Unformatted text preview: ndependence questions based on standards of the Securities and Exchange Commission (SEC), the Public
Companies Accounting Oversight Board (PCAOB), the Government Accountability Office (these standards
are covered in Study Unit 20), Department of Labor (DOL), and the Sarbanes-Oxley Act of 2002.
Candidates are also expected to demonstrate an awareness of the International Ethics Standards Board for
Accountants (IESBA) and its role in establishing requirements of the International Federation of Accountants
(IFAC) Code of Ethics for Professional Accountants.
The material may appear imposing at first. However, it is important to recognize that in most cases the
standards for independence from the various standard setters are very similar. Thus, use your knowledge
of the AICPA Code of Professional Conduct as a foundation for your study. For other ethics issues you
should focus on those issues that may not be “common sense” to you. With a little effort, you should be
able to gain considerable confidence in comprehending the issues. Copyright © 2012 Gleim Publications, Inc., and/or Gleim Internet, Inc. All rights reserved. Duplication prohibited. www.gleim.com 22 SU 2: Professional Responsibilities 2.7 OTHER PRONOUNCEMENTS ON PROFESSIONAL RESPONSIBILITIES
1. Sarbanes-Oxley, PCAOB, and the SEC
Background The Sarbanes-Oxley Act of 2002 is a response to numerous financial reporting scandals involving large public companies.
It contains provisions relating to corporate governance that impose new responsibilities on publicly held companies and
their auditors. The Public Company Accounting Oversight Board (PCAOB) was created by the act. The act applies to
issuers of publicly traded securities subject to federal securities laws. The following section addresses ethical issues of
Sarbanes-Oxley, the PCAOB, and the SEC. Most of the independence rules are parallel to the AICPA rules and the focus
here is on other issues not addressed in the AICPA Code of Professional Conduct. a. Responsibilities and Activities of the Public Company Accounting Oversight
4) b. Register public accounting firms
Oversee the audit of public companies (issuers) that are subject to the
Establish or adopt standards on auditing, quality control, ethics, and
Inspect audit firms to include three components: a) Examine selected audit and review engagements;
b) Evaluate the system of quality; and
c) Test audit, supervisory, and quality control procedures.
5) Conduct investigations and disciplinary proceedings concerning, and impose
appropriate sanctions upon, registered public accounting firms and associated
Preapproval of Services
1) Audit committees ordinarily must preapprove the services performed by
accountants (permissible nonaudit services and all audit, review, and attest
a) c. Approval must be either explicit or in accordance with detailed policies
b) If approval is based on detailed policies and procedures, the audit
committee must be informed, and no delegation of its authority to
management is allowed.
Disclosure of Fees
1) d. An issuer must disclose in its proxy statement or annual filing fees paid to the
accountant segregated into four categories: a) Audit,
c) Tax, and
d) All other.
2) The disclosure is for the 2 most recent years.
Rotation of Partners
1) The lead and concurring (reviewing) audit partners must rotate every 5 years,
with a 5-year time-out period. Other audit partners must rotate every 7 years,
with a 2-year time-out. Copyright © 2012 Gleim Publications, Inc., and/or Gleim Internet, Inc. All rights reserved. Duplication prohibited. www.gleim.com SU 2: Professional Responsibilities e. 23 Communications with the Audit Committee
1) The firm must include
b) f. All critical accounting policies and practices;
All material alternative accounting policies and practices within GAAP that
were discussed with management; and
c) Other material written communications with management, such as
representations and schedules of unadjusted audit differences.
2) These communications must be prior to filing the audit report with the SEC.
3) The firm must discuss the potential effects of the services on the independence
and document the discussion.
Prohibited Nonaudit Services
1) g. The firm is prohibited from offering certain nonaudit services to their attest
clients, including a) Appraisal and other valuation services
b) Designing and implementing financial information systems
c) Internal auditing or actuarial functions
d) Management services
e) Human resource services
g) Expert services not pertaining to the audit
h) Investment banking or advisory services
2) Preapproved compliance tax engagements are not prohibited.
1) h. Each member of the audit committee must be an independent member of the
board of directors.
2) The audit committee must be directly responsible for appointing,
compensating, and overseeing the work of the audito...
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This note was uploaded on 04/02/2013 for the course ACCT 7100 taught by Professor Swanson during the Spring '13 term at Valdosta State University .
- Spring '13