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Unformatted text preview: . EXAMPLE
The immediate family member may participate in an employee stock ownership plan (ESOP) if the restrictions are
maintained. l. Independence is impaired if an individual participating on the engagement (or able to
exert influence or that is a partner in the lead partner’s office) has a close relative
(sibling, parent, or non-dependent child) who holds a key position with the client or
certain financial interests.
CONCEPT If a close relative has a financial interest in the client that (1) the individual knows or has reason to believe is material to the
relative or (2) permits the relative to exert significant influence over the client, independence is impaired. Some latitude is
permitted in the application of this rule based on the family relationship. EXAMPLES
q A sibling may be a salesperson for a client but not the CFO or a director.
A parent may be a production manager (non-key position), but not the CEO or a director. m. Independence of the firm is impaired if a former partner or professional employee of
the firm is employed by or associated with an attest client in a key position.
1) Independence is not impaired in this case if the person is no longer associated
or active with the CPA firm and any retirement compensation is fixed.
CONCEPT Third parties may believe that the person is in a position to influence the engagement. EXAMPLE
A retired partner must not become a CFO of a client while performing consulting duties for the CPA firm or having
retirement pay contingent on retaining the client. Copyright © 2012 Gleim Publications, Inc., and/or Gleim Internet, Inc. All rights reserved. Duplication prohibited. www.gleim.com 7 SU 2: Professional Responsibilities n. Independence of the firm may be impaired if certain nonattest services are
performed for an attest client.
CONCEPT The practitioner appears to be an advocate or a decision maker for the attest client when performing certain nonattest
services. In these circumstances, (s)he is not independent. 1) 2) Independence is impaired by providing to attest clients the following services:
a) Appraisal, valuation, or actuarial services
b) Expert witness services
c) Internal audit services
d) Tax advocacy services
e) Recruiting, hiring, firing, or other employment services
Independence is not impaired by providing to attest clients the following
d) Consulting services (where the client is responsible for the decisions)
Tax preparation and compliance services
Business risk advising services
Providing general advice based on audit findings
EXAMPLES q q Internal audit services must not be outsourced to the audit firm, but the audit firm may provide advice on how to
improve the internal audit function.
The auditor may prepare the client’s tax return but must not testify as an advocate of the client in a tax case. 3) Independence is not impaired for attest engagements of nonissuers by
providing bookkeeping, payroll processing, or other conventional recordkeeping
CONCEPT The AICPA allows practitioners to perform these duties for nonissuers (typically small clients) as long as management
functions are not performed. The PCAOB rules do not allow these services to be provided to issuers by their auditors.
However, issuers are not likely to request these services. Issuers have their own recordkeeping functions. EXAMPLE
An auditor of a nonissuer may record transactions in a computer program and generate financial statements but must not
provide those services for an issuer. Copyright © 2012 Gleim Publications, Inc., and/or Gleim Internet, Inc. All rights reserved. Duplication prohibited. www.gleim.com 8 SU 2: Professional Responsibilities o. Independence is impaired by actual or threatened litigation by either the CPA or
2) Independence is not impaired when the litigation issue is not related to the
work product and is not material, for example, a dispute over billing.
Independence is not necessarily impaired when shareholders or others bring a
class action suit against both the client and the auditor.
CONCEPT Legal action creates adverse interests between the parties involved. These interests can affect independence. EXAMPLES
q q The client may allege that the member was negligent, or the member may allege that the client’s management
committed fraud. In these circumstances, the interests of the client and the CPA are opposed, and independence is
However, if a creditor or insurer files a suit that alleges reliance on the audited financial statements of a client,
independence is not impaired. p. Independence is not impaired if a member holds an honorary directorship or
trusteeship of a not-for-profit organization that is a client.
2) The position must be clearly honorary, and the member must not be able to vote
or participate in board or management decisions.
The member must be identified as an honorary director or trustee.
CONCEPT CPAs may lend their support to charitable organizations without impairing independence. However, they must not have...
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- Spring '13