2.1-2.1, 2.9, 2.10

Which of the following statements best explains why the CPA profession has found it essential to establish ethical standards and means for enduring their observance?

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

Which of the following statements applies to consultation services engagements.

A practitioner should obtain sufficient relevant data to complete the engagement.

Under the ethical standards of the profession, which of the following situations involving nondependent members of an auditor's family is most likely to impair the independence of an individual participating in an audit engagement?

A spouse's employment with a client.

The profession's ethical standards most likely are violated when a CPA represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representation that the

Actual fee would be substantially higher.

Which of the following legal situations would be considered to impair the auditor's independence?

Actual litigation by the auditor against the current management alleging management fraud or deceit.

According to the AICPA's standards, which of the following actions should be taken by a member tax preparer who discovers an error in taxpayer's previously filed tax return?

Advise the taxpayer.

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

All CPA owners must be members.

Under the ethical standards of the profession, which of the following investments by a CPA in a corporate client is an indirect financial interest?

An investment held through a regulated mutual fund.

To which of the following parties may a CPA partnership provide its audit documentation, without being lawfully subpoenaed or without the client's consent?

Any surviving partner(s) on the death of a partner.

An issuer client who disagrees with the independent auditor on a significant matter affecting its financial statements has several courses of action. Which of the following courses of action would be inappropriate?

Appeal to the FASB to review the significant matter.

When a member of the AICPA prepares a taxpayer's federal income tax return, the member has the responsibility to

Be an advocate for the entity's position.

A CPA who performs primary actuarial services for a nonissuer client normally is precluded from expressing an opinion on the financial statements of that client if the

CPA prepared an actuarial report using assumptions not approved by the client.

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

Credit union of which the CPA is a member

When management refuses to disclose material noncompliance with laws and regulations identified by the independent auditor, the independent auditor may be charged with violating the AICPA Code of Professional Conduct for

Disclaiming an opinion.

Which of the following statements concerning an accountant's disclosure of confidential client data is ordinarily true?

Disclosure may be made to any party on consent of the client.

The concept of materiality is least important to an auditor when considering the

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

The form of communication with a client in a consulting service should be

Either oral or written.

In which of the following situations would a covered member's independence be considered to be impaired?

II and III.

The preparer of a federal income tax return signs a preparer's declaration that states,... A member of the AICPA who signs this declaration as preparer of a client's tax return warrants that

Information furnished by the client was relied upon in preparing the tax return unless it appeared incorrect, inconsistent, or incomplete.

Thorp, CPA, was engaged to audit Ivor Co.'s financial statements. During the audit, Thorp discovered that Ivor's inventory contained stolen goods. Ivor was indicted and Thorp was subpoenaed to testify at the criminal trial in state court. Ivor claimed accountant-client privilege to prevent Thorp from testifying. Which of the following statements is most likely true regarding Ivor's claim?

Ivor can claim an accountant-client privilege only in jurisdictions that have enacted a statute creating such a privilege.

Kopel was engaged to prepare Riff Raff's Year 1 federal income tax return. During the tax preparation interview, Raff told Kopel that he paid $3,000 on Raff's return, resulting in an understatement of Raff's tax liability. Kopel had no reason to believe that the information was incorrect. Kopel did not request underlying documentation and was reasonably satisfied by Raff's representation that Raff had adequate records to support the deduction. Which of the following statements is true?

Kopel is not subject to the preparer penalty for willful understatement of tax liability because Kopel was justified in relying on Raff's representation.

An auditor strives to achieve independence in appearance to

Maintain public confidence in the profession.

Burrow & Co., CPAs, have, provided annual audit and tax compliance services to Mare Corp. for several years. Mare has been unable to pay Burrow in full for services Burrow rendered 19 month ago. Burrow is ready to begin field work for the current year's audit. Under the ethical standards of the profession, which of the following arrangements will permit Burrow to begin the field work on Mare's audit?

Mare commits to pay the past due fee in full before the audit report is issued.

According to the standards of the profession, which of the following events will require a CPA performing a consulting services engagement for a nonaudit client to withdraw from the engagement?

Neither I nor II.

Richard, CPA, performs compilation services for Norton Corporation, a nonpublic entity. The compilation reports issued by Richard disclose lack of independence and are not used by third parties. Richard has accepted a commission from a software company for recommending its products to Norton. The commission agreement was disclosed to Norton. Richard also refers Norton to Cruz, CPA, who is more competent with respect to engagements involving the industry in which Norton operates. Cruz performs an audit of Norton's financial statements and subsequently remits to Richard a portion of the fee collected. The referral fee agreement was likewise disclosed to Norton. Richard accepts the fee. Who, if anyone, has violated the Code of Professional Conduct?

Neither Richard nor Cruz.

A pervasive characteristic of a CPA's role in a consulting services engagement is that of being a(n)

Objective advisor.

A CPA must sign the preparer's declaration on federal income tax return

Only when the CPA prepares a tax return for compensation.

Inclusion of which of the following statements in a CPA's advertisement is not acceptable pursuant to the AICPA Code of Professional Conduct.

Paul Fall Certified Public Accountant Endorsed by AICPA

The AICPA Code of Professional Conduct is violated if a CPA accepts a fee for services and the fee is

Payable after a specified finding is attained in a review of financial statements.

Which of the following most completely describes how independence has been defined by the accounting profession?

Possessing the ability to act with integrity and objectivity.

A CPA's retention of client-provided records after a demand has been made for them is an action that is

Prohibited under the AICPA Code of Professional Conduct.

The Sarbanes-Oxley Act of 2002 has strengthened auditor independence by requiring that management of a public company

Select auditors through audit committees.

The appearance of a CPA, or that CPA's firm, is most likely to be impaired if the CPA

Serves as an executor and trustee of the estate of an individual who owned the majority of the stock of a closely held client corporation.

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

Serves on a municipal board of income tax appeals, discloses that status to concerned parties, participates as a board member in a tax appeal involving a client, but does not receive the client's consent for such action.

The AICPA Code of Professional Conduct contains both general ethical principles that are aspirational in character and also a

Set of specific, mandatory rules describing minimum levels of conduct a member must maintain.

Jones, a member of the AICPA, prepared Smith's federal income tax return and appropriately signed the preparer's declaration. Several months later, Jones learned that Smith improperly altered several figures before mailing the tax return to the IRS. Jones should communicate disapproval of this action to Smith and

Take no further action with respect to the current year's tax return but consider the implications of Smith's actions for any future relationship.

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

The CPA and XM's president each own 25% of FOB Corporation, a closely held company.

According to the profession's ethical standards, a CPA is considered independent in which of the following circumstances?

The CPA belongs to a country club client in which membership requires acquisition of a pro rata share of equity.

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.

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

The auditor, which is fully insured by a federal agency, is held at a client financial institution.

Which of the following does not impair a CPA's independence?

The client is in bankruptcy and has not paid fees related to the previous year's audit.

According to the AICPA Statements on Standards for Tax Services, why must a CPA be satisfied that a reasonable effort has been made to obtain information needed to provide appropriate answers to the questions on a tax return before signing the preparer's declaration?

The declaration requires the CPA to state that the return is true, correct, and complete based upon all information of which the preparer has knowledge.

A member of the AICPA who is engaged to prepare an income tax return has a duty to prepare it in such a manner that the tax is

The legal minimum.

In accordance with the AICPA's Statements on Standards for Tax Services, when a reasonable basis exists for omission of an answer to an applicable question on a tax return,

The member-preparer need not provide an explanation for the omission on the return.

Which of the following is implied when a member of the AICPA signs the preparer's declaration on a federal income tax return?

The tax return is not misleading based on all information of which the member has knowledge.

The AICPA Code of Professional Conduct states, in part, that a CPA should maintain integrity and objectivity. Objectivity in the Code refers to a CPA's ability

To maintain an impartial attitude on all matters that come under the CPA's review.

Eagle Company's financial statements contain a departure from generally accepted accounting principles because, due to unusual circumstances, the statements would otherwise be misleading. The auditor should express an opinion that is

Unmodified and describe the departure in an other-matter paragraph.

A CPA audits the financial statements of a local bank. According to the AICPA Code of Professional Conduct, the appearance of independence ordinarily is not impaired if the CPA

Uses the bank's time-sharing computer service to solve client-related problems.

Which of the following acts by a CPA who is not in public practice is most likely to be a violation of the ethical standards of the profession?

Using the CPA designation without disclosing employment status in connection with financial statements issued for external use by the CPA's employer.

According to the standards on the profession, which of the following activities may be required in exercising due professional care?

Yes, No

Which of the following general standards apply to consulting services?

Yes, No, Yes.

According to the profession's standards, which of the following are considered consulting services?

Yes, Yes, No

A CPA purchased stock in an audit client corporation and placed it in a revocable educational trust for the CPA's dependent minor child. The trust securities were not material to the CPA but were material to the child's personal net worth. Is the independence of the CPA considered to be impaired with respect to the client?

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