CH 19 Audit

In which one of the following situations would a CPA be in violation of the AICPA Code of Professional Conduct in determining a fee?

A fee based on whether the CPA's report on the client's financial statements results in the approval of a bank loan.

In which of the following circumstances would a CPA be bound by ethics to refrain from disclosing any confidential information obtained during the course of a professional engagement?

A major stockholder of a client company seeks accounting information from the CPA after management declined to disclose the requested information.

Which of the following is allowable for a CPA?

A. A used car loan from a banking client where the client has a lien on the car.

Under which of the following circumstances would the independence of a CPA be considered impaired if the CPA, who also is an attorney, serves as auditor and provides legal services to the same client?

A. When the CPA, as legal agent, consummates a business acquisition for the client.

The SEC has issued independence rules that differ from the AICPA's in all of the following areas except:

A. Working paper documentation.

A CPA firm's personnel partner periodically studies the CPA firm's personnel advancement experience to ascertain whether the individuals who were assigned increased degrees of responsibility met predetermined criteria. This is evidence of the CPA firm's adherence to prescribed standards of

A. quality control.

A violation of the profession's ethical standards would least 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.

Following the issuance of a PCAOB draft report, how many days does the CPA firm have to respond to accusations?

B. 30 days.

Which of the following is not an element of quality control as defined by Statement of Quality Control Standards No. 8?

B. Independence.

What is the primary purpose of the acceptance and continuance of client relationships and specific engagements element of quality control?

B. Provide reasonable assurance that firms do not associate with clients whose management lacks integrity.

The quality control standards are concerned primarily with

B. a firm's monitoring of its practice.

A basic objective of a CPA firm is to provide professional services that conform to professional standards. Reasonable assurance of achieving this basic objective is provided through

B. a system of quality control.

A CPA's license to practice will ordinarily be suspended or revoked automatically for

B. conviction of willful failure to file personal income tax return.

An auditor is about to commence a recurring annual audit engagement. The continuing auditor's independence would ordinarily be considered to be impaired if the prior year's audit fee

B. has not been paid and will not be paid for at least twelve months.

A CPA firm would be reasonably assured of meeting its overall responsibility to provide services that conform with professional standards by

B. implementing an appropriate system of quality control.

With respect to ethics, the justice-based approach

B. is primarily concerned with equity and impartiality.

According to the ethical standards of the profession, which of the following acts is generally prohibited?

C. Accepting a commission for recommending a product to an audit client.

Which of the following is required for a firm to designate itself as a "Member of the American Institute of Certified Public Accountants" on its letterhead?

C. All partners must be members.

Which of the following is an element of a CPA firm's quality control system that should be considered in establishing its quality control policies and procedures?

C. Assigning personnel to engagements.

The profession's ethical standards would most likely be considered to have been violated when the 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

C. actual fee would be substantially higher.

A CPA's failure to file a tax return is

C. considered discreditable to the profession.

In order to achieve effective quality control, a firm of independent auditors should establish policies and procedures for

C. deciding whether to accept or continue a client.

Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide personnel within the firm with

C. knowledge required to fulfill assigned responsibilities.

The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to

C. minimize the likelihood of association with clients whose management lacks integrity.

In which of the following instances would the independence of the CPA not be considered to be impaired? The CPA has been retained as the auditor of a

C. restaurant where the CPA dines frequently.

With respect to ethics, the rights-based approach

C. suggests that an individual's actions should not violate the rights of any individual.

Which of the following bodies ordinarily would have the authority to suspend or revoke a CPA's license to practice public accounting?

D. A state board of accountancy.

In determining estimates of fees, an auditor may take into account each of the following, except the:

D. Attainment of specific findings.

A CPA firm evaluates its personnel advancement experience to ascertain whether individuals assigned to increased degrees of responsibility meet predetermined criteria. This policy is evidence of the firm's adherence to which of the following prescribed standards?

D. Quality control.

When auditing a public company, which of the following impairs an auditor's independence?

D. The auditor has been a partner on the engagement for ten years.

A CPA, while performing an audit, strives to achieve independence in appearance in order to

D. maintain public confidence in the profession.

For private companies, accounting firms are prohibited from providing

D. none of these.

With respect to ethics, the utilitarian theory

D. recognizes that decisions involve trade-offs between costs and benefits.

In connection with a lawsuit, a third party attempts to gain access to the auditor's working papers. The client's defense of privileged communication will be successful only to the extent it is protected by the

D. state law.

Which of the following statements best describes why the profession of certified public accountants has deemed it essential to promulgate a code of conduct and to establish a mechanism for enforcing observance of the code?

Ethical standards are established so that users of accounting services know what to expect, the professionals know what behaviors are acceptable, and overseers can take disciplinary action when appropriate

What is meant by the Code of Professional Conduct's definition of "holding out"?

Informing a client about one's status as a CPA.

Which of the following is not a Principle of Professional Conduct as defined by the Code of Professional Conduct?

Reporting.

According to the ethical standards of the profession, which of the following acts is generally prohibited?

Retaining client records after an engagement is terminated prior to completion and the client has demanded its return.

In which of the following circumstances would a CPA who audits XM Corporation lack independence?

The CPA and XM's president each owns 25 percent of FOB Corporation, a closely-held company.

According to the profession's ethical standards, a CPA would be considered independent in which of the following instances?

The CPA belongs to a country club client in which membership requires an annual fee

In auditing a privately held entity, an auditor must follow the professional standards established by all of the following except:

The PCAOB.

According to the Code of Professional Conduct, which of the following individuals is not in a position to influence an attest engagement (i.e., not a covered member)?

The partner (or partner equivalent) in another office in a nearby city who regularly plays golf with the engagement partner (or partner equivalent).

Mavis, CPA, has audited the financial statements of South Bay Sales Incorporated for several years and had always been paid promptly for services rendered. Last year's audit invoices have not been paid because South Bay is experiencing cash flow difficulties and the current year's audit is scheduled to commence in one week. With respect to the past due audit fees, Mavis should

inform South Bay's management that the past due audit fees are considered an impairment of auditor independence.

A violation of the profession's ethical standards would most likely have occurred when a CPA

issued an unqualified opinion on the 2011 financial statements when fees for the 2010 audit were unpaid.

In performing an audit, Jackson, CPA, discovers that the professional competence necessary for the engagement is lacking. Jackson informs management of the situation and recommends another local CPA firm and management engages this other firm. Under these circumstances

jackson may request compensation from the other CPA firm for any professional services rendered to it in connection with the engagement.

A violation of the profession's ethical standards would most likely occur when a CPA who

refused to hire a new employee does so because the CPA deemed the candidate to be "too old."

In which of the following instances would the independence of the CPA not be considered to be impaired? The CPA has been retained as the auditor of a brokerage firm

which owes the CPA audit fees for current year services and has just filed a petition for bankruptcy.