NINJA BOOK  
Auditing & Attestation 2025  
Ethics & Professional Responsibilities  
Copyright & Disclaimer  
This book contains material copyrighted © 1953 through 2025 by the American Institute of  
Certified Public Accountants, Inc., and is used or adapted with permission.  
Material from the Uniform CPA Examination Questions and Unofficial Answers, copyright ©  
1976 through 2025, American Institute of Certified Public Accountants, Inc., is used or adapted  
with permission.  
This book is written to provide accurate and authoritative information concerning the covered  
topics for the Uniform CPA Examination and is to be used solely for studying for the Uniform  
CPA Examination and for no other purpose.  
© 2025 NINJA CPA Review, LLC. All Rights Reserved.  
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Ethics & Professional  
Responsibilities  
AICPA Code of Professional Conduct  
I. Standards for Different Types of Engagement  
II. AICPA Code of Professional Conduct  
III. Part 0 – Principles  
IV. Integrity & Objectivity  
V. Independence  
VI. General Standards  
VII. Compliance with Standards Rule  
VIII.Accounting Standards Rule  
IX. Confidentiality  
X. Contingent Fees  
XI. Commission & Referral Fees  
XII. Advertising and Other Solicitation  
XIII.Forms of Practices and Names  
XIV.Discreditable Acts  
Sarbanes-Oxley Act, 2002  
Other Laws and Regulations  
I. Private Securities Litigation Reform Act of 1995  
II. Dodd-Frank Wall Street Reform and Consumer Protection Act  
III. Jumpstart Our Business Startups Act (JOBS Act)  
IV. Securities and Exchange Commission (SEC)  
V. Department of Labor (DOL)  
VI. Governmental Accountability Office (GAO)  
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AICPA Code of Professional Conduct  
I. Standards for Different Types of Engagement  
Here are different types of engagement and the standards that apply to them:  
Engagement Type  
Standard  
Code of Conduct  
Audit of Non-Issuers  
•
Generally Accepted Auditing Standards  
•
AICPA Code of Professional Conduct  
(GAAS) issued by AICPA  
•
•
•
AICPA Code of Professional Conduct  
Securities Exchange Commission  
Sarbanes-Oxley Act  
Audit of Issuers  
•
PCAOB Auditing Standards + GAAS  
•
•
•
•
International Standards on Auditing  
(ISA)  
•
•
IESBA Code of Conduct  
International Audits  
Governmental Audits  
Generally Accepted Government  
Auditing Standards (GAGAS)  
AICPA Code of Professional Conduct  
Attestation  
Engagements  
Statements on Standards for  
Attestation Engagements (SSAEs)  
•
•
AICPA Code of Professional Conduct  
AICPA Code of Professional Conduct  
Statements on Standards for  
Accounting and Review Services  
(SSARs)  
Accounting & Review  
Services  
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II. AICPA Code of Professional Conduct  
The AICPA (American Institute of Certified Public Accountants) Code of Professional Conduct sets the ethical  
standards for CPAs and provides a framework for resolving ethical dilemmas. The code is designed to ensure that  
CPAs carry out their duties with professionalism, integrity, objectivity, and in the best interests of the public.  
AICPA Code of Professional Conduct is not limited to only specific areas of professional services. It applies to all  
professional services rendered by its members, irrespective of the context.  
The AICPA Code of Professional Conduct separates guidance by line of business, i.e., separate parts for Members  
in Public Practice, Members in Business and Other Members:  
Part 0 - Principles  
Part 0 – Principles outlines the fundamental ethical principles that all CPAs should uphold,  
such as responsibilities, public interest, integrity, objectivity, and due care.  
Part 1 - Members Part 1 applies to CPAs working in public practice, often serving external clients. This  
in Public Practice includes those in audit, tax, advisory roles, among others.  
Part 2 - Members Part 2 applies to CPAs working in the corporate sector, whether in finance, management,  
in Business or other business roles  
Part 3 - All Other Part 3 applies to CPAs who don't fall into the categories of public practice or business—  
Members:  
such as those in academia, retired members, or those in non-traditional roles but still need  
ethical guidance. This includes those in academics, authors etc.  
Rules that apply to each member are as follows:  
Part 1 - Members in Public Practice Part 2 - Members in Business  
Part 3 - All Other Members  
Integrity & Objectivity  
Integrity & Objectivity  
Independence  
Integrity & Objectivity  
General Standards  
General Standards  
Compliance with Standards Rule  
Accounting Principles Rule  
Confidentiality  
Compliance with Standards Rule  
Accounting Principles Rule  
Contingent Fees  
Commission & Referral Fees  
Advertising and Other Solicitation  
Forms of Practices and Names  
Discreditable Acts  
Discreditable Acts  
Discreditable Acts  
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III. Part 0 – Principles  
The "Part 0: Principles" of the AICPA (American Institute of Certified Public Accountants) Code of Professional  
Conduct sets forth the fundamental principles that guide the behavior and actions of CPAs. These principles  
establish the overarching ethical expectations for members of the AICPA.  
These principles apply to all members.  
Responsibilities Principle  
•
CPAs have a responsibility to cooperate with each other to improve the art of  
accounting, maintain the public's confidence, and carry out the profession's  
high standards.  
•
•
•
Members are required to exercise sensitive professional and moral  
judgments in all activities.  
Public Interest  
Members have an obligation to serve the public interest, honor the public  
trust, and commit to professionalism.  
They must act with integrity, objectivity, and due professional care, serving a  
diverse group labeled as the "public," including clients, credit grantors,  
governments, employers, investors, and more.  
Integrity  
•
To maintain and broaden public confidence, members should perform all  
professional responsibilities with the highest sense of integrity. Integrity  
requires a member to be honest and candid within the constraints of client  
confidentiality.  
•
•
•
•
•
•
Integrity also requires a member to observe the principles of objectivity and  
independence and of due care.  
Integrity expects a member to comply with both the form and the spirit of  
technical and ethical standards.  
Objectivity Principle  
Objectivity is a state of mind; members should be impartial, intellectually  
honest, and free of conflicts of interest, Objectivity is always required.  
Members should be free from conflicts of interest while performing  
professional responsibilities.  
Independence Principle  
Independence applies only for Part 1 Members: Members in Public Practice.  
Independence is required for audit and attest services only.  
A member in public practice should be independent in fact and appearance  
when providing auditing and other attestation services.  
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•
•
Public confidence would be impaired by evidence that independence was  
actually impaired, and it might also be impaired by the existence of  
circumstances that reasonable people might believe likely to influence  
independence.  
Due Care  
Members are expected to uphold both the technical and ethical standards of  
the profession, consistently seek to improve competence, and carry out their  
professional responsibilities to the best of their abilities.  
•
•
•
Demonstrating competency requires a commitment to learning and  
professional improvement throughout a member’s professional life.  
A member is required to plan and supervise adequately all professional  
activities for which the member has responsibility.  
Scope and Nature of  
Services  
A member in public practice should observe each of the above-described  
principles in determining the scope and nature of services to be provided,  
and in assessing whether services would create a conflict of interest.  
•
It's crucial to ensure internal quality controls, evaluate potential conflicts of  
interest, and assess whether certain activities align with their professional  
roles.  
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IV. Integrity & Objectivity  
Integrity and Objectivity applies to all services, attest as well as non-attest, and therefore applies to Part 1, Part 2  
& Part 3 Members.  
Part 1 Members in Public Practice  
Part 2 Members in Business  
Part 3 Other Members  
Integrity and Objectivity anchors the ethical framework for accounting professionals. By adhering to these  
principles, CPAs can ensure they provide services that uphold the trust of the public, clients, and other  
stakeholders. Integrity and Objectivity implies the following:  
•
•
Honesty: Professionals should always be truthful in their dealings and communications.  
No Conflict of Interest: Members should avoid situations where personal interests could improperly influence  
(or appear to influence) their professional judgment or actions.  
•
•
•
•
Free from Bias: Decisions and judgments should not be influenced by personal beliefs, preferences, or  
prejudices.  
Impartiality: Professionals must maintain a neutral stance, not favoring any party over another when  
providing services.  
No Misrepresentation of Facts: Facts must be presented as they are, without altering them to mislead or  
deceive.  
Auditors' Judgment: In audit scenarios, professionals shouldn't let their judgment be overshadowed or  
directed by others. They must stand firm on their insights, assessments, and decisions.  
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V.Independence  
Independence applies only to attest services and therefore applies only to Part 1 Members. A member in public  
practice should be independent, in fact and appearance, when providing auditing and other attestation services.  
Part 1 Members in Public Practice  
Independence emphasizes the profession's commitment to ensuring unbiased and impartial services.  
Independence ensures that the public trust in the profession is maintained, and the financial information  
presented is free from undue influence.  
Independence Required  
Engagement which requires Independence  
Engagement which does not require Independence  
•
•
Audit of Financial Statements of Issuers (PCAOB AS)  
Audit of Financial Statements of Non-Issuers  
(GAAS)  
Audit of Interim Financial Statements (PCAOB AS /  
GAAS)  
Governmental Audits (GAGAS)  
Examination (SSAE)  
Review (SSAE)  
•
•
•
•
•
•
•
•
Consulting Services  
Tax Services  
Valuation Services  
Accounting Services  
Bookkeeping Services  
Training Services  
Preparation Engagement (SSARs)  
Compilation Engagement (SSARs)  
•
•
•
•
•
•
Agreed-Upon Procedures (SSAE)  
Review Services (SSARs)  
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Covered Members  
Covered Members are those who need to maintain independence due to their proximity or influence over an audit  
or attestation engagement. Covered Members include:  
•
•
Audit Firm: An audit firm as an entity must ensure their independence.  
Audit Team: All individuals from the partner in charge to the entry-level associate who have a direct role in  
conducting the audit must maintain independence.  
•
•
•
•
All Partners of the Audit Firm Office/Members with an Influencing Position in the Firm: All partners or  
members who aren't directly involved in the audit, but their position within the firm can influence the audit's  
outcome, must remain independent.  
Partner, Partner Equivalent or Manager Providing More Than 10 Hours of Non-Attest Services to Client: Any  
Partner, Partner Equivalent or Manager of the firm who provides more than 10 hours non-attest services (like  
consulting/training) to an audit client, must maintain independence.  
Employee Benefit Plans of the Audit Firm: Employee Benefit Plans of the Audit Firm could have investments  
in Audit Clients. Such investments might compromise independence, and therefore Employee Benefit Plans  
of Audit Firms must also be independent of the Audit Client.  
Immediate Family of Covered Members:  
o
o
Spouse: The husband or wife of a covered member.  
Related Dependents: Family members who are financially dependent on the covered member, such as  
children in school/college.  
o
Unrelated Dependents: Individuals not related by blood or marriage but financially dependent on the  
covered member, like a live-in partner or dependent unrelated elderly individual.  
•
Close Relatives of Covered Member:  
o
o
o
Parents: The mother or father of the covered member.  
Sibling: The brother or sister of the covered member.  
Non-Dependent Child: Children who are not financially reliant on the covered member, like those who  
are employed and living independently.  
Duration of Independence  
Independence must be sustained from the date the engagement letter is signed until the professional  
relationship's termination.  
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Threats to Independence  
Auditors must ensure their independence when conducting an audit. However, various circumstances and  
relationships can present threats to this independence. Under the conceptual framework approach, members  
should evaluate identified threats both individually and, in the aggregate, because threats can have a cumulative  
effect on a member’s independence.  
There are seven broad categories of threats:  
•
•
•
Adverse Interest Threat: An Adverse Interest Threat would be an instance where a member will not act with  
objectivity because the member’s interests are opposed to the client’s interests.  
Example: An audit firm is in a legal dispute with a client over unpaid audit fees. At the same time, the firm is  
scheduled to perform the annual audit for that client. The ongoing legal dispute could cause the firm to act in  
its own interest, rather than in an unbiased manner, because of the adverse interests between the two parties.  
Advocacy Threat: An Advocacy Threat arises when a member promotes or supports a client's interests or  
positions to such an extent that the member's objectivity or independence is compromised.  
Example: An audit firm is engaged to audit a client's financial statements. Concurrently, the same firm acts as  
the client's investment banker, publicly advocating for the client's financial health and promoting its stock.  
This dual role could compromise the firm's impartiality during the audit process.  
Familiarity Threat: A Familiarity Threat emerges when, due to a prolonged or intimate relationship with a  
client, a member becomes overly sympathetic to the client's interests or excessively accepting of the client's  
work or products, which may jeopardize their objectivity.  
Example: An auditor has been auditing the same client for over a decade and has built strong personal  
relationships with the management team. This camaraderie might cause the auditor to overlook certain  
discrepancies or accept management's assertions without sufficient scrutiny.  
•
Management Participation Threat: A Management Participation Threat arises when a member, particularly  
an auditor, takes on the role of client management or assumes management responsibilities, blurring the lines  
between the external auditor's role and the management of the client company.  
Example: An auditor assists a client in the preparation of financial forecasts and then takes on the role of  
reviewing and attesting the reasonability of those same forecasts. This dual role compromises the auditor's  
objectivity.  
•
Self-Interest Threat: A Self-Interest Threat arises when a member, like an auditor, could benefit, either  
financially or in some other manner, from an interest in, or relationship with, a client or persons associated  
with the client, leading to a potential compromise in professional judgment or objectivity.  
Example: An auditor holds shares in a client company. The performance of the company, reflected in its  
financial statements, directly impacts the value of the auditor's investment, creating a self-interest threat.  
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•
Self-Review Threat: A Self-Review Threat arises when a member is required to evaluate the results of a  
previous judgment made or service performed by them or supervised by them. This could lead the member  
to be less critical or accepting of their prior work while performing a subsequent service.  
Example: An auditing firm, after preparing the financial statements for a client, is then engaged to audit those  
same statements. This creates a situation where the firm might not critically review the work it has prepared,  
potentially overlooking errors or inaccuracies.  
•
Undue Influence Threat: An Undue Influence Threat arises when a member's judgment is subordinated or  
compromised due to external pressures, coercion, or influences, especially from individuals associated with a  
client or any relevant third party.  
Example: An audit client is the primary source of revenue for an auditing firm. The client threatens to  
terminate the engagement if the audit report is not favorable. The auditor may feel undue pressure to issue  
a less critical report to maintain the business relationship.  
Safeguards Against Threats to Independence  
The existence of a threat does not mean that the member is in violation of the independence. If the member  
concludes that the threat is not at an acceptable level, the member should apply safeguards to eliminate the  
threat or reduce it to an acceptable level.  
These safeguards can be broadly categorized into three domains: the profession, the client, and the audit firm.  
•
Profession-Based Safeguards: Profession-Based Safeguards are established by professional bodies,  
legislation, and regulation to provide a foundation of quality and ethical standards. Profession-Based  
Safeguards include:  
o
o
Code of Conduct: Ensures auditors uphold ethical and professional standards.  
Continuing Professional Education: Keeps auditors updated on industry changes, standards, and ethical  
requirements.  
o
Legislation: Laws that govern the profession, ensuring strict penalties for violations.  
•
Client-Based Safeguards: Client-Based Safeguards are internal controls and procedures implemented by the  
client to ensure their operations don't compromise the auditor's independence. Client-Based Safeguards  
include:  
o
o
o
Corporate Governance Structures: Clear separation of roles and oversight mechanisms to prevent undue  
influence on auditors.  
Internal Audit Function: Provides an additional layer of review and minimizes the risk of material  
misstatement.  
Policies on Hiring Audit Firm Personnel: Avoids conflicts of interest that might arise from hiring recent or  
current audit firm personnel.  
•
Audit Firm-Based Safeguards: Audit Firm-Based Safeguards are practices and policies established within the  
audit firm to ensure quality and minimize risks to independence. Audit Firm-Based Safeguards include:  
o
o
o
o
Quality Control Standards: Ensures consistent high-quality audits.  
Peer Reviews: Another audit firm reviews the quality of audits to ensure they meet industry standards.  
Rotation of Audit Partners: Prevents over-familiarity with a client.  
Policies to Limit Non-Audit Services to Audit Clients: Avoids potential conflicts of interest.  
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Independence Impairment  
Independence Impaired by Financial Relationships  
Independence can be compromised when a member, their firm, or a close relative has investment in the audit  
client.  
•
Direct Financial Relationship: A Direct Financial Relationship is characterized by having direct control or  
influence over the decision to invest in a client. Examples of a Direct Financial Relationship:  
o
o
Owning Stocks: Holding shares or equity interests directly in the client.  
Partnership Interest: Being a General Partner in a Partnership that holds a financial stake in the client.  
A Material or Immaterial Direct Financial Relationship will always impair Independence. However, Close  
Relatives can have Immaterial Direct Financial Relationships without impairing independence  
Covered Member's except Close Relatives  
Impairs Independence  
Impairs Independence  
Close Relatives  
Impair Independence  
Doesnot Impair Independence  
Material  
Immaterial  
•
Indirect Financial Relationship: An Indirect Financial Relationship refers to an investment or financial interest  
in a client where the individual does not have direct control or influence over the investment decision.  
Examples of an Indirect Financial Relationship are:  
o
o
Shares in Mutual Funds: Investing in a mutual fund that, in turn, holds shares or interests in the client.  
Limited Partnership Interest: Being a Limited Partner in a Partnership that has a financial stake in the  
client. A limited partner typically doesn't have decision-making power regarding the partnership's  
investments.  
A Material Indirect Financial Relationship will always impair Independence whereas an Immaterial Indirect  
Financial Relationship will not impair Independence.  
Covered Member's except Close Relatives  
Impairs Independence  
Doesnot Impair Independence  
Close Relatives  
Impair Independence  
Doesnot Impair Independence  
Material  
Immaterial  
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Independence Impaired by Loans  
Independence can be compromised when a member, their firm, or a close relative has a loan or guarantee to or  
from an audit client, its officers, directors, or significant shareholders.  
However, Loans would not impair the independence if all of the following conditions are satisfied:  
•
•
•
•
•
Grandfathered Loans: The loan must have been obtained before the commencement of the professional  
engagement. This ensures that the loan was not a result of the auditor-client relationship.  
Market Terms and Conditions: The loan must be under regular business terms and conditions. The loan should  
not provide the auditor with any special advantages.  
Fully Collateralized: The loan is fully backed or secured by an asset or a set of assets. If the borrower defaults,  
the lender has the right to take the asset used as collateral. This reduces the risk for the lender.  
No Delinquency: The borrower must be up to date with their repayments. There should be no overdue  
amounts or missed payments.  
Original Terms and Conditions Remain: The terms and conditions of the loan, as originally agreed upon, must  
not have been renegotiated or modified during the auditor-client relationship.  
In addition to above, the following types of loans does not impair Independence:  
•
•
•
•
•
Credit Card Debt with balances up to $10,000 per month.  
FDIC Insured Checking Accounts.  
Fully Collateralized Automobile Loans.  
Loans fully collateralized by the Cash Surrender Value of an Insurance Policy.  
Loans fully collateralized by Cash Deposits at the same Financial institution.  
Independence Impaired by Gifts  
Gifts are any items or services of more than nominal value that are received by the auditor without a direct  
payment that can potentially influence the judgment or behavior of the recipient thus impairing independence.  
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Independence Impaired by Employment Relationships  
•
Client Employee Joins Audit Firm: When an employee from the client's side joins the audit firm and becomes  
part of the audit team, independence will be compromised if:  
o
o
The individual participates on the audit/attest engagement team.  
They're in a position to influence the engagement during the time which the engagement covers their  
former association or employment with the client.  
o
The individual doesn't disassociate from the client before becoming a "covered member" which relates to  
financial interests, loans, pension plans, or other specific relationships.  
•
Audit Firm Member Joins Client: Independence is impaired when an individual from the CPA firm moves to a  
key position at the audit/attest client if:  
o
o
o
They're in a position to influence the CPA firm's operations or financial policies.  
They participate or seem to participate in the firm's business, such as in a consultancy role.  
The move happens within one year of leaving the CPA firm and they have significant interactions with the  
firm's engagement team.  
•
Audit Firm Member Discusses Job Offer with Client: If an auditor discusses a potential job offer with a client,  
it can pose an independence threat, especially if:  
o
o
They are part of the audit team or have an influencing role.  
They do not report the job discussions to their firm and disassociate from the audit engagement.  
However, independence is not considered impaired if the member reports the job discussion/offer to the CPA  
firm promptly and is consequently removed from the engagement team.  
•
•
Audit Firm Member's Family Employed by Client: Independence can be compromised when a CPA firm  
member's immediate family or close relative occupies a key position at the client. For example, if the audit  
partner's spouse or sibling is the client's internal auditor.  
Simultaneous Employment with Audit Firm and Client: Independence is automatically impaired if a partner  
or professional of the audit firm is simultaneously associated with an attest client.  
Independence Impaired by Unpaid Fees  
Existence of unpaid fees from an attest client for professional services provided more than one year prior to the  
date of the current-year report will impair independence unless the amount is immaterial.  
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Independence Impaired by Unsolicited Financial Interests  
Acquiring a financial interest through gifts or inheritance can impair independence. This is because even if the  
interest was unsolicited, it still presents a potential conflict of interest. However, there are exceptions where  
independence would not be impaired:  
•
•
•
Prompt Disposal: An auditor disposes of the interest as soon as practicable but not later than 30 days after  
the member has knowledge of and obtains the right to dispose of the financial interest.  
Engagement Non-participation: The auditor does not participate in any engagement for the client during the  
period they don't have the right to dispose of the financial interest.  
Immaterial Investment: If the acquired interest is not material, then the independence isn't necessarily  
compromised.  
Independence Impaired by Trusts and Estates  
Serving as a trustee of a trust or an executor or administrator of an estate that held, or was committed to acquire,  
any direct financial interest or any material indirect financial interest in an attest client during the period of the  
professional engagement, does not in itself create a self-interest threat.  
However, Independence would be impaired if:  
•
•
•
The member (individually or with others) has the authority to make investment decisions for the trust or  
estate.  
The trust or estate owned or was committed to acquire more than 10 percent of the attest client’s outstanding  
equity securities or other ownership interests.  
The value of the trust’s or estate’s holdings in the attest client exceeds 10 percent of the total assets of the  
trust or estate.  
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Independence Impaired by Business Relationships  
Independence can be compromised with certain business relationships between auditor and client. When  
assessing an auditor's independence in relation to business relationships, it's essential to differentiate between  
situations that would impair independence and those that would not. Here's a breakdown:  
Business Relationships that Impair Independence  
Business Relationships that do not Impair Independence  
•
Roles in Client's Management or Oversight  
•
Certain Social Memberships:  
o
Serving as a director, officer, employee,  
promoter, underwriter, voting trustee, or in any  
managerial position with a client.  
o
Membership in a country club client where  
membership entails obtaining a pro-rata share  
of equity.  
o
Acting as a trustee for a client’s pension or  
profit-sharing trust.  
•
•
Honorary Positions:  
o
Serving as an honorary trustee for a not-for-  
profit client.  
•
Providing Non-Audit Services  
o
o
o
o
o
o
Bookkeeping Services.  
Internal Audit Functions.  
Designing or Implementing Internal Controls.  
Certain Consulting Services.  
Supervisory Activities.  
Certain Financial Relationships:  
o
Holding accounts in a financial institution that  
are fully insured by the appropriate state or  
federal insurance agency.  
Legal and Valuation Services.  
•
Tax Services for Issuers:  
•
•
Financial Relationships  
o
Tax services are permitted if they are pre-  
approved by the audit committee and disclosed  
to the SEC. However, tax services related to  
aggressive tax positions or for corporate officers  
and their immediate family members are  
prohibited. Providing tax services to members  
of the Board of Directors is acceptable.  
o
o
Accepting a contingent fee from a client.  
Engaging in a finance lease agreement with a  
client.  
o
Participating in a joint venture with a client.  
Litigation:  
Being involved in actual or potential litigation  
with the client.  
o
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VI. General Standards  
General Standards applies to Part 1 & Part 2 Members.  
Part 1 Members in Public Practice  
Part 2 Members in Business  
General Standards form the foundation of the ethical and professional obligations for members, both in public  
practice and in business. These standards ensure that members consistently uphold the principles of the  
profession across diverse situations. General Standards include the following:  
•
•
•
•
Professional Competence: Members must ensure they or their firm possess the necessary skills, knowledge,  
and expertise to offer any professional service. This implies that members should not undertake services  
unless they are confident about completing them competently.  
Due Professional Care: The obligation to approach all professional services with diligence, attentiveness, and  
the application of the best of one’s abilities. It requires members to be thorough and to ensure that they are  
providing their services with the care and accuracy expected of a professional.  
Planning and Supervision: Members must ensure effective organization and oversight of professional tasks  
to ensure quality and compliance. Members should be structured in their approach to any professional task,  
ensuring they have adequately planned their work, and any work delegated is properly supervised.  
Sufficient Relevant Data: Members need to have enough pertinent information to form sound conclusions or  
provide recommendations. Decisions or advice should be backed by ample and appropriate data. Members  
should ensure that their conclusions or recommendations are well-informed and grounded in relevant  
information.  
•
Third-Party Provider: If a member or firm utilizes a third-party service provider, they must ensure the provider  
meets necessary standards. The third-party should have the requisite qualifications, technical abilities, and  
resources. It's the responsibility of the member to validate the third-party's capabilities and ensure their  
standards align with professional requirements.  
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VII. Compliance with Standards Rule  
Compliance with Standards Rules apply to Part 1 & Part 2 Members.  
Part 1 Members in Public Practice  
Part 2 Members in Business  
Compliance with Standards Rules states that any member providing professional services, such as auditing, review,  
compilation, management consulting, tax, or others, must adhere to the standards laid down by the respective  
governing bodies, as designated by the Council.  
Audit of Non-Issuers  
Audit of Issuers  
Generally Accepted Auditing Standards (GAAS) as issued by the AICPA  
Public Company Accounting Oversight Board (PCAOB) Auditing Standards and GAAS  
International Standards on Auditing (ISA)  
International Audits  
Governmental Audits  
Attestation Engagements  
Generally Accepted Government Auditing Standards (GAGAS)  
Statements on Standards for Attestation Engagements (SSAEs)  
Accounting & Review Services Statements on Standards for Accounting and Review Services (SSARs)  
Consulting  
Financial Planning  
Valuation  
Statements on Standards for Consulting Services  
Statement on Standards in Personal Financial Planning Services  
Statement of Standards for Valuation Services  
Statements on Standards for Tax Services  
Taxes  
VIII. Accounting Standards Rule  
Accounting Standards Rules apply to Part 1 & Part 2 Members.  
Part 1 Members in Public Practice  
Part 2 Members in Business  
Accounting Standards Rules requires that both members in public practice and members in business adhere to  
the recognized and prevailing accounting standards when engaged in the preparation of financial statements,  
providing opinions on financial statements, or offering other financial information to the public, regulators, or  
specific entities.  
While adherence to accounting standards is imperative, there are circumstances where departures might be  
warranted:  
•
•
New Legislation: If new laws or regulations conflict with current accounting practices, members might need  
to adjust their approach to align with the legislation.  
Evolution of a New Form of Business Transaction: As the business world evolves, new forms of transactions  
or financial arrangements may emerge that weren't anticipated by existing accounting standards. In such  
cases, members may need to use their professional judgment to best represent these transactions in financial  
statements.  
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IX. Confidentiality  
Confidentiality Rule applies to Part 1 Members only.  
Part 1 Members in Public Practice  
As per Confidentiality Rules, members in public practice are required not to disclose any confidential information  
pertaining to their clients outside of their audit firm. This extends to any data, insights, financial information,  
strategies, or any other piece of information the client considers confidential unless explicit consent is granted by  
the client.  
While the rule emphasizes strict confidentiality, there are certain situations where exceptions might be made:  
•
•
•
Investigations and Inquiries: During an Investigation or Inquiry by the AICPA, a State CPA society, or a State  
Board of Accountancy. In such cases, relevant information might be shared to aid the investigation, provided  
it is handled with the necessary care and discretion.  
Quality Reviews: For the purpose of Quality Reviews by the AICPA or a state CPA society. Quality reviews are  
conducted to ensure that firms adhere to professional standards. Sharing of specific client information might  
be necessary for these reviews.  
Subpoena or Court Orders: If a member receives a subpoena or is ordered by a court to produce certain client  
documents or information, they are bound to comply. However, they should ensure that they release only the  
specific information requested and maintain confidentiality for all other client information.  
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X. Contingent Fees  
Contingent Fees Rule applies to Part 1 Members only.  
Part 1 Members in Public Practice  
Contingent Fees Rules refer to a fee structure where the compensation for services is dependent upon certain  
outcomes or results. Contingent Fees Rule seeks to ensure that the services provided by members in public  
practice are unbiased and free from any undue influence that might arise from a contingent fee structure.  
Here’s a breakdown of situations where Contingent Fees are allowed and not allowed:  
Contingent Fees Allowed  
Contingent Fees Not Allowed  
•
Fees Fixed by Courts: Contingent fees are  
permissible if they are fixed by courts, such as Tax  
Courts or Bankruptcy Courts.  
•
•
•
Audit or Review: Given the need for objectivity and  
impartiality, contingent fees are not permissible for  
audit or review services.  
•
Representing in Tax Cases: Contingent fees are  
permissible when a member is representing a client  
in a tax case, especially when it's about a claim or  
litigation regarding the client's tax liability  
Attestation Services: Any attestation service, where  
members express a conclusion, cannot be based on  
a contingent fee.  
Review & Compilation: Contingent fees are also  
disallowed for services that involve the review and  
compilation of financial statements. The reliability  
and objectivity of these services could be  
compromised with such a fee structure.  
•
Preparing Tax Returns: Members cannot charge  
contingent fees for preparing an original or  
amended tax return. The integrity of tax return  
preparation can be jeopardized if the fee depends  
on specific tax outcomes.  
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XI. Commission & Referral Fees  
Commission and Referral Fees Rules apply to Part 1 Members only.  
Part 1 Members in Public Practice  
Commission and Referral Fees Rules governs the earning and payment of commissions and referral fees by  
members in public practice. These fees can present a potential conflict of interest, and the rules ensure that public  
trust is maintained by addressing situations where these fees might compromise the objectivity and independence  
of the member.  
Commission & Referral Fees Rules are allowed for Non-Attest Clients and not allowed for Attest Clients.  
•
Attest Clients (e.g., Audit, Attestation, Review): Commission & Referral Fees Rules are not allowed for Attest  
Clients. The primary reason is to prevent any bias or perceived bias in the financial statement attestation  
process.  
o
o
Commissions: Members are not allowed to accept commissions for any service provided to, or for any  
product sold to, an attest client.  
Referral Fees: Members are not allowed to accept referral fees for recommending the services of a third  
party.  
•
Non-Attest Clients (e.g., Consulting): Commission & Referral Fees Rules are allowed for Non-Attest Clients  
o
o
Commissions: Members are allowed to accept commissions for services or products, provided that such  
acceptance is clearly disclosed to the client.  
Referral Fees: Members can accept referral fees if the arrangement is transparent and disclosed to the  
client.  
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XII. Advertising and Other Solicitation  
Advertising and Other Solicitation Rules apply to Part 1 Members only.  
Part 1 Members in Public Practice  
Advertising and Other Solicitation Rules address the methods and content of advertising and solicitation by  
members in public practice. The main intention is to ensure the public's trust by regulating the promotion of  
services and preventing any potential misrepresentation.  
•
Advertising: Members are permitted to advertise their services, but they must ensure that the advertisements  
and promotions are not:  
o
o
False: Information presented in advertisements must be accurate and truthful.  
Misleading: Advertisements should not contain information that may be taken out of context or  
presented in a way that could deceive a reasonable person.  
o
Deceptive: There should be no intention to deceive the public, either through false claims or omission of  
relevant information.  
•
•
Other Solicitation: Members can solicit new clients and engagements, but they must adhere to the same  
principles as in advertising. The solicitation methods and content should not be false, misleading, or deceptive.  
Cannot Claim a Guaranteed Refund: CPAs should not make guarantees about specific financial outcomes,  
including guarantees of tax refunds. This is because many factors can influence financial and tax outcomes,  
and it's essential to avoid setting false expectations for clients.  
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XIII. Forms of Practices and Names  
Forms of Practices and Names Rules apply to Part 1 Members only.  
Part 1 Members in Public Practice  
Forms of Practices and Names Rules are designed to regulate the manner in which CPA firms present themselves  
to the public. This ensures that the public is not misled about the services they can expect to receive, the  
qualifications of the practitioners, or the nature of the practice.  
These rules include:  
•
•
Misleading Names Not Allowed: CPA firms cannot use a name that is misleading. Names should be an  
accurate reflection of the ownership, affiliation, or capabilities of the firm.  
Continue in Name of Past Owners: It's customary and acceptable for a firm to continue using the name of a  
retired or deceased partner. However, if using the name of someone not actively associated with the firm,  
there should be no implication that they are still practicing.  
•
•
Membership in AICPA: An audit firm can't represent itself as a member of the AICPA unless all of its owners  
are members of the AICPA. This ensures that the public knows they are dealing with professionals who are  
held to the AICPA's ethical and professional standards.  
Use of CPA Designation: Individuals can use the "CPA" designation after their name, but if they are employed  
in a position that does not require a CPA license (for instance, in an industry or government position), they  
must also disclose their employment title. This prevents the public from assuming they are offering CPA  
services when they are not.  
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XIV. Discreditable Acts  
Discreditable Acts Rules apply to all Part 1, Part 2 & Part 3 Members.  
Part 1 Members in Public Practice  
Part 2 Members in Business  
Part 3 Other Members  
Discreditable Acts Rules ensure that the members of the profession uphold the integrity, respect, and reputation  
of the accounting profession. This rule applies broadly to all members, irrespective of their specific professional  
roles.  
The following Acts are considered Discreditable to Profession:  
•
•
•
•
•
•
•
•
•
•
Discrimination: Unfair treatment based on race, gender, age, religion, nationality, disability, or other  
protected status is not in line with professional conduct.  
Tax Compliance: Failing to file tax returns on time or not paying taxes when they are due is a breach of a  
member's personal responsibility, and it reflects poorly on their professional standing.  
Negligence in Work: Displaying a lack of diligence or care in performing professional services can harm clients  
and erode trust in the profession.  
Withholding Client Records: Retaining client records against the client's wishes is prohibited. Even if the client  
owes fees, they have the right to their records.  
Violation of Confidentiality: Breaching the confidentiality of client information is strictly prohibited unless  
there's a legitimate, legal reason.  
Fraudulent Marketing: Misrepresenting services, qualifications, experience, or the like to gain business is  
deceitful and undermines the integrity of the profession.  
Solicitation & Disclosure of CPA Exam Questions: It's critical to maintain the integrity of the CPA examination  
process. Soliciting, buying, or disclosing exam questions is strictly forbidden.  
Question and Answer Sharing: Sharing questions and answers of any professional education course exam  
(unless collaboration is permitted) undermines the integrity of the educational process.  
Falsifying or Misrepresenting Attendance: Falsifying or misrepresenting attendance at a professional  
education class is dishonest and violates professional standards.  
Tampering with Administration or Grading: Tampering with the administration or grading of any professional  
education course or credential compromises the fairness and validity of the assessment process.  
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Sarbanes-Oxley Act, 2002  
The Sarbanes–Oxley Act of 2002 (SOX) established strict standards for all US publicly traded companies. Public  
companies must implement controls against illegal and unethical business practices and top management must  
individually certify the accuracy of financial information.  
SOX is administered by the Securities and Exchange Commission (SEC), which deals with compliance, rules, and  
requirements. The Act also created a new agency, the Public Company Accounting Oversight Board, (PCAOB),  
which is in charge of overseeing, regulating, inspecting, and disciplining accounting firms in their roles as auditors  
of public companies.  
SOX has 11 Titles that apply to issuers. Title I, Title II, Title III, Title IV, Title VIII, Title IX & Title XI are testable for  
the exams. However, details about the other titles are included below, as well.  
Title I: Public Company Accounting Oversight Board, (PCAOB)  
Title I of the Sarbanes–Oxley Act of 2002 was enacted in response to corporate and accounting scandals like Enron  
and WorldCom. Its primary aim was to restore public trust in the financial reporting system and capital markets.  
Key provisions under Title I include:  
•
•
•
Establishment of PCAOB: Title I of Sarbanes–Oxley Act of 2002 establishes PCAOB. PCAOB is tasked with  
overseeing auditors of public companies to protect the interests of investors and ensure reliable audit reports.  
Registration Requirement: Auditors for Issuers, i.e., public companies, must register with the PCAOB. This  
ensures that the auditors are held to the professional standards and are subject to inspections.  
Auditing and Related Standards: PCAOB is empowered to establish and adopt standards relating to auditing,  
attestation, quality control, ethics, and independence. PCAOB requires:  
o
o
Audit working papers and related documentation to be retained for a period of seven years.  
An Engagement Quality Control Review (EQCR) to be mandated to ensure quality. This involves having the  
audit reviewed by a second or concurring partner not directly involved in the audit process.  
•
Routine Inspections: The PCAOB will regularly inspect registered accounting firms.  
o
o
Firms auditing more than 100 issuers: Inspected annually.  
Firms auditing 100 or fewer issuers: Inspected once every three years.  
•
•
•
Investigations: PCAOB holds the authority to conduct investigations into potential breaches of laws, rules, or  
professional standards by registered firms or their associated persons.  
Foreign Accounting Firms: Foreign accounting firms that audit U.S. public companies are also subject to the  
rules and regulations established by PCAOB.  
SEC Oversight: The Securities and Exchange Commission (SEC) oversees the PCAOB's operations. The SEC  
approves PCAOB rules, standards, and budget and has the power to modify or overturn PCAOB rules if needed.  
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Title II: Auditor Independence  
Title II of the Sarbanes–Oxley Act of 2002 places a significant emphasis on ensuring the independence of auditors.  
Key provisions under Title II include:  
•
Restriction on Non-Audit Services: Auditors of Issuers (public companies) are generally prohibited from  
providing non-audit services to the same companies they audit. This aims to prevent potential conflicts of  
interest that might arise when auditors wear multiple hats. While most non-audit services are restricted, tax  
services can be provided if they meet certain criteria:  
o
o
The audit committee of the issuer must pre-approve the tax service.  
The service and the approval must be disclosed to the SEC, providing transparency about the auditor's  
activities.  
•
•
Rotation of Key Audit Personnel: To prevent over-familiarity and potential complacency, there is a  
requirement for mandatory rotation of key audit personnel. The lead (or primary) audit partner and the  
concurring (or review) partner must rotate off the audit engagement every 5 years. After rotating off, they  
cannot be involved in the audit of that issuer for a certain period.  
Enhanced Communication with Audit Committees: The auditor’s communications to the audit committee  
must happen more frequently regarding the following matters:  
o
o
o
Critical accounting policies used.  
Alternative accounting treatments discussed with management.  
Written communications between the auditor and management.  
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Title III: Corporate Responsibility  
Title III mandates senior executives take individual responsibility (and liability) for the accuracy and completeness  
of corporate financial reports, defines the interaction between external auditors and corporate audit committees,  
and limits the permissible behavior of corporate officers.  
Key provisions under Title III include:  
•
Independent Audit Committee: Audit Committee Members must be a part of the board of directors and  
should maintain independence. They cannot accept any consulting, advisory, or other compensations from  
the company. Additionally, they should not be affiliated with the company in any other capacity.  
•
Audit Committee Financial Expert: The Audit Committee should have at least one member who qualifies as a  
"Financial Expert." A financial expert typically has a comprehensive understanding of GAAP, financial  
statements, internal controls, and the functions of an audit committee. If such an expert is not on the  
committee, the company must disclose the reasons for the absence.  
•
•
Audit Committee Responsibilities: Responsibility of the Audit Committee includes:  
o
Oversight of External Auditors: The Audit Committee is responsible for the appointment, compensation,  
and oversight of registered public accounting firms employed by the company.  
o
Handling of Complaints: The Audit Committee should have established procedures for receiving,  
retaining, and handling complaints related to internal controls or auditing matters. It should also allow for  
anonymous submissions by employees regarding questionable accounting or auditing matters.  
Corporate Responsibility for Financial Reports: The Chief Executive Officer (CEO) and the Chief Financial  
Officer (CFO) must certify the following for annual and quarterly reports within 90 days prior to the report:  
o
o
o
They have reviewed the report.  
Based on their knowledge, the reports do not contain any material misstatements or material omissions.  
Based on their knowledge, the financial statements and information are fairly present in all material  
respects, the financial condition and results of operations of the issuer.  
o
o
They are responsible for establishing and maintaining effective internal controls.  
They have disclosed to the auditors and the audit committee all significant deficiencies in the design or  
operation of internal controls that could adversely affect the financial statements.  
•
Prohibition on Improper Influence on Conduct of Audits: It is unlawful for any officer or director of an issuer,  
or any other person acting under the direction thereof, to take any action to fraudulently influence, coerce,  
manipulate, or mislead any independent public or certified accountant engaged in the performance of an  
audit of the financial statements of that issuer for the purpose of making the financial statements materially  
misleading.  
•
Forfeiture of Certain Bonuses and Profits: If an issuer is required to prepare an accounting restatement due  
to material noncompliance with any financial reporting requirement under the securities laws, the CEO and  
CFO may have to reimburse the issuer for bonus, incentive-based, or equity-based payments and/or any  
profits realized from the sale of issuer securities during the 12-month period following the first public issuance  
or filing with the SEC.  
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Title IV—Enhanced Financial Disclosures  
Title IV describes the enhanced reporting requirements for financial transactions, including off-balance-sheet  
transactions, pro forma figures and corporate officers’ stock transactions. It requires internal controls for assuring  
the accuracy of financial reports and disclosures, as well as mandates audit and reporting controls.  
Key provisions under Title IV include:  
•
Disclosures in Periodic Reports: Annual and Quarterly Financial Reports should contain following disclosures:  
o
o
o
Material Corrections Identified by the Auditor: Financial reports containing financial statements  
prepared in line with Generally Accepted Accounting Principles (GAAP) must incorporate all significant  
correcting adjustments identified by the auditors.  
Off-Balance Sheet Transactions: Companies are required to disclose all significant off-balance sheet  
transactions, arrangements, obligations (including contingent obligations), and other relationships in their  
annual and quarterly financial reports.  
Pro Forma Financial Information: Pro forma financial data, which presents hypothetical or "as if"  
scenarios, should not misrepresent material facts or exclude them in a way that would make the  
information misleading.  
•
•
Prohibition on Personal Loans to Executives: Public companies are forbidden from extending personal loans  
to their directors and executive officers. This rule is designed to prevent potential conflicts of interest where  
company resources might be used for personal benefits of key insiders.  
Disclosure Requirements for Directors, Officers, and Principal Stockholders: An individual who is directly or  
indirectly the beneficial owner of more than 10 percent of a registered equity security, or who is a director or  
an officer of the issuer of such security shall file a statement with the SEC within 10 days after they become  
such beneficial owner, director, or officer, and before the end of the second business day following the day  
on which there has been a change in such ownership.  
•
Management's Assessment of Internal Controls: Each annual report must contain an internal control report  
that shall state the responsibility of management for establishing and maintaining an adequate internal  
control structure and procedures for financial reporting.  
•
•
Code of Ethics for Senior Financial Officers: Each issuer shall disclose in its periodic reports whether they have  
adopted a code of ethics for senior financial officers. If there is no code, the issuer must disclose the reasons.  
Real-Time Issuer Disclosures: Each issuer shall disclose to the public on a rapid and current basis any  
additional information concerning material changes in the financial condition or operations of the issuer.  
Title V: Analysis Conflict of Interest  
Title VI: SEC Resources & Authority  
Title VII: Studies & Reports  
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Title VIII—Corporate and Criminal Fraud Accountability  
Title VIII describes the criminal penalties associated with being guilty of manipulating, destroying, or altering  
financial records or otherwise interfering with investigations. The title also provides certain protections for  
whistle-blowers.  
Key provisions under Title VIII include:  
•
•
Criminal Penalties for Altering Documents: Individuals who knowingly alter, destroy, mutilate, conceal,  
cover-up, falsify, or make a false entry in any record, document, or tangible object with the intent to impede,  
obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of the  
US can be fined or imprisoned for not more than 20 years, or both.  
Criminal Penalties for the Destruction of Audit Records: Audit or Review work papers must be retained for a  
period of 5 years from the period in which the audit or review was concluded. Violations will result in fines  
and imprisonment for not more than 10 years or both.  
•
•
Statute of Limitations: Violations of security laws may be brought within two years after the discovery of the  
facts constituting the violation; or five years after the violation, whichever event is earlier.  
Whistle-Blower Protection: Companies may not discharge, demote, suspend, threaten, harass, or in any  
manner discriminate against an employee who provided information or assisted in an investigation of security  
law violations.  
•
Criminal Penalties for Defrauding Shareholders: Individuals who execute a scheme to defraud, or who obtain,  
by false or fraudulent pretenses, any money or property in connection with the purchase or sale of securities  
of an issuer, can be fined or imprisoned for not more than 25 years, or both.  
Title IX—White Collar Crime Penalty Enhancements  
Title IX reviews the rules and penalties regarding offenses considered white-collar crimes.  
Key provisions under Title IX include:  
•
•
Penalties: It begins with elevating the status of attempt and conspiracy to the same level as a completed  
action.  
Certification Violations: Penalty for those corporate officers who fail to certify corporate financial reports are:  
o
o
Misstatement: $1 Million or Imprisoned up to 10 Years or both  
Willful Default: $5 Million or Imprisoned up to 20 Years or both  
Title X: Corporate Tax Returns  
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Title XI—Corporate Fraud Accountability  
Title XI revises criminal sentencing guidelines and stiffens penalties for corporate fraud and records tampering.  
Key provisions under Title XI include:  
•
•
•
•
Tampering: An individual who corruptly alters, destroys, mutilates, or conceals records, documents, etc., with  
the intent to impair objectivity or availability of use, or otherwise obstructs, influences, or impedes any official  
proceeding, shall be fined or imprisoned for not more than 20 years, or both.  
Temporary Freeze Authority: If, during the course of an investigation, the SEC determines that it is likely that  
the issuer will have to make extraordinary penalty payments, the SEC can petition a federal district court for  
a temporary order requiring the company to escrow those payments for 45 days.  
Prohibit Persons from Serving as Officers/Directors: In any cease-and-desist proceeding, the SEC can issue  
an order to prohibit, conditionally or unconditionally, and perhaps permanently, any person who has violated  
certain security laws, rules, and regulations, from serving as an officer or director of the issuer.  
Retaliation Against Informants: Any individual who knowingly retaliates (i.e., takes any harmful action)  
against any person who has provided truthful information to law enforcement, can be fined or imprisoned for  
not more than 10 years, or both.  
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Other Laws and Regulations  
I. Private Securities Litigation Reform Act of 1995  
The Private Securities Litigation Reform Act of 1995 was enacted to curb perceived abuses in securities class action  
lawsuits. While it covers several aspects of securities litigation, some of its key provisions relate to the  
responsibilities of auditors. Below is a summarized breakdown of these important auditor-related provisions:  
Key provisions of Private Securities Litigation Reform Act include:  
•
•
Enhanced Auditor Procedures: Auditors must carry out audit procedures designed to detect the following:  
o
Related Party Transactions: Transactions that are material to the financial statements or necessitate  
disclosure.  
o
o
Illegal Acts: Violations that would exert a direct and substantial influence on the financial statements.  
Going Concern Issues: When there's a significant doubt about an entity's ability to continue its operations  
in the foreseeable future.  
Reporting of Illegal Acts: If auditors identify an illegal act, they must:  
o
o
o
Investigate the act promptly.  
Notify the management about the act.  
Notify the Audit Committee (or, in its absence, the Board of Directors) is adequately informed.  
II. Dodd-Frank Wall Street Reform and Consumer Protection  
Act  
The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as the Dodd-Frank Act,  
was signed into U.S. Federal Law in July 2010 as a response to the financial crisis of 2007-2008. It aimed to reduce  
risks in the U.S. financial system through a myriad of reforms.  
Key provisions of Dodd-Frank Act include:  
•
No Integrated Audit for Non-Accelarated Filers: An integrated audit involves auditing both the financial  
statements and the company's Internal Control over Financial Reporting. Under Section 404(b) of the  
Sarbanes-Oxley Act (SOX), public companies are required to conduct an integrated audit. However, the Dodd-  
Frank Act later exempted non-accelerated filers from this requirement.  
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III. Jumpstart Our Business Startups Act (JOBS Act)  
The Jumpstart Our Business Startups Act, commonly referred to as the JOBS Act, was signed into U.S. law in April  
2012. Its primary goal was to ease various securities regulations to encourage the funding of small businesses in  
the United States. The legislation represented a response to the slow economic growth following the financial  
crisis of 2007-2008, aiming to revitalize job creation and growth.  
One of the key features of the JOBS Act was the introduction of the concept of "Emerging Growth Companies"  
(EGCs) and the associated regulatory reliefs provided to such entities.  
•
Emerging Growth Companies (EGCs): Emerging Growth Companies are companies that have total annual  
gross revenues of less than $1 billion (during its most recently completed fiscal year). An EGC retains its status  
as such until the earliest of:  
o
o
o
The end of the fiscal year in which it has total annual gross revenues of $1 billion or more.  
The end of the fiscal year following the fifth anniversary of its IPO.  
The date on which it has, during the previous three-year period, issued more than $1 billion in non-  
convertible debt.  
o
The date on which it becomes a "large accelerated filer" (generally, a company with a public float of $700  
million or more).  
•
EGCs are Exempt from Integrated Audit: Under Section 404(b) of the Sarbanes-Oxley Act (SOX), public  
companies are required to conduct an integrated audit. However, the JOBS Act later exempt EGCs from this  
requirement.  
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IV. Securities and Exchange Commission (SEC)  
The Securities and Exchange Commission (SEC) is the U.S. government's regulatory body responsible for ensuring  
fairness and transparency in securities markets. The SEC has the authority to oversee and regulate the operations  
of various entities involved in the securities market, including but not limited to broker-dealers, investment  
advisors, mutual funds, and public companies.  
Key responsibilities of SEC include:  
•
Oversight & Enforcement Authority over PCAOB: The SEC maintains oversight authority over the Public  
Company Accounting Oversight Board (PCAOB), which itself oversees the audits of public companies to ensure  
the protection of investors.  
•
•
•
•
•
Approval of PCAOB Rules/Pronouncements: All rules, auditing standards, and other related pronouncements  
proposed by the PCAOB must be approved by the SEC before they can take effect.  
Sanction Authority: The SEC has the authority to modify, enhance, cancel, reduce, or even require specific  
sanctions that the PCAOB imposes.  
Censure or Impose Limitations: The SEC can censure or impose limitations on the activities, functions, and  
operations of the PCAOB if necessary.  
Removal of PCAOB Members: If deemed necessary for the protection of investors or the furtherance of the  
public interest, the SEC has the authority to remove from office or censure any person serving on the PCAOB.  
SEC Regulation S-K: Regulation S-K is a prescribed regulation under the US Securities Act of 1933 that lays out  
the reporting requirements for various filings and registrations used by issuers. It provides guidance on the  
information that companies must disclose in their registration statements, periodic reports, and other forms.  
V. Department of Labor (DOL)  
The Department of Labor (DOL) is a U.S. Government Agency responsible for ensuring the welfare of wage-earning  
workers, job seekers, and retirees. It aims to improve their working conditions, advance their opportunities for  
profitable employment, and ensure their rights in the workplace.  
Key provisions of the DOL include:  
•
Independence Guidelines for CPAs: The DOL establishes specific guidelines to ensure that CPAs who audit  
Employee Benefit Plans are independent and free from any conflicts of interest. The DOL guidelines align with  
the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct. For CPAs to be  
considered independent when auditing an Employee Benefit Plan:  
o
They must not have any financial interests in the plan or the plan sponsor that would be considered  
material.  
o
They also shouldn't have any direct business relationships with the plan or plan sponsor outside of the  
audit engagement.  
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VI. Governmental Accountability Office (GAO)  
The Governmental Accountability Office (GAO) is an independent, non-partisan agency that works for the U.S.  
Congress. Its primary function is to audit federal agencies to ensure the effective, efficient, and transparent use  
of public funds. Additionally, the GAO investigates how the federal government spends taxpayer dollars.  
GAGAS (Generally Accepted Government Auditing Standards) commonly known as the "Yellow Book," is the set  
of standards that guides government auditors in their work. These standards aim to ensure that government  
audits are conducted with competence, integrity, objectivity, and independence. GAGAS provides standards for  
both financial and performance audits, as well as attestation engagements. It covers the entire audit process, from  
planning and fieldwork to reporting and follow-up. The GAO periodically updates GAGAS to address new audit  
methodologies, technologies, and challenges.  
Key Components of GAGAS:  
•
•
•
•
Ethical Principles: GAGAS emphasizes the importance of public interest, integrity, objectivity, proper use of  
government information, resources, and position, and professional behavior in all government auditing work.  
General Standards: These address the qualifications of the auditor and the quality of the audit effort. This  
includes standards on independence, professional judgment, competence, and quality control and assurance.  
Standards for Financial Audits: They guide auditors in obtaining reasonable assurance about whether the  
financial statements as a whole are free from material misstatement, whether due to fraud or error.  
Standards for Attestation and Performance Audits: These provide guidance on examinations, reviews, and  
agreed-upon procedure engagements, as well as audits that assess the performance of an organization,  
program, activity, or function against certain criteria.  
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Fieldwork and Reporting Standards: These ensure that audits are planned and executed correctly and that  
findings, conclusions, and recommendations are communicated effectively.  
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