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Independence and Ethics Developments Audit Risk Alert

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Need to know the recent developments in the area of independence and ethics for accountants? This Audit Risk Alert focuses on recent developments in independence and ethics for accountants—an area that is receiving increasing attention from regulators, investors, the news media, and others. The current economic downturn is stress testing independence and ethics standards, resulting in new standards and amendments to existing standards designed to assist accountants and CPAs in evaluating their independence from their clients and understanding the ethical issues they may encounter.

Moreover, this alert helps you understand your independence and ethics requirements under the AICPA Code of Professional Conduct and, if applicable, certain other rule-making and standard setting bodies. The alert includes a plain-English digest of the AICPA Independence Rules.

This Audit Risk Alert includes not only recent developments related to AICPA independence and ethics rules, but also independence and ethics developments from the SEC, PCAOB, GAO, DOL, IRS, IESBA and IFAC. This Audit Risk Alert contains information on independence and ethics developments, including the following:

  • PCAOB registration requirement for auditors of broker-dealers that are nonissuers
  • Internal Revenue Code regulations regarding disclosure or use of taxpayer information
  • Amendments to the FDIC's annual audit and reporting requirements clarifying independence requirements and expanding audit committee oversight
  • Discussion of PCAOB rules regarding independence and ethics
  • Compliance discussion of SEC independence rules regarding prohibited nonaudit services, initial public offerings, audit partner rotation, and communications with audit committees
  • Discussion of the GAO independence rules

This Audit Risk Alert also contains discussion on proposals and other developments that are on the horizon, including the following:

  • Proposed revisions to the Statements on Standards for Tax Services
  • The ARSC's three proposed Statements on Standards for Accounting and Review Services issued in response to Reliability Task Force Recommendations
  • Discussion of AICPA Professional Ethics Executive Committee projects addressing such topics as:

    • participation of a covered member's immediate family in an employee benefit plan,
    • affiliates of attest clients,
    • inadvertent violations of the AICPA Code of Professional Conduct,
    • eXtensible business reporting language,
    • transitional financial reporting from U.S. GAAP to IFRS,
    • confidential client information, and
    • international ethics convergence and monitoring.

Table of Contents

  • How This Alert Helps You
  • Current Practice Environment
  • AICPA Independence and Ethics Developments
    • New Ethics Guidance
  • Compliance Reminder Regarding Other Authoritative Bodies
    • SEC Independence Rules
    • Recent SEC Independence Information
    • PCAOB Rules Regarding Independence and Ethics
    • PCAOB Report on Inspections of Domestic Annually Inspected Firms
    • GAO Independence Standard
    • Internal Revenue Code
    • Federal Deposit Insurance Corporation
  • On the Horizon
    • Proposed AICPA Ethics Interpretation
    • Other AICPA Proposals
    • AICPA PEEC Projects
    • Status of DOL Request for Comments on Independence Rules Pertaining to Employee Benefit Plan Audits
  • Resource Central
    • Publications
    • AICPA reSOURCE: Accounting and Auditing Literature
    • Continuing Professional Education
    • Webcasts
    • Member Service Center
    • Hotlines
    • AICPA Governmental Audit Quality Center
    • The Center for Audit Quality
    • AICPA Employee Benefit Plan Audit Quality Center
    • Industry Web Sites
  • Appendix—Digest of the AICPA Independence Rules

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Excerpts

How This Alert Helps You

    .01 This Audit Risk Alert (alert) informs you of recent developments in the important areas of independence and ethics for accountants. This alert helps you understand your independence requirements under the AICPA Code of Professional Conduct (code) and, if applicable, certain other rule making and standard setting bodies. We present a section entitled "Digest of the AICPA Independence Rules" in plain English at the end of this alert so you can understand and apply the independence rules with greater confidence.

Current Practice Environment

    .02 Members of the accounting profession are held to very high ethical standards because they are entrusted with so much. Investors, lenders, regulators, analysts, and others place their faith and confidence in the integrity and objectivity of accountants, auditors, and other members of the profession every day.

    .03 At the end of 2008, the economy was in recession, and deep-rooted troubles in our banking system and credit and real estate markets were revealed. Major institutions failed. Since then, some companies in the banking, insurance, and automobile industries have started receiving federal funds. Moving from 2008 into 2009, securities market indices worldwide dropped significantly. Later, investors began to cautiously reenter the markets amid much uncertainty about the future.

    .04 Accounting professionals are at the heart of this storm. Accountants create the books and records that tell the company's financial story, and auditors issue opinions on whether the financial statements are materially correct. In good times, accounting professionals are challenged to comply with the high standards of their profession. In difficult times, incentives and pressures to maintain profits and performance increase exponentially.

    .05 In times like these, accounting professionals must be aware of these pressures and be more diligent. Auditors must recognize that changing economics could sway professionals to do things that, in normal times, they would never consider doing. As always, professional skepticism is critical; practitioners also should be mindful of allotting sufficient resources to engagements so that due professional care is exercised and all services are carried out in accordance with the applicable professional standards.

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Paperback 2009
Product# 0224709
Availability:In Stock
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