Notecards I made from Wiley's 2012 CPA Exam Review
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| Who interprets and enforces the AICPA code of conduct? | show 🗑
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| What are the disciplinary actions that may be taken against CPAs by a joint ethics enforcement program (JEEP) board? | show 🗑
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| show | license to practice revoked by state as disciplinary measure, convicted of crime punishable by >1 year in prison, files or aids in filing a fraudulent tax return, intentionally fails to file his/her tax return
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| What actions can the SEC take against a CPA? | show 🗑
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| show | state board bar firm from practice in state, SEC prohibit firm from work for a public company, PCAOB investigates/sanctions firms for violations of standards of performance (violate hearing held, may suspend/revoke firms registration or civil $ penalties)
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| show | 1. each year
2. every three years
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| show | force to improve quality control or training, independent monitoring of the audit work of the firm
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| show | court interpretations of what is fair and equitable
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| show | 1. an employer and an independent contractor
2. accountant fails to preform substantially as agreed under contract (the engagement letter)
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| What are implied duties? expressed duties? | show 🗑
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| What is typically expressed in the engagement letter? | show 🗑
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| show | When a contract exists between them (client is also in privity of contract with accountant)
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| When would an accountant be liable for failure to detect fraud? | show 🗑
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| If the client interfered or prevents the accountant from preforming, causing the opinion to be issued a few days late, what amount of the fee is the accountant entitled to? | show 🗑
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| What amount of the fee is an accountant entitled to if there is a major breach of contract? minor errors? can the client recover damages even if the accountant is not entitled a fee? What about punitive damages? | show 🗑
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| show | 1.Didnt perform with skill/judgement possessed by avg CPA (guided by statutes, court decisions, GAAS, GAAP)
2.CPA breached duty owed of avg CPA
3.Damages resulted
4.casual relationship exists between fault of CPA and damages and cause must be foreseeab
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| show | Misrepresentation of material fact or CPA's opinion, Scienter (either intent to mislead or reckless disregard of truth), reasonable reliance by injured party, actual damages
-reckless disregard used then called constructive fraud or gross negligence
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| show | Yes
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| show | No, because typically there is no privity of contract between the CPA and a 3rd party. May occur if one entity hires CPA to audit another b/c thinking about acquiring and want financial assured
-No privity is typical defense used by CPAs
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| Define a foreseen party. What is the majority rule? | show 🗑
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| What parties is the accountant liable for in cases of fraud, constructive fraud, or gross negligence? | show 🗑
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| Define foreseeable a party. What is the majority rule here? | show 🗑
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| show | 1. Losses (damages)
2. Negligence by the CPA
3. Proximate cause (reliance on CPA work caused the loss)
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| show | 1.CPA&mgmt liable up to full amt of obligation (one has no funds may collect entire amt from other)
2.CPA&mgmt obligated to pay their share of damages based on degree responsible
3.each party responsible full amt, may seek reimbursement from other parti
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| show | case where accountants were held liable for ordinary negligence only to parties who primarily benefit from the audit or audited financial statement
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| show | 1. Any purchaser of registered securities (no need to be initial purchaser, must prove security was offered for sale w/ registration statement. Exchange/issuance stock on merger counts as sale)
2.third parties w/o privity under federal securities act
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| show | 1. document that is used to sell securities
2. description of companies properties/business, description of security offered for sale, information about management of company, financial statements certified by auditor
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| What does liability under section 11 of the 1933 act mean to auditors? | show 🗑
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| What must the purchaser of securities (plaintiff) prove to be awarded damages against the accountant? Securities act of 1933 | show 🗑
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| What defenses does a CPA have against liability when being sued over the purchase of securities? | show 🗑
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| In a liability case based on the purchase of securities, how are damages calculated? | show 🗑
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| What are the statue of limitations of a statutory liability to 3rd parties based on the securities act of 1933? | show 🗑
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| show | Yes, CPA must conduct S-1 review (review material events that occur in this time period) made for registration statement under securities regulation
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| show | 33-initial sales of securities registered under 1933 act (no include periodic/annual reports to SEC-34)
34-securities sold on national stock exchanges (include trades corporation has >10 million assets, and held by >/=500 people at the end fiscal year)
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| What does section 10 of the securities exchange act of 1934 make unlawful? Section 18? | show 🗑
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| show | 34-purchasers and sellers of registered securities
33-purchasers only
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| show | damages resulted with purchase/sale of security, material misstatement.omission in info released by company, justifiable reliance on financial info, existence of scienter(intent to deceive,manipulate,defraud)
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| Under the act of 1934, can the plaintiff still recover if he or she is reckless or fraudulent? | show 🗑
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| show | 1.damages incurred, material misstatement/omission on report filled with SEC, plaintiff read and relied on defective report
2.acted in good faith, negligence still prove good faith. Gross negligence ur screwed
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| show | difference between amount paid by the plaintiff and market value at time of suit. If sold calculate difference between amount paid and sale price
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| show | 1.performed with due care, misstatement was immaterial, plaintiff had prior knowledge of misstatement, misstatement was not cause of loss
2.plaintiff did not rely on information
3.Due diligence
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| show | 1.evidence, notes, computations (accumulate during work)
2.accountant unless other agreement
3.preserve confidentiality of client
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| show | 1.Only few states, not federal law
2.Be located in jurisdiction where privileged communication is recognized, have been intended to be confidential at time of communication, not have privilege waived by client
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| show | Yes, privilege may be waived by client, if part of privilege is waived all of privilege is lost
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| Under AICPA, when would the disclosure of confidential client date be allowed? | show 🗑
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| show | CPA must enter into contractual agreement with service provider to maintain confidentiality and be reasonably sure 3rd party can prevent unauthorized release to others
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| Are tax accrual files protected by accountant client privilege? | show 🗑
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| What are the provisions of Gramm-Leach Bliley Act of 1999 (Financial Modernization) in respect to privacy of individual tax returns or financial advice? | show 🗑
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| What does the accountants professional liability insurance protect the accountant from? clients fidelity bond? | show 🗑
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| show | 1.insurance company has same rights of recovery of loss against accountant that client had
2.Not dischargeable by accountant
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| show | yes unless the audit report clearly indicates divided responsibility
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| Is the auditor liable for the effect of events that occur after the date of the audit report? What if the facts discovered after indicating the report was misleading existed at report date? If CPA assures there are no material changes after report date? | show 🗑
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| show | failure to: mark each page unaudited/see accountants x report, issue a disclaimer of option, follow appropriate AICPA statements, or inform client of any indications of major issues
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| When can an accountant be held criminally liable under the acts of 33&34? What are the punishments? | show 🗑
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| show | -willfully preparing false return (prejury)
-willfully assisting others to evade taxes (tax evasion)
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| show | -if affiliated with accounting firm/business involved in racketeering, then subject to criminal penalty (need at least two acts of racketeering in past 10 years)
-RICO also can be used in a civil suit by private parties (allow treble damages)
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| show | detect material illegal acts, identify material related-party transactions, evaluate ability of firm to continue as going concern
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| What happens if an auditor detects possible illegal activity, what should the auditor do? | show 🗑
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| show | as long as include cautions and identify assumptions and conditions that may cause variances on projections of income/revenues/EPS/company plans for products/services then CPA not legally liable
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| show | hold for 5 years (sometimes 7), destruction or falsification of records is illegal, can be fined and/or held in prison for up to 20 years, applies to auditor of a public company, requires SEC to issue new rules and update its rules on retainment
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| The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board, what is the PCAOB? | show 🗑
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| show | 1register/conduct inspections of public accounting firms
2set standards on auditing,quality control, independence, preparation of reports
3regulate nature/extent nonaudit services provided to client
4enforce compliance standards
5investigate/hold hear
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| show | -disclose code of ethics for primary executive/accountant/financier if not must disclose why
-officials liable fraud cant use bankruptcy law to discharge
-reportable event deadlines shortened to 4 day
-disclosure director resigned/new executive appoint
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| show | bookkeeping, financial info system design/implementation, appraisal, internal audit outsourcing services, mgmt functions, actuarial services, investment services, tax PLANNING
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| What is the length an auditor can audit/ audit partner who reviews the audits, can serve the same company? What if a company hired an employee of the audit firm to be its CEO,CFO,or CAO? | show 🗑
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| Under S-O act, can public companies make personal loans to officers or directors? | show 🗑
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| Under S-O act, what is done with material corrections noted by CPA firms for annual reports? | show 🗑
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| show | lack of qualifications needed, improper professional conduct, willful violation of helping another violate security laws or regulations
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| Under S-O act, what must CEO and CFOs of large companies listed on public stock exchanges now do to certify financial statements? | show 🗑
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| Who is defined as a tax return preparer? | show 🗑
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| show | -prepare return for friend/relative/neighbor free of charge but given gift of gratitude
-furnishing of typing,reproducing, mechanical assistance in preparing return
-preparation by person of a return for someone who regularly employees them
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| What is the percentage needed to achieve a realistic possibility of success? | show 🗑
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| show | 1.info not available and answer not significant, uncertainty to meaning of question, answer is voluminous and return says data supplied on examination
2. No
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| show | Yes they can in good faith, but should not ignore source and should make reasonable inquires if info appears incorrect/incomplete/inconsistent
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| Can a CPA use estimates on a tax return? | show 🗑
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| show | 1.promptly upon becoming aware of a MATERIAL (affects tax liability) error
2.not obligated to inform the IRS, may NOT do so without clients permission, except if required by law
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| show | 1.there is none
2.important, unusual, or complicated transactions
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| Who may practice before the IRS? | show 🗑
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| show | Must register with IRS, pay annual fee, and obtain Preparer Tax Identification Pin (PTIN)
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| show | 1.Yes
2.Yes limited situations. Taxpayers immediate family, full time employees rep employer, trustees/receivers/guardians/executors for trusts/receiverships/guardianships/estates
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| show | No
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| If a tax practitioner is in control of a client's records and a fee dispute arises, causing the client to request its records back. Does the practitioner have to return them? | show 🗑
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| show | 1.Due diligence
2.yes if practitioner used reasonable care in engaging, supervising, training, and evaluating the person
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| show | in connection to the IRS's examination of an original tax return, an amended return or claim for a refund/credit, or services rendered in connection with a judicial proceeding
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| show | not until 30 days have passed since the last date the fee schedule was published
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| What is the definition of a frivolous position? (which the tax practitioner may not advise a client to take on paper submitted to IRS) | show 🗑
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| When is written advice considered to be a covered option? Why is this distinction made? | show 🗑
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| show | 1.if advice concludes there is a >50% likelihood that the significant tax issues in question would be resolved in the taxpayers favor
2.so advice is no treated as a reliance opinion and helps to avoid possible penalties
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| show | 1. greater of $1,000 or 50% of the income derived
2.the weight of authorities supporting the position is substantial in relation to the weight of the contrary position
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| Ho can a tax preparer avoid possible penalties? | show 🗑
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| What penalty does a tax preparer face if the the understatement of liability is due to a willful attempt to do so or reckless or intentional disregard of rules/regulations? | show 🗑
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| show | Minimum of 3 years
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| show | 1.request conference with appeals officer or file written protest letter
2.do nothing, await 90 day letter, then have 90 days file petition w/tax court
3.may pay additional taxes and file refund claim. If refund is disallowed may go to fed district cour
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| What must a taxpayer who wishes to dispute an assessment wait for before they file a petition in Tax Court? After receiving 30 day letter, how long does a tax payer have to file a written petition? | show 🗑
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| show | No section imposes a penalty for an error in calculation
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