🎯Ethical Requirements SOX and PCAOB: 30 MCQs

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LINCY MATHEW 28 March 2024

In question 21- wouldnt option A also be a right answer?

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1. Maroun, CPA 3 April 2024
  
  Hello Lincy,
  
  Bookkeeping generally involves the recording of financial transactions and maintaining financial records. It does not necessarily involve assembling financial information.
  Compilation is a specific service where a CPA assembles financial statements based on information provided by the client without performing any assurance procedures.
  Thus, while bookkeeping might seem like a possible answer, the more accurate choice for the service where a CPA assembles financial statements but provides no assurance is a compilation.
  
  Hope this makes sense!
  
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Garth Rehberg 1 March 2025

Is the reviewing partner the same as the coordinating partner? If not, then both of them and the lead partner need to rotate every five years?

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1. Maroun, CPA 4 March 2025
  
  Hello Garth,
  
  Only the lead audit partner and the coordinating partner are required to rotate off the audit every five years. This requirement is in place to promote fresh perspectives in the key roles that directly influence the audit opinion.
  
  The engagement quality reviewer has a distinct role. The engagement quality reviewer is tasked with evaluating the significant judgments made by the engagement team and the related conclusions that form the overall audit opinion and report.
  
  Even though the engagement quality reviewer plays a critical role in assessing audit judgments and conclusions, the rotation rule applies exclusively to the lead audit partner and the coordinating partner.
  
  I hope this helps!
  
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Ryo 20 September 2025

Hi, for Quiz 9; ‘CPA firms that provide audit services are prohibited by the SEC from providing internal audit outsourcing services and should, in this case, withdraw from the audit engagement.’
I think currently a lot of accounting firms are doing this undetected(I know for a fact PwC was penalized in 2019, I believe), and since auditing services are outsourced overseas.
Are these services allowed if pre-approved by the audit committee?
or what if these service are advisory services(where do we draw the line?)?

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1. Maroun, CPA 22 September 2025
  
  Hi Ryo,
  
  For SEC registrants, the external auditor may not provide internal audit outsourcing to its audit client. This is a prohibited service under SEC Reg S-X Rule 2-01 and PCAOB independence rules. Audit-committee pre-approval can’t “cure” a prohibited service. Suppose an auditor performs the client’s internal audit function (planning the IA program, executing IA testing, reporting as IA, staffing IA on an ongoing basis). In that case, independence is impaired, and the firm should not be the external auditor.
  
  Non-audit work is only permissible when (1) it is not a prohibited service, (2) the auditor doesn’t assume a management role (the client retains responsibility and decisions), and (3) it is pre-approved by the audit committee and disclosed in one of the four required fee categories (Audit, Audit-related, Tax, All other). Examples that commonly fit: due diligence (audit-related), certain tax compliance/planning (tax), and other services that don’t cross into management or the IA function.
  
  Whether performed on-shore or off-shore, if the auditor (or its network/affiliate) is running the client’s internal audit function, it’s still prohibited. Using offshore staff to perform external audit procedures is fine; acting as internal audit is not.
  
  Why choice D is the “exception” in the quiz: SEC fee disclosures cover only Audit, Audit-related, Tax, and All other. Because the auditor shouldn’t be providing internal-audit outsourcing to its audit client, there is no reportable “internal audit outsourcing fee” category in a compliant engagement.
  
  I hope this helps!
  
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🎯Ethical Requirements SOX and PCAOB: 30 MCQs

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