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Area I: Ethics & General PrinciplesAUDIndependencePCAOB

CPA · Question 02 · Area I: Ethics & General Principles

A CPA firm is auditing the financial statements of an issuer, TechGlobal Inc. The lead audit partner, Sarah, has served in that capacity for five consecutive years ending December 31, Year 5. Under PCAOB rules and the Sarbanes-Oxley Act, which of the following roles may Sarah perform for the TechGlobal audit for the year ending December 31, Year 6?

Answer options:

A.

She may serve as the engagement quality reviewer.

B.

She may provide tax services to the client, provided she is not on the audit engagement team.

C.

She may serve as a consultant to the audit team regarding complex accounting estimates.

D.

She is prohibited from providing any services to TechGlobal that would influence the audit engagement.

How to approach this question

Apply the '5 years on, 5 years off' rule for lead and concurring partners under PCAOB standards. Understand that 'off' means a complete time-out from the engagement.

Full Answer

D.She is prohibited from providing any services to TechGlobal that would influence the audit engagement.✓ Correct
D
Under PCAOB Rule 3600T (Interim Independence Standards) and Section 203 of Sarbanes-Oxley, the lead audit partner and the concurring partner must rotate off the engagement after five years and are subject to a five-year 'time-out' or cooling-off period. During this period, the individual cannot participate in the audit in any capacity.

Common mistakes

Thinking the partner can stay on in a 'lesser' role like a consultant or reviewer. The ban is comprehensive for the engagement.
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