Safeguards implemented by the attest client include ______. (check all that apply)

Code of Professional Conduct

A set of principles, rules, and interpretations that establish guidance for acceptable behavior for all members of the AICPA.

1. Responsibilities
2. The public interest
3. Integrity
4. Objectivity and Independence
5. Due Care
6. Scope and Nature of Services

All members should exercise sensitive prof. and moral judgement when carrying out prof. responsibilities.

All members should act to benefit the public interest, honor the public trust, and demonstrate commitment to professionalism.
*a distinguishing mark of a profession is an acceptance of responsibility to the public, including clients, creditors, investors, etc.

All members should perform all prof. responsibilities w/ the highest sense of integrity to maintain the public confidence.
Requires members to be honest and candid within the limits of client confidentiality.

Objectivity and Independence:

All members should maintain objectivity and be free of conflicts of interest. Objectivity is a state of mind that lends value to a member's services and is a distinguishing feature of the profession.

• A member must be independent in fact and appearance.
  
• A member NOT in public practice need not be independent.
  

All members should:

• follow the profession's technical and ethical standards,
• strive for improved competence and quality services, and
• discharge prof. responsibility to the best of the member's ability.

All members must adequately plan and supervise any activity for which they are responsible.

Scope and Nature of Services:

A member in public practice should follow the Principles of the Code in determining the nature and scope of services.
This principle is for members in public practice only.

Rules of Conduct apply to members in public practice and are as follows:

1. integrity and objectivity
2. independence
3. general standards
4. compliance w/ standards
5. acct. principles
6. acts discreditable
7. contingent fees
8. commissions and referral fees
9. advertising and other forms of solicitation
10. confidential client info, 11. form of org and name

A member in public practice must be independent when performing professional services as required by standards issued by bodies designated by the AICPA Council (AICPA, IFAC, SEC, PCAOB, GAO).
Independent in fact and appearance.

Independence in fact (mind):

Permits a member to perform an attest service w/o being affected by influences that compromise prof. judgement, allowing an individual to act w/ integrity and exercise objectivity and prof. skepticism.

Independence in Appearance: 

Avoidance of circumstances that'd cause a reasonable, informed 3rd party who knows all relevant info, including safeguards applied, to reasonably conclude that the integrity, objectivity, or prof. skepticism of a firm or member is compromised.

• Individual on the attest engagement team
• Individual who can influence the engagement;
• A partner/manager who provides nonattest services to a client;
• A partner in the office where lead engagement partner primarily practices in connection w/ engagement;
• The acct. firm, including the firm's employee benefit plans; and
• An entity whose policies can be controlled by the foregoing parties, alone or acting together.

Conceptual Framework for Independence:

A member must identify threats to independence and apply safeguards to eliminate or reduce those threats to an acceptable level.

Relationships or circumstances that could impair independence

Measures taken that may reduce or eliminate threats

What is an acceptable level of threats to independence?

Level at which a reasonable and informed 3rd party, aware of all relevant info, is expected to conclude that independence is not impaired.

7 Broad Categories of Threats to Independence:

• Adverse interest:
• Advocacy
• Familiarity
• Mgmt participation
• Self-interest
• Self-review
• Undue influence

Adverse Interests Threat:

• Opposing interests of the member and the attest client
  
• ex. litigation between the two parties
  

• Reviewing your own nonattest work in an attest engagement

• Benefits from a relationship w/ client
  
• Ex. a direct or material indirect financial interest in a client

• Long/close relationships w/ client; having too much sympathy to the client's interests or too much acceptance of its work/product
• Ex. having immediate family members/close relatives with key positions with an attest client

• Actions that promote an attest client's interest
• Ex. representing client in a legal proceeding

Management Participation Threat:

• Assuming mgmt. responsibilities for the attest client
• Ex. maintaining a client's I/Cs

• Subordination of a member's judgement to someone associated w/ the client due to reputation, expertise, personality, etc.
• Ex. a client's threat to hire another firm

Categories of Effective Safeguards:

1. Those created by the profession or by law/regulation
   
2. Those implemented by the client
3. Those implemented by the firm

T/F: Independence is impaired if a covered member has any direct financial interest in a client during the period of engagement.

• True
• Covered members and their immediate family are prohibited from holding direct financial interests in a client
• Ex. can't own shares in a mutual fund that's a client; can't participate in an employee benefit plan sponsored by a client; can't own bonds issued by a client; can't own a prepaid tuition plan administered by a client.

T/F: Independence is not impaired if a covered member has loans to or from an attest client or its officers, directors, or 10%+ owners during the period of engagement.

• False
• Loans are a direct financial interest. This restriction extends to immediate family. A covered member must not borrow money from an attest client.

T/F: Independence is not impaired by auto loans and leases from a financial institution collateralized by the auto. 

• True

T/F: Independence is impaired by loans fully collateralized by the cash surrender value of insurance cash deposits.

• False

T/F: Independence is impaired if a covered member has a material indirect financial interest in an attest client during the period of engagement.

• True
• A covered member may have some limited financial interest in clients as long as they are NOT direct and are NOT material to the wealth of the member or the client.
• Ex. a covered member may own shares in a mutual fund that holds shares of a client if the mutual fund investment isn't material (less than 5% of the fund)

T/F: Independence is impaired by credit cards with a total outstanding balance of $10,000 or less on a current basis by the payment due date.

• False

Independence is ______ if a firm partner or prof. employee owns more than 5% of an attest client during the period of engagement.

• Impaired
• A prof. employee in the office that conducts an audit who isn't part of the engagement team may own 5% or less interest in a client. A partner in that office must not, since she/he is a covered member and must have no financial interest in a client.

Independence is _______ if a covered member is a trustee of a trust or executor of an estate that has a direct or material indirect financial interest in an attest client during an engagement.

• Potentially impaired
• Covered members must not be in a position to make decisions related to a trust or estate that involves investments or other financial interests in clients.

Independence is ______ if a covered member has a material joint, closely held investment with an attest client during the period of engagement.

• Impaired
• a joint, closely held investment is an investment in property or an entity by a member and a client that gives them control of the property or entity.

Simultaneous employment or association w/ an attest client of a partner or prof. employee of the member's firm _________ independence if the service is 1) as an employee/director/officer, etc. and 2) during the period of the FSs or engagement.

• Impairs
• Partners and prof. employees must not appear to be acting in the capacity of management or employee of the client.

Independence is ______ if a covered member was formerly employed or associated with an attest client as an officer, director, promoter, underwriter, etc.

• Potentially impaired
• Covered members must disassociate from the client before becoming a covered member. He/She also must not participate on the engagement team or be able to influence the engagement.

Independence is _______ if an individual participating on the engagement team (or able to exert influence or that is a partner) has a close relative (sibling, parent, nondependent child) who holds a key position with or certain financial interest in an attest client.

• Impaired
• If a close relative has a financial interest in a client that is material to the relative or permits the relative to exert significant influence over the client, independence is impaired.
• ex. a sibling may be a salesperson for a client, but NOT the CFO or director. A parent may be a production manager but not the CEO or director.

Independence of the firm is _______ if a former partner or prof. employee of the firm is subsequently employed or associated w/ an attest client in a key position.

• Impaired
• However, it is not impaired if the person is no longer active/associated with the CPA firm and any retirement compensation is fixed.

Independence of the firm is _______ if a CEO, CFO, or controller of an issuer was employed by the CPA firm and participated in any capacity in the audit of that issuer during the year prior to the audit.

• Impaired
• ex. a retired partner must not become a CFO of a client while performing consulting duties for the CPA firm or while having retirement pay contingent on retaining a client.

Independence of the firm is ________ if certain nonattest services are performed for an attest client. 

• Potentially impaired
• A practitioner appears to be an advocate or decision-maker for the attest client when performing certain nonattest services. In these circumstances, he/she is not independent.

General requirements for performing nonattest services:

• A member shouldn't assume mgmt. responsibilities.
• Before performing nonattest services, a member should determine that the client agrees to:
• Assume all such responsibilities
• Provide sufficient oversight of the services
• Evaluate nonattest services for adequacy and results,
• Assume responsibility for the results

Management Responsibilities that, if performed by a covered member, would impair independence:

• Setting policies
• Hiring/firing/directing client employees
• Authorizing/executing transactions or having authority to do so on behalf of the client
• Preparing source docs
• Having custody of assets
• Deciding which recommendations to implement/prioritize
• Reporting to those charged w/ governance on behalf of mgmt
• Accepting responsibility for FSs, a client's project, or for designing/implementing/maintaining I/Cs
• Performing ongoing evals of I/Cs as part of the client's monitoring activities

T/F: Independence is impaired if covered members provide appraisal, valuation or actuarial services involving high degrees of uncertainty to attest clients.

• Impaired

T/F: Independence is impaired if covered members provide expert witness services to an attest client.

• True

Independence is ________ if covered members provide management of the client's internal audit services to an attest client.

• Impaired

Independence is ________ if covered members provide tax advocacy services to an attest client.

• Impaired

T/F: Independence is impaired if covered members engage in recruiting, hiring, terminating, or compensating employees to attest clients.

• True

T/F: Independence is impaired if covered members provide business risk consulting to an attest client.

• False

Independence is ________ if covered members provide tax preparation services to an attestation client.

• Not impaired

Independence is ________ if covered members provide corporate finance consulting to an attest client.

• Not impaired
• Independence is impaired if a member commits the attest clients to transactions; consummates attest client transactions; has custody of the asset client's securities; or acts as a promoter, underwriter, broker-dealer, or guarantor of the attest client's securities.

Independence is ________ if covered members provide advisory services to an attest client.

• Not impaired

Independence is ________ if covered members provide bookkeeping, payroll processing, or other conventional record keeping functions for a nonissuer.

• Not impaired
• Examples are preparing client FSs based on trial balance info; processing payroll for a client's signature based on client record keeping; and assisting a client in drafting a stock-offering document or memo.
• AICPA allows practitioners to do these for nonissuers. PCAOB doesn't allow this.

Independence is ________ if an attest client owes unpaid fees to a covered member for professional services.

• Potentially impaired
• Unpaid fees may result in self-interest, undue influence or advocacy threats to independence.
• Unpaid fees relating to services performed more than 1 year prior to the current year report impair independence.

Independence is ________ by actual or threatened litigation during the period of engagement by either the covered member or the attest client.

• Potentially impaired
• It's not impaired when the litigation issue isn't related to the work product and isn't material.
• It isn't necessarily impaired when SHs or others bring a class action suit against both the client and the auditor.
• Legal action creates adverse interests between parties involved. These interests can affect independence.

Independence is ________ if a partner or prof. employee of a firm holds an honorary directorship or trusteeship of a non-profit org. during the period of the engagement or FSs.

• Impaired
• CPAs may support charities without impairing independence, but they must not have managerial responsibilities.
• Independence is NOT impaired if the position is clearly honorary and the individual can't vote/participate in mgmt decisions.

Financial interests in, and other relationships w/, entities that are affiliates of a FS attest client ________ independence.

• Potentially impair
• Various member involvements w/ affiliates create indirect interests in clients. Thus, some measure of materiality is considered as with other indirect interests. Significant mutual interests of a member and a client may cause impairment of independence.

Independence is ________ if covered members accept gifts or entertainment from an attest client during the engagement.

• Potentially impaired
• Accepting a gift or entertainment may create undue influence or self-interest threats to independence. Further, it might threaten compliance with the Integrity and Objectivity Rule.

Integrity and Objectivity Rule:

A member must:

• maintain objectivity and integrity
• be free of conflicts of interest
• not knowingly misrepresent facts
• not subordinate his/her judgement to others when performing prof. services.

What are knowing misrepresentations of FSs or records?

• Knowingly making materially false and misleading entries in FSs or records
• Failing to correct materially false or misleading statements or records when the member has such authority,
• Signing a document with materially false and misleading information

Conflicts of interests may be permitted in certain circumstances if:

• Disclosure is made to and consent is obtained from the appropriate parties.
  
• However, independence objections cannot be overcome by disclosure and consent.

Differences in opinion may surface between a member and his/her supervisor. These differences may relate to the application of:

• accounting principles,
• auditing standards,
• laws and regulations, or
• other relevant professional standards

What should a member do if the position taken by others isn't in compliance but doesn't result in material misrepresentation or violation of law/regulation?

• Discuss the matter with the supervisor and, if not resolved there, with higher levels of management.
• If still not resolved, the member should determine whether additional reporting requirements exist, consult with legal counsel, and document his or her understanding of the issues and the nature of the discussion.

What should a member do if he/she concludes that appropriate action wasn't taken to remediate difference in opinion and a material misrepresentation exists?

• Consider ending his/her relationship with the firm
• Take appropriate steps to eliminate his/her exposure to subordination of judgment

Members must comply with the following general standards issued by the PCAOB and relevant AICPA bodies:

• Undertake only services that a member can reasonably expect to complete w/ professional competence.
• Exercise due professional care when performing services.
• Adequately plan & supervise performance of those services.
• Obtain sufficient relevant data to provide a reasonable basis for conclusions and recs relating to professional services.
• "Professional competence uses due professional care to plan, supervise, and obtain sufficient relevant data."

• A member is competent if he/she has technical qualifications and ability to supervise and evaluate work.
• It relates to knowledge of standards, techniques and technical subject matter as well as the ability to exercise sound judgement

What should be done if a member can't gain sufficient competence?

• In some cases, additional research and consultation is a normal part of performance.
• However, if a member cannot gain sufficient competence, he/she should engage with someone who is competent.

The Accounting Principles Rule applies to ALL members regarding any affirmative statement about conformity with GAAP and states that:

• Any material departure from an accounting principle issued by an AICPA-designated standard setter prevents a member from providing both positive and negative assurance.

The Compliance with Standards Rule:

A member who performs professional services shall comply with standards issued by designated bodies (PCAOB and relevant AICPA committees and boards)

• FASB
• IASB
• GASB
• FASAB (federal accounting standards advisory board)

In what circumstances may a member provide assurance about conformity with GAAP, despite a material departure?

• The member must be able to demonstrate that, due to unusual circumstances, the FS or data would have been misleading without a departure.
• The member must describe 1) the departure, 2) its approximate effects and 3) the reason compliance with the principle would be misleading.
• Ex. new legislation, new form of business transaction.
• Unusual degree of materiality or conflicting industry practices ordinarily doesn't justify departures.

Confidential Client Information Rule:

• A member in public practice must not disclose confidential client info w/o client's consent.

The Confidential Client Information Rule doesn't affect the following:

• Professional obligations under the Compliance with Standards Rule and the Accounting Principles Rule
• The duty to comply with valid subpoena or summons or w/ applicable laws and regulations
• An official review of the member's professional practice
• The member's right to initiate a complaint w/ or respond to any inquiry made by an appropriate investigative or disciplinary body.

Client confidentiality with respect to a review of a member's practice:

• The rule against disclosure of confidential info doesn't prohibit the review of a member's practice as part of a purchase, sale, or merger of the practice.
• However, take appropriate precautions (like a written confidentiality agreement) to ensure the prospective buyer doesn't disclose such info.

A member must not commit acts that are discreditable to the profession.

• Client-provided records: no right to withhold
  
• Working papers: absolute right to withhold, barring legal/contractual exception
• Member's work products: right to withhold if fees are due, work product's incomplete, need to comply with standards, or litigation exists
• Member-prepared records: right to withhold if fees are due

In response to a request other than for working papers, a member may:

• charge a reasonable fee,
• make and retain copies, ad
• provide records in any format usable by the client.

How long does a member have to comply with the record request rules?

Acts discreditable to the profession include:

• Unrightful retention of client records
• Discrimination/harassment
• Failure to follow standards/procedures/other requirements in governmental audits
• Solicitation or disclosure of CPA exam questions
• Negligence in making false/misleading entries in FSs, failing to correct false/misleading FSs, signing a doc with false/misleading info
• Failure to file a return or pay tax
• Failure to comply with regulator-imposed prohibitions of indemnification and limitation of liability agreements in connection w/ attest services
• Inappropriate disclosure/use of confidential employer info
• Engaging in false, misleading, deceptive acts
  

T/F: A member in public practice cannot obtain clients by false, misleading, or deceptive advertising or other forms of solicitation.

• True

Prohibited activities deemed as false, misleading or deceptive include:

• creating false/unjustified expectations of favorable results
• implying the ability to influence any court, regulatory agency, etc.
• representing that certain services will be done for a stated fee when it's likely that the fees will substantially increase and the client isn't advised of that possibility
• Other reps that would cause a reasonable person to misunderstand or be deceived

• A member in public practice must not perform for a contingent fee any of the prof. services below:
• Audit/review of FS
• Compilation of a FS if:
  
• 3rd party will use the statement &
• Report doesn't disclose the lack of ind.
• Examination of prospective financial info (forecast OR projection)
• Prep. of original tax return, amended tax return, or claim for tax refund

Prohibited commissions are those received when a member in public practice:

1. Recommends or refers to a client any product or service, or any product or service to be supplied by a client...
2. ...also performs for that client an audit:
1. a review:
2. a compilation reasonably expected to be used by a 3 party if the member's lack of independence is not disclosed; or
3. an examination of prospective final information (PFI).
3. But a SPOUSE can receive commission for the above.
4. Any permitted commissions must be disclosed to the person/entity the member recommends or refers.

What is a contingent fee?

Established as part of an agreement under which the amount of the fee is dependent upon the finding or result.

Fees are not considered to be contingent if:

• They are fixed by public authorities (ex. courts)
  
• In tax matters, they are based on 1) the results of judicial proceedings or 2) the findings of governmental agencies

Referral fees are not considered commissions and are permitted if disclosed to the client. These include:

• Acceptance of a referral fee for recommending or referring any CPA service to anyone, and
• Payment of a referral fee to obtain a client.

Form of Organization and Name Rule:

• A member may practice public accounting only in a form of org. allowed by law/regulation that conforms with resolutions of the AICPA Council.
  
• Firm name must not be misleading, but names of past owners may be included in the name of the successor firm
• A firm cannot designate itself as members of the AICPA until all CPA owners are members.

If a firm holds itself out as CPAs or performs attest services, it must have the following characteristics:

• CPAs own majority of firm's financial interests/voting rights
• CPAs are responsible for all services
• Non-CPA owners can't hold themselves out as CPAs; aren't eligible to be AICPA members unless they meet req. for membership
• Members mustn't knowingly permit a person (s)he can control to do what's prohibited by Code.
• Owners must be beneficial owners of equity attributed to them.

T/F: If a member controls a separate business, the entity and all its owners and prof. employees must comply with the Code.

• True
• However, absent such control, only the member is subject to the Code.

A firm name is misleading if it contains a representation likely to cause a reasonable person to misunderstand:

• The legal form of the firm
• Who its owners are
• Who its members are
• Ex. using the term "Company" or "Co." when the firm isn't a corporation.

Alternative Practice Structures

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Responsibilities and Activities of the PCAOB:

• Register CPA firms
• Oversee audit of issuers subject to securities laws
• Est./adopt standards on audit, QC, ethics, & ind.
• Inspect audit firms every 3 years (1 if lg. firm) to:
• examine select audit/review engagements
• evaluate the system of quality
• test audit, supervisory, and QC procedures
• Conduct investigations/disciplinary proceedings involving & impose sanctions upon registered CPA firms and associated persons

T/F: Audit committees ordinarily must pre-approve services performed by accountants.

• True
• Approval must be either 1) explicit or 2) in accordance w/ detailed policies and procedures
• If approval is based on detailed policies and procedures, audit committee must be informed and no delegation of its authority to mgmt is allowed.

T/F: An issuer must disclose the fees paid to the accountant segregated into four categories: audit, tax, consulting, and all other fees.

• False; audit, audit-related, tax, and all other fees.
• Disclosure is for the 2 most recent years.

T/F: All audit partners must rotate every 7 years with a 5 year cooling-off period.

• False
• The lead and reviewing audit partners must rotate every 5 years with a 5-year cooling-off period.
• All other audit partners must rotate every 7 years, with a 2-year cooling-off period.

T/F: A conflict of interest arises when CEO, CFO, controller, chief accounting officer, or equivalent was employed by the company's CPA firm within 1 year preceding the audit.

• True

How long must an auditor retain working papers?

• At least 7 years.
• It's a crime when auditors fail to maintain all audit/review workpapers for at least 5.
  
• If retention is for more than 5 but less than 7, sanctions that are not criminal penalties may be imposed by the PCAOB.

T/F: Registered CPA firms must file an annual report w/ the PCAOB outlining basic firm activities.

• True;
• Must also file special reports within 30 days of a reportable event (ex. initiation of legal action against the firm)

T/F: Public accounting firms without public audit clients are required to register with the PCAOB and are subject to inspection.

• False
• Public accounting firms must have one or more public audit clients to have to register with the PCAOB.

T/F: Public accounting firms must adopt QC standards and reasonably supervise any associated person w/regard to auditing and QC standards.

• True

What must the firm include in their communication with audit committees prior to filing the audit report with the SEC?

• All critical accounting policies and practices
• All material alt. accounting policies and practices w/in GAAP that were discussed with mgmt., and
• Other material written communications with mgmt, such as representations and schedules of unadjusted audit differences.

T/F: A firm must discuss the potential effects of the relationship that may affect independence and document the discussion.

• True
• This discussion must occur before accepting an initial engagement and at least annually.

The firm is prohibited from offering certain nonaudit services to its attest clients including:

• appraisal and valuation services
• designing/implementing financial info systems
• internal auditing/actuarial functions
• mgmt and HR services
• bookkeeping
• legal and expert services not pertaining to the audit
• investment banking, advisory or broker-dealer services

When is preapproval not required for acceptable nonaudit services provided by an auditor to an issuer client, according to PCAOB rules? Ex. compliance tax engagements, comfort letters

• Income from nonaudit services no more than 5% total revenue earned by audit firm from issuer
• Services not recognized by issuer as nonaudit services at the time of the engagement
• Services promptly brought to attn of audit committee and approved before completion of audit

T/F: Each member of the audit committee must be an independent member of the board of directors.

• True

What is the audit committee responsible for in regard to the auditor?

• appointing the auditor
• adequately compensating the auditor
• overseeing the work of the auditor

T/F: An audit committee must have at least one member designated as a financial expert with relevant experience.

• True
• A financial expert must:
• Understand GAAP, FSs
• Be able to assess general application of GAAP in accounting for estimates, accruals, reserves
• Have experience w/ FSs having a breadth and level of complexity comparable to those of the issuer
• Understand I/Cs, procedures for financial reporting, and audit committee functions

T/F: Audit committees must establish procedures for the receipt, retention and treatment of complaints received regarding accounting, I/Cs or auditing matters.

• True

T/F: Audit committees are not responsible for establishing procedures for confidential, anonymous submission of employee's concerns regarding questionable accounting or auditing matters.

• False

T/F: It is unlawful for any officer/director of an issuer to take action to fraudulently influence, coerce, manipulate or mislead any auditor engaged in an audit for the purpose of rendering the FSs materially misleading.

• True, under SOX

In filings with the SEC, the CEO and CFO of an issuer must certify that:

• FSs are free of material misstatements to the best of their knowledge
• They are responsible for the system of I/Cs and have evaluated its effectiveness
• They have informed the audit committee and the independent auditors of all significant control deficiencies and any fraud, whether material or not.

T/F: A firm is still independent of the audit client if it provides a nonaudit service related to aggressive tax positions and confidential tax transactions.

• False
• A firm's independence is impaired if it provides nonaudit services related to aggressive tax positions and confidential tax transactions to an audit client.

T/F: A firm is not independent of an audit client if, during the engagement period, it provides any tax services to a person in a financial reporting oversight role.

• True
• Roles include the CEO, president, CFO, COO, chief accounting officer, etc.

What are the fundamental principles under the IFAC's Code of Ethics?

• Integrity
• Objectivity
• Professional competence and due care
• Confidentiality, unless a legal/prof. right or duty exists
• Professional behavior

According to IFAC, threats to compliance with fundamental principles involve the following:

• self-interest
• self-review
• advocacy
• familiarity
• intimidation
• Similar to AICPA but without undue influence/mgmt participation

T/F: According to IFAC, before accepting a new client, a professional accountant must determine whether acceptance would create any threats to compliance with the fundamental principles. 

• True

T/F: IFAC requires public accountants to take reasonable steps to identify circumstances that could pose a conflict of interest.

T/F: Providing a second opinion on the application of standards or principles to specific transactions/circumstances on behalf of an entity that's NOT an existing client may create threats to compliance with fundamental IFAC principles.

• True

T/F: The client should be aware of the terms of engagement, the basis on which fees are charged, and which services are covered by the fees.

T/F: Contingent fees may create a self-interest threat to objectivity, depending on the nature of the engagement, the range of amounts, the basis for the fee, and whether the result will be reviewed by an independent 3rd party.

T/F: According to IFAC, contingent fees are allowed for audit engagements or nonassurance services.

• False

T/F: Under IFAC, a professional accountant may receive a referral fee or commission relating to a client.

• True
• A professional accountant may also pay a referral fee to obtain a client.
• Must disclose any such arrangement
• Must obtain advanced agreement from the client for commission arrangements in connection with the sale by a third party of goods/services to the client.

T/F: IFAC Code requires CPAs to be honest and truthful and to avoid making exagerating claims or unsubstantiated comparisons to the work of another.

• True

T/F: Under IFAC Code, a CPA can accept any gifts or hospitality from a client.

• False; they must be trivial and inconsequential to a reasonable and informed 3rd party.
• Do not accept if threats to compliance with fundamental principles cannot be reduced or eliminated.

T/F: A professional accountant must not assume custody of client assets unless permitted by law and in compliance with legal duties imposed on the accountant holding such assets.

• True
• A professional accountant entrusted w/ assets belonging to others must:
• Separate them from firm/personal assets
• Use them only as they are intended
• Be ready to account for them and any $inc.
• Comply with all relevant laws/regs.
• A professional accountant must appropriately inquire about source of such assets & consider legal/reg. obligations.

T/F: Under the IFAC Code, a professional accountant must document conclusions regarding compliance with independence requirements and the substance of relevant discussions that support those conclusions.

• True

T/F: If an inadvertent violation occurs, it compromises independence despite the firm's QC policies and procedures.

• False;
• Inadvertent violations generally don't compromise independence, provided that the firm has appropriate QC policies and procedures and the violation is corrected promptly.

T/F: Generally, the independence rules for financial interests stated by the IFAC Code are similar to those of the AICPA.

• True

T/F: The purchase of goods/services from an audit client by a firm or a member of the audit team and their family does not generally threaten independence if the transaction is in he normal course of business and at arm's length.

• True

T/F: the lending of staff by a firm to an audit client may create a self-review threat; therefore, such assistance may not be given.

• False
• Such assistance may be given, but only for a short time and only if the firm's personnel doesn't provide impermissible services or assume mgmt responsibilities.

T/F: Serving as director or officer of an audit client impairs independence.

T/F: Providing accounting and bookkeeping services to an audit client may be provided in emergency or other unusual situations when the audit client cannot practically make other arrangements.

• True
  
• However, creates a self-review threat when the firm subsequently audits the client's FSs.

T/F: Acting in an advocacy role for an audit client in resolving disputes or litigation involving material amounts on FSs is prohibited under IFAC Code.

• True

Which of the following are components of the KPMG professional judgment framework?

Which of the following is included in the integrity and objectivity rule?

Which of the following services may not be provided to audit clients?

Who is an individual in a position to influence the attest engagement?