Test Your Knowledge of Professional Ethics

By Evans, Jason | Journal of Accountancy, October 2010 | Go to article overview

Test Your Knowledge of Professional Ethics


Evans, Jason, Journal of Accountancy


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Many AICPA members have expressed confusion about provisions covered under Interpretation 101-3, Performance of Nonattest Services, of the MCPA Code of Professional Conduct. For example, what nonattest services can a CPA perform for an attest client? What are the requirements involving management responsibilities to oversee the project? This quiz is based on those and other frequently asked questions (FAQs) found on the Institute's Professional Ethics Division's website (tinyurl.com/267adgk).

When in doubt, refer to the section titled "Specific Examples of Nonattest Services" in ET section 101, Independence, for highlights of the impact on independence of performance of nonattest services. Questions about the Code also can be directed to the Professional Ethics Division at ethics@aicpa.org or by calling the AICPA's hotline for guidance.

To access the Ethics Hotline, dial 888777-7077, menu option #5, followed by menu option #2. You will be asked to leave a message with your name, phone number and whether you are an AICPA member. The call will be returned regardless of your membership status. Anonymous callers must leave a phone number.

QUESTIONS

1. A sole practitioner performs a review engagement for a small company owned by two partners. The two partners are involved in the sale of the company's products and neither has ever performed an accounting function. The client has an office manager who maintains the accounting records among his various responsibilities. The office manager is not a CPA and does not have a degree in accounting. The company's remaining employees work in the production facilities. The sole practitioner performs certain tax and bookkeeping services permitted under Interpretation 101-3 for the client. Based on the fact that none of the client's employees have an accounting background, can the sole practitioner perform the nonattest services and still remain in compliance with the general requirements of Interpretation 101-3?

2. Based on the fact pattern in Question 1, the sole practitioner calculates the deferred tax asset for the financial statements. Neither of the partners nor the office manager possesses the skills to calculate the deferred tax asset in the current year nor do they intend to learn how to perform such a calculation in future years. Is the sole practitioner's independence impaired?

3. A CPA audits a small privately held company. The owners of the company are considering offering some key employees life insurance as part of their compensation. The owners inquired with the CPA on the effects such a plan may have on their financial statements. Would the CPA have to follow the general requirements of Interpretation 101-3 in providing the advice?

4. A CPA performs the audit of a small privately held company. The client has a bookkeeper, but no CPA on staff. During the audit, the CPA proposes adjustments to the financial statements. The journal entries include adjustments to the accumulated depreciation account, a reclassification of long-term assets and an adjustment based on sales cutoff testing. Would the proposal of these entries be considered a bookkeeping service subject to Interpretation 101-3?

5. A CPA performs a review engagement for a small company that has limited staff for its accounting and finance functions. The CPA receives copies of check disbursements, invoices and purchase orders, and books the journal entries accordingly for the client. The client has identified each cash disbursement, invoice and purchase order (for example, inventory, phone bill, payroll, misc., etc.). As the CPA is booking the entry, the CPA assigns the general ledger account number for the type of expense as identified by the client. Would this be considered determining or changing journal entries, account codings or classifications as prohibited by Interpretation 101-37

6. Based on the fact pattern in Question 5, the CPA also receives a copy of the client's bank statement and performs a bank reconciliation at the end of each month. …

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