Aicpa Questions and Response, Research Paper Example

Describe what is meant by the term “covered member.” Which part (or parts) of AICPA Code ofProfessional Conduct Standard 101 on independence relies on the concept of a covered member?

The term ‘covered member’ refers to an ‘entity’ [individual or a business] that is considered as one with CPA credentials who are able to provide independent services to people and organizations needing auditing services. This particular entity has the power to make and manage their own investments into the system. The part that concerns the benefits of the family members of the covered members strongly rely on the concept of who is considered as the ‘covered member’ (Rule 101 par. 1)

What bodies are given authority to issue performance standards under Rule 202 of the AICPA Code of Professional Conduct?  What authoritative standards does each body issue?

Several regulatory bodies are given authority to provide performance standards; among them include the Securities and Exchange Commission (SEC), the Department of Labor (DOL), the Public Company Accounting Oversight Board and the Government Accountability Office or GAO. These authoritative bodies are able to provide more distinct regulations apart from the AICPA policies depending on what the case calls for.

Roger Royce, CPA, has encountered a situation that he thinks may pose a threat to his independence with respect to Watson, Inc., an audit client. The situation is not addressed by an independence rule or regulation. Using the AICPA Conceptual Framework for Independence Standards, describe how Royce can determine whether the threat truly impairs his independence. 

According to the policies of AICPA under the heading Effects of impairment of independence, anyone suspecting that his independence is being endangered within a particular engagement with a client should be able to take the step towards investigating on matters. If proven that the threat to independence is real, disengaging from the contract is allowed. Practically though, the CPA must provide a written presentation as to what his reasons are in relation to why he is terminating the contract. This will clarify the situation and would put a legitimate value on the act that he is taking towards the client.

Donald Westerman is president of Westerman Corporation, a nonpublic manufacturer of kitchen cabinets. He has been approached by Darlene Zabish, a partner with Zabish and Co., CPAs, who suggests that her firm can design a payroll system for Westerman that will either save his corporation money or be free. More specifically, Ms. Zabish proposes to design a payroll system for Westerman on a contingent fee basis. She suggests that her firm’s fee will be 25 percent of the savings in payroll for each of the next four years. After four years Westerman will be able to keep all future savings. Westerman Corporation’s payroll system costs currently are approximately $200,000 annually, and the corporation has not previously been a client of Zabish.

Westerman discussed this offer with his current CPA, Bill Zabrinski, whose firm annually audits Westerman Corporation’s financial statements. Zabrinski states that this is a relatively simple task and that he would be willing to provide the service for $30,000.

Would Zabish violate the AICPA Code of Professional Conduct by performing the engagement?

In consideration to the points presented under the rulings of AICPA [ET section 191.138–.139 and .162–.163], Zabish would actually be violating the professional conduct for CPAs as it imposes that focusing on financial interests alone may impair the concept of independence among the parties involved in the transaction.

Would Zabrinski violate the AICPA Code of Professional Conduct by performing the engagement?

Being covered by the policies of AICPA, Zabrinski should be able to provide better solutions to his client, it is his responsibility to do so. Nevertheless, he should not use the option of ‘influence’ to make sure that he keeps his client. His client is able to independently decide whether or not he is going to hire another auditor to create a more extensive approach to managing the finances they have.

Now assume that Westerman has indicated to Zabrinski that he is leaning toward accepting Zabish’s offer. Zabrinski then offers to provide the service for 15 percent of Westerman’s savings for the next three years. Would performing the engagement in accordance with the terms of this offer violate the AICPA Code of Professional Conduct?

No, being an independent himself, he is able to provide a rate of commission based on his own professional reasoning. Notably, the policy notes: Covered members need to be independent with respect to the responsible party(ies. Although Zabrinski is connected with the client because of working for the organization for several years already, he is not in any way related to the other party involved thus retaining his objectivity in the case. The 15% commission, although lower than the other auditing entity’s offer is merely a response to the bidding competition he is in need of facing.

Now go back to the original information (do not consider Zabrinski’s 15 percent offer in part c). If Westerman Corporation was a public company (“an issuer”), would Zabish violate PCAOB standards by performing the engagement?

Yes. As note d in the policies of AICPA, traditional structures of financial operations ought to be kept intact for the sake of the public’s benefit. The need to protect public interest would be disregarded on the part of Zabish’s offer of gaining 20 percent of commission from the project that they are offering.

Reference

AICPA. http://www.aicpa.org/research/standards/codeofconduct/pages/et_101.aspx. Retrieved on February 6, 2014.