Chapter 3 Professional Ethics

As compared to the AICPA Code of Professional Conduct, IFAC's International Code of Ethics for Professional Accountants:

Has less specific restrictions.

Which of the following attributes is more closely associated with attestation services performed by a CPA firm than with other lines of professional work?

Independence

Auditors are periodically punished for holding an investment in a client. This violates which ethical rule?

Independence.

When an accountant is not independent, the accountant is precluded from issuing a:

Review report.

If a CPA violates the AICPA Code of Professional Conduct, the AICPA Trial Board may do all of the following, except:

Revoke the offending member's CPA certificate.

The AICPA Code of Professional Conduct states that a CPA shall not disclose any confidential information obtained in the course of a professional engagement except with the consent of the client. This rule should be understood to preclude a CPA from responding to an inquiry made by:

A CPA-shareholder of the client corporation.

A client company has not paid its 20X3 audit fees. According to the AICPA Code of Professional Conduct, in order for the auditor to be considered independent with respect to the 20X4 audit, the 20X3 audit fees must be paid before the:

20X4 report is issued.

Which of the following acts by a CPA would be most likely to be a violation of the AICPA Code of Professional Conduct?

A "covered member" owns an immaterial amount of stock in an audit client.

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

A distinguishing mark of a profession is its acceptance of responsibility to the public.

Which of the following is least likely to impair a CPA firm's independence with respect to a nonpublic audit client in the Oklahoma City office of a national CPA firm?

A partner in the Oklahoma City office, who does not work on the audit, previously served as controller for the audit client.

Jones & Company CPAs has one office. Which of the following is least likely to impair independence with respect to an audit client?

A partner in the firm has an investment in a mutual fund that has a direct interest in the client.

The AICPA Code of Professional Conduct will ordinarily 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:

Actual fee would be substantially higher.

Which of the following forms of advertising would most likely to be considered to be a violation of Rule 502 of the AICPA Code of Professional Conduct?

Advertising including an indication that the firm has a close relationship with several tax court judges.

Independence is required of a CPA performing:

All attestation services, but not other professional services.

A CPA firm may not designate itself as "members of the AICPA" unless:

All of its partners or shareholders are members of the Institute.

A CPA should maintain objectivity and be free of conflicts of interest when performing:

All professional services.

ABC Company is audited by the Phoenix office of Willingham CPAs. Which of the following individuals would be least likely to be considered a "covered member" by the independence standard?

An audit partner in the Eloi office.

AICPA independence requirements suggest that a CPA should evaluate whether a particular threat to independence would lead a reasonable person, aware of all the relevant facts, to conclude that:

An unacceptable risk of non-independence exists.

A small CPA firm provides audit services to a large local company. Almost eighty percent of the CPA firm's revenues come from this client. Which statement is most likely to be true?

Appearance of independence may be lacking.

When a threat to independence arises an auditor should consider

Available safeguards to independence.

If the AICPA Code of Professional Conduct does not specifically address a threat to auditor independence the auditor should:

Consider the threat from the perspective of a reasonable an informed third party who has knowledge of all the relevant information.

A CPA's retention of client records as a means of enforcing payment of an overdue audit fee is an action that is:

Considered discreditable to the profession.

A primary purpose for establishing a code of conduct within a professional organization is to:

Demonstrate acceptance of responsibility to the interests of those served by the profession.

In determining the scope and nature of services to be performed in public practice, a CPA firm should:

Determine that the performance of all services is consistent with the firm's members' role as professionals.

The concept of materiality would be least important to an auditor when considering the:

Effects of a direct financial interest in the client upon the CPA's independence.

Which of the following forms of organization is most likely to protect the personal assets of any partner or shareholder who has not been involved on an engagement resulting in litigation?

Limited liability partnership.

Pickens and Perkins, CPAs, decide to incorporate their practice of accountancy. According to the AICPA Code of Professional Conduct, shares in the corporation can be issued:

Only to persons qualified to practice public accounting.

An accounting association established a code of ethics for all members. The most likely primary purpose for establishing the code of ethics was to:

Outline criteria for professional behavior to maintain standards of competence, morality, honesty, and dignity within the association.

The AICPA Code of Professional Conduct would be violated if a CPA accepted a fee for services and the fee was:

Payable if the audit of the financial statements led to a loan.

The AICPA allows an auditor to perform which of the following services for an audit client:

Performance of bookkeeping services for the client.

Contingency fee based pricing of accounting services is:

Prohibited for clients for whom attestation services are provided.

Which of the following acts by a CPA would not necessarily be considered an act discreditable to the profession under Rule 501 of the AICPA Code of Professional Conduct?

Prohibiting a client's new CPA firm from reviewing the audit working papers after the client has requested the CPA to do so.

The AICPA Conceptual Framework for Independence Standards suggests that CPAs evaluate whether a particular threat would lead which type of person to conclude that an unacceptable risk of non- independence exists?

Reasonably informed third party.

Bill Pan, CPA, has posted the general ledger and has maintained the financial records of Zorko Corporation. As a part of his responsibilities he has recorded journal entries and made closing entries. Which of the following best summarize the AICPA and SEC views as to the following question: Is audit independence impaired?

SEC, not AICPA

Which of the following is not a broad category of safeguards that mitigate or eliminate threats to independence?

Safeguards created to assure proper training within both the client and attest environment.

Which of the following is not a broad category of threat to auditor independence?

Safeguards implemented by the client.

Which of the following types of employees must be independent of an audit client?

Staff assistants assigned to the engagement.

Which of the following are not enforceable under the AICPA Code of Professional Conduct?

Statements on Responsibilities in Tax Practice.

Which of the following statements is correct?

Supporting records not reflected in the client's records (e.g., proposed adjusting entries) may be withheld by the CPA if fees for the engagement remain unpaid.

Independence of a CPA with respect to a client is not impaired if:

The CPA has an immaterial joint, closely held business investment with the client.

Which of the following family relationships is most likely to impair a CPA's independence with respect to a particular audit client on which the CPA works as a "covered member"?

The CPA's father is president of the audit client.

Which of the following organizations issue international ethics standards for auditors?

The IFAC.

Which of the following statements is true with respect to the PCAOB and SEC's concept of independence when an auditor both prepares financial statements and audits those financial statements for a client?

The auditor is not independent.

An audit independence issue might be raised by the auditor's participation in consulting services engagements. Which of the following statements is most consistent with the profession's attitude toward this issue?

The auditor should not make management decisions for an audit client.

In which of the following circumstances would a covered member be considered independent when performing the audit of the financial statements of a new client for the year ended December 31, 20X3?

The covered member continues to hold an immaterial indirect financial interest in the client.

While performing an audit an audit of a public company, the auditors discovered material illegal acts and resigned due to the client's refusal to disclose them. The auditors' reason for resignation should be disclosed through:

The process of filing a Form 8-K

Competence as a certified public accountant includes all of the following except:

Warranting the infallibility of the work performed.

A CPA sole practitioner 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 were not material to the CPA but were material to the child's personal net worth. Would the independence of the CPA be considered to be impaired with respect to the client?

Yes, because the stock would be considered a direct financial interest and, consequently, materiality is not a factor.