| What are safeguards that may be applied to reduce the threats to independence? | a. The profession, legislation, or regulation
b. The attest client
c. The firm |
| What are the threats OF Independence (FAAMUSS)? | a. Adverse interest threats
b. Advocacy threats
c. Familiarity threats
d. Management participation threats
e. Self-interest threats
f. Self-review threats
g. Undue influence threats |
| What are the threats to Independence (CEFF)? | 1. Financial relationships—Example: An attest partner should not own stock in an audit client
2. Employment relationships—Example: Attest partners should not be on an audit client's board of directors
3. Family relationships—Example: An attest partner should not audit a client whose chief executive officer is the partner's spouse
4. Consulting relationships—Example: An attest firm should not provide internal audit services to an attest client |
| Independence rules must be followed when relationships exist during what period of time? | 1. The period covered by the financial statements
2. The period of the professional engagement |
| Which 'covered' members must comply with Independence rules? | 1. An individual on the attest engagement team (team member)
2. An individual in a position to influence the attest engagement (PTI)
3. A partner, partner equivalent, or manager who provides 10 hours or more of non attest services to the attest client within any fiscal year (10-hour person)
4. A partner or partner equivalent in the office in which the lead attest engagement partner or partner equivalent practices in connection with the attest engagement (other partner in office)
5. The firm, including the firm's employee benefit plans
An entity whose operating, financial, or accounting policies can be controlled by any of the individuals or entities described in items (1) through (4) |
| In an Engagement letter, is it an Independence violation for a 'covered member' to indemnify an attest client for losses resulting from the client's own acts? | Yes! A member/firm should be responsible for its own acts and an attest client should be responsible for its own acts. |
| Unpaid Fees - When are you allowed to Not sign an audit report? | You may not sign a current-year audit report if it has unpaid fees from the client for services provided more than one year prior.
Exception: client in bankruptcy |
| Is independence impaired if a covered member has or is committed to acquiring any direct (whether material or not) or any material indirect financial interest in an attest client? | Yes, independence is impaired!
Only if interests are both indirect AND immaterial is independence not impaired. |
| NOTE: Unsolicited Financial Interests | Unsolicited Financial Interests -
If covered members receive or learn they will receive an unsolicited financial interest in an attest client (perhaps through gift or inheritance) that is either a direct interest or a material indirect interest, independence will not be impaired if they:
1. Dispose of the interest as soon as practicable but not later than 30 days after having both knowledges of the interest and gaining the right to dispose of it; and
2. Do not participate on the attest engagement team after learning of the interest and before disposing of it.
If the covered member does not yet have the right to dispose of the interest (perhaps a relative who wrote a will is still alive), then independence will not be impaired if:
1. The member does not participate on the attest engagement team.
2. The interest is not material to the member. |
| Name three conditions that allow covered members to maintain a depository account at a bank that is an attest client? | 1. The balance in the depository account is fully insured
2. Any immaterial amounts are not material to the covered members net worth
3. If an uninsured account is material, it must be reduced to immaterial within 30 days |
| What are the two requirements of having a brokerage account of a brokered attest client firm that a covered member must meet to ensure the there is no independent problem? | 1. Services are rendered under normal conditions, procedures, and requirements AND
2. Assets in the account are immaterial to his/her net worth |
| An insurance policy is not a "financial interest" for the purpose of independence rules if it lacks what option? | Investment option |
| Which type of lease presents an independence issue? | A capital lease aka finance lease (lease to own)
*a
An operating lease does not create an independence issue if the following safeguards are met:
- it's Gaap compliant
- the terms and conditions are comparable to similar leases
- all amounts are paid in accordance to the terms of the lease* |
| Can an immediate family member of an attest client pose a treat to independence, and if so how? | Yes, an immediate family member can pose a threat to independence of a covered member. Immediate family members are bound by the independence rules and must not work for an attest client or have a financial interest in an attest client UNLESS the financial interest is immaterial AND indirect |
| Can an immediate family member of a covered member work for an attest client? | Yes, an immediate family member can work for an attest client but not in a key position |
| Are close relatives of a covered member bound by independence rules, if so, how abs why? | Yes, a close relative is bound by independence rules. If they hold a key position of an attest client or have a interest in an attest client |
| Can a covered member worked for an attest client? | Yes but they cannot serve in a key management position |
| Can a covered member work for an attest client in a staff augmented capacity? | Yes a covered member can work for an attest client in a staff augmented capacity as long as it is not for more than 30 days and and they do not hold a key position and they cannot be in a position that influences attest an engagement |
| Can a covered member work for in a test client in a professor capacity? | Yes a covered member can work for an attest client in a professor capacity as long as it is tenured and they are not in a key position and they cannot influence and attest engagement |
| Are governmental auditors considered independent of the governmental organization? | Yes governmental auditors are considered independent of the governmental organization as long as they are they are appointed by a voting body and or a legislative body and they and they can be removed from position by a legislative body |
| Can a covered member (partner or professional employee ) serve as a director or officer of a Federated Funded Organization that gives funds or exercises control over funds given to a local charity? | No a covered member cannot serve as a member of a Federated bonded organization in a director or officer capacity or have the Federated bonded organization as an attest client |
| What are the five steps of disassociation for a covered member when they were an employee of an attest client? | 1. Cease to participate in all of the attest clients health and welfare plans and pay 100% of the cost for coverage if participation participation in the plan is required
2. Cease to participate in all of the clients benefit plans, contribution plans, investment plans, and seek to liquidate as soon as possible
3. Dispose of all direct and material indirect financial interests
4. Collect or repay all loans to or from the client especially grandfather scenarios
5. Assess other relationships with the client to determine whether or not any independence safeguards should be installed to an acceptable level |
| what what is the length of the cooling off period that a covered member seeking employment with an attest client must take? | 1 year Preceding the beginning of an audit |
| What is a MIPP? | Members in Public Practice |
