an attest engagement AND amount involved is not material to either you or the client
  93. clause in the engagement letter indicating that the client would release you from liability and costs resulting from knowing misrepresentations by management (Does not impair independence)
    The client asks you to agree to in indemnify him for the costs that relate to legal action that arises directly or indirectly from client acts(impairs independence)
  94. you dont charge the client unless a specific result is attained or the amount of the fee depends on the results.
    You may NOT have one for any professional services if you perform:
    audit or review of financial statements
    compilation of a financial statement when you do not disclose lack of indpendence
    examination of prospective finacial statements
    contingent fee
  95. you may not perform any of the following for a contingent fee:
    • an original or amended tax return
    • a claim for a tax refund
  96. Fees aren't regarded as contingent fees:
    • if they're fixed by courts or other public authorities
    • In a tax case, if they're determined based on results of judicial proceedings or findings of governmental agencies
  97. a fee you receive for recommending someone's products or services to someone else
  98. If you're in public practice and performing attest services for a client, you may not do any of the following for a commission
    • recommend someone else's products or services to a client
    • recommend a client's products or services to someone else
    • perform services for your client
  99. If you’re not prohibited from a commission arrangement and will be paying or receiving a referral fee or commission, you __________ _________the arrangement to the party to whom the products or services are being recommended.
  100. if your client has not paid what he owes you
    you independence may be impaired
  101. If your client is a privately-held company, you must adhere to the rules
    of the AICPA and your state board.
  102. If your client is a publicly-held company and/or an SEC registrant, then you must also adhere to the rules in addition to the rules of the AICPA and your state board
    of the SEC and the PCAOB.
  103. rules establish a general standard of independence and then identify particular circumstances in which independence would be considered impaired.
  104. The SEC consideres independence impaired if
    you are not independent in fact or if a reasonable investor would conclude you are not independent(in appearance)
  105. The SEC may look to four basic principles in evaluating independence in a particular situation
    • does it create a mutual or conflicting interest
    • does the firm subsequently audit its own work
    • does the firm act as management or an employee to the client
    • does the firm advocate for the client
  106. If there's any possibility that the client may go public follow the more-restrictive
    SEC rules
  107. Under SEC rules individuals who consult with the attest engagement team on techincal or industry related matters are regared as
    members of the attest engagement and therefore covered members
  108. SEC rules regard a jointly held investment as an impairment of independence regardless of
  109. Under SEC rules LP agreements and leasing interests are
    not allowed
  110. The SEC prohibits you (covered member) from having an insurance policy with the client unless:
    • It was taken out before you were a covered member AND
    • The likelihood of the insurer becoming insolvent is remote
  111. Under SEC rules You can’t have a checking, savings, or other depository account with the client IF
    the balance exceeds federal or state insurance limits.
  112. Under SEC rules A broker/dealer account with the client is permitted as long as:
    • It is SIPC insured
    • The only assets it holds are cash and securities
  113. Under SEC rules immediate family members can have financial interest in a client through their employer retirement or other benefit plan only if
    • it results as an unavoidable consequence of participation in the employer's benefit plan AND
    • It is disposed of as soon as practicable and within 30 days of the time the employee has the right to dispose of the interest
  114. Under SEC rules close realatives include
    parents, nondependent children, and siblings
  115. Under SEC Rules - Employement of Close Relatives by the Client
    Independence is impaired if a covered member has a close relative employed in a key position with the client
  116. Under SEC rules firm partners or professional employees who are subsequently employed by an attest client require a ____________________ before a former employee of the firm can be in a position of financial reporting oversight for an audit client
    one year cooling off period
  117. If the client is an SEC registrant you ________ perform the following non attest services for them: Bookkeeping–Valuation, appraisal, and actuarial services—unless solely for non-financial reporting purposes, e.g., transfer pricing for tax purposes or to help client understand methods employed by a third party.–Financial information systems design (though you can design and implement systems not at all related to financial reporting)–Human resource services (though you may interview candidates and advise the client on their competence for financial positions)–Legal services–Expert services (e.g., forensic accounting)–Internal audit services
    may not
  118. Your independence is impaired if you provide services to an audit client that involve marketing, planning, or opining in favor of
    a confidential transaction or an aggressive tax position.
  119. one in which the client pays a fee to an advisor and then agrees (at the request of the advisor) not to disclose the advisor’s strategy, tax treatment, or structuring. The secrecy suggests a potentially abusive transaction
    confidential transaction
  120. one whose significant purpose is tax avoidance. Such a transaction could cause the auditor and client to have an inappropriate shared interest.
    An aggressive tax position
  121. Under SEC rules Audit firms ____________ personal tax services to members of the client’s management who are in financial reporting oversight roles, or to their immediate families.
    may not provide
  122. Audit parter rotation under SEC rules
    Lead and concurring partners?
    Other audit partners?
    exception for firms with <6 public clients and?
    • 5 on; 5 off
    • 7 on; 2 off
    • < 10 partners
  123. Under SEC rules, your independence is impaired if there is a contractual clause that releases you from liability for your own negligent acts.
  124. The SEC may raise issues if one audit client or group of such clients provides ___ or more of the audit firm’s total revenues.
  125. The PCAOB requires that at least annually, you must communicate to the client’s audit committee:
    • relationships that may reasonably bear on independence
    • a statement saying in your professional judgement the firm is independent
  126. The firm should maintaint to documents to help you ensure your independence with auit clients
    • the firms independence policies
    • the firm's client risk
  127. for audits involving governemental entites or government contracts
  128. for pension plan audits
  129. Banking regulators for audits of enitities insured by the
    FDIC and FSLIC
  130. GAO standards apply to:
    • Auditors employed by the federal government
    • Auditors and audit firms in public accounting who audit a governmental entity or government contract
  131. The book of GAO standards is referred to as the
    Yellow book
  132. The yellow book addresses five ethical principals:
    • Public interest
    • Integrity
    • Objectivity
    • Professional Behavior
    • Proper use of governement information, resources, and position
  133. Under GAO you are permitted to provide routine advice, which includes advice on:
    • accounting and othe technical questions
    • establishing or assessing internal controls
    • implementing audit recommendations
    • limited training
    • tools and methodologies
  134. under GAO rules you may provide
    limited bookkeping assitance
  135. U.S. department of labor standards apply to
    audits of employee benefit plans
  136. Under DOL covered members or 'members' include
    • owners, partners or shareholders with firm
    • professional employees who participate in the audit
    • all professional employees who are located in an office that participates in a significant portion of the audit
  137. these policies deal with such issues as corporate governance rules, internal audit outsourcing, and auditor indemnification clauses.
    policy statements by the FDIC, FSLIC, federal regulators
  138. The following promulgate standards for tax practice
    • AICPA
    • State accountancy boards
    • IRS
  139. AICPA tax standards are referred to as
    Statements on Standards for Tax Services (SSTS)
  140. Members who engage in tax service is responsible to two clients
    • the tax payers
    • the tax system
  141. the __________ has the ultimate responsibility for the contents of the return; but the ______ is expected to exercise due diligence in preparing the return
    • tax payer
    • member
  142. SSTS 1: Tax return position
    A tax return position is a position
    • reflected on a tax return on which you've specifically advised a tax payer or
    • about which you have knowledge of all material facts and on the basis of those facts, have concluded whether the position is appropriate
  143. You should not recommend a tax return position or prepare or sign a tax return taking a position unless you have a good-faith belief that the position has at least a ____________ ______- of being sustained administratively or judicially on its merits if challenged.
    realistic possibility
  144. a member may _____________ if the member confludes that there is a reasonable basis for the postition and advises the taxpayer to appropriately disclose that position
    recommend a tax return position
  145. a member may ______________ that reflects a position if the member concludes there is a reasonable basis for the position and the position is appropriately disclosed
    prepare or sign a tax return
  146. When recommending position or preparing or signing a return on which a position is taken, you should advise the taxpayer regarding
    • potential penalty consequences of such tax return position; and
    • the opportunity, if any, to avoid such penalties through disclosure.
  147. You must not recommend a tax return position or prepare or sign a tax return reflecting a position that you know
    • exploits the audit selection process of a taxing authority, or
    • serves as a mere arguing position advanced solely to obtain leverage in a negotiation with a taxing authority.
  148. Reasonable grounds that may exist for omitting an answer include the following
    • Information isn't readily avaiable and the answer isn't significant
    • there is genuine uncertainty regarding the meaning of the question
    • the answer to the question is voluminous
  149. deals with your obligation to examine or verify certain supporting data or to consider information related to another taxpayer when preparing the return
    certain procedural aspects of preparing returns
  150. If tax laws require that the taxpayer,____________ records, and/or substantiating documentation to support a deduction or other tax treatment, you should make appropriate inquiries to determine to your satisfaction whether that’s being done.
    maintain books
  151. Unless prohibited by statute or rule, you may use a taxpayer’s estimate in the preparation of a tax return if:
    • It’s not practical to obtain exact data; and
    • You determine that the estimates are reasonable based on the facts and circumstances known to you.
  152. –The taxpayer is not bound to the treatment.–The reason for the determination by the IRS or tax court was lack of documentation; and supporting documentation is now available.–The taxpayer yielded for settlement purposes on a position that might have been appealed.–There have since been more favorable court decisions.
    Circumstances that might justify a departure from a position previously concluded
  153. For the purposes of this standard, an error includes
    • Any position, omission, or method of accounting that fails to meet the standards of SSTS No. 1; or
    • A position taken on a prior year’s return that no longer meets SSTS No. 1
  154. Upon becoming aware of any of the previously-described errors, you should:
    • inform the taxpayer
    • advide the taxpayer of potential consequences of the error and
    • recommend appropriate corrective measures
  155. If you’re preparing the current year’s return and the taxpayer hasn’t corrected an error in a prior year’s return consider whether to do the following:
    • withdraw from preparing the return
    • discontinute the professional or employment relationship
  156. The Internal Revenue Code imposes a penalty equal to $ or half the income derived from preparing a return (whichever is greater) if you knew or should have known that:–The tax position would not meet the standard that “more likely than not,” it would be sustained on its merits if it were challenged; or–There was a reasonable basis for the position, and the position was not disclosed.
  157. The Internal Revenue Code imposes a penalty equal to $ or half the income derived from preparing a return (whichever is greater) if you know or are reckless in not knowing that a tax position is contrary to a rule or regulation
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