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Chapter 3 Homework. Chapter 3 Homework. 3-18-- - Violation of Rule 503
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Chapter 3 Homework 3-18-- - Violation of Rule 503 CPA cannot accept any form of commission related to a client for which he/she also audits or reviews F.S., or does compilation of F.S. with 3rd party reliance or examination of prospective F.S. Relates to an “audit” client.
Chapter 3 Homework 3-32a - (4) National partner doing marketing least likely a covered member. Answer choice (3) probably a covered member as ability to influence audit or provides more than 10 non-attest hours.
Chapter 3 Homework 3-32b - (1) Advertising has limited restrictions. CPAs can advertise in newspapers. Answer choice (2) appears to be a referral fee rather than a commission under the AICPA Code of Conduct and may be no violation if disclosed. Rule 503 appears to only address receipt of a commission.
Chapter 3 Homework 3-32c - (1) Continent fees are prohibited for any service if CPA also performs F.S. audits or reviews, does compilation of F.S. with 3rd party reliance or examination of prospective F.S. Relates to an “audit” client.
Chapter 3 Homework 3-32d - (1) Fully insured bank accounts normally do NOT cause an impairment to independence.
Chapter 3 Homework 3-32e - (1) Declaration is that return is not misleading based on preparer’s knowledge. Tax preparation is not attest work. We do not audit the return. GAAP is N/A. CPA only has to be objective, not impartial.
Chapter 3 Homework 3-32f - (3) All of the other answers relate to an exception for quality reviews or investigations by other CPAs who have to follow the Code of Professional Conduct.
Chapter 3 Homework 3-32g - (2) Firm name is misleading as it implies multiple CPAs in the firm and that it is likely a partnership which it is not – Rule 505.
Chapter 3 Homework 3-32h - (3) CPA must be competent to comply with Rule 201. But, CPA could also become competent (training, hiring) and keep the engagement (not given in the answer choices). The Code of Conduct does allow a CPA to become competent during an engagement.
Chapter 3 Homework 3-32i - (4) PCAOB does not prohibit preparation of audit client’s tax return, but does prohibit the services in the other answer choices.
Chapter 3 Homework 3-32j - (2) CPAs can provide training to attest client employees, but canNOT perform in an employee or management role under Rule 101.
Chapter 3 Homework 3-32k - (4) There are no Statements on Responsibilities for Assurance Services.
Chapter 3 Homework 3-32l - (3) The IIA’s Code of Ethics does NOT include anything on specific audit techniques, such as sampling.
Chapter 3 Homework 3-35a CPA: Independence Impaired Firm: Independence Impaired Violation for CPA – employment during F.S. period or period engaged. Husband is immediate family so it transfers to the CPA because husband is in a Key Position at the audit client. Firm independence impaired because of Category C because a professional CPA firm employee cannot be simultaneously an officer (Treasurer).
Chapter 3 Homework 3-35b CPA: Independent Firm: Independent Will’s father is a close relative, but since Will is NOT aware of the investment (and there is no indication he has reason to believe the investment is Material to the close relative or enabled the close relative to exercise of significant influence over client ), Will is not impaired. Note: Will is a partner and participates in the audit & is probably in the same office as the lead partner for the audit, so Will is a covered member.
Effects of Relative Business and Financial Interests on Auditor Independence Close Relatives (Parent, Sibling, Nondependent Child) Only Flows to the CPA When the CPA is (1) on the Attest Engagement Team or (2) Can Influence the Attestation Team or (3) a Partner in Same Office as lead attest partner AND the Close Relative: • Is in a Key Position with the attest client or • Has Financial Interest in client that either: (changed Oct 2009) • CPA knows or has reason to believe was Material to the close relative or (and for # (2) & (3) covered members above) • Enabled the close relative to exercise of significant influence over client.
Chapter 3 Homework 3-35c CPA: Independence Impaired Firm: Independent (unless > 5%) Cat A – direct investment. So CPA is not independent. But, since the senior auditor is not on the engagement team, no problem for firm since he is probably not a covered member.
Chapter 3 Homework 3-35d CPA: Independent Firm: Independent Relative Employment. No problem since uncles are usuallynon-close relatives. If uncle would be considered a close relative, then the CPA would lack independence because the uncle is in a key position at the audit client. Then, the firm would also lack independence since CPA works on the audit and is a covered member.
Chapter 3 Homework 3-35e CPA: Independence Impaired Firm: Independence Impaired Category B – No professional employees or group of employees and immediate family members can own more than 5% of the attest client equity securities.
Chapter 3 Homework 3-38a CPA: Independent Firm: Independent Code of Conduct does not prohibit personal relationships. But, since CPA is on the audit team, there is a potential lack of independence for Appearance, esp. if negligence is subsequently alleged. Firm should assess closeness and risks to engagement team as partner is a covered member (partner in the office where the audit is performed).
Chapter 3 Homework 3-38b CPA: Independence Impaired Firm: Independent IF . . . Past employment applies to F.S. period and period engaged. So, the CPA lacks independence. Firm will not lack independence as along as the CPA is totally disassociated with audits for period employed.
Chapter 3 Homework 3-38c CPA: Independence Impaired Firm: Independent Father is a close relative and in a Key Position at the audit client, so it transfers to the son CPA. Firm is independent as long as the CPA is not a covered member.
Chapter 3 Homework 3-38d CPA: Independence Impaired Firm: Independence - Impaired Cat A – Joint Investment with client director, so CPA lacks independence. Firm would only lack independence if the partner is a covered member – probably in same office (LA) as the lead partner on the audit.
Chapter 3 Homework 3-38e CPA: N/A Firm: Lacks Independence Audit fees for last year’s audit MUST be actually paid before the CPA can issue this year’s report without stating a lack of independence.
