AUD 1 ( AICPA RULES)

I. AICPA Code of Professional Conduct

  • Purpose: The AICPA Code provides ethical standards for CPAs and frameworks for resolving ethical dilemmas.

  • Applies to all professional services: Members in public practice, members in business, and others.

    II. Principles of the Code

    • Responsibilities: CPAs should exercise professional judgment and act in the best interest of the public.

    • Integrity: CPAs must be honest and candid in all professional relationships.

    • Objectivity and Independence: CPAs should maintain independence in fact and appearance in all attest services. Professional Competence: CPAs should maintain and enhance their professional knowledge and skills to provide competent services to clients and stakeholders.

II. Standards for Different Types of Engagement

  • Types of Engagements:

    • Audit of Non-Issuers: GAAS by AICPA.

    • Audit of Issuers: PCAOB Auditing Standards + GAAS + SEC + Sarbanes-Oxley Act.

    • International Audits: ISA + IESBA Code of Conduct.

    • Governmental Audits: GAGAS by AICPA.

    • Attestation and Review Services: SSAE + SSARs + AICPA Code of Professional Conduct.

III. Fundamental Ethical Principles (Part 0)

  • Responsibilities Principle: Collaboration and maintaining public confidence.

  • Public Interest: Serve diverse groups and maintain professionalism.

  • Integrity: Honest and candid in all dealings, observing objectivity and independence.

  • Objectivity: Impartial and free from conflicts of interest.

  • Independence: Primarily for public practice members, essential for audits.

  • Due Care: Uphold technical and ethical standards; continual professional improvement.

IV. Integrity & Objectivity

  • Applies to All Members: Ensures trustworthiness.

    • Honesty: Truthful in communications.

    • No Conflict of Interest: Avoid situations that influence judgment.

    • Impartiality and No Misrepresentation of Facts.

V. Independence (Part 1 Members Only)

  • Required for Auditors: Must be independent in fact and appearance.

  • Engagements requiring Independence: Audits, reviews, governmental audits.

  • Covered Members: Audit firm members, partners, and immediate family members need to maintain independence.

  • Duration: From engagement letter to termination of the relationship.

VI. Threats to Independence

  • Adverse Interest Threat: Compromised objectivity due to opposing interests.

  • Advocacy Threat: Promoting client interests could impair objectivity.

  • Familiarity Threat: Over-familiarity may lead to bias.

  • Management Participation Threat: Auditor taking management role impairs independence.

  • Self-Interest Threat: Benefits from relationships can compromise judgment.

  • Self-Review Threat: Evaluating one's prior work reduces critical analysis.

  • Undue Influence Threat: External pressures may impact decision-making.

VII. Safeguards Against Threats to Independence

  • Profession-Based Safeguards: Code of Conduct, continuing education.

  • Client-Based Safeguards: Internal audits, clear governance.

  • Audit Firm-Based Safeguards: Quality control and audit partner rotation policies.

VIII. Independence Impairment

  • Financial Relationships: Direct and indirect financial relationships impair independence.

  • Loans: Loans can compromise independence unless specific criteria are met.

  • Gifts: Any gifts of significant value are scrutinized for potential influence.

  • Employment Relationships: Certain employment transitions or discussions can impair independence.

IX. General Standards

  • Professional Competence: Members must possess necessary skills for services.

  • Due Professional Care: Diligence and best abilities in service provision.

  • Planning and Supervision: Proper organizational tasks and oversight are essential.

  • Sufficient Relevant Data: Well-informed decision-making requires relevant data.

X. Compliance with Standards Rule

  • Adherence Required: Members must comply with GAAS, PCAOB standards, and other respective governing body standards.

XI. Accounting Standards Rules

  • Application: AI CPA members must adhere to recognized accounting standards.

  • Departures: Circumstances for departure due to new legislation or business evolution can arise.

XII. Confidentiality Rules

  • Strictly Apply to Public Practice Members: Obligation to not disclose confidential client information unless in specified situations like legal inquiries or audits.

XIII. Contingent Fees Rule

  • Contingent Fees: Structuring fees based on outcomes is generally prohibited for attestation services to maintain objectivity.

XIV. Discreditable Acts

  • Acts may criticize the profession’s integrity: Discriminatory practices, failing tax obligations, negligence, and misleading advertisements are among them.

XV. Sarbanes-Oxley Act, 2002

  • Overview: Aimed to enhance investor protection and reduce fraudulent corporate practices by demanding accountability from company executives.

XVI. Other Relevant Laws

  • Private Securities Litigation Reform Act, 1995: Enhanced auditor responsibilities for related party transactions, illegal acts, and going concern issues.

  • Dodd-Frank Act: Established to prevent financial system risks following the 2008 crisis, exempting non-accelerated filers from integrated audits.

  • JOBS Act: Eased securities regulations to foster small business funding.

  • SEC roles: Ensures fairness in securities markets and has authority over PCAOB operations and audits.

NOTES FROM THE MCQS 1 ON AICPA BLUEPRINT: (that I struggle with)

The auditor is required to communicate each of the following items to those charged with governance:

  • An overview of the planned scope and timing of the audit.

  • The auditor's responsibilities to complete the audit in accordance with Generally Accepted Auditing Standards (GAAS).

  • Any significant findings from the audit.

The auditor would never bring up all control deficiencies they find during the audit to those charged with governance because its a waste of time.

Management uses US GAAP to prepare and present their financial statements, the auditors use US GAAS to do the audit

Financial Accounting standards Board (FASB) establishes GAAP