[AUD] Code of professional conduct

Code of professional conduct

 

Any service that a member of the AICPA performs

if not in public practice only Rule 102 (integrity and objectivity) and 501 (Discreditable Acts) must be observed

what is right and just, all members of AICPA

responsibility toward the public

 

Principles

1) Responsibilities: professional and moral judgments

2) Public interest

3) Integrity: right and just

4) Objectivity and Independence: objectivity > all service, independence> attestation service only

                                                     obligation to be impartial, intellectually honest, and free of conflicts of interest

                                                     ex) FS MM > UM 

5) Due care: improve competence & quality, discharge professional responsibility

                     firm and members of the engagement team observe the profession's technical and ethical standards

                     ex) issue report before collecting evidence

6) Scope and Nature of services

 

Rules

risk-based approach

1) Self-interest threat

2) Advocacy threat: promoting a client's securities

3) Adverse interest thereat: litigation

4) Familiarity threat

5) Undue influence threat

6) financial self-interest threat

7) management participation threat

 

Rule 101. Independence

1. a member in public practice shall be independent

covered members▼

position to influence the engagement(managing partner, all partners of the firm)
+firm including its EE benefit plan

covered member's spouse and dependents ( not the close relative )

independence of mind and appearance

risk-based approach

 

*key position

FS에 영향을 줄수있는 사람

BOD, CEO, CFO, COO, general counsel, CAO, controller, director of internal auditor, treasurer

 

2. Independent impaired by Financial Interest > self-interest threat

 

1) covered member(+immediate family), financial interest: Equity, debt securities, derivatives

Direct financial interest

- stock ownership, blind trust, investment club

- trustee with authority, more than 10% ownership int, participates in investment decision

 

Indirect financial interest + Material

- mutual fund

- beneficiary of a trust 

 

2) covered member (+immediate family), Loan, and guarantee to or from a client

not impaired

- fully collateralized car loans

- credit card balance not exceeding $10,000

- bank account fully insured by the government

- passbook loan

- loans of surrender value under an insurance policy

- grand-fathered loan

 

3) covered member, more than a token gift

OK	more than a token gift
football ticket nice dinner in a local resturant	Box ticket superball ticket

 

4) partner/ professional employee of the firm

more than 5% of a client's equity securities

 

3. Independence impaired by Employment relationships > familiarity threat

 1) immediate family members & close relatives in a key position

 2) formerly employed by the client, engagement covers employment with the client

     client > CPA firm

3) CPA leaves the firm and is employed by the client in a key position, position decision, amount immaterial

    CPA firm > client

4) CPA seeking potential employment with the client

    CPA firm > client

 

4. Independence impaired by Business relationships > Mgt participation, Advocacy

makes management decisions for an attest client

Mgt participation	Advocacy
Director, officer, member acts in a mgt capacity General counsel, internal auditor	Promoter, underwriter, broker-dealer, voting trustee Stock transfer, escrow agent Trustee for a client's pension or profit-sharing trust

 

1) Nonattest services

Mgt participation	Advocacy
Bookeeping authorinzing executing/ on summating a transaction preparing source doc Supervising client ee Financial information systems design and implementation Appraisal, valuation, or actuarial services internal audit Cosign chekcs or purchse orders supervision over budgetary contorls Report ot the board on behalf of mgt Determing recommendations to be implemented	Custody of asset Litigation service Expert witness services

 

5. professional fees > self-interest threat

paid fully before the issuance of a report

 

6. actual or threatened litigation > Adverse interest threat

* immaterial dollar work unrelated to an attestation

 

Rule 102. integrity and objectivity

performance of any professional service

knowingly misrepresent facts or subordinate one's judgment to others

service may still be performed if the relationship is disclosed and the consent of the client is obtained

cannot eliminate the necessity for independence

 

Rule 201. General standards

all engagements

1) professional competence

2) Due professional care (critical review)

    - exceeds CPA's personal competence > consultation, referral

    - plan, supervise adequately > critical review at every level of supervision 

3) planning and supervision (계획. 스텝관리)

4)Sufficient Relevant Data

 

Rule 203. Accounting principles

 

Rule 301 Confidential Client information

member in public practice shall not disclose any confidential client info without the specific consent of the client

1) subpoena, summons

2) Quality review, state CPA society voluntary quality control review

3) CPA society/ state statutes, ethics division, or trial board 

* may reveal the name of the client without their consent unless such disclosure releases confidential info(bankruptcy)

> The CPA firm, which specializes only in bankruptcy matters, discloses the name of one of their local clients

 

Rule 302. Contingent Fees

contingent fees are prohibited

prohibited	permited
audit or review of FS, examination of prospective financial info compilation(independent) prepare tax return	representing a client examination of a tax return by IRS agent

 

Rule 501. Discreditable Acts

1) failure to return client-provided records to a client after the client makes a demand

2) failing to follow applicable standard

3) negligence in preparing client FS, record

4) failure to file a personal tax return

5) solicitation of disclosure of CPA examination

 

Rule 502. Advertising and Other forms of Solicitation

may, unless in a manner that is false, misleading, or deceptive

 

Rule 503. Commissions and referral fees

 shall not for a commission

 1) audit, review FS

 2) examination of prospective financial info

 3) compilation

 

  receive commission or referral fees> must be disclosed to the client

 

Rule.505 Form of Practice and Name

CPAs: all owners CPAs

members of aicpa: all ownes aicpa

partnership > sole practitioner: partnership name x, not more than 2yrs

 

A firm that is in public practice, which is a firm that renders attest, tax, and management advisory services, must be owned by a majority of CPA's

 

 

Code of conduct

in writing and available to employees who want to read it, periodically acknowledged by all employees

Encourage teamwork in the pursuit of an entity's objectives.

Comprehensive, addressing conflicts of interest, illegal or other improper payments, anticompetitive guidelines, and insider trading

changes to or waivers from the code must be reported on a form8-k

 

 

The Sarbanes-Oxley Act of 2002

 

SOX Title1 Public company accounting oversight board

5 members(2 members CPAs)

register public accounting firm

establish rules

conduct inspection, investigations, and disciplinary proceedings

 

application for registration must be updated annually and contain

1) name of issuers audited in the preceding and current year, annual fees

2) control policies

3) list of all firm accountants who will participate in the audits

4) disclosures filed by audited issuers concerning accounting disagreements bet the issuer and the firm related to audits

 

Client over 100: every year / under 100: every 3 years

 

audit documentation 7yrs

concurring P rotation > 7 yrs +2yrs cooling period,

Lead P / second  > 5yrs + 5yrs cooling period

 

Sanctions

temporary suspension or permanent revocation of PCAOB registration

individuals $750K, registered firm $15,000K

censure

professional education and training

 

SOX Title2 Auditor Independence

1. Prohibited services

- bookkeeping(drafting documents, basis of FS, originating source data, maintaining accounting records)

- financial info system design & implementation

- appraisal and valuation service

- actuarial services

- mgt functions or human resources services

- Internal audit outsourcing services

- service as a broker, dealer, investment adviser, investment banker

- legal services

- expert services unrelated to the audit (specialist)

* tax services are permissible if pre-approved by the audit committee

 

2. All auditing services should be preapproved by the audit committee

 

3. Audit Partner Rotation

 concurring P rotation > 7 yrs +2yrs cooling period,

 Lead P / second  > 5yrs + 5yrs cooling period

 

4. Conflicts of Interest

- CEO, CFO, Controller or Cheif accounting officer > CPA firm: one-year period

- not ordinary personal loan only to CEO, CFO

 

5. MGT assessment of internal controls

IC has been evaluated for effectiveness as of a date within 90 days(or three months) prior to the report

IC is designed to ensure material info is made available

 

6. Code of Ethics for Senior Financial Officers(not all members)

must disclose code of ethics for senior financial officers, if not must state the reason why in 8k

* code of ethics standards SOX

-    Honest and ethical conduct (including handling of conflicts of interest).
-    Full, fair, accurate, and timely disclosures in periodic financial reports.
-    Compliance with laws, rules, and regulations.

* Changes to or waivers from the code must be reported on a Form 8-K

* code of ethics standards SEC

prompt internal reporting of code provisions and accountability for adherenc to the code

 

7. audit committee, at least one member financial expert

audit committee of a publicly traded company

member of BOD

independent from the corp(no compensation other than BOD salary, no financial desicion making)

  financial expert 

    - An understanding of internal controls related to financial reporting

    - understanding of generally accepted accounting principles

    - The ability to assess the application of accounting principles in connection with estimates, accruals, and reserves

 

 

The CEO and CFO signing the report assert that they have made the following disclosures to the issuer's auditors and the audit committee:
- All significant deficiencies and material weaknesses in the design or operation of internal controls which might adversely affect the financial statements.
- Any fraud (regardless of materiality) that involves management or any other employee with a significant role in internal controls.

 

 

Public Accounting Oversight Board

1. PCAOB independence standards

  1) Responsibility not to knowingly or recklessly contribute to violations

  2) Auditor independence: throughout the audit and professional engagement period

     unexpected FI ex)inheritance

      - financial int was unsolicited

      - dispose, no later than 30 days

  3) Contingent fees

     compensation because of the taken by the client based on the recommendation of the auditor

     Audit, no contingent fees

 

4) Tax transaction

prohibited	okay
provide confidential or aggressive tax transactions	tax return, tax compliance, tax planning, tax advice

 

5) may not provide Tax service for persons in financial reporting oversight roles

 

6) audit committee preapproval in writing of certain tax services

 

7) audit committee preapproval of non-audit service IC over FR

* exception: non-audit, rev5%, audit 완성전에 audit committee승인, issuer non-audit인지 몰랐

 

8) Communication with the audit committee concerning independence

in writing

 

Government Accountability Office (GAO)

 

Ethical principles

Serving the public interest: collective well-being of the community of people

integrity: attitude that is objective, fact-based, nonpartisan

Objectivity: independence of mind and apperance

Proper use of Govenment info, resources, and positions

Professional behavior: auditor's honest effort in the performance

 

General Standards

Independence

   head of org removed form political pressures to conduct audits objectively, without fear of political reprisal

   > free from independence impairment for reporting internally

Professional judgment

competence

Quality control and assurance

 

GAGAS conceptual framework for independence

Evaluation of Non-audit services

non-audit service create a threat to independence

- mgt's ability to effectively oversee the non-audit service to be performed

- auditor performing non-audit services for entities for which they perform audits should obtain assurance that audited entity mgt perform audits should obtain assurance that audited entity mgt performs the following functions in conceciton with the non-audit services