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61 Cards in this Set
- Front
- Back
General Decision Making Framework
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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 |
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high quality decisions
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unbiased, meet expectations of users, in compliance w/ professional standards, based on sufficient factual information to justify decision
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Importance of ethical decision making
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professional integrity based on personal moral standards and reinforced by codes of conduct:
-maintain public trust -monetary benefits from public trust |
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ethical problem
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morally or ethically required to act in way conflicting with personal self interest
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ethical dilemma
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conflicting moral duties or obligations
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Ethical theories
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-utilitarian
-rights |
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Utilitarian theory
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-identification of potential problem
-identify potential impact of actions on stakeholders -assess "goodness" of each action -assess greatest good for greatest number |
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Rights Theory
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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 |
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ethical framework
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-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 |
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SOX Titles
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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 |
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SOX 101
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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 |
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SOX 102
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accounting firms auditing public companies must register with PCAOB
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SOX 103
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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 |
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SOX 104
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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 |
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SOX 105
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PCAOB will:
-adopt disciplining procedures for registered firms -require firms to provide documentation and testimony necesary to conduct investigations -sanction firms for noncooperation |
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SOX 108
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Accounting Standards:
SEC recognize GAAP established by standard setter meeting Act's criteria |
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SOX 201
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registered firms may not perform services outside scope of audit: bookkeeping, system design, appraisal services, internal audit (tax only w/ preapproval)
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SOX 203
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Audit partner rotation: lead and reviewing partnater must rotate every 5 yrs
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SOX 204
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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 |
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SOX 207
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mandatory rotation of public accounting firms studied by Comptroller General of US (GAO)
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SOX 301
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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 |
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SOX 302
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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 |
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SOX 906
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penalties for corporate directors who knowingly provide incorrect certification
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SOX 401
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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 |
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SOX 404
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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) |
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International Ethics Standards Board for Accountants (IESBA)
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5 fundamental principles:
-integrity -objectivity -professional competence and due care -confidentiality -professional behavior |
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integrity
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straight forward and honest in performing services
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objectivity
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no bias, conflict of interest, or undue influence of others to override judgments
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professional competence and due care
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maintain professional knowledge and skill, act diligently and in accord with technical and professional standards
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confidentiality
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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
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professional behavior
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comply w/ relevant laws and regulations and avoid action that discredits profession
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Formal self-regulatory mechanisms for professional conduct
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AICPA, IIA, IMA
- if not covered by codes, use common sense, moral value, and framework outlined to resolve situation |
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Code/Principles of Professional Conduct: AICPA
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-responsibility
-public interest -integrity -objectivity and independence -due care -scope and nature of services |
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AICPA Rules of Conduct
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detailed guidance reflecting broad principles- specifically enforceable under bylaws of AICPA- most apply to ALL cpa's
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Rules of Conduct: Rule 101
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Independence!!
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Rules of Conduct: Rule 102
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integrity and objectivity
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Rules of Conduct: Rule 201
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General Standards:
-professional competence -due professional care -planning and supervision -sufficient relevant data |
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Rules of Conduct: Rule 202
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compliance w/ standards
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Rules of Conduct: Rule 203
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Accounting Principles-
compliance with gaap and materiality |
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Rules of Conduct: Rule 302
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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 |
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Rules of Conduct: Rule 501
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member shall not commit an act discreditable to profession
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Rules of Conduct: Rule 502
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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 |
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Rules of Conduct: Rule 503
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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 |
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Rules of Conduct: Rule 505
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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 |
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Independence: Financial Interest
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-applies only to covered members and immediate family- directly or indirectly
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covered members
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-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 |
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direct financial interest
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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%)
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indirect financial interest
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beneficiary neither controls the intermediary nor has the authority to supervise or participate in investment decisions (5%)
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Family Relationships
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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) |
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Loans
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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) |
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Performing non-audit services
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mgmt must not cede decision making authority to CPA (daily operations)
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Allowable circumstances for communicating confidential information
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-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 |
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privileged communication
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confidential info cannot be subpoenaed by court to be used against client- allowed for lawyers but (in most cases) not auditors
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contingent fee
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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
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Goals of independence
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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 |
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Impaired auditor independence-SEC- Regulation S-X Rule 2-01
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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 |
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Regulation S-X Rule 2-01- prohibited non-audit services
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-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 |
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Prohibited tax-related services
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-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 |
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Major Threats to Independence
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-compensation schemes
-Who is the client? (stakeholders) - Familiarity w/ client -Time Pressures -Rationalizing behavior -providing non-audit services |
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Managing threats to independence
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-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 |
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concurring partner
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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
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