a cpa who is not in public practice is obligated to follow which of the following rules of conduct? This is a topic that many people are looking for. cfiva.org is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, cfiva.org would like to introduce to you Other AICPA Rules of Conduct | Auditing and Attestation | CPA Exam. Following along are instructions in the video below:
And welcome to the session in which we would look at the aicpa code of of conduct for other than independence. So we looked at independence the rule of independence why because independence is important when it comes to audit and attestation now were going to look at other rules. The first rule.
Were going to look at is integrity and objectivity in performance of any professional service. A member shall maintain objectivity and integrity shall be free of conflict of interests and shall not only misrepresent facts. Or subordinators.
His or her judgment. Okay and this rule applies to cpas cpa. Firm.
As well as the employees working there so for example. If you are working on an audit. And you believe the account receivable is not collectible okay.
But you accept the management opinion about the collectability of the receivable. Then what you did is you subordinated your judgment in this situation. Youre left.
Independence. Okay. So.
This is where you are basically accepting the clients evaluation and not yours also if you dont believe. Theres a support for the claim for example for a deduction for on a tax return you should not accept the clients claim. If you you dont believe that is there is a support now if you believe its the deduction is valid.
Assuming were dealing with a tax return then you might accept the deduction so integrity and objectivity basically use your own judgment use your own judgment. Youre the professional they dont support the need that judgment to the client. Okay also you have to be free from conflict of interests.
And whats freedom from conflict of interest it means the absence of a relationship that might interfere with objectivity and integrity. A good example will be the most classic example is the auditor cannot be the attorney. So that so so the firm cannot audit.
The client and it cannot be the attorney. Because as an attorney you have to work for the client you have to advocate for the client as an auditor you have to be independent. So you cannot be the auditor and the attorney for that same client now some time you might have whats called a parent conflict of interest and here.
We are not talking about an attestation engagement. Here because remember conflict of interest will impair your independence ii cannot be an auditor. But lets assume lets assume you are you are working with a client and the client wants to conduct a security evaluation for the website.
So they want to evaluate the security of the website and what happened is this on your spouse your spouse works at a consulting firm that do or owns work or own or work in high position or owns. It consulting firms that do this type of service. They could evaluate the security of your website.
Now can you recommend your spouse to do the work and the answer is as long as its not youre not performing an audit or an attestation service thats okay as long as you disclose it so you disclose to the client that im recommending this company. My spouse is part owner or my spouse is the owner or my spouse works there in a high position thats okay thats okay. But if youre doing a know that disclosure will not cut it so you cannot do this with a disclosure.
Also you said you should not support the nature judgement to others for example as a stopped staff auditor. You should not support the nate your judgment to supervisors on the audit. Now obviously.
This is this is a very strong statement. Okay so you can document your disagreement you can document your disagreement. If you want to document your disagreement.
You could choose to do so and obviously. The supervisor is going to discuss it with you and if you come to the conclusion that you that what you think is incorrect you will be able to change your confusion be it you should change your conclusion also the firm itself you have to understand you remember we talked about internal quality control. The third itself should allow assessment to document situation.
Where they disagree with a conclusion. So the firm itself should help you with that to not support the nature of judgment to others. Now.
Assuming you have a valid and a significant issue. Okay. Thats integrity also we have a general standard rule that we have to follow okay that we have to comply.
With and these these are the general standard rules. Were going to go over them briefly what is professional competence. What does that mean it means you only undertake professional services.
That the member or the members firm can reasonably expect to be completed to complete with professional competencies competency. So dont take work that you cannot you dont you cannot handle or if you cannot handle you can get the help to handle for example. You may take on a on a on an actuarial service company well if you dont know.
If you dont have an expertise on hand you could hire an extra with it to help you with the audit. So if you dont have the expertise make sure you have the ability in the willingness to get that help okay do professional care exercise. Do professional care and the performance of professional services.
Basically. Youre the professional use your expertise use your business. Knowledge.
Use your education. To perform your work in a professional manner. Planning and supervision.
You have to adequately plan and supervise the performance of professional services. So if you have staff who are not well versed. We have to properly supervise them and train them and make sure they are doing a good job.
Because thats your responsibility and responsibility of the firm sufficient relevant data obtained sufficient but other than data to afford a reasonable basis for the conclusion or recommendation and relationship to any professional services performed make sure you have enough data you know you dont have to collect all the data. But you have to have enough data so obviously and basically those are similar to generally accepted accounting standards you have to comply with the standard rules. But thats obvious.
A member who performs auditing reviews. Compilations management. Consulting tax or other professional.
Shell. Comply with the standard promulgated by bodies designated by council. So basically you have to follow the rules whatever rules you are performing thats aicpa sec pcaob so on and so forth accounting principle once the accounting principle rules well basically you should follow im going to say gap for whatever procedure.
You are using unless unless. The statement or data. Contain a departure and the member can demonstrate that they do due to unusual circumstances.
The financial statements or the data would be misleading. The member can can comply with the rule by describing the departure. So what does that mean accounting principal role.
It means you have to express the opinion. According to gaap so you the data that you collect everything has to follow gaap unless. Theres a deviation and if theres a deviation you have to show why the youre saying.
Its not in compliance with gaap. But you have to follow accounting the accounting principle of course those are obvious. But they are stated their confidential client information rules.
Thats also an important one okay practitioners are not permitted to disclose confidential information. Without the client consent now think about it if youre auditing. The client or if youre preparing taxes for them theyre going to have access to sensitive information.
Youre going to have access to product pricing. Advertising. Expenditure or expensive salaries product cost and data.
In that information. If revealed it could harm. The company with the competitors know about this okay so you cannot you cannot disclose confidential information or obviously theres exception to come potentiality rule okay and by the way.
Theres no cpa client confidentiality like a lawyer and a client. Theres no such thing so under certain circumstances you can basically disclose information. Okay.
One is obligation related to technical standards well if you find something wrong you youre supposed to met the others you get a let the client. Know that they need to correct it otherwise if the client. Refuses then you can disclose this information for example you complete it an audit and a month later you find out that there was a material misstatement in the financial statement.
Well guess what you can go back until. The client to fix the financial statements and if they dont then you can the information is no longer confidential. If you get a subpoena or a summon any compliance with laws and regulations you have to disclose the information.
If there is any peer review. Basically part of the quality control. Remember one cpa firm or that map or that check the work of the other quality control authorizes by the aicpa or some state board of accountancy.
Then you have to give this information to the to the other party to the other cpa firm. If you have tourists if theres a response to the ethics division of your state. The trial board of aicpa well.
If you are if the aicpa is examining an issue because you are not doing a good job you have to disclose this information. Okay you cannot basically this rule is you cannot hide an adequate technical performance by claiming confidentiality. So basically you cannot say i cannot tell you what i did or i cannot show you the record because thats confidentiality well you cant do that if you can do that then you can hide your subpod performance from others especially from the aicpa.
The state board of accountancy now obviously when when can you also release information about the client well if you are being sued by the client you could give information to your league of the fence. You can get give them access to the paperwork especially if the issue it has to do with the performance of the audit. So those are basically the exception rules.
But generally speaking youre not supposed to really relieve any information and this is basically the official language. Okay other rules and then contingencies and commission and why do we care about contingent contingent. These rules contingent fees means if you get you know i will pay you a certain amount for example.
The client might say if you give me a modified opinion. Well if you get a modified opinion. I will give you twenty five thousand.
If its unmodified clean. Ill give you fifty thousand well you cant do that you cannot sell your opinion. Okay.
And whats commission commission when you sell something and in a return you get you know five six seven eight percent commission. Well lets talk about convention. See.
Few rules first thats definitely not allowed for order to reviews examination of prospective financial statements. Its not allowed for at the station services period. Okay so you cannot sell your opinion.
You cannot sell your your the performance. Okay okay now exceptions exist yes of course exception existed if if the contingent fee rule is set by the court for example based on the court proceeding based on the result of the court proceeding. You may get a fee for example of the client wins you may get a part of that of that decline when a million dollar he may get part of it so thats a contingent fee that its set the course is determining the outcome also if there is a government agency involved for example if you are being if you are being examined by the irs.
Okay finding finding by government agency. So if you represent the client in a tax return dispute and guess what you can work on a contingent contingent fees because of the fbi irs said yes. We were wrong then they may have a lower tax bill.
You may get because they save money you may get a part part of that money so thats the contingency thats acceptable notice here in a compilation compilation is when you prepare financial statements. Without reviewing them without an audit. So theres no youre not giving any assurance as long as the authority.
Thats using the financial statements. So how does confirmation work you have the company here. The company here it gives.
The cpa firm in here is a. Im going to call the third party. A bank or the third party.
Now can you prepare a compilation can you prepare financial statements for the company and those financial statements going to be used by the bank can you work on a contingent fees and the answer is yes as long as the bank knows that you are not independent. Okay. What about commission commission must be disclosed and acceptable.
Only for tax advisory and compilation. So if you want to sell some services or some product and earn commission you have to disclose it to the client and obviously you cannot do it if you are performing audit reviews audit reviews or any source of attestation service and here are the rules for the contingent fee rules commission again commission and referral basically the same thing if youre doing if youre performing an attestation service. You can do it if its not at the station as long as its disclosed and obviously it doesnt violate your your independence well also all cpas whatever there are private public or non members they should conduct themselves in a professional manner and this applies to all cpas.
Whether it working or not working. So you cannot have you cannot act in a way that you describe to the profession. A member should not act shall not commit an act thats credible to the profession.
And what what is what could be discredit all eyes for example failure to to record failure to return records to client for payments for example. You completed a tax return and the client is not paying you and you said well im going to withhold the paperwork you cant do that if they dont pay you take them to court. But you cannot you know hold the paperwork as hostage.
Okay. If you failure to follow. Applicable.
Gaap gas. Government. Audits standard without disclosing the non compliance.
So you have to follow the compliance negligence in preparing financial. Statements. Or directives for the client.
Soliciting and disclosure of cpa exam. Questions you cannot discuss any cpa exam. Questions because once you take your cpa.
You sign that non disclosure. Agreement. Failure failure to file your tax return or the firm tax return or submit your payroll tax return on time.
Okay also promotion of promotion of of marketing. Someones qualification in the end in a way in a way that is false misleading or deceptive. And about promotion and marketing would have a whole section about this but this is basically you cant do that if employment terminated.
You cannot take or retain copies of the clients so if lets assume you would work in a firm or in a company and you were terminated. You cannot take or retain certain copies you have to submit everything back to the client you cannot okay and obviously you cannot disclose confidential information without the client consent so basically dont in a way there are common sense. But we happen you have to be aware of them we talked about advertising and basically a member in public practice.
Shall not seek or thin. Clients by advertising or other form of solicitation. Thats false misleading or deceptive and well every time.
I read this or i read this statement. I think about that moot that tv show better call. So im sure you heard of it so basically better call.
So will be a good example of the misleading leading advertisement. So solicitation by the use of coercion overachieving or harassment also prohibited so what could be some actual some actual examples of that for example create false or unjustified expectations. So basically you tell the client youre the best.
Theres no worries you can do it. And justified. Expectation.
You dont do that dont promise. What you can have deliver okay apply the ability to influence so basically you put the customer under the influence that you can you have the ability to influence the court government agencies or official detail the client. I know i know the judge it will be good.
But i know the irs. The special agent was in charge of your tax situation everything should be good you cannot imply that influence eventually underestimate please dont underestimate these dont dont bid for lower than what it should be to get the client. Then eventually try to collect more from the client basically simply.
But dont mislead or the see if a reasonable person dont mislead or deceive of the reasonable person okay form of organization and name rule. Thats also important basically dont oversize yourself. If youre a sole practitioner.
A cpa dont you know dont put down youre a cpa and associate because he has no associate to be to claim that you are a member of the aicpa all member firm if youre working in firm. All of them they have to be aicpa member partner named after two years so if youre practicing with someone else two three four members and some left account some left the firm. Some passed away and yet now youre by yourself could you use the the name of the partnership.
Well you can up to two years so up to two years after that if your sole proprietorship. You could use the name of the partnership. But after two years youll back souvenir by yourself you you have to go back and represent yourself.
As a sole proprietor so proprietary means you have to imply own in your name. Theres only one individual and that in that company in that term and also when a cpa firm. More than fifty percent should be cpas.
Now you might be asking why not 100 percent. You can have other you could have other people in a cpa that our owners or principals or shareholders for example. If you audit or if you do a lot of work for technology companies you may need a programmers.
And you know you want to entice the programmers to join the firm we offer them the position and ownership position actuary lawyer with tax expertise may be a person that really really could bring a lot of business because they have a good selling skill they have a good connection to the community. They dont have to be a cpa. They can be part owner of the firm that as long as more than 50 are cpas youre good to go check next topic.
Were going to look at this to describe the enforcement mechanism for cpa conduct for cpa combat. Now theyre in mind that the rules that we covered some of them they cover public private and some of them they cover others so make sure to read your textbook to know. Which is which its important.
But those are the general rules make sure to study hard read your book. And if you have taken your cpa exam. Study hard thats worth it .
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