Accounting Ethics Chapter 4
Under rule 1.510.001, a CPA is prohibited from receiving a contingent fee from a client when also performing
A compilation of financial statements when there is third party reliance and the lack of independence is not disclosed An audit or review of financial statements An examination of prospective financial information
When a CPA firm provides professional services related to a particular matter involving two or more clients whose interests differ
A conflict of interest exists
A loan from a financial institution client might impair audit independence when
A member of the audit engagement team has the outstanding loan obligation with an officer of the client A member of the audit engagement team has the outstanding loan with the client entity
The risk-based approach requires a CPA to evaluate whether
A relationship would be seen as compromising professional judgment when rendering an attest service Safeguards exist that can mitigate the influence of threats to independence Threats exist that may compromise independence
The model of ethics standards for CPAs in the United States comes from the ___ Code of Professional Conduct
AICPA
The independence restrictions under PCAOB rule 3521 mirrors those of the ___ ___ ___ ___ ___
AICPA Code of Professional Conduct
The rule that may hold CPAs accountable for personal and professional actions is the ___ ___ rule
Acts discreditable
Which of the following nonattest services are prohibited for attest clients under SOX
Actuarial services Financial information systems design and installation Internal audit outsourcing services
When a CPA makes a whistleblowing charge against the employer under SOX or Dodd Frank, a(n) ___ threat arises
Adverse interest
Safeguards for CPAs in business start with
An ethical tone at the top
The SEC action against Deloitte in July 2015 was due to
An improper business relationship between a trustee and clients
When a CPA subordinates his judgment to another individual of the employing organization due to that individual's reputation with the company,
An undue influence threat exists
Circumstances that create doubts about the ability of a CPA to act with integrity, objectivity, or professional skepticism raise questions with respect to independence in ___
Apperance
A Congressional concern about external auditors is whether they
Are living up to their ethical and professional responsibilities
A CPA can accept a commission or referral fee for professional services when
Attest services are not provided for the client
Prior to performing any permissible tax service for an audit client, Rule 3524 requires the registered public accounting firm to seek per-approval from the ___ committee
Audit
Which of the following is conducted primarily to satisfy the public interest?
Audit services
COSO examined the role of each of the following elements in the internal control environment
Auditors Internal accountants and internal auditors Management Corporate culture
Which of the following may lead to judgment based on how accessible information is rather than an thorough analysis of the current situation
Availability tendency
Prior to concluding whether a tax position is appropriate, the CPA should
Become knowledgeable of all the material facts related to the position
Changes in the form of professional accounting organizations and name rule in recent years include
CPAs can practice in alternative practice structures CPAs only need to own a majority of the equity interests in the firm
The two broad conceptual frameworks in the AICPA Revised Code apply to
CPAs in business Members in public practice
The independent auditor's public responsibility underlies its
Certification of public reports Allegiance to creditors and shareholders Fidelity to the public trust
Having the appropriate technical qualifications to perform professional services describes what for CPAs in professional practice
Competence
Identify the principles identified in the IFAC Code
Confidentiality Objectivity Integrity Professional Behavior
Relationships between and auditor and another party might compromise professional judgment when there is a ___ of ___
Conflict Interest
The AICPA revised code links the Integrity and Objectivity Rule to challenges from
Conflict of interest situations Subordination of judgment
Which of the following are safeguards against potential conflicts of interest?
Consulting with third parties including legal counsel or other professional accountants Mechanisms to prevent disclosure of confidential information when performing services for two clients whose interest conflict
The Giving Voice to Values methodology relates to the conceptual framework for CPASs in business with the goal of
Convincing others of the most ethical action
Safeguards that might eliminate or reduce threats to independence include those
Created by legislation Implemented by the firm Implemented by the attest client Created by the profession
A situation may cause the SEC to determine that auditor independence is impaired when the situation
Creates a mutual or conflicting interest between the CPA and the audit client Results in the accountant acting as management or an employee of the audit client Places the accountant in a position of being an advocate for the client Places the accountant in the position of auditing their own work
Which of the following are included in protected confidential information?
Customer lists Marketing strategies
Work product Working papers Member prepared records
Deliverables required by the engagement Documents prepared solely for purposes of the engagement Records generated by the member in the engagement
Under Rule 3524, the following requirements exist for a firm that seeks audit committee preapproval to perform permissible tax services fot the audit client
Describe in writing the scope of the services and fee structure for the engagement Discuss with the audit committee the potential effects of the services on audit independence Document the substance of the discussions with the audit committee
In relation to conflicts of interest, a violation of the Integrity and Objectivity Rule exists when the CPA knowingly
Directs others to make false and misleading entries in the financial statements Becomes involved in a conflict of interest with another party Certifies false and misleading financial statements
Unlike the acceptance of a contingent fee, a CPA who receives a commission or referral fee must
Disclose permitted commissions and referral fees to any party to whom the recommendation is made
Failure of a CPA firm to file and pay income taxes is considered a(n) ___ act
Discreditable
In tax shelter cases, the courts rely heavily on the ___ ___ doctrine
Economic substance
If there is no specific rule of conduct addressing a particular relationship in the AICPA code, what should the CPA do
Evaluate whether or not the relationship would lead an informed third party to conclude that the CPAs compliance with the rules is acceptable
The divide between the profession's goals for the audit and what the public expects an audit to accomplish is called the ___ gap
Expectation
TF: Immediate family members come under the independence rules only if they hold a key position with the client
False
The reasons the SEC investigated Thomas Flanagan for insider trading are
Flanagan traded on inside information of Deloitte audit clients Flanagan earned illegal profits as a result of his insider trading in the securities of multiple audit clients
Which of the following are safeguards to avoid subordination of judgment?
Follow policies and procedures for reporting differences of opinion with the organization Determine reporting responsibilities to third parties Consulting with legal counsel regarding responsibilities
Which of the following are components of the KPMG Professional Judgement Framework?
Gather and evaluate information Articulate and document rationale Clarify issues and objectives Consider alternatives
Which of the following are cognitive traps that our judgment can incur?
Groupthink Judgment triggers Problem solving rush
Listed transactions are characterized as
Identified as a tax avoidance transaction A prohibited tax shelter transaction
Discussions with the audit committee undertaken by the audit firm are designed to ensure auditor
Independence
The acceptance of a contingent fee for certain tax services is prohibited when also providing attest services for the client because of a potential violation of the ___ rule
Independence
The state of mind that permits the performance of an attest service without being influenced in ways that compromise professional judgment is called
Independence in fact
If an accountant, with respect to an audit client, is able to exercise objective and impartial judgment on all issues relative to the engagement, the SEC deems the accountant to be ___
Independent
Which of the following link professional skepticism to professional judgment?
Independent thought Due care Objectivity
The guiding principle used to resolve conflicts that may exist between the interests of the client or one's employer and the public interest is acting with ___
Integrity
Prior to acceptance of the engagement and throughout the term of the relationship, to identify possible conflicts of interest, the CPA should look at situations that might create threats to compliance with ___ and ___
Integrity Objectivity
The SEC's Operation Broken Gate is
Intended to hold gatekeepers responsible Intended to identify auditors who neglect required auditing standards
An alternative practice structure
Is often created to allow the company to perform nonattest services Is often created to maintain a majority ownership by CPAs Often has lower ethical requirements than those for CPAs
A familiarity threat occurs when a CPA
Is on the attest engagement and has a spouse who is a member of the management of the client
If a CPA in professional practice employs the services of a third party provider, the CPA
Is responsible for verifying that the third party meets competence standards
The primary concern of the SEC when confidential information about a client is leaked to another party is
It influences the level playing field that should exist between the auditor and the general public
The elements of a tax return position include
It is reflected on a tax return on which the CPA has specifically advised a taxpayer It is a position about which a CPA has knowledge of all material facts
The potential danger of any family relationship with an audit client is
It may create the perception that independence may be impaired The family member may hold a key position with the client
Ethical values as well as one's knowledge of the accounting issues in question influence the professional ___ of accountants
Judgment
The process of reaching a decision or drawing a conclusion where there are a number of possible alternative solutions is referred to as ___
Judgment
The SEC investigated Scott London's dealings with Brian Shaw because
London benefited financial from his leak of confidential information to Shaw London leaked confidential information of two KPMG clients to Shaw
The Cohen Commission report examined a variety of issues that are still debated today including
Management report on internal controls Auditor's responsibility for detecting fraud Expectation gap
Restrictions exist on advertising and solicitation practices because they
May lead a reasonable person to misunderstand or be deceived by the nature of the services
The ultimate obligation of CPA members of the AICPA in resolving conflicts of interests is to
Meet their responsibilities to the public
Which of the following are sections in the AICPA Revised code of professional conduct?
Members in public practice Members in business
What is at the center of the KPMG Professional Judgment Framework?
Mindset
In the KPMG tax shelter scandal, the transactions for wealthy clients were designed solely to ___ taxes
Minimize
Section 1.000.010 of the AICPA revised code applies to members in public practice and
Outlines the evaluation of a CPAs compliance with the rules of conduct Provides a foundation to evaluate whether safeguards should be developed to prevent a violation of the rules of conduct
The name of the program to audit firms with public company clients is ___ ___
Peer review
The fundamental obligation of accountants to protect the public interest is the motivation for ___ ___
Professional judgment
To seek information by questioning defines
Professional skepticism
Under Rule 3521, independence is considered to be impaired when a registered public accounting performs an audit and
Provides any service or product to the client for a commission Provides any service or product to the client for a contingent fee Receives from the client a contingent fee or commission
In 2014, KPMG settled charges by the SEC for independence violations resulting from
Providing corporate finance services to an affiliate of an audit client Providing payroll services to affiliates of an audit client Providing bookkeeping to affiliates of an audit client
The allegiance of independent auditors to the interests of the public is known as the ___ ___ function
Public watchdog
The good faith belief standard for tax positions requires that it have at least a(n) ___ possibility of success if challenged in an administrative or judicial proceeding on its merits
Realistic
The SEC actions against PwC for its audits of Avon and Pinnacle
Related to improper accounting of fees paid to PwC by the clients
With regard to a tax return position, a CPA should advise a taxpayer of
Relevant tax return disclosure responsibilities
PCAOB Rule 3520
Requires auditors to maintain independence throughout the audit and professional engagement period
Which of the following are virtues auditors must internalize to meet the requirements of professional skepticism
Resourceful Courageous Diligent
Applying ethical reasoning to identify shareholder interests and the affect of actions on shareholders is inconsistent with which cognitive judgment trap
Rush to judgment
Which of the following professional standards must tax accounts adhere to when providing professional services
SSTS Confidentiality rule Contingent fees rule
Differences of opinion between a CPA and that person's supervisor or others within the organization are addressed by the ___ of ___ interpretation
Subordination Judgment
Rule 1.700.001 provides that a CPA can divulge confidential client information without violating the rule in order to
Support the CPA's defense in a disciplinary investigation Adhere to applicable laws and regulations Respond to a validly issues subpoena or summons Enable an inspection of the CPA's professional practice by the PCAOB
Recommending or expressing an opinion on a tax return position that relates to prospective or completed transactions is referred to as ___ ___
Tax planning
Which rule obligates CPAs to attest that financial statements are prepared in accordance with GAAP
The Accounting Principles Rule
Which rule prohibits a CPA in business from subordinating judgment when performing professional services for their employer
The Integrity Rule
When a CPA firm seeks audit committee preapproval of non auditing services related to internal control over financial reporting
The accounting firm should discuss potential effects on independence with the audit committee The substance of the discussions between audit committee and issuer should be documented The accounting firm should describe the scope of this service in writing
A concern of state boards of accountancy about CPA firm names is
The firm name may mask the true identity of the firm The firm name may be misleading
KPMG was criminally prosecuted for its role in a tax shelter scandal during 1996 to 2002 because
The firm prepared false documents to deceive regulators about the true nature of the tax shelters
The AICPA revised code of conduct includes material for cpas in business to evaluate the relationship between the CPA and their employer and any potential threats to
The integrity and objectivity rule
When a CPA knowingly misrepresents facts when performing professional services for a client as a result of pressure from their direct supervisor
The integrity rule is violated Subordination of judgment exists
Advertising and solicitation practices raise ethical issues for CPAs that were not present years ago because
The new forms of advertising create challenges for regulators Information is more readily available
Rule 3523 treats a registered public accounting firm as not independent if the firm provides tax services to members of management who serve in financial reporting oversight roles unless
The person is in that role only because she serves as a member of the board of directors
Identify the elements of the ruling in the Burger Court opinion
The public places its trust in the independent auditor Requires independent audits of publicly owned companies The independent audit provides the basis for the existence of the accounting profession in the US
CPAs are prohibited from advertising and soliciting potential clients when
The statements create false or unjustified expectations of favorable results The statements imply the ability to influence a court or regulatory agency
Under the AICPA revised code if an interpretation does not exist related to a specific relationship or circumstance, the CPA should evaluate ___ and ___
Threats Safeguards
If a client refuses to provide consent for a predecessor auditor to discuss confidential client information to the successor auditor, the best response by the successor auditor would be
To be skeptical and concerned about the reasons for denying permission
The subordination of judgment rule applies
To internal accountants as well as external auditors
Unless prohibited by law, a professional responsibility exists to disclose confidential information under which of the following conditions
To protect the CPAs professional interests in legal procedings To respond to any inquiry made by the Professional Ethics Division or trial board of the AICPA To report questionable accounting to the complaint hotline
All of the following are fundamental principles of professional ethics identified by the IESBA except
Transparency
TF: A CPA may recommend a tax return position if she concludes that there is a reasonable basis for the position and advises the taxpayer to disclose that position appropriately
True
TF: Audit independence will be impaired when non-attest services are provided for an audit client unless management accepts responsibility for the results of the services
True
TF: Compliance with laws and regulations is a fundamental principle of professional behavior
True
TF: SOX prohibits bookkeeping services for audit clients
True
A conflict of interest threatens the Integrity and Objectivity Rule
When the interest of the CPA with respect to a certain matter differ from the interest of the client related to the matter
The AICPA revised code applies to CPAs in the performance of all professional services except
When the wording of the rule indicates otherwise
The concerns of Congress during the investigation of financial frauds in the early 1980s can be described as
Why didn't the auditors detect fraud Where were the auditors
According to COSO, a strong internal control environment that strengthens financial reporting
starts with tone at the top
The lasting legacy of COSO is
the development of an integrated framework for internal control
