AUD 6: Code of Professional Conduct (AICPA)
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 clients' express permission?
A CPA firm may disclose this information unless disclosure would suggest that the client may be experiencing financial difficulties.
Under the Code of Professional Conduct of the AICPA, which of the following is required to be independent in fact and appearance when discharging professional responsibilities?
A CPA in public practice providing auditing and other attestation services
According to the AICPA Code of Professional Conduct, which of the following activities results in an act discreditable to the profession?
A CPA solicits recent Uniform CPA Examination questions without written authorization from the AICPA.
Which of the following statements is correct regarding the liability of a CPA for services performed?
A CPA's work is not guaranteed to be accurate even though the CPA acted in a reasonably competent and professional manner.
A CPA in public practice may not disclose confidential client information regarding auditing services without the client's consent in response to which of the following situations?
A letter to the client from the IRS
In which of the following situations is there a violation of client confidentiality under the AICPA Code of Professional Conduct?
A member whose practice is primarily bankruptcy discloses a client's name.
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 position in the client's finance division
According to the ethical standards of the profession, which of the following acts is generally prohibited?
Accepting a commission for recommending a product to an audit client
The authoritative body designated to promulgate standards concerning an accountant's association with unaudited financial statements of an entity that is not required to file financial statements with an agency regulating the issuance of the entity's securities is the:
Accounting and Review Services Committee.
According to the profession's standards, which of the following would be considered consulting services?
Advisory, implementation, and product services
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 to dinner at a renowned local restaurant.
Which of the following services may a CPA perform in carrying out a consulting service engagement for a client? I. Review of the client-prepared business plan II. Preparation of information for obtaining financing
Both I and II
According to the profession's ethical standards, which of the following events may justify a departure from a FASB Accounting Standard (FASB ASC)?
Both new legislation and evolution of a new form of business transaction
A company hires one of its board members, a CPA, to issue accounting reports for the company. Assuming that any required disclosures are made, which of the following reports may the CPA issue without violating independence rules?
Compilations
According to the standards of the profession, which of the following activities may be required in exercising due care?
Consulting with experts
A CPA in public practice must be independent in fact and appearance when providing which of the following services? Compilation of personal financial statements B. Preparation of a tax return C. Compilation of a financial forecast D. None of the answer choices are correct.
D. None of the answer choices are correct.
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?
Disclosure of confidential client information to a third-party service provider when the member does not enter into a confidentiality agreement with the provider
In which of the following situations would a CPA's independence be considered to be impaired? I. The CPA maintains a checking account that is fully insured by a government deposit insurance agency at an audit-client financial institution. II. The CPA has a direct financial interest in an audit client, but the interest is maintained in a blind trust. III. The CPA owns a commercial building and leases it to an audit client. The lease qualifies as a capital lease.
II and III
According to the standards of the profession, which of the following would be considered a part of a consulting services agreement? I. Expressing a conclusion about the reliability of a client's financial statements II. Reviewing and commenting on a client-prepared business plan
II only
A CPA is permitted to disclose confidential client information without the consent of the client to: I. another CPA who has purchased the CPA's tax practice. II. another CPA firm if the information concerns suspected tax return irregularities. III. a state CPA society voluntary quality control review board.
III only
Under which of the following circumstances may a CPA charge fees that are contingent upon finding a specific result?
If fixed by courts, other public authorities, or in tax matters if based on the results of judicial proceedings
A CPA who is not in public practice is obligated to follow which of the following rules of conduct?
Integrity and objectivity
Which of the following rules of the AICPA Code of Professional Conduct must be observed even by a member who is not in public practice?
Integrity and objectivity
According to the profession's standards, which of the following is not required of a CPA performing a consulting engagement?
Maintaining independence from the client Consulting is not connected to preparing financial statements, and therefore independence is not required.
According to the standards of the profession, which of the following events would require a CPA performing a consulting services engagement for a nonaudit client to withdraw from the engagement? I. The CPA has a conflict of interest that is disclosed to the client and the client consents to the CPA continuing the engagement. II. The CPA fails to obtain a written understanding from the client concerning the scope of the engagement.
Neither I nor II
According to the AICPA Code of Professional Conduct, which of the following financial interests in the client during the period of the engagement impairs a CPA's independence?
Only direct and material indirect financial interests
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
Able, CPA, was engaged by Wedge Corp. to audit Wedge's financial statements. Wedge intended to use the audit report to obtain a $10 million loan from Care Bank. Able and Wedge's president agreed that Able would give an unmodified opinion on Wedge's financial statements in the audit report even though there were material misstatements in the financial statements. Care refused to make the loan. Wedge then gave the audit report to Ranch to encourage Ranch to purchase $10 million worth of Wedge common stock. Ranch reviewed the audit report and relied on it to purchase the stock. After the purchase, Able's agreement with Wedge's president was revealed. As a result, Wedge stock lost half its value and Ranch sued Able for fraud. What will be the result of Ranch's suit?
Ranch will win because Able intentionally gave an unmodified opinion on Wedge's materially misstated financial statements.
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
According to the AICPA Code of Professional Conduct, under which of the following circumstances may a CPA receive a contingent fee for services?
Representing a client in an IRS examination of the client's federal income tax return
Which of the following actions by a CPA most likely violates the profession's ethical standards?
Retaining client records after the client has demanded their return
According to the Code of Professional Conduct of the AICPA, for which type of service may a CPA receive a contingent fee?
Seeking a private letter ruling
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.
Nile, CPA, on completing an audit, was asked by the client to provide technical assistance in integrating a new IT system. The set of pronouncements designed to guide Nile in this engagement is the Statement(s) on:
Standards for Consulting Services.
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 AICPA Code of Professional Conduct, in which of the following circumstances may a CPA serve on a company's board of directors?
The CPA does not audit the company and has no other business connection with the company.
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.
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 a client financial institution.
In which of the following circumstances would a covered member's independence be impaired with respect to a nonissuer client?
The member owns municipal utility bonds issued by a client, and the bonds are not material to the member's wealth.
Which of the following is a conceptual similarity between generally accepted auditing standards and the attestation standards?
The requirement that the CPA be independent in mental attitude is included in both sets of standards.
Spinner, CPA, had audited Lasco Corp.'s financial statements for the past several years. Prior to the current year's engagement, a disagreement arose that caused Lasco to change auditing firms. Lasco has demanded that Spinner provide Lasco with Spinner's working papers so that Lasco may show them to prospective auditors to help them prepare their bids for Lasco's audit engagement. Spinner refused and Lasco commenced litigation. Under the ethical standards of the profession, will Spinner be successful in refusing to turn over the working papers?
Yes, because Spinner is the owner of the working papers
On June 1, 20X0, a CPA obtained a $100,000 personal loan from a financial institution client for whom the CPA provided compilation services. The loan was fully secured and considered material to the CPA's net worth. The CPA paid the loan in full on December 31, 20X0. On April 3, 20X1, the client asked the CPA to audit the client's financial statements for the year ended December 31, 20X1. Is the CPA considered independent with respect to the audit of the client's December 31, 20X1, financial statements?
Yes, because the CPA was not required to be independent at the time the loan was granted
A CPA purchased stock in a client corporation and placed it in a trust as an educational fund for the CPA's minor child. The trust securities are not material to the CPA's wealth but are material to the child's personal net worth. According to the AICPA Code of Professional Conduct, would this action impair the CPA's independence with the client?
Yes, because the stock would be a direct financial interest and materiality is not a factor
The AICPA's Code of Professional Conduct states that:
a member may follow another country's rules if practicing outside of the United States.
The profession's ethical standards most likely would be considered to have been 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:
actual fee would be substantially higher.
In order for a firm to designate itself as "Members of the AICPA":
all CPA owners must be members of the AICPA.
A pervasive characteristic of a CPA's role in a consulting services engagement is that of being:
an objective advisor.
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.
The concept of materiality would be least important to an auditor when considering the:
effects of a direct financial interest in the client on the CPA's independence.
Under the Statements on Standards for Consulting Services, which of the following statements best reflects a CPA's responsibility when undertaking a consulting services engagement? The CPA must:
inform the client of significant reservations concerning the benefits of the engagement.
As compared to the AICPA Code of Professional Conduct, the ethical and independence rules of the SEC tend to be:
more restrictive.
Which of the following areas of professional responsibility should be observed by a CPA not in public practice?
objectivity
The AICPA's Code of Professional Conduct permits CPA firms to organize as:
proprietorships, general partnerships, general corporations, professional corporations, limited liability companies, and limited liability partnerships if permitted by state law.
A member of a group engagement team will not be subject to discipline if a foreign component auditor departed from the ethics requirement as long as:
the foreign component auditor is in accord with the ethics and independence requirements set forth in the IESBA's Code of Ethics for Professional Accountants.
