ACC 4110 Ch 19 - Professional Conduct, Independence, and Quality Control
For CPAs who are neither functioning as auditors or working in business, only Part(s) ______ of the AICPA Code of Professional Conduct is applicable. Parts 2 and 3 3 Parts 1 and 3 1 2
3
A private, nongovernmental association which only has the authority to require its members to comply with the Code of Professional Conduct as a condition of continued membership is the ______. FASB SEC IRS AICPA
AICPA
Reasonable assurance that the firm and its personnel comply with professional, legal and regulatory requirements should be provided by the design of the firm's system of Blank 1 of 2 Blank 2 of 2. (Enter only one word per blank.)
Blank 1: quality Blank 2: control
Under the AICPA's PRP, CPA firms that perform audits or similar engagements undergo Blank 1 of 1 reviews. (Enter only one word per blank.)
Blank 1: system
Unless required by state or federal statutes or regulations or contractual agreements, the CPA's Blank 1 of 2 Blank 2 of 2 are the property of the CPA and need not be provided to the entity. (Enter only one word per blank.)
Blank 1: working Blank 2: papers
Auditors of publicly held companies must follow the ______. Code of Professional Conduct Auditing Standards Board PCAOB SEC professional conduct requirements
Code of Professional Conduct PCAOB SEC professional conduct requirements
True or false: A firm's system of quality control should not consider the organization of the practice. True False
False
True or false: The Accounting Principles Rule only applies to AICPA member auditors who are representing that financial statements are presented in conformity with GAAP. True False
False
True or false: The Compliance with Standards Rule only requires members of the AICPA to comply with professional standards when they are practicing in public accounting. True False
False
Question Mode True or False Question True or false: Unpaid audit fees pertaining to services provided more than one year prior to the date of the audit report that relate to an audited entity that is in bankruptcy impairs the auditor's independence. True False
False Reason: Independence is impaired if the entity is not in bankruptcy.
True or false: Safeguards to identified threats to a CPA's integrity and objectivity should be independent of the specific circumstances. True False
False Reason: Safeguards to identified threats to a CPA's integrity and objectivity will be highly dependent on the specific circumstances.
True or false: AICPA professional standards require a public accounting firm and all of the accounting firm's partners, professional and administrative employees to be independent whenever the firm performs an attest service.
False Reason: The firm, partners and professional employees must be independent.
True or false: A CPA has a close family member who owns a computer repair business. Recommending the repair business to a client is not a conflict of interest as long as the CPA is not an owner in the repair business.
False Reason: The relationship could be viewed as impairing the CPA's objectivity and is a conflict of interest.
Which of the following bodies are authorized by the AICPA Council to establish accounting principles? Public Company Accounting Oversight Board (PCAOB) Governmental Accounting Standards Board (GASB) Federal Accounting Standards Advisory Board (FASAB) Financial Accounting Standards Board (FASB)
Governmental Accounting Standards Board (GASB) Federal Accounting Standards Advisory Board (FASAB) Financial Accounting Standards Board (FASB)
Which of the following statements are correct regarding litigation by entity security holders or other third parties? Such lawsuits do not generally alter the fundamental relationship between the entity and the auditor. Lawsuits from such parties always impair auditor independence regarding the entity. If management intends to testify against the CPA, the CPA should disclaim an opinion on the audit. Lawsuits from such parties never impair auditor independence regarding the entity.
Such lawsuits do not generally alter the fundamental relationship between the entity and the auditor. If management intends to testify against the CPA, the CPA should disclaim an opinion on the audit.
Question Mode Multiple Choice Question The framework for the Rules of Conduct is provided by The ______. Parts 1 - 3 of the Code of Professional Conduct Interpretations of Rules of Conduct Preface to the Code of Professional Conduct Principles of Professional Conduct
Principles of Professional Conduct
Which of the following is specifically enforceable? Interpretations of Rules of Conduct only Both the Rules of Conduct and the Interpretations of Rules of Conduct Rules of Conduct only
Rules of Conduct only
Members are prohibited from expressing an opinion that financial statements are presented in conformity with GAAP when departures from GAAP exist under the ______ rule. compliance with standards confidential client information accounting principles general standards
accounting principles
A CPA is permitted to seek employment as a(n) ______ faculty member of an educational institution that is an audited entity of the CPA's firm as long as the CPA does not hold a key position or participate on the attest engagement team. adjunct or tenured tenured adjunct
adjunct
An indirect financial interest arises when ______. a covered member has a financial interest in an entity that is associated with an attest entity the auditor does not control or supervise the intermediary the amount involved is material to the auditor, but not the entity being audited the financial interest is beneficially owned through an estate
a covered member has a financial interest in an entity that is associated with an attest entity the auditor does not control or supervise the intermediary the financial interest is beneficially owned through an estate
Commissions or referral fees are prohibited if a member in public practice also performs ______ for that client. internal audit outsourcing services a review of financial statements preparation of an original tax return an audit of financial statements
a review of financial statements an audit of financial statements
A CPA is required to avoid relationships that would impair his or her objectivity under the principle of Blank 1 of 1. (Enter only one word per blank.)
independence
A CPA who is honest and candid and honors both the form and the spirit of ethical standards is said to have ______. integrity independence objectivity due care
integrity
The bedrock of the profession of public accountancy are ______. responsibility and education independence and due care integrity and objectivity
integrity and objectivity
The first section in Part 1 of the AICPA Code of Profession Conduct includes the Code's ______ rule. family relationships financial relationships integrity and objectivity independence
integrity and objectivity
Question Mode Multiple Choice Question According to the rights-based theory, when an auditor has a disagreement with management over an accounting or reporting issue, the auditor should emphasize the ______. interests of management auditors rights greatest good for the greatest number of people interests of the investors and creditors
interests of the investors and creditors
Nonaudit services that are considered by the SEC to impair independence if provided to a public company audit entity include ______. investment broker services other attest and compilation services contribution in kind reports expert services financial information system design
investment broker services contribution in kind reports expert services financial information system design
According to the PCAOB, the provision of tax services impairs an auditor's independence to an entity when the tax service ______. is provided to employees who work for the entity in a non-management role involves aggression interpretation of applicable tax laws is provided to immediate family members of management who serve in financial reporting oversight roles at the entity
involves aggression interpretation of applicable tax laws is provided to immediate family members of management who serve in financial reporting oversight roles at the entity
A CPA who is an accounting instructor ______ subject to the Integrity and Objectivity Rule. is not is
is Reason: Educations services are considered to be professional services and thus subject to the rule.
Ethics ______. is a system of monitoring and inspecting to ensure quality is a code of conduct based on moral duties and obligations that indicate how an individual should interact with others means valuing self-interest above recognizing and respecting the interests of others underpins the successful functioning of nearly every aspect of society
is a code of conduct based on moral duties and obligations that indicate how an individual should interact with others underpins the successful functioning of nearly every aspect of society
The audit committee of a public company ______. is responsible for auditor compensation is ultimately responsible for the company's financial statements must be independent of management serves as a point of contact for the auditor
is responsible for auditor compensation must be independent of management serves as a point of contact for the auditor
Equity, fairness, and impartiality are central to the ______. utilitarian theory professionalism-based theory rights-based approach justice-based approach
justice-based approach
Nonaudit services that are considered by the SEC to impair independence if provided to a public company audit entity include ______. tax services legal services actuarial services bookkeeping
legal services actuarial services bookkeeping
The requirement that audit and other fees be disclosed in proxy statements and annual reports issued by public companies is to ______. establish that management is ultimately responsible for the financial statements and that the audit committee is responsible for hiring auditors make companies more sensitive to public perceptions of independence and objectivity make the audit process more competitive by allowing other audit firms to understand the nature of fees and services
make companies more sensitive to public perceptions of independence and objectivity
Ultimate responsibility for the financial statements rests with the ______. audit committee management PCAOB SEC auditor
management
Litigation by entity security holders or other third parties ______ impair the auditor's independence. may will will not
may
Elements of quality control identified by SQCS No. 8 include ______. peer review monitoring tone at the top independence
monitoring tone at the top
The first two principles of the Code of Professional Conduct address a CPA's responsibility to exercise ______. moral judgment due professional care professional judgment objectivity and independence
moral judgment professional judgment
Auditors must be willing to see issues through the eyes of others and put the interest of other stakeholders ahead of their own self-interest and those of the CPA firm according to the concept known as the ______. utilitarian perspective professionalism perspective justice-based approach moral point of view
moral point of view
A CPA firm's firm-specific independence rules are typically ______ the AICPA's standards. equally stringent to more stringent than less stringent than
more stringent than
Question Mode Multiple Choice Question Unpaid audit fees pertaining to services provided ______ will impair the auditor's independence. to an audited entity that is now in bankruptcy more than one year prior to the date of the financial statements more than one year prior to the date of the audit report
more than one year prior to the date of the audit report
To perform an audit of an entity's financial statements a CPA ______ be independent. cannot should must need not
must
According to the Code of Professional Conduct, members employed in industry ______. must be practical and objective when accepting gifts or entertainment must be candid and not knowingly misrepresent facts to the external accountants should communicate concerns about materially misstated financial statements to the SEC
must be candid and not knowingly misrepresent facts to the external accountants
An individual on the attest engagement team ______. must provide at least 10 hours of attest services within any fiscal year must be independent is considered a covered member must be located in the lead attest engagement partner's office before the independence rule applies
must be independent is considered a covered member
A CPA who works for a company as its controller or CFO, but not as an auditor ______. must be objective must be independent must comply with Part 2 of the AIPCA Code of Professional Conduct must comply with Part 1 of the AIPCA Code of Professional Conduct
must be objective must comply with Part 2 of the AIPCA Code of Professional Conduct
According to the Code of Professional Conduct, members employed in industry ______. should consider a substantial business interest in the company's software provider to ensure continuity of service should communicate concerns about materially misstated financial statements to the FASB must take steps to ensure that a disagreement with his or her supervisor does not result in subordination of judgm
must take steps to ensure that a disagreement with his or her supervisor does not result in subordination of judgment
When it comes to methods or theories of ethical behavior that the guide the analysis of ethical issues in accounting, ______. there is little, if any, overlap between the theories no single approach is necessarily better than another it is important to focus on the one best method to solve a specific ethical dilemma
no single approach is necessarily better than another
The Code permits CPAs to provide bookkeeping and other services to ______ attest entities. nonpublic both public and nonpublic public
nonpublic
The SEC's rules with respect to services provided by auditors are based on the principles that an auditor should ______. serve in an advocacy role for the entity not audit his or her work have no conflicting interest with an audit client not function in the role of management
not audit his or her work have no conflicting interest with an audit client not function in the role of management
The SEC stipulates that an accounting firm is not independent if a individual who served as lead on an audit engagement takes a financial oversight role at the company within the ____ - year period preceding the commencement of audit procedures for the year that included employment by the issuer of the former member of the audit engagement team. one three five two
one
A covered member's spouse is employed by an audited entity. Based on this, the covered member's independence is ______. not impaired as long as the spouse is employed in a key position never impaired always impaired only impaired if the spouse is employed in a key position
only impaired if the spouse is employed in a key position
Professional competence as defined in the General Standards Rule states that a member should ______. exercise due professional care in the performance of professional services obtain sufficient data to afford a reasonable basis for conclusions or recommendations in relation to professional services performed adequately plan and supervise the performance of professional services only undertake those professional services for which he or she has technical knowledge and skill
only undertake those professional services for which he or she has technical knowledge and skill
When a CPA lacks independence with an entity and is asked to perform a financial statement compilation, the CPA may ______. perform the compilation but must indicate the lack of independence in the report not perform the compilation only perform the compilation if done with another CPA who is independent perform the compilation but must not indicate the lack of independence in the report
perform the compilation but must indicate the lack of independence in the report
A former employee of an attest entity can become a member of the attest engagement team when the ______. period of the attest engagement does not cover any period of his or her employment with the audited entity employee remains associated with the entity through managerial or financial relationships only period of the attest engagement coincides with the period of his or her employment with the audited entity
period of the attest engagement does not cover any period of his or her employment with the audited entity
A CPA may serve as a director or trustee for an audited not-for-profit entity as long as the ______. compensation is appropriate for the position position is clearly honorary CPA does not participate in a managerial role CPA participates in board functions
position is clearly honorary CPA does not participate in a managerial role
A CPA seeking employment with an educational institution that is an audited entity of his or her CPA firm will not impair independence as long as the: position is full-time the CPA is not the partner on the engagement position is nontenured CPA does not set policies for the educational institution
position is nontenured CPA does not set policies for the educational institution
Proxy statements and annual reports issued by public companies must contain disclosures regarding ______. preapproval policies of the company's audit committee all alternative treatments within GAAP for polices related to material items discussed with management material written communication between the auditor and the company's management audit fees tax fees
preapproval policies of the company's audit committee audit fees tax fees
The Code of Professional Conduct places responsibility for ethical behavior squarely on the ______. CPA firm AICPA professional client entity
professional
Part 1 of the Code of Professional Conduct has the most stringent rules because it applies to CPAs who ______. work in the private sector audit nonprofit entities make financial and investing decisions provide assurance to the broader public
provide assurance to the broader public
Independence is not required in order for a CPA to ______. perform financial statement reviews perform financial statement audits provide financial planning prepare taxes perform a financial statement compilation
provide financial planning prepare taxes perform a financial statement compilation
If audit fees are unpaid ______. supporting documents prepared by the CPA must be provided to the entity the auditor is under no obligation to provide any documents or records to the entity the CPA must give the entity a copy of the working papers, if requested the auditor must return entity records provided by the entity that are in his or her control
the auditor must return entity records provided by the entity that are in his or her control
An auditor's independence is impaired when ______. the auditor performs a managerial role for the entity during the period covered by the audit the auditor owns $1,000 stock in a broadly diversified mutual fund that owns the stock of the audit entity a CPA takes a job with another accounting firm during the audit engagement the auditor has a loan from the entity that was made in accordance with normal lending procedures, terms and
the auditor performs a managerial role for the entity during the period covered by the audit
Threats to a CPA's independence include ______. undue influence self-review implicit impairment mitigated participation
undue influence self-review
Professions establish rules that define ethical behavior so that ______. members of the government know when someone is unprofessional lawsuits can succeed against a professional users of the professional services know what to expect when they purchase services members of the profession know what's acceptable
users of the professional services know what to expect when they purchase services members of the profession know what's acceptable
When a CPA performs his or her duties with competence and diligence, the CPA is said to be ______. using due care impartial objective independent
using due care
Theories or methods of ethical behavior that can guide the analysis of ethical issues in accounting are the ______ approaches. authority-based utilitarian rights-based professionalism-based justice-based
utilitarian rights-based justice-based
The value of an action is determined solely by the consequences of the action on the welfare of individuals under the ______ approach. justice-based approach professionalism-based theory rights-based utilitarian theory
utilitarian theory
Members of the AICPA must comply with professional standards _____ engaged in the practice of public accounting. only when they are whether or not
whether or not
The commencement of litigation by the CPA against the present management alleging management fraud or deceit _____ be considered to impair independence. may or may not would not would
would
If an entity is unable or unwilling to oversee nonattest services provided by the CPA auditor, ______. providing these services impairs the CPA's independence with respect to attest services provided to the entity the CPA should assume all management responsibilities regarding the nonattest services but not discuss the services in the audit report the CPA should oversee and evaluate the nonattest services and include a paragraph regarding the services in the audit report
providing these services impairs the CPA's independence with respect to attest services provided to the entity
Part 1 of the AICPA Code of Professional Conduct applies to all ______. public practice CPAs professionals who work in the accounting field accountants both public and private practice CPAs
public practice CPAs
The professional conduct requirements established by the SEC and PCAOB must be followed when auditing ______. both publicly and privately held companies publicly held companies only privately held companies only
publicly held companies only
PCAOB inspections of registered firms focus on selected ______. quarterly review engagements tax engagements consulting engagements audit engagements
quarterly review engagements audit engagements
If a member of the attest engagement team ______ with an attest entity, independence may be impaired with respect to the entity. takes out a car loan that is backed by the car receives a job offer discusses potential employment removes himself or herself from the engagement
receives a job offer discusses potential employment
The utilitarian theory ______. recognizes decision making involves trade-offs between benefits and burdens of actions focuses on the consequences of an action on the individuals affected assumes that individuals have rights and other individuals have a duty to respect those rights proposes the interests of all parties should be considered
recognizes decision making involves trade-offs between benefits and burdens of actions focuses on the consequences of an action on the individuals affected proposes the interests of all parties should be considered
Covered member's immediate family subject to the Independence Rule include ______. related dependent nondependent child sibling unrelated dependent spouse parent
related dependent unrelated dependent spouse
The Code of Professional Conduct's Independence Rule ______. relates to all services provided by registered members requires a CPA to be independent of both the AICPA and the PCAOB relates only to attestation-related services
relates only to attestation-related services
The Acts Discreditable Rule allows the AICPA to ______ a member for committing acts that may affect the profession's reputation. arrest sue remove fine
remove
Complying with the AICPA Code of Professional Conduct is ______. required by most state-level boards of accountancy required by courts at the state and federal levels a condition of membership in the AICPA not required for CPAs who are not members of the AICPA required by the FASB
required by most state-level boards of accountancy required by courts at the state and federal levels a condition of membership in the AICPA
Part 1 of the AICPA Code of Professional Conduct ______ applies to CPAs who are not working as auditors requires independence applies to governmental auditors
requires independence applies to governmental auditors
Procedures for monitoring a firm's quality control include ______. review of monitoring procedures discussions with the audit client's personnel Reason: Discussion with the firm's personnel. review of engagement documentation appropriate record reviews
review of monitoring procedures review of engagement documentation appropriate record reviews
Procedures for monitoring a firm's quality control include ______. review of summarized reports on the findings of monitoring procedures communication of findings to the AICPA discussions with the firm's personnel determination of any corrective actions to be taken
review of summarized reports on the findings of monitoring procedures discussions with the firm's personnel determination of any corrective actions to be taken
Because of their public-interest responsibility the ______ approach is important to auditors. justice-based professional-based theory utilitarian theory rights-based
rights-based
A member in public practice who is not prohibited from receiving a commission ______ disclose the fee or commission to the person or entity to whom the CPA recommends or refers a product or service to which the commission relates. may or may not shall not shall
shall
Match each of the following threats to a CPA's integrity and objectivity with its description. Drag and drop application. adverse interest threat adverse interest threat drop zone empty. self-interest threat self-interest threat drop zone empty. advocacy threat
adverse interest threat CPA's interest runs contrary to the client's self-interest threat CPA forced to choose between actions that further the CPA's interest and actions that serve the investing public's interest advocacy threat CPA is inclined to advocate for the client's preferred outcome
The Preface of the Code of Professional Conduct ______. requires independence, integrity and objectivity applies to all CPAs sets out specific mandatory rules of conduct defines ideal principles of professional conduct
applies to all CPAs defines ideal principles of professional conduct
Under SEC rules, accounting firms ______ allowed to provide certain types of tax-related services to their audit entities. are are not
are
Those who are bound by the independence requirements of the AICPA's engagement team approach ______. include the audited entity's employee benefits plans are considered covered members must provide at least 10 hours of attest services to the attest client within any fiscal year
are considered covered members
Part 3 of the AICPA Code of Professional Conduct applies to CPA who work ______. as auditors for private companies as accounting instructors in business but not as auditors as governmental auditors
as accounting instructors
If a member of the attest engagement team discusses potential employment or receives a job offer with an attest entity, independence may be impaired with respect to the entity unless the ______. auditor keeps the job offer discussions confidential between the auditor and the entity auditor removes himself or herself from the engagement offer is accepted under normal employment conditions auditor continues with the engagement until employment offer is accepted or rejected
auditor removes himself or herself from the engagement
Integrity requires that a CPA ______. focuses on serving the public be free of conflicts be candid be honest honor both the form and spirit of ethical standards
be candid be honest honor both the form and spirit of ethical standards
A professional staff member of the CPA firm must be independent of the attest entity if he or she ______. becomes a partner in the same office where the attest engagement's lead partner works performs work directly for the entity provides nonattest services such as tax services to the audited entity is in a position to influence the engagement
becomes a partner in the same office where the attest engagement's lead partner works performs work directly for the entity is in a position to influence the engagement
Membership in the AICPA can be terminated without a hearing if the member has ______. been convicted of certain criminal offenses had his or her CPA certificate suspended or revoked by a government agency violated the Code of Professional Conduct
been convicted of certain criminal offenses had his or her CPA certificate suspended or revoked by a government agency
Permissible loans for a CPA to obtain from a financial institution which he or she audits include a(n) ______. credit card with an outstanding balance of $25,000 or less unsecured personal loan car loan collateralized by the car loans secured against the cash surrender value of a life insurance policy
car loan collateralized by the car loans secured against the cash surrender value of a life insurance policy
The SEC rules do not limit ______. the scope of nonaudit services provided to public companies certain tax services provided to audit entities the scope of nonaudit services provided to public companies that are not audit entities the scope of nonaudit services provided to nonpublic companies
certain tax services provided to audit entities the scope of nonaudit services provided to public companies that are not audit entities the scope of nonaudit services provided to nonpublic companies
A member in public practice ______. may prepare both amended and original tax returns for a contingent fee shall not prepare an original or amended tax return for a contingent fee may prepare an amended tax return for a contingent fee, but not an original tax return may claim a tax refund for a client on contingent fee basis
shall not prepare an original or amended tax return for a contingent fee
A fee if not considered a contingent fee if it is ______. determined by judicial proceedings. based on the complexity of the audit dependent on the finding or result attained as a result of the CPA's work
determined by judicial proceedings. based on the complexity of the audit
A financial interest that is beneficially owned through an intermediary is considered a(n) ______ financial interest when the beneficiary either controls the intermediary or has the authority to supervise or participate in the intermediary's investment decisions. material indirect direct beneficial indirect immaterial indirect
direct
A financial interest that is under the control of an individual or entity is considered a(n) ______ financial interest. immaterial indirect material indirect direct beneficial indirect
direct
With regard to an a covered member, the underlying investments in a blind trust are considered a(n) ______ financial interest. direct immaterial indirect material indirect
direct
Prohibited relationships with an audited client include ______ financial interests. direct immaterial indirect material indirect immaterial direct material
direct immaterial indirect material direct material
When performing nonattest services for an attest entity, having the CPA supervise the entity's employees in the performance of their normal recurring activities ______ impair the CPA's independence. does not does may or may not
does
According to the Confidential Client information rule the auditor _____ the entity's consent to disclose confidential information to meet disclosure and performance requirements under GAAP. should get does not need must have
does not need
Professions establish rules that define ethical behavior ______. to ensure that all professionals act based on moral duties and obligations so the profession can use the rules to apply discipline when members violate the rules or codes of conduct so the profession can use the rules to monitor the action of its members so that members of the profession know what behavior is acceptable
so the profession can use the rules to apply discipline when members violate the rules or codes of conduct so the profession can use the rules to monitor the action of its members so that members of the profession know what behavior is acceptable
A firm's independence will likely not be impaired with respect to an entity if a partner or professional employee leaves the firm and is subsequently employed by the entity if the ______. engagement team exercises sufficient professional skepticism former employee is able to influence members of the engagement team former employee is not in a key position
engagement team exercises sufficient professional skepticism former employee is not in a key position
An auditor has the burden of justifying departures from ______. both the Rules of Conduct and the Interpretations of Rules of Conduct the Principles of Professional Conduct only the Interpretations of Rules of Conduct only
the Interpretations of Rules of Conduct only
In performing nonattest services for an attest entity, a CPA should ______. ensure that the entity assumes all management responsibilities oversee and evaluate the adequacy and results of the nonattest services performed ensure that the services are billed and paid for prior to issuance of the audit opinion assume responsibility for making significant judgments and decisions
ensure that the entity assumes all management responsibilities
The PCAOB independence rules state that auditor independence is impaired when the auditor ______. prepares tax returns for employees of the entity enters into contingent fee arrangements with the entity prepares tax returns for the entity
enters into contingent fee arrangements with the entity
A CPA is performing nonattest services for an attest entity. Activities considered to impair the CPA's independence include ______. providing bookkeeping services establishing internal controls performing internal audit outsourcing
establishing internal controls
The successful functioning of nearly every aspect of society, from law to medicine, family life to government is underpinned by ______. regulation professionalism ethics quality control
ethics
If a threat to independence exists, a CPA must ______. withdraw from the engagement evaluate the threat and determine if it can be mitigated or eliminated notify the client entity that he or she is not independent
evaluate the threat and determine if it can be mitigated or eliminated
Discreditable acts under the Acts Discreditable Rule include ______. performing services for contingent fees employing non CPAs in a CPA firm failure to comply with records requests solicitation of CPA Examination questions and answers failure to file a tax return
failure to comply with records requests solicitation of CPA Examination questions and answers failure to file a tax return
When a CPA has such a close, long-standing relationship with a client that it has become difficult to maintain objectivity it is called a(n) ______ threat. advocacy familiarity self-interest undue influence
familiarity
AICPA standards require independence when attest work is performed including ______. financial statement reviews tax preparation services consulting services financial statement audits
financial statement reviews financial statement audits
If a PCAOB inspection finds violations that do not involve fraud, the ______. PCOAB publicly reveals the violations firm has a 12-month period to take corrective action firm is banned form performing PCAOB audits for a 2-year time period
firm has a 12-month period to take corrective action
To ensure compliance with independence standards CPA firms use ______. firm-specific rules Part 3 of the AICPA Code of Professional Conduct litigation quality control systems
firm-specific rules quality control systems
A conflict of interest may occur if a CPA ______. fails to disclose material facts to his or her employer's external accountants has a financial interest in a product he or she is recommending disagrees with his or her supervisor about recording a transaction
has a financial interest in a product he or she is recommending
The lead partner on an engagement team for a public company audit ______. has a five-year "time out" after rolling off the engagement of an entity is prohibited from providing audit services to a particular entity for more than seven consecutive years is prohibited from resuming their former duties with the entity once he or she "rolls off" the engagement
has a five-year "time out" after rolling off the engagement of an entity
Safeguards to threats to a CPA's integrity and objectivity include ______. hotlines on ethical matters meetings with the audit partner and company CEO Involvement of an otherwise uninvolved third party additional training
hotlines on ethical matters Involvement of an otherwise uninvolved third party additional training
Elements of quality control identified by SQCS No. 8 include ______. human resources monitoring engagement performance objectivity
human resources monitoring engagement performance
The principle of objectivity requires the CPA to be ______. independent in fact impartial independent in appearance free of conflicts of interest
impartial free of conflicts of interest
The Advertising and Other Forms of Solicitation Rule prohibits members in public practice from ______. using advertising or solicitation to attract clients implying an ability to influence a court or regulatory agency creating false expectations of favorable results
implying an ability to influence a court or regulatory agency creating false expectations of favorable results
Which of the following entity's standards of professional conduct are the least stringent? SEC AICPA PCAOB
AICPA
The Advertising and Other Forms of Solicitation Rule prohibits members in public practice from advertising in a manner that is Blank 1 of 3, Blank 2 of 3, or Blank 3 of 3. (Enter only one word per blank.)
Blank 1: false or untrue Blank 2: misleading Blank 3: deceptive or deceiving
A(n) ownership interest in an equity or a debt security issued by an entity is the definition of a(n) Blank 1 of 1 interest. (Enter only one word per blank.)
Blank 1: financial
If a CPA performs a managerial role for an entity's organization during the period covered by an attest engagement, the CPA's Blank 1 of 1 is impaired. (Enter only one word per blank.)
Blank 1: independence
If a CPA works both as an auditor and in another business capacity, which of the following statements is true regarding the AIPCA's Code of Professional Conduct? Part 2 applies to this CPA, but Part 1 does not. The Code does not apply to this CPA. Both Parts 1 and 2 apply to this CPA. Part 1 applies to this CPA, but Part 2 does not.
Both Parts 1 and 2 apply to this CPA.
True or false: Under the engagement team approach, all professional staff members of the CPA firm must be independent of an attest entity, whether or not the CPA performs work directly for the entity.
False Reason: This would only be true if the CPA became a partner in the office.
The SEC and PCAOB rules requires that all audit and nonaudit services provided by a public company's auditor be approved by the company's Blank 1 of 2 Blank 2 of 2. (Enter only one word per blank.)
Blank 1: audit Blank 2: committee
The SEC and PCAOB rules requires that a public company's audit committee approve all Blank 1 of 2 and Blank 2 of 2 services provided to the company. (Enter only one word per blank.)
Blank 1: audit Blank 2: nonaudit
When an individual or entity is not the recorded owner of a financial interest but has a right to some or all of the underlying benefits of ownership, the interest is said to be Blank 1 of 1 owned. (Enter only one word per blank.)
Blank 1: beneficially
A trust in which the owner of the trust assets does not participate or supervise the trust's investment decisions is called a(n) Blank 1 of 1 trust. (Enter only one word per blank.)
Blank 1: blind
Question Mode Fill in the Blank Question Fill in the blanks to complete the sentence. The ownership shares in a mutual fund is considered to be a(n) Blank 1 of 2 financial interest in the mutual fund and the securities that the mutual funds invest are considered to be Blank 2 of 2 financial interests to the covered member. (Enter only one word per blank.)
Blank 1: direct Blank 2: indirect
Auditors are prohibited from any Blank 1 of 3 or Blank 2 of 3 Blank 3 of 3 financial interest in an audited client. (Enter only one word per blank.)
Blank 1: direct Blank 2: material Blank 3: indirect
The CPA is required to perform his or her professional responsibilities with competence and diligence under the principle of Blank 1 of 2 Blank 2 of 2. (Enter only one word per blank.)
Blank 1: due Blank 2: care
Under the AICPA's PRP, CPA firms that don't perform audits or similar engagements, but perform other work such as reviews and compilations undergo Blank 1 of 1 reviews. (Enter only one word per blank.)
Blank 1: engagement
A financial interest is an ownership interest in a(n) Blank 1 of 2 or a(n) Blank 2 of 2 security issued by an entity. (Enter only one word per blank.)
Blank 1: equity Blank 2: debt
A code of conduct based on moral duties and obligations that indicate how an individual should interact with others in society is known as Blank 1 of 1. (Enter only one word per blank.)
Blank 1: ethics
When an auditor has a financial interest in an entity that is associated with the attest entity, it is considered a(n) Blank 1 of 1 financial interest. (Enter only one word per blank.)
Blank 1: indirect
The "nitty gritty" details in implementing the rules in Part 1 of the Code of Professional Conduct are found in the Blank 1 of 1 of each rule. (Enter only one word per blank.)
Blank 1: interpretations or interpretation
Virtually all states have passed laws that allow CPAs to practice as Blank 1 of 2 Blank 2 of 2 partnerships. (Enter only one word per blank.)
Blank 1: limited Blank 2: liability
A loan to or from an audited entity is permissible if Blank 1 of 1 lending procedures, terms and requirements are used. (Enter only one word per blank.)
Blank 1: normal
Lending procedures, terms and requirements that are reasonably comparable to those relating to similar terms to other borrowers are Blank 1 of 1lending procedures, terms and requirements. (Enter only one word per blank.)
Blank 1: normal
Commissions are prohibited for CPAs in situations where the CPA's Blank 1 of 2 and Blank 2 of 2 are the focal point of attestation-related services. (Enter only one word per blank.)
Blank 1: objectivity Blank 2: independence
The SEC's rules with respect to services provided by auditors are based on the principles of auditor Blank 1 of 2 and Blank 2 of 2. (Enter only one word per blank.)
Blank 1: objectivity Blank 2: independence
The conduct, aims, or qualities that characterize a vocation is the definition of Blank 1 of 1. (Enter only one word per blank.)
Blank 1: professionalism
PCAOB inspections of registered firms focus on selected audit and quarterly review engagements to evaluate the sufficiency of the Blank 1 of 2 Blank 2 of 2 systems of registered firms. (Enter only one word per blank.)
Blank 1: quality Blank 2: control
Additional guidance for applying the Rules of Conduct is provided by The ______. Interpretations of Rules of Conduct Parts 1 - 3 of the Code of Professional Conduct Preface to the Code of Professional Conduct Principles of Professional Conduct
Interpretations of Rules of Conduct
The Code of Professional Conduct's Blank 1 of 1 Rule is a very general statement that relates only to attestation-related services, including audits. (Enter only one word per blank.)
Independence
The SEC delegates its authority to set standards for audits of public companies to the ______. AICPA FASB PCAOB ASB
PCAOB
The purpose of PCAOB inspections is to ensure that registered firms, in connection with their audits of public companies comply with ______. PCAOB rules AICPA rules the Sarbanes-Oxley Act professional standards SEC rules
PCAOB rules the Sarbanes-Oxley Act professional standards SEC rules
A PCAOB inspection finds violations that do not involve fraud. If the firm fails to take the necessary corrective action, which of the following is most likely to occur? PCOAB publicly reveals the violations and public disciplinary action ensues. The firm is given an additional 6-month period to take corrective action and is levied a fine. The firm is banned form performing PCAOB audits for a 2-year time period.
PCOAB publicly reveals the violations and public disciplinary action ensues.
Which of the following parties can have financial interests in an audited entity and not impair the independence of the CPA? Parent Spouse Brother Dependent child
Parent Brother
Which of the following parts of the AICPA Code of Professional Conduct applies only to CPAs in public practice? Part 1 Part 2 Part 3 The Preface
Part 1
Legal authority to oversee the accounting profession rests with the ______. ASB AICPA SEC FASB IRS
SEC
The ultimate authority to set standards for audits of public companies lies with the ______. FASB AICPA SEC PCOAB
SEC
Which of the following entities has been allowed to set accounting and auditing standards? SEC FASB ASB IRS
SEC FASB ASB
Which of the following organizations have established stringent standards of professional conduct, mostly in the area of auditor independence? SEC PCAOB AICPA FASB
SEC PCAOB
Which of the following part(s) of the ICPA Code of Professional Conduct apply to all CPAs? Part 3 only Both The Preface and Part 3 Part 2 only The Preface only Both the Preface and Part 1 Both the Preface and Part 2
The Preface only
Which of the following would impair the independence of a CPA participating in an engagement? The individual has a sister employed in a key position at an audit entity. The individual's nondependent child works part time for the entity in a non-key position. A close relative has a material financial interest in the entity and the CPA is aware of the interest. Grandparents own a small number of shares of stock in the entity that is considered nonmaterial.
The individual has a sister employed in a key position at an audit entity. A close relative has a material financial interest in the entity and the CPA is aware of the interest.
Which of the following are SEC human resource and compensation-related rules? An audit partner who has performed audit services for a particular entity for more than 7 consecutive years must take a five year "time-out" period. The lead engagement review partner cannot provide audit services for a particular audit entity for more than 5 consecutive years. An audit partner cannot perform audit services for a particular entity for more than 7 consecutive years.
The lead engagement review partner cannot provide audit services for a particular audit entity for more than 5 consecutive years. An audit partner cannot perform audit services for a particular entity for more than 7 consecutive years.
True or false: Indirect financial interests are generally permissible if the amount involved is immaterial with respect to the covered member's income and wealth. True False
True
True or false: It is considered a business relationship when a CPA is asked to serve as an honorary director or trustee for a not-for-profit entity. True False
True
True or false: The Code of Professional Conduct places responsibility for ethical behavior squarely on the professional. True False
True
True or false: Under the Code of Professional Conduct, a CPA who is an accounting instructor must maintain objectivity and integrity when providing educational services. True False
True
When determining independence for an attest engagement, a "covered member" under the AICPA's approach includes ______. a CPA firm manager who provides 20 hours of nonattest services to the client during the year an individual on the attest engagement team a CPA firm partner working in an office in a different city the firm's employee benefits plan
a CPA firm manager who provides 20 hours of nonattest services to the client during the year an individual on the attest engagement team the firm's employee benefits plan
The first two principles of the Code of Professional Conduct reinforce that ______. a CPA's role is to serve the public a member should use due care members should perform all professional responsibilities with the highest integrity a member should maintain objectivity and be free of conflicts
a CPA's role is to serve the public
The auditor of a public company must report to the company's audit committee ______. all alternative treatments within GAAP for polices related to material items discussed with management material written communication between the auditor and the company's management all critical accounting policies used by the company terms of the appointment, the compensation, and any problems with oversight of the internal auditor's work
all alternative treatments within GAAP for polices related to material items discussed with management Material written communication between the auditor and the company's management all critical accounting policies used by the company
Under the Form of Organization and Name Rule, a firm may designate itself "Members of the American Institute of Certified Public Accountants" if ______. all of its CPA owners are members of the Institute its form of organization is permitted by both the laws and regulations of the Council all of the CPAs in the firm are members of the Institute the firm name is not misleading
all of its CPA owners are members of the Institute
The Confidential Client Information rule prohibits the auditor from disclosing confidential client information without the specific consent of the client. However, information can be disclosed without the client's consent to ______. comply with a journalist's request for industry background information allow a review of the member's professional practice in conjunction with the sale or merger of the practice comply with a valid subpoena allow a review of the member's professional practice under the authority of the AICPA allow a prospective buyer access to confidential client information
allow a review of the member's professional practice in conjunction with the sale or merger of the practice comply with a valid subpoena allow a review of the member's professional practice under the authority of the AICPA
Auditor independence would be impaired by the ______. commencement of litigation by the CPA against the present management alleging management fraud or deceit commencement of litigation by present management alleging deficiencies in audit work for the entity commencement of litigation by the CPA against the former CEO alleging management fraud or deceit expressed intention by present management to commence litigation against the CPA that the CPA believes i
commencement of litigation by the CPA against the present management alleging management fraud or deceit commencement of litigation by present management alleging deficiencies in audit work for the entity
Due care requires that the CPA perform his or her professional responsibilities with ______. competence objectivity diligence independence
competence diligence
A firm's system of quality control should be designed to provide the firm with reasonable assurance that the firm and its personnel ______. comply with regulatory requirements avoid PCAOB inspections issue appropriate reports have strong leadership
comply with regulatory requirements issue appropriate reports
Subject to certain conditions, CPAs may provide ______ to nonpublic attest entities computer software implementation services actuarial services internal audit outsourcing bookkeeping financial information system design services
computer software implementation services internal audit outsourcing bookkeeping
Generally, a loan to or from an audited entity is ______. considered to impair a covered member's independence permissible if it's a credit card with an outstanding balance of $15,000 or less permissible if normal lending procedures are not followed
considered to impair a covered member's independence
With regard to an a covered member, a blind trust and the underlying investments in the blind trust are considered a direct financial interest because the ______. member has avoided conflicts of interest covered member retains the right to amend or revoke the trust investments ultimately revert to the covered member member does not participate in the trust's investment decisions
covered member retains the right to amend or revoke the trust investments ultimately revert to the covered member
The justice-based approach emphasizes ______. the action that provides the greatest good for the greatest number of people should be selected social and economic actions should be to everyone's advantage and the benefits available to all equity, fairness, and impartiality the value of an action is determined solely by the consequences of the action on the welfare of individuals each person has a right to have the maximum degree of personal freedom that is still compatible with the liberty of others
social and economic actions should be to everyone's advantage and the benefits available to all equity, fairness, and impartiality each person has a right to have the maximum degree of personal freedom that is still compatible with the liberty of others
A firm's independence is impaired with respect to an entity if a partner or professional employee leaves the firm and is ______. subsequently employed by the entity in a key position associated with the entity through a normal lending or investing relationship completely disassociated with the CPA firm
subsequently employed by the entity in a key position
The General Standards Rule of the Code of Professional Conduct addresses ______. confidential client information sufficient relevant data planning and supervision compliance with disciplinary proceedings professional competence
sufficient relevant data planning and supervision professional competence
The AICPA can discipline members for violating the Code of Professional Conduct by ______. suspending or revoking membership in the AICPA revoking the member's professional license referring the case to a hearing panel of the Trial Board
suspending or revoking membership in the AICPA referring the case to a hearing panel of the Trial Board
The AICPA's Peer Review Program consists of ______. system reviews consulting services reviews tax services reviews engagement reviews
system reviews engagement reviews
