Chapter 3 Principles of Auditing & Other Assurance Services

Attest engagement team

consists of individuals participating in the attest engagement, including those who perform concurring and second partner reviews. the attest engagement team includes all employees and contractors retained by the firm who participate in the attest engagement, irrespective of their functional classification (tax consultant), except specialists as discussed in the professional standards and individuals who perform only routine clerical functions, such as word processing and photocopying

Audit Committee

A committee of a corporation's board of directors that engages, compensates, and oversees the work of the independent auditors, monitors activities of the internal auditing staff and intervenes in any disputes between management and the independent auditors. Members of the audit committee must be independent directors, that is members of the board who do not also serve as a corporate officer or have other relationships that might impair independence.

Close relative

a parent, sibling, or non-dependent chid

Covered Member is an individual who

(a) is on the attest team (b) has a position of influence on the engagement (c) is a partner or manager that provides 10+ hours non-attest services within any fiscal year ending on the latter of (1) the date the firm signs the report (2)he or she no longer expects to provide 10 or more hours of non-attest services on a reoccurring basis. (d) a partner in the office (e) the firm (f) an entity whose operating, financial or accounting policies can be controlled by any of the individual s or entities described in (a) through (e) by two or more such individuals or entities if they act together

Direct Financial Interest

A personal investment under the direct control of the investor. The Code of Professional Conduct prohibits CPSs from having any direct financial interest in their attest clients. Investments made by a CPA's spouse or dependents also regarded as direct financial interests of the CPA.

Ethics Rulings

Pronouncements of the AICPA that explain the application of Rules and Interpretations of the Code of Professional Conduct to specific factual circumstances involving professional ethics

Immediate family member

A spouse, spousal equivalent or dependent

Independence

of mind and in appearance

Independence in appearnce

the avoidance of circumstances that would cause a reasonable and informed third party, having knowledge of all relevant information, including safeguards applied, to reasonably conclude that the integrity, objectivity or professional skepticism of a firm or a member of the attest engagement team has been compromised

Independence of mind

the state of mind that permits the performance of an attest service without being affected by influences that compromise professional judgment thereby allowing an individual to act with integrity and exercise objectivity and profissional sekpticism

Indirect Financial Interest

an investment in which the specific investment decisions are not under the direct control of the investor. an example is an investment in a professionally manged mutual fund. the cod allows CPAs to have indirect financial interests in attest clients, as long as the investment is not material in relation to the CPAs net worth

Individual in a position to influence the attest engagement

(1) evaluates the performance or recommends the compensation of the attest engagement partner (2) directly supervises or manages the attest partner, including all successively senior levels above the individual through the firm's chief executive (3) consults with the attests team (4) participates in or oversees at all successively senior levels quality control activities, including internal monitoring with respect to the specific attest engagements.

INterpretations

guidelines issued by the AICPA for the scope and application of the Rules of COnduct

Joint closely held investment

An investment in an entity or property by the member and the client (or the client's officers or directors, or any owner who has the ability to exercise significant influence over the client) that enables them to control the entity or property

Key Position

A position in which an individual has (a) primary responsibility for significant accounting functions that support material components of the financial statements; (b) primary responsibility for the preparation of the financial statements; (c) the ability to exercise influence over the contents of the financial statements, including when the individual is a member of the board of directors or similar governing body, chief executive officer, president, chief financial officer, chief operating officer, general counsel, chief accounting officer, controller, director of internal audit, director of financial reporting, treasurer, or any equivalent position.

Manager

A professional employee of a public accounting firm who wither has continuing responsibility for the overall planning and supervision of engagements or has the authority to determine that an engagement is complete subject to final partner approval, if required.

Period of professional engagmenet

a period that beings when a member either signs an initial engagement letter or other agreement to perform attest services or begins to perform an attest engagement for a client, whichever is earlier. The period lasts for the entire duration of the professional relationship and ends with the formal or informal notification, by either the member or the client.

Principles

The part of the AICPA Code of Professional Conduct that expresses the professions responsibilities to the public, clients, and colleagues and provides a framework for the rules

Profession

An activity that involves a responsibility to serve the public, has a complex body of knowledge, has standards for admission, and has a need for public confidence.

Prospective finanical information

Presentations of future financial position, results of operations, or cash flows. Such presentations are often referred to as financial forecasts or projections.

Rules

A group of enforceable ethical standards including in the AICPA Code of Professional Conduct

Safeguards (to independence)

Controls that mitigate or eliminate threats to independence. Safeguards range from partial to complete prohibitions of the threatening circumstance to procedures that counteract the potential influence of a threat

Significant influence

The criteria established in accounting standards to determine the ability of an investor to exercise significant influence over another entity. In general, these criteria include an ownership interest of 20% or more of the entity.

Threats

Circumstances that could impair independence. The AICPA categorizes seven types of threats - self-review, advocacy, adverse interest, familiarity, undue influence, finical self interest, and management participation.