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CPA Independence and Nonattest Services

This document discusses professional responsibilities and interpretations related to independence for CPAs. It addresses situations where a CPA previously worked at a firm and is now providing attest services to that firm. It also discusses how performing nonattest services, such as internal audit services, for attest clients can impact independence. Additionally, it outlines circumstances where a CPA's position on a nonprofit board would not impair independence and defines terms related to loans from financial institution clients.

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Zeyad El-sayed
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44 views2 pages

CPA Independence and Nonattest Services

This document discusses professional responsibilities and interpretations related to independence for CPAs. It addresses situations where a CPA previously worked at a firm and is now providing attest services to that firm. It also discusses how performing nonattest services, such as internal audit services, for attest clients can impact independence. Additionally, it outlines circumstances where a CPA's position on a nonprofit board would not impair independence and defines terms related to loans from financial institution clients.

Uploaded by

Zeyad El-sayed
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as RTF, PDF, TXT or read online on Scribd

46 MODULE 21 PROFESSIONAL RESPONSIBILITIES

(5) The firm assesses whether the existing attest engagement team members have appropriate
experience and stature to effectively deal with the former partner or employee if significant
interaction will occur, and
(6) The subsequent attest engagement is reviewed to determine whether the team members main-
tained the appropriate level of skepticism when evaluating the representations of the former
partner or employee.
Interpretation 101-3. When a CPA performs nonattest services for an attest client it mayor may
not impair independence.
(1) This interpretation requires compliance with regulatory independence rules by regulators such
as the SEC, the General Accounting Office (GAO), and the Department of Labor (DOL).
(2) 'Must not perform management functions or make management decisions for attest clients.
(3) Client must
(a) Make management decisions and perform management functions
(b) Designate a competent employee, preferably in senior management, to oversee services
(c) Evaluate adequacy and results '
(d) Accept responsibility for results
(e) Establish and maintain internal controls
(4) Must establish in writing understanding with client (board of directors, audit committee, or
management) regarding
(a) Engagement objectives
(b.) Services to be performed
(c) Client's acceptance of its responsibilities
(d) CPA's responsibilities
(e) Any limitation of the engagement
(5) General activities that impair independence
(a) Authorizing, executing, or consummating transactions
(b) Preparing source documents
(c) Having custody of assets
(d) Supervising employees
(e) Determining recommendations to be implemented
(f) Reporting to the board of directors on behalf of management
(g) Serving as stock transfer agent, registrar, or general counsel
(6) Independence is impaired by the performance of appraisal, valuation, and actuarial services if
the results are material to the financial statements and the service involves a significant degree
of subjectivity. .
(7) Performing internal audit services for aclient impairs independence unless the client
understands its responsibility for internal control and designates an officer to manage the
internal audit function.
(8) The Sarbanes-Oxley Act of 2002 places additional restrictions on non attest services for public
company audit clients (see Section F).
Interpretation 101-4. CPA who is a director of a nonprofit organization where board is large and
representative of community leadership is not lacking independence if
(1) Position purely honorary
(2) Position identified as honorary on external materials
(3) CPA participation restricted to use of name
(4) CP A does not vote or participate in management affairs
Interpretation 101-5. Loans from financial institution clients and related terminology
(1) Independence is not impaired by certain "grandfathered" and other loans from financial in-
stitution clients
(a) Grandfathered loans that are permitted (home mortgages, other secured loans, loans im-
material to CPA) that were obtained '

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