630-661

1. Ethics and Professional Conduct

a. Ethics and Professionalism Defined
i. Ethics- a system or code of conduct based on moral duties and
obligations that indicate how an individual should interact with
others in society.
1. A sense for ethics guides individuals to value more than
their own self-interest and to recognize and respect the
interests of others.
ii. Professionalism- conduct, aims, or qualities that characterize a
profession or professional person.
iii. All professions establish rules or codes of conduct that define
ethical behavior for members of a profession. These rules are
established so that:
1. Users of the professional services know what to expect
when they purchase such services.
2. Members of the profession know what behavior is
acceptable.
3. The profession can use the rules to monitor the actions of
its members and apply discipline when appropriate.
iv. To be a credible source of objective, independent assurance, the
individual must have a solid reputation for competence and for
unquestioned character and integrity.
v. Given the importance of ethical behavior, reputation, and
professionalism, the accounting profession has developed a
Code of Professional Conduct that guides the conduct of
accounting professionals.
b. Theories of Ethical Behavior
i. Three overlapping methods or theories of ethical behavior that
can guide the analysis of ethical issues in accounting (no single
approach is necessarily better than another):
1. Utilitarianism- recognizes that decision making involves
trade-offs between the benefits and burdens of alternative
actions, and it focuses on the consequences of a
particular action on the individuals affected.
a. The theory proposes that the interests of all parties
affected, not just ones self-interest, should be
considered.
b. An action conforms to the principle of utility only if
that action will produce more pleasure or happiness
for the greatest number of people than any other
possible action.
2. Rights-based approach- assumes that individuals have
certain rights and other individuals have a duty to respect
those rights.
 a. Thus, a decision maker who follows a theory of
rights should undertake an action only if it does not
violate the rights of any individual.
b. Important to auditors because of their public-
interest responsibility. Auditors must act in respect
to the public having clear and objective
information. Even if doing so loses the audit client.
3. Justice-based approach- concerned with issues such as
equity, fairness, and impartiality.
a. The theory of justice involves two basic principles:
i. Each person has a right to have the
maximum degree of personal freedom that is
still compatible with the liberty of others.
ii. Social and economic actions should be to
everyones advantage and the benefits
available to all.
b. Decisions made with this theory should fairly and
equitably distribute resources among those
individuals or groups affected.
c. Under this approach, the auditor considers what
would be the most just decision in terms of
allocation of resources among interested parties.
4. Virtues such as honesty, integrity, impartiality,
faithfulness, and trustworthiness are embodied in the
professions Principles of Professional Conduct.
2. An Overview of Ethics and Professionalism in Public Companies
a. Standards for Auditor Professionalism
i. The AICPA, being a private, nongovernmental association, has
the authority only to require its members to comply with the
Code as a condition of continued membership.
1. However, state and federal courts have consistently held
that all practicing CPAs, whether in public or private
practice and whether or not a member of the AICPA, must
follow professional ethical standards laid out in the Code
of Professional Conduct.
ii. The SEC has the legal authority to oversee the public accounting
profession.
1. Allows private sector entities such as the Financial
Accounting Standards Board (FASB) and the Auditing
Standards Board (ASB) to set accounting and auditing
standards, respectively.
2. Additionally, the SEC exercises considerable influence in
the standard setting process and has established its own
standards.
iii. The PCAOB and the SEC have additional, more stringent
standards of professional conduct, mostly in the key area of
auditor independence, which must be followed by auditors of
public companies.
 iv. Code of Professional Conduct- created by the AICPA, provides
the broadest map of the areas in which professionalism is
expected from auditors.
v. In auditing a privately-held entity, a CPA must follow the
auditing standards established by the ASB as well as the
independence and other standards of professional conduct
established by the Code of Professional Conduct.
vi. In auditing a publically held company, a CPA must follow the
auditing standards of the PCAOB, the Code of Professional
Conduct, and also the more stringent independence
requirements established by the SEC, ISB, and PCAOB.

3. The Newly Revised AICPA Code of Professional Conduct: A Comprehensive

Framework for Auditors
a. Intro
i. The newly reorganized AICPA Code of Professional Conduct is
organized into a preface that is applicable to all CPAs, and three
parts.
 1. The Preface of the Code of Professional Conduct, which
applies to all CPAs, defines ideal Principles of Professional
Conduct that are expected of all CPAs.
2. Part 1 applies to CPAs in public practice.
a. Requires that the CPA be independent of the
entities on which she or he is providing assurance.
3. Part 2 applies to CPAs who are working in business but
who are not working as auditors that issue assurance
reports on which the public will rely.
a. Does not require independence, but requires
integrity and objectivity on the part of the CPAs
working in any business capacity.
4. Part 3 of the Code applies to CPAs who are neither
functioning as an auditor nor in business.
a. A CPA must not engage in any act that would be
discreditable to the profession.
ii. The Interpretations of Rules of conduct are promulgated by the
AICPAs PEEC to provide guidelines as to the scope and
application of the Rules of Conduct.
1. Unlike the Rules of Conduct, interpretations are not
specifically enforceable, but an auditor who departs from
them has the burden of justifying such departures.

b. Principles of Professional Conduct

i. The framework for the Code of Professional Conduct is provided
by six fundamental ethical principles in the Preface to the Code.
1. The first two principles address a CPAs responsibilities to
exercise professional and moral judgment in a manner
that serves the public interest.
a. Responsibilities: In carrying out their responsibilities
as professionals, members should exercise
 sensitive professional and moral judgements in all
their activities.
b. The public interest: members should accept the
obligation to act in a way that will serve the public
interest, honor the public trust, and demonstrate a
commitment to professionalism.
2. As indicated by the third and fourth principles, the public
relies on a CPAs integrity, objectivity, and independence
in providing high-quality services.
a. Integrity: To maintain and broaden public
confidence, members should perform all
professional responsibilities with the highest sense
of integrity.
b. Objectivity and independence: A member should
maintain objectivity and be free of conflicts of
interest in discharging professional responsibilities.
A member in public practice should be independent
in fact and appearance when providing auditing
and other attestation services.
3. Due care: A member should observe the professions
technical and ethical standards, strive continually to
improve competence and the quality of services, and
discharge professional responsibility to the best of the
members ability.
4. Scope and nature of services: a member in public practice
should observe the Principles of the Code of Professional
Conduct in determining the scope and nature of services
to be provided.
c. Rules of Conduct
i. The Rules of Conduct cover much of the same ground as the
Principles of Professional Conduct but are somewhat more
specific.
4. Integrity, Objectivity, and Independence
a. Integrity and ObjectivityFramework, Rule, and Interpretations
i. Integrity and Objectivity Rule: In the performance of any
professional service, a member shall maintain objectivity and
integrity, shall be free of conflicts of interest, and shall not
knowingly misrepresent facts or subordinate his or her
judgement to others.
ii. It is important to note that there may be situations where the
CPAs integrity and objectivity are threatened in ways that are
not specifically addressed in the Code.
iii. When no interpretation exists to address a particular relationship
or circumstance, the CPA should evaluate whether that
relationship or circumstance would lead a reasonable and
informed third party to conclude that there is a threat to the
members compliance with the rules that is not at an acceptable
level.
iv. Safeguards include additional training, involvement of an
otherwise uninvolved third party, and the availability of hotlines
and direct consultation on ethical and other matters.
 v. Important Interpretations
1. A conflict of interest may occur if a CPA performs a
professional service for an entity or employer and the CPA
or the CPAs firm has a relationship with another person,
entity, product, or service that could be viewed as
impairing the CPAs objectivity.
2. In dealing with his or her employers external
accountants, a member must be candid and not
knowingly misrepresent facts or knowingly fail to disclose
material facts.
3. If a CPA working in an industry has a disagreement or
dispute with his or her supervisor relating to the
preparation of financial statements or the recording of
transactions, the member must take steps to ensure that
the situation does not result in the subordination of
judgments.
b. Independence
i. Intro:
1. Independence Rule: A member in public practice shall
be independent in the performance of professional
services as required by standards promulgated by bodies
designated by Council.
2. If the auditor is not perceived to be independent of the
audited entity, it is unlikely that a user of financial
statements will place much reliance on the CPAs work.
3. A CPA/firm must have independence when doing financial
statement audits, financial statement reviews, or other
attest services.
a. However, non-attest services (EX: tax preparation,
financial planning, or consulting services) do not
require independence if those are the only services
provided to the entity.
4. Covered member: those who are bound by the
independence requirements. Includes:
a. An individual on the attest engagement team.
b. An individual in a position to influence the attest
engagement.
c. A partner, partner equivalent, or manager who
provides more than 10 hours of nonattest services
to the attest client within any fiscal year.
d. A partner or partner equivalent in the office in
which the lead attest engagement partner or
partner equivalent primarily practices in connection
with the attest engagement.
e. The firm, including the firms employee benefits
plans.
f. An entity whos operating, financial, or accounting
policies can be controlled by any of the individuals
 or entities described above or by two or more such
individuals or entities if they act together.
5. Every individual on the engagement team and others who
may be in a position to influence the engagement must
be independent with respect to the attest entity.
6. Other partners or managers of the CPA firm who are not
on the attest engagement team must also generally be
independent of the entity if they provide nonattest
services to that entity, or even if a partner simply works in
the same office as the attest engagements lead partner.
7. Under the engagement team approach, a staff member of
the CPA firm does not need to be independent of the
attest entity unless he or she performs work directly for
the entity or becomes a partner in the same office where
the attest engagements lead partner works.
8. The CPA firm itself must also be independent with respect
to the entity; for example, the CPA firms benefit plan
cannot invest in the firms attest entities.
ii. Interpretations of the independence rule can generally be
classified along two dimensions and explicitly considers the
effects of family relationships on independence:
1. Financial Relationships
a. Interpretations prohibit members from any financial
relationship with an audited entity that may impair
or give the appearance of impairing independence
(this includes any direct or material indirect
financial interest in the entity).
i. Financial interest: an ownership interest in an
equity or a debt security issued by an entity,
including rights and obligations to acquire
such an interest.
ii. Direct financial interest: a financial interest
that is owned directly by an individual or
entity, or is under the control of an individual
or entity.
1. A financial interest that is beneficially
owned through an intermediary (an
estate or trust) is also considered a
direct financial interest when the
beneficiary either controls the
intermediary or has the authority to
supervise or participate in the
intermediarys investment decisions.
2. A financial interest is beneficially
owned when an individual or entity is
not the recorded owner of the interest
 but has a right to some or all of the
underlying benefits of ownership.
3. With few exceptions, direct financial
interests by CPAs in attest entities
impair independence.
iii. Indirect financial interest: arises when (a) an
auditor or other covered member has a
financial interest in an entity that is
associated with an attest entity, (b) the
financial interest is owned through an
investment vehicle, estate, trust, or other
intermediary; and (c) the auditor does not
control the intermediary or have authority to
supervise or participate in the intermediarys
investment decisions.
1. Indirect financial interests are
generally permissible only if the
amount involved is immaterial with
respect to the covered members
income or wealth.
2. If a covered member owns 5% or
more of the outstanding shares of a
diversified mutual fund, or if the
mutual fund is not diversified, the
covered member needs to evaluate
the underlying investments of the
mutual fund to determine whether the
investment in the mutual fund
constitutes a material indirect financial
interest in any of the mutual funds
underlying investments.
iv. In blind trusts, because the investments
generally ultimately revert to revert to the
owner and the owner usually retains the
right to amend or revoke the trust, both the
blind trust and the underlying investments
are considered to be direct financial interests
of the covered member.
b. An insurance policy (that is issued under normal
terms and procedures and does not offer an
investment option) issued by an attest entity
typically does not impair independence.
c. Generally, a loan to or from an audited entity is
considered to impair the members independence.
There are permitted personal loans (must be
made in accordance to normal lending procedures,
 terms, and requirements) from an audited entity
that operates as a financial institution that include:
i. Automobile loans and leases collateralized
by the automobile.
ii. Loans fully collateralized by the cash
surrender value of an insurance policy.
iii. Loans fully collateralized by cash deposits at
the same lending institution.
iv. Credit cards and cash advances where the
aggregate outstanding balance is reduced to
$10,000 or less by the payment due date.
d. Interpretations assert that if fees pertaining to
services provided more than one year prior to the
date of the audit report remain unpaid, the
auditors independence is impaired with respect to
that entity.
2. Business Relationships
a. Interpretations indicate that independence of a CPA
is impaired if the CPA performs a managerial or
other significant role for an entitys organization
during the time period covered by an attest
engagement.
i. Such situations often arise when a former
employee of the entity becomes employed
by the CPA firm, or, more commonly, when a
CPA takes a job with the former audit entity.
ii. Interpretation indicates that if a member of
the attest engagement team or an individual
in a position to influence the attest
engagement has a job offer from or even
develops the intention to seek or discuss
potential employment with an attest entity,
independence is impaired unless the person
promptly reports the situation to an
appropriate person in the firm and removes
himself from the engagement until the offer
is rejected or employment is no longer being
sought.
b. Another type of business relationship can arise
when a CPA is asked to serve as an honorary
director or trustee for a not for profit entity.
i. Interpretation allows for a member to serve
as a director or trustee for an audited not for
profit entity as long as his or her position is
clearly honorary, and he or she cannot vote
or otherwise participate in board or
management functions.
 c. Interpretation allows a CPA to seek employment as
an adjunct faculty member of an educational
institution that is an audited entity of the CPAs
firm.
iii. Effect of Family Relationships
1. The issues related to a CPAs financial or business interest
in an entity may extend to the members of a CPAs family.
2. A covered members immediate family is subject to the
independence rule. There are exceptions including: a
covered members spouse employed by an audited entity
would not impair independence if he or she was not
employed in a key position.
3. The two situations in relation to close relatives that can
impair independence are as follows:
a. A close relative has a financial interest in the entity
that is material to the close relative, and the CPA
participating in the engagement is aware of the
interest.
b. An individual participating in the engagement has a
close relative who could exercise significant
influence over the financial or accounting policies
of the entity (EX: a key position).
iv. Effect of Actual or Threatened Litigation
1. Sometimes threatened or actual litigation between the
entity and the auditor can impair the auditors
independence. Interpretation cites three categories of
litigation:
a. Litigation between the entity and the CPA.
b. Litigation by security holders.
c. Other third-party litigation where the CPAs
independence may be impaired.
2. The following criteria are offered as guidelines for
assessing independence when actual or threatened
litigation exists between the audited entity and the CPA:
a. The commencement of litigation by present
management alleging deficiencies in audit work for
the entity would be considered to impair
independence.
b. An expressed intention by the present
management to commence litigation against the
CPA alleging deficiencies in audit work would also
impair independence if the auditor concluded that
it is probable that such a claim will be filed.
c. The commencement of litigation by the CPA against
the present management alleging management
fraud or deceit would be considered to impair
intelligence.
 3. Litigation by entity security holders or other third parties
also may impair the auditors independence under certain
circumstances.
v. Provision of Nonattest Services
1. The AICPA Code of Professional Conduct restricts the
types of nonaudit services that can be provided by attest
entities.
2. The interpretation outlines these requirements and binds
member CPAs to follow the relevant requirements of other
regulatory bodies where applicable.
a. The Code permits CPAs to provide bookkeeping,
systems implementation, internal audit
outsourcing, and other services to nonpublic attest
entities subject to certain conditions and limits.
b. The Code indicates that CPAs may not perform
appraisal, valuation, or actuarial services if the
results of those services will have a material effect
on the entitys financial statements and the service
involves considerable subjectivity.
3. In performing nonattest services for an attest entity, the
CPA should ensure that the entity assumes all
management responsibilities.
4. Interpretation indicates that prior to performing nonattest
services the CPA should establish with the entity in writing
the objectives of the engagement, the services to be
performed, the entitys acceptance of its responsibilities,
the CPAs responsibilities, and any anticipated limitations
of the engagement.
5. Management responsibilities that would be considered to
impair a CPAs independence include:
a. Setting policy or strategic direction for the attest
client.
b. Authorizing, executing, or consummating a
transaction or otherwise exercising authority on
behalf of an entity.
c. Preparing source documents, in electronic or other
form, evidencing the occurrence of a transaction.
d. Having custody of entity assets.
e. Supervising the entitys employees in the
performance of their normal recurring activities.
f. Determining which recommendations of the
member should be implemented.
g. Establishing or maintaining internal controls,
including performing ongoing monitoring activities
for an entity.
h. Reporting to those charged with governance on
behalf of management.
 i. Accepting responsibility for the preparation and fair
presentation of the attest clients financial
statements.
6. As long as the CPA stays within the general guidelines and
effectively manages threats to independence, the AICPA
does not strictly prohibit the provision of most types of
professional services to nonpublic attest entities.
vi. SEC and PCAOB Independence Requirements for Audits of Public
Companies
1. The SECs mission is to protect investors and maintain
integrity of the capital markets in which the securities of
publically traded companies are bought and sold.
2. Provision of Other Professional Services
a. The SECs rules with respect to services provided
by auditors are predicated on three basic principles
of auditor objectivity and independence:
i. An auditor should not audit his or her own
work.
ii. An auditor should not function in the role of
management.
iii. An auditor should not serve in an advocacy
role for the entity.
b. The rules do not limit the scope of nonaudit
services provided by accounting firms to nonpublic
companies or to public companies that are not
audit entities.
c. Accounting firms are allowed to provide certain
types of tax services to their audit entities.
d. The SEC specifies nine categories of nonaudit
services that are considered to impair
independence if provided to a public company audit
entity:
i. Bookkeeping or other services related to
accounting records or financial statements of
the audit entity.
ii. Financial information systems design and
implementation.
iii. Appraisal or valuation services, fairness
opinions, or contribution in kind reports
iv. Actuarial services
v. Internal audit outsourcing services
vi. Management functions or human resources
vii. Broker or dealer, investment adviser, or
investment banking services
viii. Legal services
ix. Expert services
 e. Consistent with the Sarbanes-Oxley Act, SEC also
prohibit any other service that the PCAOB
determines impermissible.
f. The SEC and PCAOB rules require that all audit and
nonaudit services provided by a public companys
auditor be considered and approved by the
companys audit committee.
3. Human Resource and Compensation-Related Issues
a. The lead engagement quality review partners on
the engagement team for a public company are
prohibited from providing audit services to a
company for more than five consecutive years.
b. Unless a one-year cooling off period has passed,
an accounting firm is prohibited from auditing a
public companys financial statements where a
former member of the audit team is currently
employed by the entity in a financial reporting
oversight role.
c. The SEC does not consider an accounting firm to be
independent from an audited public company if an
audit partner receives compensation based on
selling engagements to that entity for services
other than audit, review, and attest services.
4. Required Communication
a. SEC requires additional communication between
auditors and the entities audit committees and in
requiring public company audit entities to reveal
information regarding the fees paid to their auditors
for any type of service.
b. The auditor of a public company must report to the
companys audit committee all critical accounting
policies used by the company, all alternative
treatments within GAAP for policies and procedures
related to material items discussed with
management, and other written communications
between the auditor and companys management.
c. The audit committee must be responsible for the
appointment, compensation, and oversight of the
external auditors work.
d. Proxy statements and annual reports issued by
public companies must contain disclosures
regarding audit fees, audit related fees, tax fees,
and all other fees billed during the prior two fiscal
years by the principal auditor of the companys
financial statements.
5. Other Sections of Code of Professional Conduct
a. General Standards and Accounting Principles
 i. General Standards Rule: A member shall comply with the
following standards and with any interpretations thereof by
bodies designated by Council:
1. Professional competence: undertake only those
professional services that the member or the members
firm can reasonably expect to be completed with
professional competence.
2. Due professional care: exercise due professional care in
the performance of professional services.
3. Planning and supervision: adequately plan and supervise
the performance of professional services.
4. Sufficient relevant data: obtain sufficient relevant data to
afford a reasonable basis for conclusions or
recommendations in relation to any professional services
performed.
ii. Compliance with Standards Rule: A member who performs
auditing, review, compilation, management consulting, tax, or
other professional services shall comply with the standards
promulgated by bodies designated by Council.
iii. Accounting Principles Rule: requires CPAs to report in compliance
with appropriate accounting principles.
b. Responsibilities to Clients
i. Confidential Client Information Rule: A member in public practice
shall not disclose any confidential client information without the
specific consent of the client.
1. There are exceptions including:
a. To meet disclosure and performance requirements
under GAAP and GAAS.
b. To comply with a valid subpoena.
c. To allow a review of a members professional
practice under the authority of the AICPA, a state
society, or a state board of accountancy.
d. To comply with an investigative or disciplinary
proceeding.
e. To allow review of a CPAs professional practice in
conjunction with the purchase, sale, or merger of
the practice.
ii. Contingent Fee Rule: prohibits contingent fees during the period
in which the member or members firm is engaged to perform
any of the services listed (audit, review of a financial statement,
compilation, examination of prospective financial information)
and period covered by any historical financial statements
involved in any such services.
1. PCAOB independence rules do not allow auditors to
provide ANY services to public company audited entities
for a contingent fee, including tax services.
c. Other Responsibilities and Practices
 i. Acts discreditable rule: a member shall not commit an act
discreditable to the profession.
1. This rule allows the AICPA to remove a member for
committing acts that may affect the professions
reputation.
2. EX: A CPA commits a crime, hiring discrimination, not
returning original records for unpaid audits, failure to file
taxes, etc.
ii. Advertising and Other Forms of Solicitation Rule: A member in
public practice shall not seek to obtain clients by advertising or
other forms of solicitation that is false, misleading, or deceptive.
Solicitation by use of coercion, over-reaching, or harassing
conduct is prohibited.
1. Creating false or unjustifiable expectations of favorable
results.
2. Implying an ability to influence any court, tribunal,
regulatory agency, or similar body or official.
3. Claiming that a specific professional services in current or
future periods will be performed for a stated fee,
estimated fee, or fee range when it is likely at the time of
representation that such fees will be substantially
increased and the prospective entity is not advised of that
likelihood.
4. Making any other representations that would be likely to
cause a reasonable person to misunderstand or be
deceived.
iii. Commissions and Referral Fees Rule
1. Prohibited commissions
a. A member in public practice shall not for a
commission recommend or refer to a client any
product or service, or for a commission recommend
any product or service to be supplied by a client, or
receive a commission, when a member or the
members firm also performs for that client an audit
or review of financial statements, compilation, or
examination of prospective financial information.
2. Disclosure of permitted commissions
3. Referral fees
a. Commissions and referral fees are prohibited for
CPAs in situations where the CPAs independence
and objectivity are a focal point of attestation-
related services.
iv. Form of organization and Name Rule- a member shall not
practice public accounting under a firm name that is misleading.
d. Disciplinary Actions
i. Members of the AICPA can be suspended or terminated without
a hearing if the member has been convicted of certain criminal
offenses (such as a crime punishable by imprisonment for more
 than one year or filing a false income tax return on an entitys
behalf).
e. The primary purpose of professional ethics rules is to establish a
minimum level of professionalism to help auditors remain independent
of the entities they audit and to be objective and honest in their
judgements.
6. Quality Control Standards
a. Intro
i. The purpose of the peer review program is to ensure that firms
comply with relevant quality control standards.
ii. The AICPAs Peer Review Program consists of two types of
reviews:
1. System reviews- focus on a firms system of quality
control.
2. Engagement reviews- focus on work performed on
particular selected engagements rather than the quality
control system as a whole.
b. System of Quality Control
i. A firms system of quality control should be designed to provide
the firm with reasonable assurance that the firm and its
personnel comply with professional, legal, and regulatory
requirements and that the partners issue appropriate reports.
ii. A firms system of quality control has to be tailored to the firms
size, nature of its practice, its organization, and cost-benefit
considerations.
c. Elements of Quality Control
i. Six elements of quality control include:
1. Leadership responsibilities for quality in the firm (tone at
the top)
2. Relevant ethical requirements
3. Acceptance and continuance of entity relationships and
specific engagements
4. Human resources
5. Engagement performance
6. Monitoring
a. Review of records pertaining to the quality control
elements
b. Review of engagement documentation, reports, and
entity financial statements
c. Discussions with the firms personnel
d. Review of summarized reports, at least annually, on
the findings of the monitoring procedures and the
investigation of their causes so that improvements
can be made.
e. Determination of any corrective actions to be taken
or improvements to be made in the system,
including providing feedback into the firms policies
and procedures relating to education and training.
 f. Communication of findings to appropriate firm
management.

d. PCAOB Inspections of Registered Public Accounting Firms

i. In addition to the AICPA peer review programs, the PCAOB
conducts regular inspections of public accounting firms that are
required to register with the Board.
ii. The purpose of these inspections is to ensure that registered
firms, in connection with their audits of public companies,
comply with SOX, PCAOB rules, SEC rules, and professional
standards.
iii. The PCAOB conducts special inspections on an ad hoc basis
when it has specific cause, but the frequency with which regular
inspections are conducted is established by law.
1. More than 100 audit reports of public companies in a
year= annual inspection
2. More than 1 but less than 100 audit reports of public
companies in a year= inspection once every three years