Basics of the AICPA Professional Code of Conduct
Name two principles of the AICPA professional code of conduct.
Any 2 of the following:
Responsibilities Principle
Public Interest Principle
Integrity Principle
Objectivity & Independence Principle
Due Care Principle
Scope & Nature of Services Principle
Safeguards help to mitigate threats to independence.
TRUE
A member shall not commit an act discreditable to the profession.
Acts Discreditable 400
A member must be independent in both ___ and ___.
Fact; Appearance
The auditors are making important hiring and firing decisions for the client
Management Participation Threat
What does AICPA stand for?
American Institute of Certified Public Accountants
Who does the term “Other Members” apply to?
Retired/ not currently employed members
An auditor must always be independent in fact, but not necessarily in appearance.
FALSE. Must be independent in both FACT and APPEARANCE.
A member shall not disclose of any sensitive information without the specific consent of the client.
Confidential Information 700
True/False: Independence is impaired if a member’s immediate family has vested retirement benefits with the client.
TRUE.
This is the threat that the auditors develop too close of a relationship with the client.
Familiarity Threat
How long must a CPA follow the AICPA Code of Conduct?
Forever
Give one reason why it is important to have a Code of Conduct.
Ethical dilemmas arise all the time, simply by virtue of the amount of professional judgment in public accounting. More complex ethical dilemmas require a more formal approach. The profession establishes rules for handling these complex situations
Section 400: Acts Discreditable is aimed at protecting the public interest.
TRUE.
In the event that the literal application of GAAP causes the financial statements to be misleading, professional judgment may be used to support the departure from GAAP.
Accounting Principles 320
Give the definition of a threat to independence.
Threats: Relationships or circumstances that could impair independence
This threat arises then there is pending litigation between the auditor and the client.
Adverse Threat
How many sections are in the CPA exam?
4
According to the Integrity Principle, what does it mean to perform all responsibilities with the highest sense of integrity?
To do what is “right” or what you think is “right” and not what you know is “wrong”
Keeping in mind the Confidential Client Information Rule, a member may provide information about a client during a lawsuit.
TRUE. The rule is not intended to prohibit a member from disclosing information necessary to initiate, pursue, or defend the member in an actual or a threatened lawsuit or alternative dispute resolution proceeding. However, the member is NOT allowed to disclose the name of a client in conversation with others (general public) about a potential lawsuit (or anything that may anticipate negative financial results about the company)
Preclude relationships that may hinder the objectivity of the member in the professional services being offered.
Independence 200
A public accounting firm can audit a client for a maximum of___ # of years under SOX?
5 years
This threat is present when one client makes up 90% of a firm's revenue.
Self Interest Threat
What is Step 1 in the Conceptual Framework diagram?
Step 1: Identify Threats
What principle is achieved through continuing education and performing annual performance evaluations?
Due Care Principle
Section 320 of the AICPA Code of Professional Conduct relates to Confidential Information.
FALSE. 320 relates to Accounting Principles. 700 relates to Confidential Information.
What specific part of the code applies to ALL members?
Acts Discreditable 400
Of the examples provided in the slides, name two ways independence may be impaired (to a member?)
Any two of the following:
Direct financial interest in client
Material indirect financial interest
Be a trustee of an estate that has a direct financial interest in client
Have a loan to or from the client or their executives, or any person who owns over 10% of the client
Anyone who was previously employed by the client and held a position with ability to influence the audit
“If you don’t give us a clean audit this year you are getting fired!”
Undue Influence Threat
When you begin working for a public accounting firm, what “type” of member will you be considered?
Members in Public Practice