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Unformatted text preview: s represented by the following: Figure 2-2 Majority ownership in the new firm must be held by CPAs. In this case, employees, offices, and equipment are leased from the parent, which also may provide various other services. The CPA firm (the firm) and any leased or employed persons are potentially covered members. Any direct supervisors of activities of the new CPA firm are subject to the independence rules. t. The practitioner must be independent of the party responsible for the subject matter of restricted-use reports. The Statements on Standards for Attestation Engagements describe certain engagements resulting in restricted-use reports. 1) Restricted-use reports may be issued on (a) agreed-upon procedures, (b) internal control, (c) prospective financial information, (d) compliance, (e) pro forma financial information, and (f) management’s discussion and analysis. CONCEPT Attest engagements may be performed for many reasons and involve different kinds of clients. Regardless of the nature of the attest service or client, the practitioner must be independent of the party that is responsible for the subject matter of the attest engagement. EXAMPLE A bank, in anticipation of making a loan to an entity, engages a practitioner to perform certain agreed-upon procedures on the assets of the entity. The practitioner’s report on the agreed-upon procedures would be restricted to the bank’s use. The practitioner must be independent from the entity, the party responsible for the subject matter of the procedures. u. Independence will be impaired if, during the period of a professional engagement, a member or his/her firm had any cooperative arrangement with the client that was material to the member’s firm or to the client. A cooperative arrangement exists when a member’s firm and a client jointly participate in a business activity. CONCEPT The relationship may create a conflict of interest between the member and those users of the auditor’s services. Copyright © 2012 Gleim Publications, Inc., and/or Gleim Internet, Inc. All rights reserved. Duplication prohibited. 11 SU 2: Professional Responsibilities EXAMPLE Cooperative arrangements with a client include q q q Prime/subcontractor arrangements to provide services or products to a third party Joint ventures to develop or market products or services Distribution or marketing arrangements v. To enhance their capabilities to provide professional services, firms frequently join larger groups, such as membership associations (networks), that are separate legal entities otherwise unrelated to their members. Whether a firm is part of a network is contingent on the nature of shared goals and resources. A network firm is required to be independent of financial statement audit and review clients of the other network firms. CONCEPT Firms that are part of larger attest organizations must be cognizant of the independence requirements and work with other members of the network to achieve independence. EXAMPLE ABC Firm is part of a network of five other firms to share audit methodology, audit manuals, technical departments to consult on technical or industry specific issues, training courses, and facilities. They are considered part of the network and are required to be independent of clients of other firms in the network. w. Partners or professional employees of a firm may seek employment as an adjunct faculty member of a client educational institution. Independence is not impaired, provided that the partner or professional employee 1) 2) 3) 4) 5) 6) Does not hold a key position at the educational institution; Does not participate on the attest engagement team; Is not an individual in a position to influence the attest engagement; Is employed by the educational institution on a part-time and nontenure basis; Does not participate in any employee benefit plans sponsored by the educational institution, unless participation is required; and Does not assume any management responsibilities or set policies for the educational institution. 2.3 INTEGRITY AND OBJECTIVITY 1. Rule 102 -- Concepts a. 2. A member shall maintain objectivity and integrity, be free of conflicts of interest, not knowingly misrepresent facts, and not subordinate his/her judgment to others when performing professional services. Knowing Misrepresentations of Facts a. These include 1) 2) 3) Knowingly making materially false and misleading entries in financial statements or records, Failing to make corrections in materially false or misleading statements or records when the member has such authority, or Signing a document with materially false and misleading information. Copyright © 2012 Gleim Publications, Inc., and/or Gleim Internet, Inc. All rights reserved. Duplication prohibited. 12 SU 2: Professional Responsibilities EXAMPLE The use of the CPA designation by a member not in public practice to imply that the member is independent of his/her employer is an intentional misrepresentation. The member should clearly in...
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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 .

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