ACC 401 Ch. 2 Review
Must a CPA in public practice be independent in fact and appearance when providing the following services? 1. Compilation of Personal Financial Statements 2. Preparation of a tax return 3. Compilation of a financial forecast
1. No 2. No 3. No
Which of the following areas of professional responsibility should be observed by a CPA not in public practice? 1. Objectivity 2. Independence
1. Yes 2. No
Which of the following areas of professional responsibility should be observed by a CPA not in public practice? 1.Objectivity 2. Independence
1. Yes 2. No
According to the Sarbanes-Oxley Act of 2002, what is the maximum number of years an audit partner can perform audit services for an issuer before the auditor rotation is required?
5 years
Which is most likely a violation of the AICPA Code of Professional Conduct?
A member begins a public accounting firm with the trade name "Pay Less Tax Service."
Under the ethical standards of the profession, which of the following positions would be considered a position of significant influence in an audit client?
A policy-making position in the client's finance division.
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, if any, is prohibited by the AICPA Code of Professional Conduct? 1. Practice of public accounting in the form of a professional corporation that uses a firm name indicating specialization. 2. Failing to provide working papers to the client after a request has been made. 3. Use of the partnership name for a limited period by one of the partners in a public accounting firm after the death or withdrawal of all other partners.
All of the answers are permitted by the AICPA Code of Professional Conduct.
Fact Pattern: A CPA firm was purchased by a public company. The acquirer performs other professional services and has banking, insurance, and brokerage subsidiaries. The owners and employees became employees of a subsidiary. Also, the previous owners formed a new CPA firm that provides attest services. It leases employees, offices, and equipment from the parent, which also provides advertising, billing, and collection services. In the alternative practice structure (APS) of which the new firm is a part, covered members are closely aligned with other persons and entities. Who is subject to the same independence rules as covered members?
An employee leased by the firm from the parent.
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.
CPAs are required to complete engagements competently. Competence includes all of the following except
An unbiased mental attitude.
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.
Adams is the executive partner of Adams & Co., CPAs. One of its smaller clients is a large nonprofit charitable organization. The organization has asked Adams to be on its board of directors, which consists of a large number of the community's leaders. Membership on the board is honorary. Adams & Co. would be considered to be independent
As long as Adams does not perform or give advice on management functions of the organization.
When Congress passed the Sarbanes-Oxley Act of 2002, it imposed greater regulation on public companies and their auditors and required increased accountability. Which of the following is not a provision of the act?
Audit firms must be rotated on a periodic basis.
According to the ethical standards of the profession, a CPA's independence would most likely be impaired if the CPA
Contracted with a client to supervise the client's office personnel.
Which activity performed as nonattest services for a nonpublic attest client impairs a CPA's independence?
Determining which recommendations for improving internal control should be implemented.
In which of the following situations would a covered member's independence be considered to be impaired? I. The covered member maintains a checking account that is fully insured by a government deposit insurance agency at an audit-client financial institution. II. The covered member has a direct financial interest in an audit client, but the interest is maintained in a blind trust. III. The covered member owns a commercial building and leases it to an audit client. The lease is properly classified as a capital lease, and the rental income is material to the CPA.
II & III
In which of the following situations would a covered member's independence be considered to be impaired? I. The covered member maintains a checking account that is fully insured by a government deposit insurance agency at an audit-client financial institution. II. The covered member has a direct financial interest in an audit client, but the interest is maintained in a blind trust. III. The covered member owns a commercial building and leases it to an audit client. The lease is properly classified as a capital lease, and the rental income is material to the CPA.
II and III
Under which of the following circumstances may a CPA charge fees that are contingent upon finding a specific result?
If fixed by courts, other public authorities, or in tax matters if based on the results of judicial proceedings.
Which of the following rules of the AICPA Code of Professional Conduct must be observed only by a member who is in public practice?
Independence.
Advertising or other forms of solicitation that are false, misleading, or deceptive are not in the public interest, and AICPA members in public practice shall not seek to obtain clients in such a manner. Such activities include all the following except those that
Indicate the CPA's educational and professional attainments.
A CPA who is not in public practice is obligated to follow which of the following rules of conduct?
Integrity and objectivity
Kar, CPA, is a staff auditor participating in the audit engagement of Fort, Inc. Which of the following circumstances most likely impairs Kar's independence?
Kar's sibling is the director of internal auditing for Fort.
Which of the following statements is (are) true regarding a CPA employee of a CPA firm taking copies of information contained in client files when the CPA leaves the firm? I. A CPA leaving a firm may take copies of information contained in client files to assist another firm in serving that client. II. A CPA leaving a firm may take copies of information contained in client files as a method of gaining technical expertise
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 cooling-off period of how many years is required before a member of an issuer's audit engagement team may begin working for the registrant in a key position?
One year
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.
Audit engagement team members should remain alert for evidence of noncompliance with which of the following relevant ethical requirements?
Performing professional responsibilities with the highest sense of integrity.
Which of the following is a correct statement regarding the nature and timing of communications between an accounting firm performing an initial audit of an issuer and the issuer's audit committee?
Prior to accepting the engagement, the firm should describe in writing all relationships that, as of the date of the communication, may reasonably be thought to bear on independence.
According to the Sarbanes-Oxley Act of 2002, the PCAOB has the legal authority to perform each of the following, except
Prosecute suspected criminal violations by registered public accounting firms.
The Confidential Client Information Rule is violated when a member in public practice
Provides client profit and loss percentages to a trade association without the client's consent.
The SEC has strengthened auditor independence by requiring that management
Report the nature of disagreements with former auditors.
According to the AICPA Code of Professional Conduct, which of the following actions by a CPA most likely involves an act discreditable to the profession?
Retaining client records after the client demands their return.
According to the ethical standards of the profession, which of the following acts generally is prohibited?
Retaining client-provided records after the client has demanded their return.
Which of the following actions by a CPA most likely violates the profession's ethical standards?
Retaining client-provided records after the client has demanded their return.
Under the ethical standards of the profession, which of the following is a "permitted loan" regardless of the date it was obtained?
Secured automobile loan.
An accountant can perform, with preapproval of the audit committee of the board of directors, which of the following non-audit services during the audit of an issuer?
Tax planning services.
The AICPA Code of Professional Conduct requires compliance with accounting principles promulgated by the bodies designated by the AICPA Council to establish such principles. The literature considered officially established accounting principles includes
The FASB Accounting Standards Codification.
According to the SEC, an auditor is not independent of its issuer audit client in which of the following situations?
The auditor has an investment in an entity that has the ability to exercise significant influence over the audit client.
According to the profession's ethical standards, an auditor would be considered independent in which of the following instances?
The auditor's checking account, which is fully insured by a federal agency, is held at a client financial institution.
An accounting firm's independence is most likely to be impaired when
The firm and the client have a material cooperative arrangement.
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.
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 Integrity and Objectivity Rule, a member of the AICPA
Who has a difference of opinion with his or her supervisor about statement preparation has an obligation to act if a material misstatement would otherwise result.
An external auditor is not permitted to discuss confidential client information without the specific consent of the client. This ethical proscription
Will not preclude the auditor from complying with a validly issued court subpoena.
A member of the AICPA must not commit an act discreditable to the profession. Which of the following most likely is not considered such an act?
Withholding as a result of nonpayment of fees for a completed engagement adjusting and closing journal entries not reflected in the client's books.
On June 1, Year 1, a CPA obtained a $100,000 personal loan from a financial institution client for whom the CPA provided compilation services. The loan was fully secured and considered material to the CPA's net worth. The CPA paid the loan in full on December 31, Year 1. On April 3, Year 2, the client asked the CPA to audit the client's financial statements for the year ended December 31, Year 2. Is the CPA considered independent with respect to the audit of the client's December 31, Year 2, financial statements?
Yes, because the CPA was not required to be independent at the time the loan was granted.
