Ethics

PCAOB chairman, James Doty stated that, "The bedrock of audit quality is _________

independence

Differences of opinion between a CPA and that person's supervisor or others within the organization are addressed by the _______ of _____ interpretation.

subordination judgement

The Subordination of Judgment rule applies Multiple choice question. only to external auditors and senior management of the audit firm. only to internal accountants and their direct supervisors. to internal accountants as well as external auditors. only to individuals employed as accountants within an organization.

to internal accountants as well as external auditors.

All of the following are fundamental principles of professional ethics identified by the IESBA, except ______. Multiple choice question. integrity objectivity transparency due care

transparency

The two broad conceptual frameworks in the AICPA Revised Code apply to which of the following? (Select all that apply) Multiple select question. Members in public practice CPAs in business CPAs in tax services Members in consulting Members in private practice

Members in public practice CPAs in business

Under the AICPA Revised Code, if an interpretation does not exist related to a specific relationship or circumstance, the CPA should evaluate ___________ and _____________________

threats safeguards

Which of the following are components of the KPMG Professional Judgment Framework? (Select all that apply) Multiple select question. Articulate and document rationale. Maintain independence. Clarify issues and objectives. Report findings to SEC. Gather and evaluate information. Consider alternatives.

Articulate and document rationale. Clarify issues and objectives. Gather and evaluate information. Consider alternatives.

The SEC investigated Thomas Avent because ______. Multiple choice question. Avent leaked proprietary information to his stock broker Avent violated auditor independence rules Avent received gifts and compensation from clients

Avent leaked proprietary information to his stock broker

Which of the following relate to the professional standards of a tax accountant? (Check all that apply) Multiple select question. Act honestly Exercise due care Act objectively and only in the client's interests Act as an advocate for his/her client Eliminate threats to independence

Act honestly Exercise due care Act as an advocate for his/her client

Which of the following has led to PCAOB concerns relating to the Big Four accounting firms? Multiple choice question. An increase in audit services An increase in professionalism An increase in firm revenue An increase in consulting services

An increase in consulting services

Which of the following nonattest service is prohibited for attest clients? Multiple choice question. Appraisal or valuation services Tax services Assurance services Personal financial planning services

Appraisal or valuation services

Since the PCAOB was formed, a mandatory quality inspection program was implemented. What is the average audit deficiency rate range since the program started? Multiple choice question. 20-30% 10-20% 40-50% 30-40%

30-40%

Which of the following are ways the SEC emphasizes independence? (Select all that apply) Multiple select question. By imposing a general standard of independence on auditors By restricting certain nonauditing services to audit clients By prohibiting certain business relationships with the audit client. By encouraging auditors to serve in advocacy roles for their clients By requiring auditors to audit their own work

By imposing a general standard of independence on auditors By restricting certain nonauditing services to audit clients By prohibiting certain business relationships with the audit client.

Which of the following leads to public perception that auditors may not act independent of their client's interests? Multiple choice question. Commercialism Professionalism Professional skepticism Moral biases

Commercialism

Which of the following professional standards must tax accountants adhere to when providing professional services? (Check all that apply) Multiple select question. Independence Rule Confidentiality Rule SSTS Contingent Fees Rule Commissions Rule

Confidentiality Rule SSTS Contingent Fees Rule

The AICPA Revised Code links the Integrity and Objectivity Rule to challenges from: (Select all that apply.) Multiple select question. Independence violations Conflict of interest situations Insider trading situations Subordination of judgment Improper financial relationships

Conflict of interest situations Subordination of judgment

Rule 3526 guidelines for audit committee communications require the firm to ______. (Check all that apply) Multiple select question. Discuss any relationships between the firm and the entity that might impair audit independence discuss all matters pertaining to the audit with the audit committee discuss any relationships with persons in financial reporting oversight roles at the audit client document the substance of its discussions with the audit committee

Discuss any relationships between the firm and the entity that might impair audit independence document the substance of its discussions with the audit committee

Under Rule 3524, which of the following requirements exist for a firm that seeks audit committee preapproval to perform permissible tax services for the audit client? (Check all that apply) Multiple select question. Discuss with the audit committee the potential effects of the services on audit independence. Describe in writing the responsibilities of the audit committee with respect to the tax services Describe in writing the nature of any tax services whereby the firm will recommend an aggressive tax position. Describe in writing the scope of the services and fee structure for the engagement. Document the substance of the discussions with the audit committee.

Discuss with the audit committee the potential effects of the services on audit independence. Describe in writing the scope of the services and fee structure for the engagement. Document the substance of the discussions with the audit committee.

If there is no specific rule of conduct addressing a particular relationship in the AICPA Code, what should the CPA do? Multiple choice question. Discontinue the relationship since a specific rule of conduct does not address such relationships. Continue the relationship even though a specific rule of conduct does not address such relationships. Evaluate whether or not the relationship would lead an informed third party to conclude that the CPA's compliance with the rules is acceptable.

Evaluate whether or not the relationship would lead an informed third party to conclude that the CPA's compliance with the rules is acceptable.

Identify the principles identified in the IFAC Code. (Check all that apply) Multiple select question. Integrity Independence Professional behavior Objectivity Bias Confidentiality

Integrity Professional behavior Objectivity Confidentiality

Which of the following are common cognitive traps that our judgment can incur? (Select all that apply) Multiple select question. Judgment triggers Problem solving rush Groupthink Professional skepticism Moral biases

Judgment triggers Problem solving rush Groupthink

The public watchdog function requires that accountants do which of the following? (Check all that apply) Multiple select question. Maintain total independence from the client at all times. Be loyal to one's supervisor. Demonstrate complete fidelity to the public trust. Act out of allegiance to one's employer at all times. Maintain ultimate allegiance to the corporation's shareholders and creditors.

Maintain total independence from the client at all times. Demonstrate complete fidelity to the public trust. Maintain ultimate allegiance to the corporation's shareholders and creditors.

Which of the following are sections in the AICPA Revised Code of Professional Conduct? (Select all that apply) Multiple select question. Members in public practice Members in business Members in tax services Members in private practice Members in audit

Members in public practice Members in business

What is at the center of the KPMG Professional Judgment Framework? Multiple choice question. Independence Ethical intent Objectives Mindset Conclusions

Mindset

Which of the following guide accountants when making a professional judgment? (Select all that apply) Multiple select question. Subjectivity Objectivity Undue influence Independence Professional skepticism

Objectivity Independence Professional skepticism

Historically, the SEC allowed the accounting profession to police itself through which process? Multiple choice question. Peer review Mandatory review Voluntary review

Peer review

The elements of a tax return position include which of the following? (Check all that apply) Multiple select question. Position about which a CPA has knowledge of all material facts Informing the tax authority of the tax return position The defense taken for the tax position Reflected on a tax return on which the CPA has specifically advised a taxpayer

Position about which a CPA has knowledge of all material facts Reflected on a tax return on which the CPA has specifically advised a taxpayer

Which of the following are examples of potential conflicts of interest? (Select all that apply) Multiple select question. Consulting with third parties who are not clients of the firm. Providing relevant information to two clients who are in competition to acquire the same company. A CPA accepting gifts from a client. Providing advising services to the vendor in a transaction who is also a client of the firm. Referring clients to other service providers who refer clients to the CPA in an exclusive arrangement.

Providing relevant information to two clients who are in competition to acquire the same company. A CPA accepting gifts from a client. Referring clients to other service providers who refer clients to the CPA in an exclusive arrangement.

Which rule requires the accounting firm to be independent of the client throughout the professional engagement period? Multiple choice question. Rule 3521 Contingent Fees Rule 3523 Tax Services for Persons in Financial Reporting Roles Rule 3520 Auditor Independence Rule 3526 Communication with Audit Committee

Rule 3520 Auditor Independence

Which rule applies when a registered public accounting firm is not independent of the client when an aggressive tax position exists? Multiple choice question. Rule 3523 Tax Services for Persons in Financial Reporting Oversight Roles Rule 3522 Tax Transactions Rule 3525 Audit Committee Preapproval of Nonauditing Services

Rule 3522 Tax Transactions

Applying ethical reasoning to identify shareholder interests and the effect of actions on shareholders is inconsistent with which cognitive judgment trap? Multiple choice question. Groupthink Rush to judgment Availability tendency Confirmation tendency Judgment triggers

Rush to judgment

When an audit firm relies on financial statements it prepared, this creates which type of threat to independence? Multiple choice question. Self-review threat Insider trading threat Competence threat

Self-review threat

Which of the following lead to loss of public trust in the accounting profession? (Select all that apply) Multiple select question. Subordination of judgment Biased decision making Professional skepticism Taking shortcuts Due care

Subordination of judgment Biased decision making Taking shortcuts

True or false: SOX prohibits bookkeeping services for audit clients. True false question.TrueFalse

True

Which of the following should be avoided when accountants make professional judgment? (Select all that apply) Multiple select question. Independence requirements Undue influence Full knowledge of facts Bias Conflict of interest

Undue influence Bias Conflict of interest

When a CPA firm provides professional services related to a particular matter involving two or more clients whose interests differ Multiple choice question. integrity and objectivity is maintained. a conflict of interest exists. subordination of judgment is present. a violation of independence occurs.

a conflict of interest exists.

Under Rule 3522 Tax Transactions, an aggressive tax position exists when ______. (Check all that apply) Multiple choice question. the realistic possibility of success standard has been met the transaction is not also a confidential transaction a significant purpose of the transaction is tax avoidance

a significant purpose of the transaction is tax avoidance

An annual requirement under Rule 3526 is for the CPA firm to affirm to the audit committee ______. (Check all that apply) Multiple choice question. that it performed the audit in accordance with all appropriate standards all relationships with persons in financial reporting oversight roles are reasonably thought to bear on independence it has met its confidentiality obligations when discussing material weaknesses

all relationships with persons in financial reporting oversight roles are reasonably thought to bear on independence

The independent auditor's public responsibility underlies its ______. (Check all that apply) Multiple select question. allegiance to creditors and shareholders fidelity to the public trust responsibility to the audit firm responsibility to the client certification of public reports

allegiance to creditors and shareholders fidelity to the public trust certification of public reports

Safeguards implemented by the attest client include ______. (Check all that apply) Multiple select question. an active audit committee an ethical tone at the top external review by an audit firm of its quality control system a commitment to fair financial reporting peer review

an active audit committee an ethical tone at the top a commitment to fair financial reporting

Prior to performing any permissible tax service for an audit client, Rule 3524 requires the registered public accounting firm to seek preapproval from the __________________________ committee.

audit

In the KPMG tax shelter scandal, the transactions for wealthy clients were designed solely to _________________ taxes.

avoid

Prior to concluding whether a tax position is appropriate, the CPA should ______. Multiple choice question. become knowledgeable of all the material facts related to the position contact the taxing authority to determine whether it will accept the position ask the client what position it wishes to adopt determine the possible penalties if the position is not accepted by the taxing authority

become knowledgeable of all the material facts related to the position

To appear to be independent, CPAs should avoid circumstances that might lead informed third-party users to conclude ______. Multiple choice question. independence in fact has been compromised integrity, objectivity, or professional skepticism has been compromised financial statements are not accurate and reliable attest services should not be performed

integrity, objectivity, or professional skepticism has been compromised

Safeguards that might eliminate or reduce threats to independence include those ______. (Check all that apply) Multiple select question. created by legislation implemented by the firm created by the profession identified in peer reviews implemented by the attest client created by the facts of a particular situation

created by legislation implemented by the firm created by the profession implemented by the attest client

The conceptual frameworks in the AICPA Revised Code ______. Multiple choice question. incorporate a cost benefit approach outline right and wrong outcomes in given ethical situations incorporate a threats and safeguards approach only apply to accountants in public practice

incorporate a threats and safeguards approach

Circumstances that create doubts about the ability of a CPA to act with integrity, objectivity, or professional skepticism are classified as threats to an auditor's

independence

Discussions with the audit committee undertaken by the audit firm are designed to ensure auditor ______________

independence

If an accountant, with respect to an audit client, is able to exercise objective and impartial judgment on all issues relative to the engagement, the SEC deems the accountant to be _____________

independent

Prior to acceptance of the engagement and throughout the term of the relationship, to identify possible conflicts of interest, the CPA should look at situations that might create threats to compliance with _____ and ___________________

integrity objectivity

The SEC's Operation Broken Gate is ______. (Select all that apply) Multiple select question. a result of auditors auditing their own work a result of auditors maintaining improper business relationships with clients intended to identify insider trading cases intended to hold gatekeepers accountable intended to identify auditors who neglect required auditing standards

intended to hold gatekeepers accountable intended to identify auditors who neglect required auditing standards

The financial frauds in public companies led to the strengthening of ______ controls to help detect these frauds.

internal

The potential danger of any family relationship with an audit client is ______. (Check all that apply) Multiple select question. the family member might be fired by the client it may create the perception that independence may be impaired the CPA may not have knowledge of the relationship the family member may hold a key position with the client

it may create the perception that independence may be impaired the family member may hold a key position with the client

Ethical values as well as one's knowledge of the accounting issues in question influence the professional _______ of accountants.

judgement

The process of reaching a decision or drawing a conclusion where there are a number of possible alternative solutions is referred to as _________

judgement

The process of reaching a decision or drawing a conclusion where there are a number of possible alternative solutions is referred to as __________

judgement

The independence rules apply to close relatives of the CPA who ______. (Check all that apply) Multiple select question. own a financial interest in the client that is material to their net worth and is known by the CPA hold a key position with the client that enables them to exercise significant influence over the client. also qualify as an immediate family member own a financial interest in the client that is material to their net worth

own a financial interest in the client that is material to their net worth and is known by the CPA hold a key position with the client that enables them to exercise significant influence over the client.

A situation may cause the SEC to determine that auditor independence is impaired when the situation ______. (Check all that apply) Multiple select question. creates safeguards to mitigate threats to independence places the accountant in the position of auditing his own work results in the accountant acting as management or an employee of the audit client places the accountant in a position of being an advocate for the client creates a mutual or conflicting interest between the CPA and the audit client prevents the accountant from rendering an opinion on the financial statements

places the accountant in the position of auditing his own work results in the accountant acting as management or an employee of the audit client places the accountant in a position of being an advocate for the client creates a mutual or conflicting interest between the CPA and the audit client

Section 1.000.010 of the AICPA Revised Code applies to members in public practice and ______. (Select all that apply) Multiple choice question. evaluates the CPA's independence related to audit matters outlines the evaluation of a CPA's relationship with a client and the related risk level provides a foundation to evaluate whether safeguards should be developed to prevent a violation of the rules of conduct

provides a foundation to evaluate whether safeguards should be developed to prevent a violation of the rules of conduct

Under Rule 3521 Contingent Fees, independence is considered to be impaired when a registered public accounting firm performs an audit and ______. (Check all that apply) Multiple select question. provides any service or product to the client for a contingent fee performs any nonattest services for the client provides any service or product to the client for a commission develops a plan to accept in the future a referral fee for recommending a service to the client receives from the client a contingent fee or commission

provides any service or product to the client for a contingent fee provides any service or product to the client for a commission receives from the client a contingent fee or commission

With regard to a tax return position, a CPA should should advise a taxpayer of ______. the CPA's ethical obligations when adopting a tax return position relevant tax return disclosure responsibilities recent tax court rulings on similar tax positions penalties imposed by the taxing authority

relevant tax return disclosure responsibilities

PCAOB Rule 3520 covering Auditor Independence ______. Multiple choice question. requires disclosure of individuals in financial reporting oversight roles disallows contingent fees for certain services requires auditors to maintain independence throughout the audit and professional engagement period prohibits aggressive tax positions by CPAs

requires auditors to maintain independence throughout the audit and professional engagement period

According to COSO, a strong internal control environment that strengthens financial reporting ______. Multiple choice question. includes direct and unrestricted access for the external auditors to the internal auditors starts with the tone at the top requires external auditors to be represented on the board of directors requires an audit committee that reports to top management

starts with the tone at the top

Differences of opinion between a CPA and that person's supervisor or others within the organization are addressed by the _________ of __________ interpretation.

subordination judgement

When a CPA knowingly misrepresents facts when performing professional services for a client as a result of pressure from their direct supervisor, (Select all that apply) Multiple select question. the Integrity Rule is violated. subordination of judgment exists. an independence violation exists. a conflict of interest exists.

the Integrity Rule is violated. subordination of judgment exists.

When a CPA firm seeks audit committee preapproval of nonauditing services related to internal control over financial reporting, ______. (Select all that apply) Multiple select question. the accounting firm should disclose the services to the AICPA the accounting firm should describe the scope of the service in writing the substance of discussions between audit committee and issuer should be documented the accounting firm should disclose such services to the SEC the accounting firm should discuss potential effects on independence with the audit committee

the accounting firm should describe the scope of the service in writing the substance of discussions between audit committee and issuer should be documented the accounting firm should discuss potential effects on independence with the audit committee

IFAC Policy Position Paper #4 links the common benefits of serving the public interest through sound financial reporting to ______. Multiple choice question. professional bodies that determine whether the public interest is being served the rules and regulations set by the SEC the application of high standards of ethical behavior and professional judgment the AICPA Code of Professional Conduct

the application of high standards of ethical behavior and professional judgment

As described by the text, IFAC Policy Position Paper #4 links the common benefit of serving the public interest through sound financial reporting to ______. Multiple choice question. professional bodies that determine whether the public interest is being served the utilitarian concept the application of high standards of professional judgment the rules and regulations set by the AICPA

the application of high standards of professional judgment

When a CPA firm requests audit committee preapproval of nonauditing services related to internal control over financial reporting, ______. (Select all that apply) Multiple choice question. the accounting firm must remain independent in fact and appearance the accounting firm should disclose the services to the SEC the auditor should provide written documentation of the scope of the service

the auditor should provide written documentation of the scope of the service

The lasting legacy of COSO is ______. Multiple choice question. the development of Board of Director guidelines related to audits the development of ethical standards for accountants the development of professional skepticism guidelines in accounting the development of an integrated framework for internal control

the development of an integrated framework for internal control

KPMG was criminally prosecuted for its role in a tax shelter scandal during 1996 to 2002, because ______. Multiple choice question. the firm prepared false documents to deceive regulators about the true nature of the tax shelters it created tax shelter investments for wealthy clients the tax shelter transactions broke the law because they involved economic risk the firm failed to document the true nature of the tax shelters

the firm prepared false documents to deceive regulators about the true nature of the tax shelters

Rule 3523 treats a registered public accounting firm as not independent if ______. Multiple choice question. the firm is audited by individuals with no financial interest in the firm there are no familial relationships with the firm and the client the firm provides tax services to members of management who serve in financial reporting oversight roles

the firm provides tax services to members of management who serve in financial reporting oversight roles

Rule 3523 treats a registered public accounting firm as not independent if the firm provides tax services to members of management who serve in financial reporting oversight roles unless ______. (Check all that apply) Multiple choice question. the person is in that role only because she serves as a member of the board of directors the member assumes the role only because of an affiliated entity being audited the client agrees to the services being performed

the person is in that role only because she serves as a member of the board of directors