Ethics Final Exam
According to the AICPA Code of Professional Conduct, which of the following disclosures of client information by a member CPA to an outside party would normally require client consent? A. Disclosure of confidential client information to a third-party service provider when the member does not enter into a confidentiality agreement with the provider. B. Disclosure to a potential client of the name of a client for whom the member or member's firm performed professional services. C. Disclosure of confidential client information to the member's liability insurance carrier in response to a potential claim. D. Disclosure of confidential client information to a court or in documents in connection with a subpoena.
A. Disclosure of confidential client information to a third-party service provider when the member does not enter into a confidentiality agreement with the provider.
A CPA properly expresses an unmodified opinion on audited financial statements intended to be presented in conformity with GAAP. The statements contain a material departure from promulgated GAAP. Under the Code of Professional Conduct's Accounting Principles Rule, the CPA is required to describe the departure and its approximate effects. (S)he is also required to A. Explain why compliance would have resulted in misleading financial statements. B. Describe client acceptance of the departure. C. Revise prior years' financial statements. D. Disclaim an opinion on the financial statements.
A. Explain why compliance would have resulted in misleading financial statements.
A violation of the profession's ethical standards would most likely have occurred when a CPA A. Expressed an unmodified opinion on the Year 2 financial statements when fees for the Year 1 audit were unpaid. B. Made arrangements with a bank to collect notes issued by a client in payment of fees due. C. Joined an accounting firm made up of three non-CPA practitioners. D. Purchased a bookkeeping firm's practice of monthly write-ups for a percentage of fees received over a 3-year period.
A. Expressed an unmodified opinion on the Year 2 financial statements when fees for the Year 1 audit were unpaid.
A CPA should not express an opinion on the financial statements of a client unless (s)he is independent of the client. Independence is not considered impaired if the auditor A. Has an immaterial indirect interest in the client. B. Has a material, closely held business investment with a vice president of the client. C. Has an unsecured loan acquired from a major shareholder of the client. D. Was a trustee with investment decision-making authority of a trust that was committed to acquire a direct financial interest in the client.
A. Has an immaterial indirect interest in the client.
Advertising or other forms of solicitation that are false, misleading, or deceptive are not in the public interest, and AICPA members in public practice shall not seek to obtain clients in such a manner. Such activities include all the following except those that A. Indicate the CPA's educational and professional attainments. B. Imply the ability to influence a court. C. Claim to be able to save the taxpayer 20% of a determined tax liability. D. Create unjustified expectations of favorable results.
A. Indicate the CPA's educational and professional attainments.
Thorp, CPA, was engaged to audit Ivor Co.'s financial statements. During the audit, Thorp discovered that Ivor's inventory contained stolen goods. Ivor was indicted and Thorp was subpoenaed to testify at the criminal trial in state court. Ivor claimed accountant-client privilege to prevent Thorp from testifying. Which of the following statements is most likely true regarding Ivor's claim? A. Ivor can claim an accountant-client privilege only in jurisdictions that have enacted a statute creating such a privilege. B. Ivor could claim an accountant-client privilege if a criminal tax case were brought in federal court. C. The accountant-client privilege can be claimed only in civil suits. D. The accountant-client privilege can be claimed only to limit testimony to audit subject matter.
A. Ivor can claim an accountant-client privilege only in jurisdictions that have enacted a statute creating such a privilege.
An auditor strives to achieve independence in appearance to A. Maintain public confidence in the profession. B. Become independent in fact. C. Comply with the generally accepted accounting principles. D. Maintain an unbiased mental attitude.
A. Maintain public confidence in the profession.
Based on the Code of Professional Conduct, a CPA A. May not, upon leaving a firm, take any of the firm's client files without permission. B. Is not associated with unaudited interim reports issued by clients even if the CPA's name is listed in the report. C. Cannot undertake the responsibility of supervising and evaluating the work of specialists. D. May disclose currently used Uniform CPA Examination questions.
A. May not, upon leaving a firm, take any of the firm's client files without permission.
An example of possible circumstances requiring departure from promulgated GAAP is A. New legislation. B. An unusual degree of materiality of a transaction. C. A conflict in industry practices. D. Support for the position by an unsuperseded Accounting Research Bulletin or Accounting Principles Board Opinion.
A. New legislation.
Under the AICPA Code of Professional Conduct, a CPA may express an unmodified opinion on financial statements that contain a departure from promulgated GAAP if (s)he can demonstrate that because of unusual circumstances the financial statements would be misleading if the departure were not made. Which of the following is an example of unusual circumstances that could justify such a departure? A. New legislation. B. An unusual degree of materiality. C. Conflicting industry practices. D. A theoretical disagreement with a standard promulgated by the FASB.
A. New legislation.
According to the AICPA Code of Professional Conduct, what would a covered member most appropriately do upon learning that another member of an attest engagement team is considering employment with the client? A. Notify an appropriate person in the firm. B. Disassociate from the engagement. C. Report the situation to the client's board of directors. D. Advise the engagement partner to withdraw the firm from the engagement.
A. Notify an appropriate person in the firm.
Under AICPA rules, independence most likely will be impaired if a member of the attest engagement team A. Owns a vacation home jointly with an officer of an audit client. B. Provides accounting services to a nonissuer audit client. C. Brings suit for an immaterial amount allegedly owed by the client for tax services. D. Belongs to a credit union that (s)he audits.
A. Owns a vacation home jointly with an officer of an audit client.
A CPA most likely does not violate the Code's Integrity and Objectivity Rule, if the CPA A. Performs expert witness services for a nonissuer attest client that is one of many plaintiffs in a class action lawsuit. B. Subordinates his or her judgment to that of client personnel when performing consulting services. C. Knowingly makes materially misleading entries in an entity's financial records. D. Accepts the judgment of a client instead of his or her own when performing tax services.
A. Performs expert witness services for a nonissuer attest client that is one of many plaintiffs in a class action lawsuit.
Which of the following section(s) of the Code of Professional Conduct is (are) aspirational only? A. Principles. B. Principles, Rules, and Concepts of Professional Ethics. C. Interpretations. D. Rules.
A. Principles.
The Confidential Client Information Rule is violated when a member in public practice A. Provides client profit and loss percentages to a trade association without the client's consent. B. Uses outside computer services to process tax returns. C. Performs consulting services for similar clients. D. Advises potential consulting services clients about previous problems on similar engagements.
A. Provides client profit and loss percentages to a trade association without the client's consent.
Under current AICPA rules, which of the following most likely impairs a CPA's independence regarding a nonissuer? A. The CPA serves as general counsel for the client. B. The CPA initially screens candidates for controller of the client. C. The CPA instructs and trains client personnel during the implementation of a new system. D. A CPA has an immaterial interest in a limited partnership. The client also has an immaterial interest in the limited partnership.
A. The CPA serves as general counsel for the client.
According to the profession's ethical standards, an auditor would be considered independent in which of the following instances? A. The auditor's checking account, which is fully insured by a federal agency, is held at a client financial institution. B. The auditor is also an attorney who advises the client as its general counsel. C. A member donates service as CFO of a charitable organization that is a client during the period covered by the financial statements. D. The client owes the auditor fees for two consecutive annual audits.
A. The auditor's checking account, which is fully insured by a federal agency, is held at a client financial institution.
The AICPA Code of Professional Conduct states, in part, that a CPA should maintain integrity and objectivity. Objectivity in the Code refers to a CPA's ability A. To maintain an impartial attitude on all matters that come under the CPA's review. B. To independently distinguish between accounting practices that are acceptable and those that are not. C. To be unyielding in all matters dealing with auditing procedures. D. To independently choose between alternate accounting principles and auditing standards.
A. To maintain an impartial attitude on all matters that come under the CPA's review.
Which of the following acts by a CPA who is not in public practice is most likely to be a violation of the ethical standards of the profession? A. Using the CPA designation without disclosing employment status in connection with financial statements issued for external use by the CPA's employer. B. Distributing business cards indicating the CPA designation and the CPA's title and employer. C. Corresponding on the CPA's employer's letterhead, which contains the CPA designation and the CPA's employment status. D. Compiling the CPA's employer's financial statements and referring to the CPA's lack of independence.
A. Using the CPA designation without disclosing employment status in connection with financial statements issued for external use by the CPA's employer.
Dickins & Co., CPAs, offers to maintain on its computer certain routine accounting records for its audit client, Lake. If Lake accepts the offer and Dickins & Co. continues to function as independent auditor, Dickins & Co. is most likely to violate the rules relating to auditor's independence of which organization(s)? A) SEC B) AICPA A. Yes No B. Yes Yes C. No Yes D. No No
A. Yes No
A CPA purchased stock in an audit client corporation and placed it in a revocable educational trust for the CPA's dependent minor child. The trust securities were not material to the CPA but were material to the child's personal net worth. Is the independence of the CPA considered to be impaired with respect to the client? A. Yes, because the stock is considered a direct financial interest and, consequently, materiality is not a factor. B. Yes, because the stock is considered an indirect financial interest that is material to the CPA's child. C. No, because the CPA is not considered to have a direct financial interest in the client. D. No, because the CPA is not considered to have a material indirect financial interest in the client.
A. Yes, because the stock is considered a direct financial interest and, consequently, materiality is not a factor.
Ann Covington, CPA, has been asked to perform a consulting services engagement concerning the analysis of a potential merger. She has little experience with the industry involved. What is her most appropriate action? A. Accept the engagement and perform it in accordance with auditing standards. B. Accept the engagement and perform additional research or consult with others to obtain sufficient competence. C. Accept the engagement and issue a report vouching for the achievability of the results of the merger. D. Decline the engagement because she lacks sufficient knowledge.
B. Accept the engagement and perform additional research or consult with others to obtain sufficient competence.
In which of the following situations would the auditor's independence most likely be impaired? A. An auditor provides an appraisal of a nonissuer's pension liability, with final approval of all significant matters of judgment being made by the client. B. An auditor performs the duties of an officially appointed registrar for a client. C. An auditor uses a client's time-sharing computer service to solve client problems. D. The client is bankrupt, and fees for the prior year's audit have not been paid.
B. An auditor performs the duties of an officially appointed registrar for a client.
Which of the following most likely does not impair an auditor's independence? A. Serving on the board of directors of a nonprofit social club client if the board performs a management function. B. Belonging to a tennis club client that requires a member to acquire a pro rata share of equity securities. C. Being a member of the committee that controls a client's deferred compensation plan. D. Participating on the attest engagement team even though the auditor has a brother who is both a shareholder and chief accounting officer of the client.
B. Belonging to a tennis club client that requires a member to acquire a pro rata share of equity securities.
Which of the following most likely impairs a CPA's independence? A. Owning stock in a mutual investment fund that owns stock in the CPA's client. B. Belonging to an investment club that holds stock in a client. C. Serving as a cofiduciary with a client bank with respect to a trust. D. Auditing the insurance company that invests and manages contributions to the firm's retirement plan. These amounts are in a pooled separate account.
B. Belonging to an investment club that holds stock in a client.
Ann Able, CPA, is considering forming a partnership with Ben Brown for the purpose of practicing public accounting. Which of the following is true? A. The AICPA's Code of Professional Conduct requires Brown to be a CPA. B. Brown need not be a CPA if the partnership does not represent itself as a partnership of CPAs. C. If Brown is not a CPA, he need not conform to the AICPA Code of Professional Conduct. D. If Brown is not a CPA, he may not participate in the management of the partnership
B. Brown need not be a CPA if the partnership does not represent itself as a partnership of CPAs.
Which of the following statements concerning an accountant's disclosure of confidential client data is ordinarily true? A. Disclosure may be made to any state agency without subpoena. B. Disclosure may be made to any party on consent of the client. C. Disclosure may be made to comply with an IRS audit request. D. Disclosure may be made to comply with generally accepted accounting principles.
B. Disclosure may be made to any party on consent of the client.
Integrity is best defined as A. Adequate planning and supervision of professional services. B. Honesty and candor. C. Impartiality. D. Independence in appearance as well as in fact.
B. Honesty and candor.
Within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, an accountant deemed to be independent with regard to a specific entity must I. Confirm in writing its independence from the audit client. II. Have no relationships with the audit client. III. Discuss its independence with the audit committee. A. I and II only. B. I and III only. C. II and III only. D. I, II, and III.
B. I and III only.
In which of the following situations would a covered member's independence be considered to be impaired? I. The covered member maintains a checking account that is fully insured by a government deposit insurance agency at an audit-client financial institution. II. The covered member has a direct financial interest in an audit client, but the interest is maintained in a blind trust. III. The covered member owns a commercial building and leases it to an audit client. The lease is properly classified as a capital lease, and the rental income is material to the CPA. A. I and II. B. II and III. C. I and III. D. I, II, and III.
B. II and III.
Which activity performed as nonattest services for a nonpublic attest client impairs a CPA's independence? A. Analyzing fluctuations in account balances if the extent of testing exceeds that required by GAAS. B. Confirming accounts receivable if the extent of testing exceeds that required by GAAS. C. Determining which recommendations for improving internal control should be implemented. D. Assisting in the performance of the client's internal auditing activities.
C. Determining which recommendations for improving internal control should be implemented.
The concept of materiality is least important to an auditor when considering the A. Adequacy of disclosure of a client's illegal act. B. Discovery of weaknesses in a client's internal control. C. Effects of a direct financial interest in the client on the CPA's independence. D. Decision whether to use positive or negative confirmations of accounts receivable
C. Effects of a direct financial interest in the client on the CPA's independence.
The AICPA Code of Professional Conduct A. Prohibits encroachment on the practice of another CPA. B. Prohibits offers of employment to employees of another CPA without notice. C. Expects the CPA to honor the public trust. D. Encourages but does not require CPAs to refrain from advertising or engaging in other forms of solicitation.
C. Expects the CPA to honor the public trust.
With respect to records in a CPA's possession, the Code of Professional Conduct provides that A. An auditor may retain client-provided records if fees due with respect to a completed engagement have not been paid. B. Worksheets in lieu of a general ledger belong to the auditor and need not be furnished to the client upon request. C. Extensive analyses of inventory prepared by the client at the auditor's request are working papers that belong to the auditor and need not be furnished to the client upon request. D. The auditor who has provided records to a client must comply with any subsequent requests to again provide such information.
C. Extensive analyses of inventory prepared by the client at the auditor's request are working papers that belong to the auditor and need not be furnished to the client upon request.
Which AICPA Conduct Rule applies only to members in the practice of public accounting? A. General Standards. B. Accounting Principles. C. Independence. D. Compliance with Standards.
C. Independence
A CPA who subordinates his or her judgment to others violates the AICPA's A. Independence Rule. B. Acts Discreditable Rule. C. Integrity and Objectivity Rule. D. General Standards Rule.
C. Integrity and Objectivity Rule.
A CPA who has a direct financial interest in a nonclient having a material investment in the CPA's audit client A. Lacks independence only if the CPA's investment in the nonclient is material. B. Lacks independence only if the CPA can exercise significant influence over the nonclient. C. Lacks independence. D. Does not lack independence.
C. Lacks independence.
The independence of a member of the attest engagement team is least likely to be impaired if the A. Member's investment club owns 1% of the stock of the client. B. Member's firm has made an immaterial loan to the client. C. Member and the client enter into a predispute agreement to use alternative dispute resolution techniques. D. Member obtains a home mortgage from the client during the current year.
C. Member and the client enter into a predispute agreement to use alternative dispute resolution techniques.
Which of the following most completely describes how independence has been defined by the accounting profession? A. Performing an audit from the viewpoint of the public B. Avoiding the appearance of significant interests in the affairs of an audit client C. Possessing the ability to act with integrity and objectivity D. Accepting responsibility to act professionally and in accordance with a professional code of ethics
C. Possessing the ability to act with integrity and objectivity
A CPA's retention of client-provided records as a means of enforcing payment of an overdue audit fee is an action that is A. Not addressed by the AICPA Code of Professional Conduct. B. Acceptable if sanctioned by state law. C. Prohibited under the AICPA Code of Professional Conduct. D. A violation of GAAS.
C. Prohibited under the AICPA Code of Professional Conduct.
According to the AICPA Code of Professional Conduct, under which of the following circumstances may a CPA receive a contingent fee for services? A. Examining a client's prospective financial information. B. Preparing a client's federal income tax return. C. Representing a client in an IRS examination of the client's federal income tax return. D. Reviewing a client's financial statements.
C. Representing a client in an IRS examination of the client's federal income tax return.
An audit independence issue might be raised by the auditor's participation in consulting services engagements. Which of the following statements is most consistent with the profession's attitude toward this issue? A. Information obtained as a result of a consulting engagement is confidential to that engagement and should not influence performance of the attest function. B. The decision as to loss of independence must be made by the client based upon the facts of the particular case. C. The auditor should not make management decisions for an audit client. D. The auditor who is asked to review management decisions is also competent to make these decisions and can do so without loss of independence.
C. The auditor should not make management decisions for an audit client.
Under the Form of Organization and Name Rule, and the related resolution of the AICPA Council, which of the following is a characteristic of a form of organization in which a member may practice public accounting? A. A CPA firm transfers all financial interests for attest services to another non-CPA firm through a leasing-of-employees arrangement. B. The owners must be jointly and severally liable for the acts of the entity. C. The entity must be a professional corporation. D. A majority of the ownership of the firm must belong to CPAs.
D. A majority of the ownership of the firm must belong to CPAs.
The Code prohibits loans to a covered member from a client financial institution except for certain permitted loans made under normal lending procedures, terms, and requirements. When making the comparison between the terms of the member's loan and those of other borrowers, which item(s) should be considered in the determination of normal lending procedures? A. Repayment terms. B. Interest rate, including points. C. Closing costs. D. All of the answers are correct.
D. All of the answers are correct.
Based on the AICPA Code of Professional Conduct, which of the following statements concerning auditor independence is most likely true? A. Fees due from a client have been unpaid for over a year, but independence is not impaired because the fees are for consulting services. B. An auditor has obtained an automobile loan from a client company. The loan was made under normal lending procedures, terms, and requirements and was secured by the automobile. The loan impairs the auditor's independence with respect to the client. C. An auditor's ownership of shares in a mutual investment fund that owns a small amount of stock in the auditor's client normally would impair independence. D. An auditor who serves as a client's general counsel is no longer independent with respect to the client.
D. An auditor who serves as a client's general counsel is no longer independent with respect to the client.
A CPA audits the financial statements of a local bank. According to the AICPA Code of Professional Conduct, the appearance of independence ordinarily would not be impaired if the CPA A. Serves on the bank's committee that approves loans. B. Owns several shares of the bank's common stock. C. Obtains a home mortgage from the bank. D. Designs an information system for the bank that is unrelated to its accounting records.
D. Designs an information system for the bank that is unrelated to its accounting records.
Under the AICPA Code of Professional Conduct, a covered member is most likely not permitted to A. Have an immaterial indirect financial interest in an affiliate of an attest financial statement client. B. Perform bookkeeping services for an audit client. C. Perform tax preparation services for an audit client. D. Have any joint closely held investment with a principal shareholder of an audit client during the period of the audit engagement.
D. Have any joint closely held investment with a principal shareholder of an audit client during the period of the audit engagement.
Which rule is not included in the Code of Professional Conduct? A. Acts Discreditable. B. Advertising and Other Forms of Solicitation. C. Commissions. D. Incompatible Occupations.
D. Incompatible Occupations.
Which of the following might be considered confidential client information and should not be disclosed under the AICPA Code of Professional Conduct? A. Disclosure in an audit report that the client failed to follow GAAP. B. Information about an audit client requested in an AICPA-authorized peer review. C. Information requested by a federal court by subpoena. D. Information that a certain company is a client if the CPA's practice is limited to bankruptcy matters
D. Information that a certain company is a client if the CPA's practice is limited to bankruptcy matters
A CPA has prepared the joint tax return of a married couple who are now divorcing. Spouse X has requested confidential information regarding the return. Spouse Y has instructed the CPA not to comply with the request. Release of the information to Spouse X A. Violates the Confidential Client Information Rule. B. Violates the Acts Discreditable Rule. C. Violates the Integrity and Objectivity Rule. D. Is not prohibited by the Code of Professional Conduct
D. Is not prohibited by the Code of Professional Conduct
Richard, CPA, performs compilation services for Norton Corporation, a nonpublic entity. The compilation reports issued by Richard disclose lack of independence and are not used by third parties. Richard has accepted a commission from a software company for recommending its products to Norton. The commission agreement was disclosed to Norton. Richard also refers Norton to Cruz, CPA, who is more competent with respect to engagements involving the industry in which Norton operates. Cruz performs an audit of Norton's financial statements and subsequently remits to Richard a portion of the fee collected. The referral fee agreement was likewise disclosed to Norton. Richard accepts the fee. Who, if anyone, has violated the Code of Professional Conduct? A. Only Richard. B. Both Richard and Cruz. C. Only Cruz. D. Neither Richard nor Cruz.
D. Neither Richard nor Cruz.
Inclusion of which of the following statements in a CPA's advertisement is not acceptable pursuant to the AICPA Code of Professional Conduct? A. Paul Fall Certified Public Accountant Fluency in Spanish and French B. Paul Fall Certified Public Accountant J.D., Evans Law School 2012 C. Paul Fall Certified Public Accountant Free Consultation D. Paul Fall Certified Public Accountant Endorsed by AICPA
D. Paul Fall Certified Public Accountant Endorsed by AICPA
The AICPA Code of Professional Conduct is violated if a CPA accepts a fee for services and the fee is A. Fixed by a public authority. B. Based on a price quotation submitted in competitive bidding. C. Based on the results of judicial proceedings in a tax matter. D. Payable after a specified finding is attained in a review of financial statements.
D. Payable after a specified finding is attained in a review of financial statements.
Independence is not necessarily impaired if, during the period of the professional engagement, a member A. Accepts more than a token gift from a client. B. Is a trustee of a trust having a direct financial interest in a client. C. Screens and hires accounting personnel for a client. D. Performs consulting services for a client.
D. Performs consulting services for a client.
Which of the following is prohibited by the AICPA Code of Professional Conduct? A. Practice of public accounting in the form of a professional corporation that uses a firm name indicating specialization. B. Use of the partnership name for a limited period by one of the partners in a public accounting firm after the death or withdrawal of all other partners. C. Failing to provide working papers to the client after a request has been made. D. Prematurely expressing an opinion based on an audit because of time pressures from the client.
D. Prematurely expressing an opinion based on an audit because of time pressures from the client.
Which of the following categories of ethical standards are included in the Code of Professional Conduct? A. Concepts of Professional Ethics and Rules of Conduct. B. Generally accepted auditing standards and Interpretations of Rules of Conduct. C. Ethics Rulings. D. Principles and Rules.
D. Principles and Rules.
The General Standards Rule does not require a member to A. Complete all engagements with professional competence. B. Plan and supervise adequately the performance of professional services. C. Obtain sufficient relevant data to afford a reasonable basis for all conclusions. D. Provide assurance about prospective financial statements.
D. Provide assurance about prospective financial statements.
Jays B. Honest,CPA, was offered the engagement to audit Wicket Corporation for the year ended June 30, year three. She had served as a director of Wicket Corporation until June 30, year one, and her spouse currently owns 600 of the 10,000 outstanding shares of Wicket Corporation. Jays disassociated from Wicket prior to being offered the engagement. Moreover, the engagement does not cover any. That includes Jaye's association or employment with Wicket. Under the AICPA code of professional conduct, she should? A. Accept the engagement B. Let a partner from the same office accept and conduct the engagement C. Refuse the engagement because she had served as a director D. Refuse the engagement because of her spouse's stock ownership
D. Refuse the engagement because of her spouse's stock ownership
The AICPA Code of Professional Conduct does not include enforceable Rules of Conduct on which of the following? A. Independence and integrity and objectivity. B. Professional competence and due professional care. C. Accounting principles. D. Responsibilities to colleagues.
D. Responsibilities to colleagues.
The appearance of independence of a CPA, or that CPA's firm, is most likely to be impaired if the CPA A. Provides appraisal, valuation, or actuarial services for an attest client. B. Joins a trade association, which is an attest client, and serves in a nonmanagement capacity. C. Accepts a token gift from an attest client. D. Serves as an executor and trustee of the estate of an individual who owned the majority of the stock of a closely held client corporation.
D. Serves as an executor and trustee of the estate of an individual who owned the majority of the stock of a closely held client corporation.
A violation of the profession's ethical standards would most likely have occurred when a CPA in public practice A. Used a records-retention agency to store the CPA's working papers and client records. B. Served as an expert witness in a damage suit and received compensation based on the amount awarded to the plaintiff. C. Referred life insurance assignments to the CPA's spouse, who is a life insurance agent. D. Serves on a municipal board of income tax appeals, discloses that status to concerned parties, participates as a board member in a tax appeal involving a client, but does not receive the client's consent for such action.
D. Serves on a municipal board of income tax appeals, discloses that status to concerned parties, participates as a board member in a tax appeal involving a client, but does not receive the client's consent for such action.
A CPA who agrees to perform professional services A. Must have the knowledge required to complete the services prior to acceptance. B. Demonstrates a lack of competence if consultation with others is necessary during the performance of the services. C. Assumes a responsibility for infallibility of knowledge and judgment. D. Should, if unable to gain sufficient competence during performance, suggest to the client someone competent to perform the services.
D. Should, if unable to gain sufficient competence during performance, suggest to the client someone competent to perform the services.
According to the profession's ethical standards, a CPA is considered independent in which of the following instances? A. The CPA agrees to indemnify the client against losses from client acts. B. The CPA has a material direct financial interest in a client but transfers the interest into a blind trust. C. The CPA owns an office building, and the mortgage on the building is guaranteed by a client. D. The CPA belongs to a country club client in which membership requires the acquisition of a pro rata share of equity.
D. The CPA belongs to a country club client in which membership requires the acquisition of a pro rata share of equity.
Absent the client's permission to reveal confidential client information, a CPA must withhold such information from A. The professional ethics division of the AICPA. B. An investigative body of a state board of accountancy. C. A state grand jury. D. The IRS if no subpoena or summons is issued.
D. The IRS if no subpoena or summons is issued.
A CPA may be a director of a not-for-profit organization, which is also an audit client, if certain conditions are met. Which of the following is not a condition that must be met for the auditor to be independent? A. The position is purely honorary. B. Participation is restricted to the use of his or her name. C. The auditor does not vote or participate in management functions. D. The auditor's name is not included on the organization's letterhead.
D. The auditor's name is not included on the organization's letterhead.
Under AICPA rules, the independence of a member of the attest engagement team is most likely to be impaired if A. A bank collects payments on notes payable to the member for professional services rendered to clients. B. The member purchases a bookkeeping firm for a percentage of fees earned over a given period. C. The member and the client commence an alternative dispute resolution proceeding. D. The member reviews and approves loan originations as part of the client's internal control.
D. The member reviews and approves loan originations as part of the client's internal control.
Eagle Company's financial statements contain a departure from generally accepted accounting principles because, due to unusual circumstances, the statements would otherwise be misleading. The auditor should express an opinion that is A. Qualified and describe the departure in a separate paragraph. B. Unmodified but not mention the departure in the auditor's report. C. Qualified or adverse, depending on materiality, and describe the departure in an other-matter paragraph. D. Unmodified and describe the departure in an other-matter paragraph.
D. Unmodified and describe the departure in an other-matter paragraph.
Jordan is the executive partner of Cain & Jordan, CPAs. One of its clients is a large nonprofit charitable organization. The organization has asked Jordan to be on its board of directors, which consists of a large number of the community's leaders. For Jordan to be considered independent, which of the following requirements must be met? A)Board Participation Purely Honorary Audit B) Participation by Jordan Prohibited A. Yes Yes B. No Yes C. No No D. Yes No
D. Yes No
When management refuses to disclose material noncompliance with laws and regulations identified by the independent auditor, the independent auditor may be charged with violating the AICPA Code of Professional Conduct for A. Disclaiming an opinion. B. Withdrawing from the engagement. C. Failing to uncover the illegal activities during prior audits. D. Reporting these activities to those charged with governance.
A. Disclaiming an opinion.
Which of the following statements best explains why the CPA profession has found it essential to establish ethical standards and means for ensuring their observance? A. A distinguishing mark of a profession is its acceptance of responsibility to the public. B. A requirement for a profession is to establish ethical standards that stress primarily a responsibility to clients and colleagues. C. Ethical standards that emphasize excellence in performance over material rewards establish a reputation for competence and character. D. Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts.
A. A distinguishing mark of a profession is its acceptance of responsibility to the public.
The profession's ethical standards most likely are violated when a CPA represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representation that the A. Actual fee would be substantially higher. B. Actual fee would be substantially lower than the fees charged by other CPAs for comparable services. C. CPA would not be independent. D. Fee was a competitive bid.
A. Actual fee would be substantially higher.
The Conceptual Framework for AICPA Independence Standards A. Adopts a risk-based approach to analysis of independence matters. B. Defines independence of mind as avoiding circumstances in which reasonable persons would conclude that integrity or objectivity has been compromised. C. Describes threats to independence as circumstances that impair independence. D. States that safeguards must eliminate threats to independence to be considered effective
A. Adopts a risk-based approach to analysis of independence matters.
Which of the following is required for a CPA firm to designate itself as "Members of the American Institute of Certified Public Accountants" on its letterhead? A. All CPA owners must be members. B. The owners whose names appear in the firm name must be members. C. At least one of the owners must be a member. D. The firm must be a dues-paying member.
A. All CPA owners must be members.
CPAs are required to complete engagements competently. Competence includes all of the following except A. An unbiased mental attitude. B. The technical qualifications of the CPA's staff. C. The capacity to exercise judgment. D. The ability to research subject matter and consult with others.
A. An unbiased mental attitude.
An issuer client who disagrees with the independent auditor on a significant matter affecting its financial statements has several courses of action. Which of the following courses of action would be inappropriate? A. Appeal to the FASB to review the significant matter. B. Modify the financial statements by expressing in the notes its viewpoint with regard to the significant matter. C. Ask the auditor to refer in the auditor's report to a client note in the financial statements that discusses the client point of view with regard to the significant matter. D. Engage another independent auditor.
A. Appeal to the FASB to review the significant matter.
An auditor who has demonstrated the ability to exercise sound judgment is considered to have the quality of A. Competence. B. Independence. C. Objectivity. D. Training.
A. Competence.
A CPA serves on a governmental board, discloses that status to concerned parties, and participates as a board member in a decision involving a client. Under the Integrity and Objectivity Rule, A. Consent of all appropriate parties eliminates the impairment of objectivity but not of independence. B. Consent of all appropriate parties eliminates the impairment of objectivity and of independence. C. Disclosure without consent was sufficient to eliminate the impairment of objectivity. D. Consent of all appropriate parties does not eliminate the impairment of objectivity.
A. Consent of all appropriate parties eliminates the impairment of objectivity but not of independence.
A relative of a covered member's spouse is a chief financial officer (CFO) in a closely held corporation. The covered member is a partner in a CPA firm in the same geographical area. Which of the following is true? A. Under no circumstances will the covered member be considered independent with respect to this corporation. B. If the relative is an uncle by marriage with whom personal contacts are very infrequent, the independence of the covered member's firm with respect to this corporation will not usually be considered to be impaired. C. If the relative is the covered member's brother-in-law with whom frequent social contacts are maintained, the firm's independence will be considered to be impaired even if another partner of the firm conducted the audit. D. If the relative is the covered member's mother-in-law, the firm's independence is impaired.
B. If the relative is an uncle by marriage with whom personal contacts are very infrequent, the independence of the covered member's firm with respect to this corporation will not usually be considered to be impaired.
Which rule is included in the Code of Professional Conduct? A. Incompatible Occupations. B. Integrity and Objectivity. C. Offers of Employment. D. Encroachment.
B. Integrity and Objectivity.
A CPA who is employed by a nonaccounting corporation performs services for the employer, including auditing the employer's financial statements. Reports issued with respect to such activities are distributed with the CPA's name and CPA designation appearing on the corporate letterhead. These reports should A. Be restricted to internal use. B. Make no reference to GAAS. C. Be on plain paper (not on the corporate letterhead). D. Refer to an audit.
B. Make no reference to GAAS.
Burrow & Co., CPAs, have provided annual audit and tax compliance services to Mare Corp. for several years. Mare has been unable to pay Burrow in full for services Burrow rendered 19 months ago. Burrow is ready to begin field work for the current year's audit. Under the ethical standards of the profession, which of the following arrangements will permit Burrow to begin the field work on Mare's audit? A. Mare sets up a 2-year payment plan with Burrow to settle the unpaid fee balance. B. Mare commits to pay the past due fee in full before the audit report is issued. C. Mare gives Burrow an 18-month note payable for the full amount of the past due fees before Burrow begins the audit. D. Mare engages another firm to perform the field work, and Burrow is limited to reviewing the working papers and issuing the audit report.
B. Mare commits to pay the past due fee in full before the audit report is issued.
Audit engagement team members should remain alert for evidence of noncompliance with which of the following relevant ethical requirements? A. Maintaining a suspicious attitude, presuming that the client is dishonest until evidence proves otherwise. B. Performing professional responsibilities with the highest sense of integrity. C. Performing audit procedures efficiently and within expected time budgets. D. Maintaining confidentiality of client information by not including it in the audit documentation.
B. Performing professional responsibilities with the highest sense of integrity.
A violation of the profession's ethical standards most likely occurs when a CPA A. Purchases another CPA's accounting practice and bases the price on a percentage of the fees accruing from clients over a 3-year period. B. Receives as a commission a percentage of the amounts invested by the CPA's audit clients in a tax shelter with the client's knowledge and approval. C. Has a public accounting practice and also is the owner of a business that offers data processing services to the public. D. Practices in a commercial corporation, a form of organization permitted by state law.
B. Receives as a commission a percentage of the amounts invested by the CPA's audit clients in a tax shelter with the client's knowledge and approval.
The AICPA Code of Professional Conduct contains both general ethical principles that are aspirational in character and also a A .List of violations that would cause the automatic suspension of a member's license. B. Set of specific, mandatory rules describing minimum levels of conduct a member must maintain. C. Description of a member's procedures for responding to an inquiry from a trial board. D. List of specific acts discreditable to the profession.
B. Set of specific, mandatory rules describing minimum levels of conduct a member must maintain.
In which of the following circumstances would a CPA who audits XM Corporation lack independence? A. The CPA is a director of, but does not control, YN Corporation, which has a loan from XM. B. The CPA and XM's president each owns 25% of FOB Corporation, a closely held company. C. The CPA has an automobile loan from XM, a financial institution. The loan is collateralized by the automobile. D. The CPA reduced XM's usual audit fee by 40% prior to the audit because XM's financial condition was unfavorable.
B. The CPA and XM's president each owns 25% of FOB Corporation, a closely held company.
According to the Acts Discreditable Rule, which of the following is least likely to be considered an act discreditable to the profession? A. Retaining client records if the fee for a completed engagement has not been paid and a demand has been made for them. B. Withholding information about adjusting and closing entries prepared by the member if fees have not been paid and the engagement is complete. C. Retaining worksheets prepared in lieu of a general ledger after a request has been made, fees have been paid, and the engagement is complete. D. Withholding accounting information belonging to the client that was provided to the member by the client after its return has been requested.
B. Withholding information about adjusting and closing entries prepared by the member if fees have not been paid and the engagement is complete.
According to the standards of the profession, which of the following activities may be required in exercising due professional care? A. Consulting with Experts B. Obtaining Specialty Accreditation A. Yes Yes B. Yes No C. No Yes D. No No
B. Yes No
In which of the following instances is the independence of the CPA most likely not considered to be impaired? The CPA has been retained as the auditor of a A. Charitable organization in which the spouse of the CPA serves as treasurer. B. Municipality in which the CPA owns $25,000 of the $2,500,000 indebtedness of the municipality. C. Credit union of which the CPA is a member. D. Company in which the CPA's participant-directed retirement plan owns a 10% interest.
C. Credit union of which the CPA is a member.
Under the ethical standards of the profession, which of the following situations involving nondependent members of an auditor's family is most likely to impair the independence of an individual participating in an audit engagement? A. A parent's immaterial investment in a client. B. A first cousin's loan from a client. C. A spouse's employment with a client. D. A sibling's loan to a director of a client.
C. A spouse's employment with a client.
Which of the following legal situations would be considered to impair the auditor's independence? A. An expressed intention by the current management to commence litigation against the auditor alleging deficiencies in audit work for the client, although the auditor considers that there is only a remote possibility that such a claim will be filed. B. Actual litigation by the auditor against the client for an amount not material to the auditor or to the financial statements of the client arising out of disputes as to billings for consulting services. C. Actual litigation by the auditor against the current management alleging management fraud or deceit. D. Actual litigation by the client against the auditor for an amount not material to the auditor or to the financial statements of the client arising out of disputes as to billings for tax services.
C. Actual litigation by the auditor against the current management alleging management fraud or deceit.
Under the Code's Independence Rule, which of the following must be independent in the performance of an audit? A. Only the partners of the audit firm. B. Only individuals on the attest engagement team. C. All individuals on the attest engagement team, except those performing routine clerical functions. D. All professional employees of the audit firm.
C. All individuals on the attest engagement team, except those performing routine clerical functions.
Under the ethical standards of the profession, which of the following investments by a CPA in a corporate client is an indirect financial interest? A. An investment held in a retirement plan of which the CPA is a trustee. B. An investment held in a blind trust. C. An investment held through a regulated mutual fund. D. An investment held through participation in an investment club.
C. An investment held through a regulated mutual fund.
To which of the following parties may a CPA partnership provide its audit documentation, without being lawfully subpoenaed or without the client's consent? A. The IRS. B. The FASB. C. Any surviving partner(s) on the death of a partner. D. A CPA before purchasing a partnership interest in the firm.
C. Any surviving partner(s) on the death of a partner.
A CPA who performs primary actuarial services for a nonissuer client normally is precluded from expressing an opinion on the financial statements of that client if the A. Fees for the actuarial services have not been paid. B. Actuarial services are a major determinant of the pension expense. C. CPA prepared an actuarial report using assumptions not approved by the client. D. Actuarial assumptions used are not in accordance with GAAS.
C. CPA prepared an actuarial report using assumptions not approved by the client.
The financial interests of a member of the attest engagement team in nonclients may have an effect on independence if the nonclients are affiliates of the financial statement attest client. The member's independence is not impaired if A. The member has a material indirect financial interest in a nonclient that the client controls. B. The member has an immaterial direct financial interest in a nonclient, and the client has a material direct financial interest that gives it significant influence over the nonclient. C. The client has a direct financial interest in a nonclient but does not control or have significant influence over the nonclient. The member has a direct financial interest in the nonclient, which has no financial interest in, or control of, the client. D. The member has a material indirect financial interest in a nonclient that controls the client, and the client is material to the nonclient.
C. The client has a direct financial interest in a nonclient but does not control or have significant influence over the nonclient. The member has a direct financial interest in the nonclient, which has no financial interest in, or control of, the client.
Which of the following does not impair a CPA's independence? A. The CPA performs the duties of a transfer agent or a registrar for a client. B. The CPA participates as the treasurer of a charitable organization who is a client. C. The client is in bankruptcy and has not paid fees related to the previous year's audit. D. The CPA is a tenured university faculty member who audits the student senate fund.
C. The client is in bankruptcy and has not paid fees related to the previous year's audit.
When a CPA is associated with financial statements that do not comply with promulgated GAAP because the statements would be misleading without the departure, the CPA is not required to disclose A. The departure. B. The approximate effects of the departure in comparison to the application of GAAP. C. The reason the departure does not have a material effect on the statements. D. The reasons compliance would have been misleading.
C. The reason the departure does not have a material effect on the statements.
An external auditor is not permitted to discuss confidential client information without the specific consent of the client. This ethical proscription A. Is unenforceable. B. Will prevent the auditor from engaging another auditing firm to conduct a peer review. C. Will not preclude the auditor from complying with a validly issued court subpoena. D. Is often used by a client to blunt the auditor's efforts to modify the standard auditor's report.
C. Will not preclude the auditor from complying with a validly issued court subpoena.
The Acts Discreditable Rule states that a member shall not commit an act discreditable to the profession. Which of the following is not considered such an act? A. Negligently making a materially misleading entry in the financial records of an entity. B. Retaining a client's records after a demand is made for them in a state that specifically grants the CPA a lien on all client records. C. Withholding as a result of nonpayment of fees for a completed engagement certain information already contained in the client's books and records. D. Failing to provide the client with client records that are part of the audit documentation.
C. Withholding as a result of nonpayment of fees for a completed engagement certain information already contained in the client's books and records.
A member of the AICPA may render which service under a contingent fee arrangement? A. A CPA audits the financial statements of a company that intends to issue securities for sale to the public, with the fee contingent upon the proceeds from the sale of the securities. B. A CPA compiles financial statements for a client seeking a loan, with the fee contingent upon the amount the client is able to borrow. The report does not disclose lack of independence. C. A CPA examines prospective financial statements for a client who intends to sell limited partnerships, with the CPA's fee contingent upon the proceeds. D. A CPA provides investment advisory services, with the fee based on a percentage of the client's investment portfolio.
D. A CPA provides investment advisory services, with the fee based on a percentage of the client's investment portfolio.
