Independence standards affect a CPA in performing a variety of professional services for a client whenever the CPA also performs audit and other attest-related services (i.e., reviews) for the client. Certain high-profile fraudulent cases have heightened the public's awareness of how important auditor independence is in the performance of various engagements. In audits conducted according to generally accepted auditing standards (GAAS), or the standards of the Public Company Accounting Oversight Board (PCAOB), audit teams are charged with the duty of giving reasonable assurance that their client's financial statements are free of material misstatement (whether caused by error or fraud). Auditor independence is a key element in providing such an assurance.

In this program, Independence Requirements for CPAs, we will focus on the scope and conceptual framework for independence standards. This course will explain the different regulatory requirements, as well as interpretations published to help auditors understand the standards set forth concerning auditor independence.

Use of Materials

Audio or DVD
The user should begin by watching the DVD segment or listening to the audio CD for the chapter before reading the text. The user may wish to make notes of the most important concepts and any terms that are new. Next, the user should review the learning objectives at the beginning of the chapter and read the chapter. The user should work through each of the examples. It may be helpful to highlight important material and/or to make additional notes. Next, the user should complete the study questions at the end of the chapter and review the answers. If the user answers a study question incorrectly, s/he should review the section of the text that is indicated at the end of the explanation to the study question to assure comprehension of the material. The user should review the learning objectives once more to consider achievement of the objectives. After the user has finished watching the DVD or listening to the CDs and reading the text, s/he may wish to review her/his notes and any sections of the text or DVD that were difficult. When the user is ready, s/he should complete the quizzer. Reviewing notes periodically will increase retention of the material.

Online
The user should follow the procedures discussed above. After the user has studied each chapter, s/he should click on the link at the left to complete the interactive study questions. When the user has finished reading the text, s/he may wish to review her/his notes and any sections that were difficult. When the user is ready, s/he should click on the link to the left to complete the quizzer. The user's CPE certificate will be provided immediately upon successful completion of the quizzer.

Software
The user should follow the procedures discussed above. As the user studies each chapter, s/he should complete the interactive study questions that appear in the lower panel of the screen. When the user has finished reading the text and working through the study questions, s/he may wish to review her/his notes and any sections that were difficult. When the user is ready, s/he should click on the link at the far left to complete the quizzer. The user should email her/his quizzer statistics using the quizzer submission link in the software and the user's CPE certificate will be mailed to her/him.

Chapter 1 focuses on the definition of, and scope of, auditor independence.

Chapter 2 examines the conceptual framework for independence standards.

Chapter 3 reviews the independence standards of the AICPA that relate to family and business relationships with audit clients.

Chapter 4 examines Interpretation Nos. 101-2 and 101-3.

Chapter 5 focuses on other interpretations concerning auditor independence.

Chapter 6 covers the regulatory standards issued by the SEC and PCAOB.

Chapter 7 discusses regulatory actions against CPA firms for independence violations.

Chapter 8 covers the independence rules mandated by the Government Accountability Office.

Chapter 9 examines of the role and responsibilities of the audit committee of a public company under the Sarbanes-Oxley Act of 2002, and how the Act's provisions, SEC rules and New York Stock Exchange listing requirements attempt to strengthen auditor independence and support strong corporate governance systems.

Appendix A gives examples of nonattest services.

Appendix B contains a bibliography.

Throughout this program, the user will find explanations and discussions regarding some of the issues that often face practitioners. In order to enhance the user's comprehension of the material and highlight important practical considerations, this publication includes the following designations:

A Biskalert is intended to warn the practitioner of a particular situation that may require action or other consideration by the client or the practitioner on behalf of the client.

A Biskpoint presents analysis or commentary that attempts to explain or clarify authoritative guidance.

A Bisktip provides practical advice that may be used to help improve client service or service to the practitioner's organization.

• Discuss the conceptual framework for independence standards including threats to audit independence and the safeguards that can mitigate these threats

• List the various sources of independence standards for public companies and nonpublic companies including those of the AICPA, PCAOB, SEC, and GAO

• List which nonaudit services can be performed for an audit client without impairing independence and which are prohibited

• Assess whether the client has taken adequate steps to assign a competent employee to oversee the nonaudit services provided by a CPA firm to its audit client

• Explain the scope and application of interpretations and ethics rulings to the Independence Standards in Rule 101

• List the kinds of loans that can be taken out from a financial institution client without violating auditor independence

• Explain how the provisions of the Sarbanes-Oxley Act of 2002 affect auditor independence

• Discuss PCAOB standards including the Board's proposed restrictions on providing tax-motivated transactions to audit client, accepting contingent fees for nonattest services, and performing tax services for members of management in financial reporting roles.

• Discuss the recent regulatory actions taken against CPAs for independence violations and how they relate to the existence of threats and inadequate safeguards taken by the firms to protect auditor independence

• Explain when independence may be impaired because of direct and material indirect financial interests in a client entity and business relationships with members of management and client entities

• Discuss how independence may be impaired because members of an attest engagement team have immediate family members and close relatives who have financial interests in a client entity and management decision-making positions

• Explain how a partner or professional employee of a CPA firm who leaves the firm and then takes a position with a client entity may cause a lack of independence in the continuing engagement and steps that should be taken by the firm to protect against independence impairments

• List the differences that exist between AICPA and SEC independence standards and how to deal with such differences in performing professional services

• Discuss how overarching principles in the GAO's generally accepted government auditing standards provide the foundation for judging independence

Dr. Mintz has served as an expert panelist for cases in the Quality of Financial Reporting for the American Institute of CPAs. He also participated in a focus group for the Society of Management Accountants in Canada in its project "Implementing Corporate Ethics Strategies." Dr. Mintz has published over twenty research papers in ethics including "Ethical Dilemmas of Outsourcing" in the March 2004 issue of the CPA Journal. His textbook, Ethical Obligations and Decision-Making in Accounting: Text and Cases, will be published by McGraw-Hill Irwin in 2008. (Author/Speaker)