Professional Responsibilities
Which of the following legal situations would be considered to impair the auditor's independence?
Actual litigation by the auditor against the current management alleging management fraud or deceit
Under the ethical standards of the profession, which of the following investments by a CPA in a corporate client is an indirect financial interest?
An investment held through a regulated mutual fund
Which of the following is a correct statement about the circumstances under which a CPA firm may or may NOT disclose the names of its clients without the client's express permission?
A CPA firm may disclose this information unless disclosure would suggest that the client may be experiencing financial difficulties
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?
Accept the engagement and perform additional research or consult with others to obtain sufficient competence
Under the ethical standards of the profession, which of the following positions would be considered a position of significant influence in an audit client?
A policy-making decision in the client's finance division
Under the AIPCA's conceptual framework for independence, the member-client relationship is evaluated to determine whether independence is fact and appearance is jeopardized. This is considered
A risk-based approach
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
CPA prepared an actuarial report using assumptions not approved by the client
According to the standards of the profession, which of the following activities may be required in exercising due professional care?
Consulting with experts = YES Obtaining specialty accreditation = NO
According to the ethical standards of the profession, a CPA's independence would most likely be impaired if the CPA
Contracted with a client to supervise the client's office personnel
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
Designs an information system for the bank that is unrelated to its accounting records
Which activity performed as nonattest services for a nonpublic attest client impairs a CPA's independence?
Determining which recommendations for improving internal control should be implemented
Which of the following is most helpful to a CPA in deciding whether to accept a new audit client?
Evaluating the CPA's ability to properly service the client
A CPA is permitted to disclose confidential client information without the consent of the client to I. Another CPA firm if the information concerns suspected tax return irregularities II.A state society voluntary peer review board
II. only
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?
the auditor should not make management decisions for a client
Kar, CPA, is a staff auditor participating in the audit engagement of Fort, Inc. Which of the following circumstances most likely impairs Kar's independence?
Kar's sibling is the director of internal auditing for Fort
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 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?
New legislation
According to the profession's ethical standards, which of the following events may justify a departure from an established accounting principle?
New legislation = YES Evolution of a new form of business transaction = YES
Must a CPA in public practice be independent in fact and appearance when providing the following services?
No = Compilation of personal financial statements, preparation of a tax return, and compilation of a financial forecast
An accountant has an immaterial direct financial interest in a nonpublic entity. The accountant is
Not independent and may not perform a review
Which of the following areas of professional responsibility should be observed by a CPA not in public practice?
Objectivity - YES Independence - NO
Which of the following most completely describes how independence has been defined by the accounting profession?
Possessing the ability to act with integrity and objectivity
Which of the following best describes U.S. GAAP?
Principles issued by bodies designated by the council of the AICPA
Which of the following acts by a CPA is a violation of professional standards regarding the confidentiality of client information?
Releasing financial information to a local bank with the approval of the client's mail clerk
Under the ethical standards of the profession, which of the following is a "permitted loan" regardless of the date it was obtained?
Secured automobile loan
Smith, CPA, is a partner of Johnson Accounting Firm. Johnson audited the books of Hometown Bank. Smith's independence would be impaired under which of the following circumstances?
Smith is a director of Hometown Bank
In which of the following circumstances would a CPA who audits XM Corporation lack independence?
The CPA and XM's president each owns 25% of FOB Corporation, a closely held company
According to the AICPA Code of Professional Conduct, in which of the following circumstances may a CPA serve on a board of directors?
The CPA does not audit the company and has no other business connection with the company
The AICPA Code of Professional Conduct requires compliance with accounting principles promulgated by the bodies designated by the AICPA Council to establish such principles. The literature considered officially established accounting principles includes
The FASB Accounting Standards Codification
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?
Using the CPA designation without disclosing employment status in connection with financial statements issued for the external use by the CPA's employer
An auditor's independence is most likely considered impaired if the auditor has
a joint, closely held business investment with the client that is material to the auditor's net worth
Under the ethical standards of the profession, which of the following business relationships would generally not impair an auditor's independence
advisor to a client's board of trustees
During the course of an audit, an auditor required additional research and consultation with others. This addtnl research and consultation is considered to be
an appropriate part of the professional conduct of the engagement
Which of the following situations would not impair objectivity, integrity, or independence with respect to an audit client
an out-of-town client takes the audit engagement team out dinner at a renowned local restaurant
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
credit union of which the CPA is a member
The concept of materiality is least important to an auditor when considering the
effects of a direct financial interest in the client on the CPA's independence
According to the standards of the profession, which of the following circumstances will prevent a CPA performing audit engagements from being independent?
employment of the CPA's spouse as a client's director of internal audit
A violation of the profession's ethical standards most likely would have occurred when a CPA
expressed an unmodified opinion on the current year's financial statements when fees for the prior year's audits were unpaid
A violation of the profession's ethical standards most likely occurred when a CPA in public practice
expressed an unmodified opinion on the year 2 financial statements when fees for the year 1 audit were unpaid
Which of the following acts by a CPA who is in business most likely is a violation of the ethical standards of the profession?
failing to disclose material facts when the employer's external accountant has requested written representations
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 of 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
ii. and iii.
According to the SEC, an auditor is not independent of its issuer audit client in which of the following situations?
the auditor has an investment in an entity that has the ability to exercise significant influence over the audit client
Among other things, the Integrity and Objectivity Rule prohibits knowing, material misrepresentation in the preparation and presentation of financial statements and records. A member of the AICPA violates this element of the rule when he
knowingly makes false and misleading journal entries in the records if some are material
An auditor strives to achieve independence in appearance to
maintain public confidence in the profession
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?
notify an appropriate person in the firm
According to the AICPA Code of Professional Conduct, which of the following actions will impair independence?
participating in the hiring or termination of a client's employees
A CPA most likely does not violate the Code's Integrity and Objectivity Rule if the CPA
performs expert witness services for a nonissuer attest client that is one of many plaintiffs in a class action lawsuit
Which of the following is prohibited by the AICPA Code?
prematurely expressing an opinion based on an audit because of time pressures from the client
The General Standards Rule does not require a member to
provide assurance about prospective financial statements
The Confidential Client Information Rule is violated when a member in public practice
provides client profit and loss percentages to a trade association without the client's consent
According to standards of the profession, which of the following activities most likely does not impair a CPA's independence
providing extensive advisory services for a client
Various situations creates threats to auditor independence. Which type of threat most likely results from an auditor's financial interest in a client
self-interest threat
The appearance of independence of a CPA, or that CPA's firm, is most likely to be impaired if the CPA
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
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 an action
When is the independence of the CPA auditor of a client company's financial statements most likely to be impaired because of involvement in litigation
shareholders of the client bring a class action against the client, its management, and the CPA. The CPA files a cross-claim against management alleging fraud
Which of the following reports may be issued only by an accountant who is independent of a client
standard report on an examination of a financial forecast
A CPA audits the financial statements of a client. The CPA has also been asked to perform bookkeeping functions for the client. Under the AICPA Code of Professional Conduct, which of the following activities would impair the CPA's independence with respect to the client?
the CPA authorizes client transactions and reports them to management
According to the profession's ethical standards, an auditor would be considered independent in which of the following instances?
the auditor's checking account, which is fully insured by a federal agency is held at client financial institution
An accounting firm's independence is most likely to be impaired when
the firm and the client have a material cooperative arrangement
Regarding employment or association with attest clients, the employment of a former partner by a client in a key position most likely impairs firm independence if
the former partner consults with the accounting firm
In which of the following circumstances would a covered member's independence be impaired with respect to a nonissuer client
the member owns a municipal utility bonds issued by a client, and the bonds are not material to the member's wealth
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
the reason the departure does not have a material effect on the statements
The AICPA Code of Prof Conduct states, in part, that a CPA should maintain integrity and objectivity. Objectivity in the Code refers to a CPA's ability
to maintain an impartial attitude on all matters that come under the CPA's review
Compliance as an independent auditor includes all of the following except
warranting the infallibility of the work performed
According to the Integrity and Objectivity Rule, a member of the AICPA
who has a difference of opinion with his or her supervisor about statement preparation has an obligation to act if a material misstatement would otherwise result
