Acct. Ethics Module 1a and 1b
The Patterson Accounting Firm (PAF) does not wish to have its integrity or objectivity compromised by the fact that its tax client, Borovia Corporation, is a constant giver of gifts and entertainment to its outside consulting, law, and accounting firms. Which of the following should PAF keep in mind? As long as the gifts are given by Borovia's owners, but not Borovia itself, no objectivity problems arise. PAF's accountants should remember that a violation of the integrity duty is presumed if they receive gifts that violate PAF's rules and the member knows or is reckless in not knowing of the violation. Gifts that a jury would find "reasonable in the circumstances" are fine even if they violate Borovia's official policy. Gifts of entertainment are treated differently for these purposes than gifts of objects or money.
PAF's accountants should remember that a violation of the integrity duty is presumed if they receive gifts that violate PAF's rules and the member knows or is reckless in not knowing of the violation.
The Penn accounting firm has a fractured relationship with a client, Teller. Teller has demanded return of records that he provided to the firm. Penn is resisting the request because it believes that Teller owes them money for services performed. Which of the following is true? Penn should deliver the records to Teller upon his request. Penn should deliver the records to Teller upon his request, but only if he has fully paid his bill. Penn should deliver the records to Teller, but only if ordered to do so by a court. Penn need not deliver the records to Teller.
Penn should deliver the records to Teller upon his request.
Which of the following are not covered members who must comply with independence rules during an attest engagement? Attest team members. People in a position to influence the attest engagement team. People in a position to be influenced by the attest engagement team. Partner equivalents who provide more than 10 hours of nonattest services to an attest client within any fiscal year.
People in a position to be influenced by the attest engagement team.
Dinu wishes to know what are the aspects of an objective state of mind. Which of the following is not a part of a correct answer. Impartiality Intellectual honesty Freedom from conflicts of interest Personal integrity
Personal integrity
According to the Code of Professional Conduct of the AICPA, for which type of service may a CPA receive a contingent fee? Performing an audit of a financial statement. Performing a review of a financial statement. Performing an examination of a prospective financial statement. Seeking a private letter ruling.
Seeking a private letter ruling.
According to the Code of Professional Conduct of the AICPA, for which type of service may a CPA receive a contingent fee? Performing an audit of a financial statement. Performing a review of a financial statement. Performing an examination of prospective financial information. Seeking a private letter ruling.
Seeking a private letter ruling.
Which of the following is not a key concept in the code's Conceptual Framework? Threats. Safeguards. Unusual danger. Acceptable level.
Unusual danger.
Under the ethical standards of the profession, which of the following business relationships would generally not impair an auditor's independence? Promoter of a client's securities. Member of a client's board of directors. Client's trustee for its pension fund. Advisor to client's board of trustees.
Advisor to client's board of trustees.
The BCD Accounting Firm audits WXY Corporation. Owning stock in an audit client generally creates an independence problem. Which of the following entities could own stock in WXY without impairing BCD's independence? BCD's employee benefit plan. BCD's reviewing partner on the WXY engagement. A BCD partner who provides 5 hours of tax service per fiscal year to WXY. An investing fund established by several senior BCD partners.
A BCD partner who provides 5 hours of tax service per fiscal year to WXY.
Which of the following statements best explains why the CPA profession has found it essential to promulgate ethical standards and to establish means for ensuring their observance? A distinguishing mark of a profession is its acceptance of responsibility to the public. A requirement for a profession is to establish ethical standards that stress primary responsibility to clients and colleagues. Ethical standards that emphasize excellence in performance over material rewards establish a reputation for competence and character. Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts.
A distinguishing mark of a profession is its acceptance of responsibility to the public.
Assuming appropriate disclosure is made, which of the following fee arrangements generally would be permitted under the ethical standards of the profession? A fee paid to the client's audit firm for recommending investment advisory services to the client. A fee paid to the client's tax accountant for recommending a computer system to the client. A contingent fee paid to the CPA for preparing the client's amended income tax return. A contingent fee paid to the CPA for performing a review of the client's financial statements.
A fee paid to the client's tax accountant for recommending a computer system to the client.
Assuming appropriate disclosure is made, which of the following fee arrangements generally would be permitted under the ethical standards of the profession? A fee paid to the client's audit firm for recommending investment advisory services to the client. A fee paid to the client's tax accountant for recommending a computer system to the client. A contingent fee paid to the CPA for preparing the client's amended income tax return. A contingent fee paid to the CPA for reviewing the client's financial statements.
A fee paid to the client's tax accountant for recommending a computer system to the client.
A CPA in public practice may not disclose confidential client information regarding auditing services without the client's consent in response to which of the following situations? A review of the CPA's professional practice by a state CPA society. A letter to the client from the IRS. An inquiry from the professional ethics division of the AICPA. A court-ordered subpoena or summons.
A letter to the client from the IRS.
A CPA in public practice may not disclose confidential client information regarding auditing situations without the client's consent in response to which of the following situations? A review of the CPA's professional practice by a state CPA society. A letter to the client from the IRS. An inquiry from the professional ethics division of the AICPA. A court-ordered subpoena or summons.
A letter to the client from the IRS.
In which of the following situations is there a violation of client confidentiality under the AICPA Code of Professional Conduct? A member discloses confidential client information to a court in connection with arbitration proceedings relating to the client. A member discloses confidential client information to a professional liability insurance carrier after learning of a potential claim against the member. A member whose practice is in bankruptcy discloses a client's name. A member uses a records retention agency to store client's records that contain confidential client information.
A member whose practice is in bankruptcy discloses a client's name.
Threats
Adverse interest Advocacy Familiarity Management participation Self interest Self review Undue influence
Which of the following forms of advertising is most likely to be considered a violation of the AICPA Code of Professional Conduct? Advertising including the types of services offered and the standard fees for the services. Advertising including the experience of the firm's professional staff. Advertising including an indication that the firm has a close relationship with several tax court judges. Advertising including the percentage of the firm's staff that have CPA certificates.
Advertising including an indication that the firm has a close relationship with several tax court judges.
A CPA acting as an auditor must honor professional rules regarding: Integrity. Objectivity. Independence. All of the above.
All of the above.
Which of the following would violate the Code of Professional Conduct? Auditor Sam instructed an underling, Todd, to make a materially false entry in an audit client's financial statements. Sam's superior, Sarah, knew what Sam had done and did not correct it. Sarah signed the firm's audit report, knowing that the error had not been corrected. All of the choices provided.
All of the choices provided.
Allen wishes to start his own audit firm. In which form may he practice, assuming the form is permitted in his state? Sole proprietorship. General partnership. LLP. All three answer choices provided.
All three answer choices provided.
Maisy wishes to start her own accounting firm and wonders what restrictions there are on names of such firms. Which of the following is accurate? An accounting firm's name may not be misleading. An accounting firm's name may include the names of past owners. An accounting firm's name may (if not misleading) include a fictitious name. All three choices provided.
All three choices provided.
Which of the following are sources of safeguards that might reduce a threat of noncompliance with the code to an acceptable level? Safeguards created by the profession. Safeguards implemented by the client. Safeguards implemented by the firm. All three choices provided.
All three choices provided.
If Maria has ABC for an attest client, from which of the following should she be wary of accepting gifts that might threaten her objectivity? ABC. ABC's officers. ABC's major (> 10%) shareholders. All three of the choices provided.
All three of the choices provided.
Which of the following actions by a CPA most likely constitutes an act discreditable to the profession? Discriminating on the basis of race in employment. Negligently making false journal entries. Failing to pay one's own personal income tax. All three of the choices provided.
All three of the choices provided.
Which of the following would constitute a conflict of interest that poses a threat to objectivity? The ABC Accounting Firm is hired by Bozo Co. to provide litigation support services in its lawsuit against Bebop Corp., which is a tax client of ABC. Quan suggests that his tax client Linda invest her tax refund in Blitz Corporation without disclosing that he owns a large stake in Blitz. Tibble recommends that his tax client Borton hire a financial planner named Tilden without disclosing that Tilden has agreed in exchange to refer all his clients who need an accountant to Tibble. All three of the choices provided.
All three of the choices provided.
Maya was on a consulting team for the URL Corporation. Her task was, in part, to value the physical assets owned by a URL subsidiary that the URL management team wished to convince the board of directors to sell. The folks at URL are very sociable. Which of the following situations might endanger Maya's objectivity and/or integrity? On Maya's birthday, URL gave her a birthday cake and a six-pack of beer produced by a microbrewery that operated by a URL subsidiary. At the end of a long day of meetings, Maya and her team went to a local sandwich restaurant with a few URL employees to grab a bite before they all went back to work. Sam, the senior URL employee at the meal paid for everyone's meals with her personal credit card without telling anyone until everyone was ready to leave. Also on her birthday, URL's CEO, Tisha, gave Maya a beautiful necklace worth $1,000. During yet another long string of meetings between Maya's team and URL employees, URL ordered in a bunch of pizza for everyone to share.
Also on her birthday, URL's CEO, Tisha, gave Maya a beautiful necklace worth $1,000.
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: There is substantial cause for a legal finding of non-independence. A questioning mind reveals doubt as to independence. An unacceptable risk of non-independence exists. The accountant is definitely not independent.
An unacceptable risk of non-independence exists.
Member Sily became tired of the high pressure Big Four atmosphere, so she left PriceCooperHouse and joined the EFG Tax Accounting Firm. No other employee at EFG is a CPA. Which of the following is true for Sily? As an employee at EFG, Sily need not comply with the Code of Professional Conduct. As a partner at EFG, Sily need not comply with the Code of Professional Conduct. As an employee at EFG, Sily is responsible for EFG's professional employees. As a partner at EFG, Sily is responsible for EFG's professional employees.
As a partner at EFG, Sily is responsible for EFG's professional employees.
When a threat to independence arises that is not specifically considered in the Code of Professional Conduct an auditor should consider Alternative threats to a lack of independence. Available safeguards to independence. Global independence rules. Required lack of independence approaches.
Available safeguards to independence.
Kimmie wants to increase her income by charging contingent fees for her tax work. She needs guidance on what is permitted. Which of the following would be improper, assuming all the clients are nonattest clients? Charging a contingent fee to file an original tax return for a client. Charging a contingent fee to represent a client before a revenue agent who is examining the client's income tax return. Charging a contingent fee to help a client influence the drafting of a tax regulation. Charging a contingent fee to file an amended return claiming a refund where the claim turns on a tax issue that is the subject of a tax case involving another taxpayer.
Charging a contingent fee to file an original tax return for a client.
Which of the following is not a source of guidance included in the AICPA Code of Professional Conduct? Principles. Interpretations. Rules. Conduct factors.
Conduct factors.
What are the two main types of conflict of interest for members? Conflicts between the interests of two clients and between the interests of a client on one hand and the firm and/or its members on the other. Conflicts between the interests of two clients and between the interests of a client and the government. Conflicts between the interests of a client on one hand and the firm and/or its members on the other and between the interests of a client and the government. Conflicts between the interests of a client on one hand and the firm and/or its members on the other and between a client and a nonclient.
Conflicts between the interests of two clients and between the interests of a client on one hand and the firm and/or its members on the other.
Please tell member Patma which of the following is true regarding disclosure of conflicts of interest. Conflicts of interest need not be disclosed to clients if they have been reduced to an acceptable level. It is always sufficient to disclose the existence of the conflict of interest without disclosing its particulars. Conflicts of interest never need to be disclosed to third parties who are not clients. Conflicts of interest should be disclosed to clients and affected third parties, even if threats to compliance have been reduced to an acceptable level.
Conflicts of interest should be disclosed to clients and affected third parties, even if threats to compliance have been reduced to an acceptable level.
Which of the following statements concerning an accountant's disclosure of confidential client data is generally correct? Disclosure may be made to any state agency without a subpoena. Disclosure may be made to any party on consent of the client. Disclosure may be made to comply with an IRS audit request. Disclosure may be made just for the heck of it.
Disclosure may be made to any party on consent of the client.
According to the AICPA Code of Professional Conduct, which of the following disclosures of client information by a member CPA to an outside party would normally require client consent? Disclosure of confidential client information to a third-party service provider when the member does not enter into a confidentiality agreement with the provider. Disclosure to a potential client of the name of a client for whom the member or member's firm performed professional services. Disclosure of confidential client information to the member's liability insurance carrier in response to a potential claim. Disclosure of confidential client information to a court or in documents in connection with a subpoena.
Disclosure of confidential client information to a third-party service provider when the member does not enter into a confidentiality agreement with the provider.
Which of the following types of relationships is not one of the primary threats to auditor independence? Financial relationships Dysfunctional relationships Family relationships Employee relationships
Dysfunctional relationships
In which of the following scenarios has Ed, a CPA, not committed an ethical violation in relation to a tax client, Harriett, who asked Ed what she should do with a $12,000 tax refund she received from the IRS? Ed referred Harriett to investment adviser Sue, without disclosing to Harriett that Sue was Ed's sister-in-law. Ed referred Harriett to the investment advising firm of Stuart, Scott & Barney, without disclosing that he (Ed) was an unnamed partner in that firm. Ed recommended that Harriett purchase certain investment instruments from Mathwell Kilby & Co., without disclosing that Mathwell Kilby paid Ed a 5% commission on each transaction. Ed sold Harriett an investment instrument, disclosing that he was earning a 5% commission on the transaction.
Ed sold Harriett an investment instrument, disclosing that he was earning a 5% commission on the transaction.
1tb.rep.income.001_17 Sally's manager seems to be incredibly eager to please their firm's audit client. Sally is thinking seriously about the Code of Professional Conduct and trying to remember where she must draw the line. Which of the following is permissible? Signing a document that she knows is misleading. Failing to correct a misstatement that she has the authority to correct. Making a misleading entry in the client's financial records when her manager instructs her to do so. Failing to correct a misstatement that she lacks the authority to correct.
Failing to correct a misstatement that she lacks the authority to correct.
Sai is not a partner in his accounting firm. However, he would be a partner equivalent if he: Has the ultimate responsibility for the conduct of an attest engagement. Has authority to bind the firm to conduct an attest engagement without partner approval. Has the ultimate responsibility for the conduct of an attest engagement and has authority to bind the firm to conduct an attest engagement without partner approval. Has the ultimate responsibility for the conduct of an attest engagement or has authority to bind the firm to conduct an attest engagement without partner approval.
Has the ultimate responsibility for the conduct of an attest engagement or has authority to bind the firm to conduct an attest engagement without partner approval.
Tammy is looking to increase the revenue stream for her accounting firm. She is thinking of using commissions and referral fees to do so. Which of the following is true regarding commissions and referral fees? I. Neither is permitted when the client is an attest client. II. Both are permitted when the client is not an attest client, if they are properly disclosed. I only. II only. I and II. Neither I nor II.
I and II.
Dain would violate the Code of Professional Responsibility if, during an audit, he: I. Stated that he was not aware of any material modifications that should be made to the audited financial statements in order for them to be in conformity with GAAP if he was, in fact, aware of needed material modifications. II. Stated that he was not aware of any material modifications that should be made to the audited financial statements in order for them to be in conformity with GAAP if he was aware of immaterial modifications that would be desirable. I only. II only. I and II. Neither I nor I.
I only.
Which firms must have a majority of their financial interests owned by CPAs? I. Attest firms. II. Firms that identify themselves as "Members of the AICPA." I only. II only. I and II. Neither I nor II.
I only.
Which of the following can cause a CPA to receive an automatic suspension from the AICPA? I. The CPA's CPA certificate is revoked by the relevant state board of accountancy. II. The CPA is convicted of a crime punishable by more than one year in jail. III. The CPA intentionally did not file his personal tax return as required by federal law.
I, II, and III.
Sally has her own small accounting firm. Due to some personal connections with a top officer of Mediumsize Corporation, Sally landed an interview with Mediumsize as a potential tax client. Mediumsize has some complicated tax issues of a type that Sally has not handled before. Which of the following is true? I. Because Sally has not handled these complicated issues before, she cannot take this engagement. II. Sally can take this engagement if she believes in good faith that she can research these tax issues and handle them competently. III. Sally can take this engagement if she believes in good faith that she can consult with experts in the area and thereby handle these tax issues competently. I only. II only. I and II. II and III.
II and III.
Dena prepared personal income tax returns for 100 clients last year. Two of her clients have come to her with valid complaints about errors she made in their returns, causing them to pay more than they should have in taxes. Which of the following is true? I. Dena's CPA license should be revoked, because she obviously cannot exercise due professional care. II. While it is certainly possible that Dena has acted without due professional care in these two instances, the AICPA does not demand perfection. I only. II only. I and II. Neither I nor II.
II only.
Members may properly: I. Advocate on behalf of audit clients. II. Advocate on behalf of tax clients. I only. II only. I and II. Neither I nor II.
II only.
Member Stiller is having a dispute with client Meara over fees she has not paid and record requests from her that he has not honored. Which of the following is true? If there are records that Stiller should deliver to Meara, he should do so within 75 days of the request. If Meara so requests, Stiller must convert paper records to electronic form before delivering them to her. If Meara requests delivery of Stiller's working papers, he must deliver them, but only if he has been paid. If Meara requests delivery of Stiller's working papers, he need not deliver them even if he has been paid.
If Meara requests delivery of Stiller's working papers, he need not deliver them even if he has been paid.
Selden has provided sage tax advice to QRS Co. for many years. QRS has invited Selden to join its board of directors. Which of the following is advice that Selden should heed? Because as a tax professional he need not worry about independence, it is perfectly fine for Selden to join the QRS board. Because Selden's position as a director will be fully disclosed, he need not worry about threats to objectivity. If QRS wishes to tap Selden's expertise, it would probably be preferable to have him serve as a consultant to the QRS board rather than to join the board as a member. It would never be acceptable for Selden to serve on the QRS board.
If QRS wishes to tap Selden's expertise, it would probably be preferable to have him serve as a consultant to the QRS board rather than to join the board as a member.
Turner has just left a big accounting firm to strike out on his own. Which of the following is true regarding new clients and their business that come his way? If a client asks Turner to perform services that he has no experience providing and would have to do some research to figure out what to do, he must decline the engagement. If a client asks Turner to perform services that he has no experience providing, but he could seek a specialist's assistance, he could accept the engagement. If Turner feels out of his depth providing a particular service, but he could just turn it over to a third-party service provider and not worry about it anymore, that would be fine. It's an uncertain world, but if Turner makes some good faith estimates as to proper advice to render to a client, that is close enough because the AICPA does not expect perfection.
If a client asks Turner to perform services that he has no experience providing, but he could seek a specialist's assistance, he could accept the engagement.
Winstead has clashed with his manager regarding the proper treatment of an audit client's significant transaction. The manager says that the audit firm should approve the client's proposed treatment. Winstead's research tells him that the proposed treatment violates important accounting conventions. Which of the following is true regarding how Winstead should handle this situation? Because his manager has more experience, Winstead should simply defer to the manager's judgment. If Winstead concludes that the manager is wrong, he must take action, such as reporting to the PCAOB, even if the threat of a material misrepresentation or legal violation is not significant. If after significant research, Winstead still believes that he is right and the firm and client are wrong, he must resign from his firm. If after significant research, Winstead still believes that he is right and the firm and client are wrong, he should consider resigning from his firm if the threat of a material misrepresentation or legal violation is significant.
If after significant research, Winstead still believes that he is right and the firm and client are wrong, he should consider resigning from his firm if the threat of a material misrepresentation or legal violation is significant.
Hermione's accounting firm is extraordinarily busy, yet new non-audit business keeps coming to it from the growing community in which it is located. Hermione would like to take on as much of this non-audit business as possible, and considers outsourcing a possible solution to her firm's bandwidth limitations. Which of the following is not true as Hermione thinks this through? Hermione may outsource administrative support services to third-party service providers (TSPs) without undue worry regarding threats to objectivity and integrity. If Hermione wishes to outsource substantive services, she should notify her clients, ideally in writing, before providing any of their confidential information to the TSPs. If any clients object to Hermione's outsourcing of substantive services, she should either decline the engagement or do the work herself. If any clients object to Hermione's outsourcing of substantive services, they should just get over it.
If any clients object to Hermione's outsourcing of substantive services, they should just get over it.
Under which of the following circumstances may a CPA charge fees that are contingent upon finding a specific result? For an examination of prospective financial statements. For an audit or a review if agreed upon by both the CPA and the client. For a compilation if a third party will use the financial statement and disclosure is not made in the report in regards to the lack of independence. If fixed by courts, other public authorities, or in tax matters if based on the results of judicial proceedings.
If fixed by courts, other public authorities, or in tax matters if based on the results of judicial proceedings.
Which of the following is true? Clients have the right to veto any outsourcing by a CPA firm. Clients must be informed in writing before any professional services are outsourced. If the client objects to outsourcing of professional services, then the member should either not outsource the work or decline to provide the service altogether. All three choices provided.
If the client objects to outsourcing of professional services, then the member should either not outsource the work or decline to provide the service altogether.
Which of the following is proper activity within the Code of Professional Conduct? Shandy, who is on the audit team for client ABC Co., also has a background in real estate appraisal. ABC would like Shandy to be its expert witness in a lawsuit that involves the value of real estate that ABC owns. Kiron, who is on the audit team for client DEF Co., also has a law license. DEF would like Kiron to represent it in a breach of contract action against XYZ Co. Indira, a tax professional who provides tax advice to client JKL Co., also is a practicing lawyer. JKL would like Indira to represent JKL in an insurance dispute with Trinity Insurance Co. Donkle, who is on the audit team for client QRS, also has substantial experience in tax and has been asked by QRS to represent it in a tax matter in front of the IRS.
Indira, a tax professional who provides tax advice to client JKL Co., also is a practicing lawyer. JKL would like Indira to represent JKL in an insurance dispute with Trinity Insurance Co.
Member Kang has purchased Fragick & Associates, an accounting firm that does audit work. Kang wants to make some changes and keep some things the same. Which of the following is not true? Kang may reorganize Fragick, which is a general partnership, as a limited liability limited partnership even if his state's law has no provision for such a form of organization. Kang, who wishes to retain disgruntled employee Jones, may not induce Jones to stay by letting him call himself a partner, even if he is not a partner of the firm. If Kang brings in any other owners, they must, like Kang, also be members of the AICPAs if the firm is to advertise itself as "Members of the AICPA." Kang may retain the name "Fragick" in the firm name, even if Fragick, the founder of the firm, is dead.
Kang may reorganize Fragick, which is a general partnership, as a limited liability limited partnership even if his state's law has no provision for such a form of organization.
Client Lewis has demanded return of work product produced by the Martin accounting firm. The Martin firm is resisting the demand. Which of the following is not a proper ground for Martin to deny return of the work product? Lewis owes money to the Martin firm for work Martin did that is unrelated to these documents. Lewis owes money to the Martin firm for its work in preparing these particular documents. The work product is incomplete. Lewis has sued Martin and these records are the subject of a disputed discovery request.
Lewis owes money to the Martin firm for work Martin did that is unrelated to these documents.
Son is a junior auditor from ABC Accounting Firm's audit team at client Mammoth Corporation. Son believes that Mammoth's CFO is mischaracterizing some important transactions. Mammoth's CFO is adamant about the treatment of these transactions. After doing substantial research and consulting with his supervisor, who supports Mammoth's view, Son believes that following Mammoth's preferred treatment would produce inaccurate financial statements that would materially mislead investors. What should Son do at this stage? Make his concerns known to higher levels of his firm and/or the client. Resign from ABC. Inform the SEC. Make his concerns known to higher levels of his firm and/or the client, resign from ABC, and inform the SEC.
Make his concerns known to higher levels of his firm and/or the client.
Under which of the following circumstances may member May charge a client a contingent fee? May audits ABC Co. and wishes to charge it a contingent fee for the audit work. May audits ABC Co. and wishes to charge it a contingent fee for separate consulting work. May is examining prospective financial information for XYZ Co. and wishes to charge it a contingent fee for unrelated consulting services. May prepares TUV Co.'s tax returns and wishes to charge it a contingent fee for nontax consulting services.
May prepares TUV Co.'s tax returns and wishes to charge it a contingent fee for nontax consulting services.
Which of the following is permissible regarding commissions and referral fees? Inquiring minds want to know. Member John may suggest that tax client Mason buy a particular software package without disclosing to Mason that he will receive a commission from the seller if his recommendation to Mason leads to a sale. Member Jack may sell a particular software package to attest client Sanford without disclosing to Sanford that he bought the package at retail for $99.00 and is charging Sanford $119.000. Member Mary, a tax accountant, refers a client to the ABC painting company in exchange for an undisclosed referral fee paid to Mary's spouse. Member Ted, a tax accountant, outsources some tax work to ABC Tax Co. The outsourcing is not disclosed to the client, and Ted charges the client more than ABC charges Ted.
Member Jack may sell a particular software package to attest client Sanford without disclosing to Sanford that he bought the package at retail for $99.00 and is charging Sanford $119.000.
Among the four categories of records that are established for determining when a member must comply with record requests, which of the following are deliverables set forth in the engagement letter? Client-provided records. Member-prepared records. Member's work product. Working papers.
Member's work product.
Which of the following is true regarding the Principles of Professional Conduct? To live up to the Code of Professional Conduct, members may have to work hard, but they do not have to sacrifice their own best interests. Members must not only be competent in the provision of professional services; they must also cooperate with other members to improve the art of accounting. Due care in the audit area is satisfied if a member knows generally accepted accounting principles and generally accepted accounting standards inside and out. Because the Code of Professional Conduct does not expressly prohibit a member from moonlighting as a circus trapese performer, a member could perform at a local bar as "Sam the Flying CPA."
Members must not only be competent in the provision of professional services; they must also cooperate with other members to improve the art of accounting.
A CPA's audit documentation Need not be disclosed under a federal court subpoena. Must be disclosed under an IRS administrative subpoena. Must be disclosed to another accountant purchasing the CPA's practice even if the client hasn't given permission. Need not be disclosed to a state CPA society quality review team.
Must be disclosed under an IRS administrative subpoena.
Elsinor Co. is an audit client of GA's. It is bidding for a government contract and would like GA to write a letter to the Secretary of the Navy, telling him what a wonderful and ethical company Elsinor is. Elsinor is willing to pay handsomely for the letter. Should GA write the letter? In a money-saving move, GA has fired several tech employees and is now storing client data in the cloud through a third-party provider. Does this outsourcing threaten integrity or objectivity? Entropy Corporation (EC) approaches GA about providing litigation support services. The potential contract would be extremely lucrative, but GA does not currently have any employees who have ever provided litigation support services. Should GA take this engagement? Piddles Corporation, an audit client, wishes to depart from GAAP in its financial reporting due to a new law which allows a new form of transaction that GAAP has not been updated to reflect. Should GA approve this departure? Piddles also wishes to depart from GAAP regarding a particular transaction on grounds that most other companies in its industry do not follow GAAP in this regard either. Should GA approve this departure?
N N N Y N
The firm wishes to audit ABC Co., a private company, on a contingent fee basis. Is this is permitted? The firm wishes to do ABC Company's original tax return on a contingent fee basis. ABC is an audit client. Is this permitted? The firm wishes to do XYZ Company's original tax return on a contingent fee basis. XYZ is not an audit client. Is this permitted? The firm has been approached by LMN Co. to represent LMN before a revenue agent examining LMN's income tax return. LMN is not a client of the firm for any other purpose. Can the firm perform this service on a contingent fee basis? The firm is preparing the tax return for DEF Corporation when it realizes that DEF's records are a mess, which makes it much more expensive for the firm to prepare the taxes. DEF could save some money if it had a better record keeping software package. The firm has such a package (produced by Winstorm Co.) which it often sells to its tax clients. The firm wants to sell this package to DEF at a 20% profit without disclosing the markup. Is this permitted?
N N N Y Y
Would the name "NPC LLP" be appropriate if Nan, Pam, and Consuela wish to operate as a professional corporation? Nan already owns a controlling interest in a local bookkeeping firm that she would like to maintain. Does Nan need to remain independent regarding the new accounting firm's attest clients? Do the employees at her bookkeeping firm? Some of Nan, Pam, and Consuela's relatives have indicated an interest in investing financially in the new firm. Could that be a problem? Nan, Pam, and Consuela are all CPAs. They are the only three owners of the firm. May they represent the firm as being a member of the AICPA?
N Y Y Y
Page, CPA, has T Corp. and W Corp. as audit clients. T Corp. is a significant supplier of raw materials to W Corp. Page also prepares individual tax returns for Time, the owner of T Corp. and West, the owner of W Corp. When preparing West's return, Page finds information that raises going-concern issues with respect to W Corp. May Page disclose this information to Time? Yes, because Page has a fiduciary relationship with Time. Yes, because there is no accountant-client privilege between Page and West. No, because the information is confidential and may not be disclosed without West's consent. No, because the information should only be disclosed in Page's audit report on W Corp.'s financial statements.
No, because the information is confidential and may not be disclosed without West's consent.
Page, CPA, has T Corp. and W Corp. as audit clients. T Corp. is a significant supplier of raw materials to W Corp. Page also prepares individual tax returns for Time, the owner of T Corp., and West, the owner of W Corp. When preparing West's return, Page finds information that raises going-concern issues with respect to W Corp. May Page disclose this information to Time? Yes, because Page has a fiduciary relationship with Time. Yes, because there is no accountant-client privilege between Page and West. No, because the information is confidential and may not be disclosed without West's consent. No, because the information should only be disclosed in Page's audit report on W Corp.'s financial statements.
No, because the information is confidential and may not be disclosed without West's consent.
Norbert is a tax accountant who thinks he might make more money if he could charge contingent fees. Which of the following is true? Norbert may properly charge a contingent fee to prepare an original tax return for one of his firm's attest clients. Norbert may properly charge a contingent fee to prepare an amended tax return for one of his firm's attest clients. Norbert may properly charge a contingent fee to prepare an amended tax return for one of his firm's nonattest clients. Norbert may not prepare for a contingent fee an original or amended tax return for any sort of client.
Norbert may not prepare for a contingent fee an original or amended tax return for any sort of client.
The professional standards provide that members should cooperate to do all of the following, except: Improve the art of accounting Preserve the fiscal viability of the accounting profession. Maintain the public's confidence Carry out the profession's special responsibilities for self- governance.
Preserve the fiscal viability of the accounting profession.
Which of the following acts by a CPA would not necessarily be considered an act discreditable to the profession under 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. Engaging in discriminatory employment practices. Committing a felony. Knowingly signing a false tax return.
Prohibiting a client's new CPA firm from reviewing the audit working papers after the client has requested the CPA to do so.
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? Refusing to provide the client with copies of the CPA's audit documentation. Auditing financial statements according to governmental standards despite the client's preferences. Accepting a commission from a nonattest function client. Retaining client records after the client demands their return.
Retaining client records after the client demands their return.
Which of the following actions by a CPA most likely does not constitute an act discreditable to the profession? Sexually harassing an employee. Providing for a right of contribution from the client in an audit engagement letter. Providing for a right of indemnification from the client in an audit engagement letter. All of the above.
Providing for a right of contribution from the client in an audit engagement letter.
Which of the following is not considered a threat to independence in the Code of Professional Conduct's Independence Conceptual Framework? Self-review threat. Familiarity threat. Public interest threat. Self-interest threat.
Public interest threat.
A violation of the profession's ethical standards least likely would have occurred when a CPA Purchased another CPA's accounting practice and based the price on a percentage of the fees accruing from clients over a 3-year period. Received a percentage of the amounts invested by the CPA's audit clients in a tax shelter with the client's knowledge and approval. Had a public accounting practice and also was president and sole stockholder of a corporation that engaged in data processing services for the public. Formed an association, not a partnership, with two other sole practitioners and called the association "Adams, Betts and Associates."
Purchased another CPA's accounting practice and based the price on a percentage of the fees accruing from clients over a 3-year period.
The AICPA Code of Professional Conduct's Internal Control Conceptual Framework suggests that CPAs evaluate whether a particular threat would lead which type of person to conclude that an unacceptable risk of non-independence exists? AICPA peer reviewer. Peer. SEC inspector. Reasonably informed third party.
Reasonably informed third party.
Which of the following acts by a CPA is a violation of professional standards regarding the confidentiality of client information? Releasing financial information to a local bank with the approval of the client's mail clerk. Allowing a PCAOB inspector to review working papers of an issuer client without that client's permission. Responding to an enforceable subpoena. Faxing a tax return to a loan officer at the request of the client.
Releasing financial information to a local bank with the approval of the client's mail clerk.
Which of the following acts by a CPA is a violation of professional standards regarding the confidentiality of client information? Releasing financial information to a local bank with the approval of the client's mail clerk. Allowing a review of professional practice without client authorization. Responding to an enforceable subpoena. Faxing a tax return to a loan officer at the request of the client.
Releasing financial information to a local bank with the approval of the client's mail clerk.
Considering only the provisions of the AICPA Code of Professional Conduct, which of the following services may a CPA perform for a commission or contingent fee? Preparation of an original income tax return. Representation of a nonattest client in an IRS examination. Preparation of an amended income tax return to claim a deduction that was inadvertently omitted on an originally filed return. Performance of consulting services for an audit client.
Representation of a nonattest client in an IRS examination.
According to the AICPA Code of Professional Conduct, under which of the following circumstances may a CPA receive a contingent fee for services? Examining a client's prospective financial information. Preparing a client's federal income tax return. Representing a client in an IRS examination of the client's federal income tax return. Reviewing a client's financial statements.
Representing a client in an IRS examination of the client's federal income tax return.
6 principles AICPA
Responsibility Public interest Integrity Objectivity and independence Due care Scope and nature of services
Pursuant to the AICPA rules of conduct, the auditor's responsibility to the profession is defined by The AICPA Code of Professional Conduct. Federal laws governing licensed professionals who are involved in interstate commerce. Statements on Auditing Standards. The bylaws of the AICPA.
The AICPA Code of Professional Conduct.
Which of the following actions by a CPA most likely violates the profession's ethical standards? Arranging with a financial institution to collect notes issued by a client in payment of fees due. Compiling the financial statements of a client that employed the CPA's spouse as a bookkeeper. Retaining client records after the client has demanded their return. Purchasing a segment of an insurance company's business that performs actuarial services for employee benefit plans.
Retaining client records after the client has demanded their return.
Which of the following is not a broad category of safeguards that mitigate or eliminate threats to independence? Safeguards created by the profession, legislation, or regulation. Safeguards created by peers who performed the audit in the preceding year. Safeguards implemented by the firm, including policies and procedures to implement professional and regulatory requirements. Safeguards implemented by the attest client.
Safeguards created by peers who performed the audit in the preceding year.
Which of the following members has not committed a discreditable act? Charles refuses to hire accountants over 50 because his experience is that they are already in the downhill part of their careers. Felicia is an excellent tax accountant. All her clients are thrilled with her services, though some years she gets so busy making sure that all her clients' tax returns are timely filed that she forgets to file her own. Sonya charges an hourly rate that is 15% more than that charged by any other tax accountant in her city. Tiller advertises that he has a Ph.D in accounting, although he never really finished his degree. He did, however, complete all the coursework.
Sonya charges an hourly rate that is 15% more than that charged by any other tax accountant in her city.
Which of the following is not an AICPA pronouncement enforceable under the AICPA Code of Professional Conduct? Statements on Auditing Standards. Statements on Standards for Accounting and Review Services. Statements on Responsibilities in Personal Consulting Advisory Practice. Statements on Standards for Valuation Services.
Statements on Responsibilities in Personal Consulting Advisory Practice.
Which of the following statements is correct? Client-prepared records (e.g., the general ledger) may be retained by the CPA until fees due to the CPA are received. CPA working papers are the joint property of the CPA and the client. CPA working papers that include copies of client's records are not available to third parties under any circumstances. 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.
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.
Tom was interviewing an applicant for a position at the firm and told her that she was "too old" for the job. The applicant, who was 61, complained. Tom's action was discreditable. Tom is an excellent tax accountant who has never had a single complaint by a tax client. On the other hand, he has not paid his own income taxes for three years. This failure is a discreditable act. Tom was in talks involving his firm potentially becoming the tax adviser for Mega ABC Corporation. During those negotiations, Mega ABC disclosed some confidential financial information. Ultimately, Mega ABC hired a different firm to be its tax adviser and it never became a client of Tom's firm. This made Tom mad and he used some of the information to trade in Mega ABC's stock in retaliation for Mega ABC's decision. This trading is a discreditable act. Tom's client, LMN Co., fired Tom as its tax accountant and demanded return of the records it had provided Tom so that he could prepare LMN's tax return. Tom reasonably believes that LMN still owes Tom's firm money for services provided. In light of Tom's good faith belief, he need not return the records. LMN Co. also demanded that Tom provide copies of his working papers. Tom is mad and refuses to turn them over. This is a discreditable act.
T T T F F
In which of the following situations would member Taka not be in a conflict of interest? Taka is giving financial advice to both the buyer and the seller in a commercial real estate deal. Taka is giving financial advice to both the husband and the wife in a messy divorce proceeding. Taka is providing financial advice to ABC Co. as it readies a bid to buy a large office building knowing that Taka's own firm is simultaneously planning to submit a bid itself. Taka's firm is bidding to buy a tract of real estate that is owned by a company that was a tax client of the firm more than 10 years before.
Taka's firm is bidding to buy a tract of real estate that is owned by a company that was a tax client of the firm more than 10 years before.
Issues of objectivity and integrity might arise if the Silken Accounting Firm (SAF) outsources the following service to third-party service providers: Record storage. Software application hosting. Tax return preparation. Authorized e-file transmittal services.
Tax return preparation.
Which of the following is (are) true regarding auditors who disagree with their supervisors regarding the proper handling of an important transaction for financial statement purposes? The auditor should always defer to the superior who, after all, has superior experience. The auditor should always quit on the spot rather than compromise her integrity. The auditor should always discuss the matter with the superior if it appears that there is a significant threat that the financial statements will be inaccurate. All of the choices provided.
The auditor should always discuss the matter with the superior if it appears that there is a significant threat that the financial statements will be inaccurate.
In an attest relationship, during which of the following periods are the independence rules applicable? The period covered by the financial statements. The period of the professional engagement. The period covered by the financial statements and by the professional relationship. The 90 days before an engagement letter is signed.
The period covered by the financial statements and by the professional relationship.
Jeffrey has two jobs. In the mornings, he works for a firm in public practice. In the afternoon, he has a job working as a member in business. If he finds himself in a position where standards seem to be inconsistent, he should choose: Those applying to MIPPs Those applying to MIBs. Those applying to OMs. None of the above; no standards would apply in that setting.
Those applying to MIPPs
Which of the following is not a safeguard to mitigate or eliminate threats to independence according to Code of Professional Conduct's Independence Conceptual Framework? Those created by the profession, legislation or regulation. Those implemented by the CPA involved. Those implemented by the client. Those implemented by the CPA firm.
Those implemented by the CPA involved.
The Conceptual Framework for evaluating independence turns on which of the following: Threats and Menaces Threats and Safeguards Worries and Solutions Problems and Solutions.
Threats and Safeguards
Kate has a very unusual auditing situation. An unusual transaction has created a situation where following GAAP seems problematic. Kate needs advice. Which of the following is true as Kate considers how to handle the situation? To depart from GAAP, all Kate need do is demonstrate that following GAAP would mislead investors. To depart from GAAP, all Kate need to is describe the departure, its approximate effects, and the reasons why compliance with GAAP would mislead. To depart from GAAP, Kate need both demonstrate that following GAAP would mislead investors, and describe the departure, its approximate effects, and the reasons why compliance would mislead. Circumstances justifying departure from GAAP do not include new legislation or evolution of a new business form.
To depart from GAAP, Kate need both demonstrate that following GAAP would mislead investors, and describe the departure, its approximate effects, and the reasons why compliance would mislead.
A violation of the Code of Professional Conduct would least likely have occurred when a CPA in public practice Used a records-retention agency to store the CPA's working papers and client records. Served as an expert witness in a damage suit and received compensation based on the amount awarded to the plaintiff. Referred life insurance assignments to the CPA's spouse, who is a life insurance agent. Served simultaneously as state director of revenues and practiced public accounting in the same state.
Used a records-retention agency to store the CPA's working papers and client records.
GAF's consulting arm was hired by ABC Co. to help it determine whether it should acquire XYZ Co. As its consultants analyzed the situation, they realized that XYZ was an even better fit for one of its long-standing consulting clients, LMN Co. For a time, GAF was collecting consulting fees from both ABC and LMN in their pursuit of XYZ. Is this a conflict of interest? GAF's consulting arm was hired by Anchor Co. to determine whether it would make financial sense to file a major antitrust lawsuit against one of its competitors, Boddling Co. Boddling is an audit client of GAF. Is this a conflict of interest? GAF was approached by the AAA Airline to see if it would be interested in auditing AAA. GAF was open to the notion, but disclosed to AAA that it had long audited several other airline companies. AAA's audit committee said: "We know. Your expertise in the industry is exactly why we want to hire you." Is this a conflict of interest? GAF's consulting arm was hired by ABC Co. to help it determine whether it should acquire XYZ Co. GAF knew that the acquisition was very controversial within ABC, but that ABC's CEO strongly favored the deal. The CEO presented GAF's partner in charge of the engagement with a pair of tickets to the NBA finals in the days before GAF's final report was to be issued. Is this a threat to integrity and objectivity? GAF's consulting arm was hired by ABC Co. to help it determine whether it should acquire XYZ Co. GAF knew that the acquisition was very controversial within ABC, but that ABC's CEO strongly favored the deal. The CEO presented GAF's partner in charge of the engagement with a pair of tickets to a game to be played at a nearby minor league baseball stadium. The CEO knew that it was the partner's birthday and that he was a baseball fan. Is this a threat to integrity and objectivity?
Y Y Y Y N
Your accounting firm, Big Friendly Accounting (BFA), hired an advertising firm to help drum up some revenue. One of the ads that the firm ran misrepresented the experience of BFA's accountants. Another ad stressed that BFA had so many former IRS agents working in its tax division that the IRS wouldn't dare look closely at the tax returns prepared by BFA. Brad, a BFA accountant, was careful with his clients' confidential information, but his administrative assistant, Charles, was not. Charles was responsible for several disclosures of client confidential information. The firm became upset with these disclosures and fired Brad for not preventing them. Brad, now that he was no longer an accountant for any of his former clients, began disclosing their confidential information with reckless abandon. Brad had been a workhorse for BFA and once the firm had fired him, it soon was substantially behind on its tax work. It farmed some of the tax work out to another firm, pursuant to a contract under which the other firm would ensure that it had state-of-the-art procedures for ensuring confidentiality and promised to keep all of BFA's clients' information confidential. BFA also received the permission of each of its clients to outsource their tax work. Is BFA in trouble because of misleading advertising done not by BFA but by its advertising firm? Does the ad mentioning the former IRS agents working for BFA create any problems? Can Brad be in trouble for his assistant's breaches of confidentiality? Can Brad be in trouble for disclosing confidential information of firms that are no longer his clients? Is BFA going to be in trouble should one of the firms to which it outsourced tax work happen to disclose one of BFA's client's confidential information?
Y Y Y Y N
According to the profession's ethical standards, which of the following events may justify a departure from a Statement of Financial Accounting Standards? New legislation Evolution of a new form of business transaction No Yes Yes No Yes Yes No No
Yes Yes
Spinner, CPA, had audited Lasco Corp.'s financial statements for the past several years. Prior to the current year's engagement, a disagreement arose that caused Lasco to change auditing firms. Lasco has demanded that Spinner provide Lasco with Spinner's audit documentation so that Lasco may show them to prospective auditors to help them prepare their bids for Lasco's audit engagement. Spinner refused and Lasco commenced litigation. Under the ethical standards of the profession, will Spinner be successful in refusing to turn over the documentation? Yes, because Spinner is the owner of the audit documentation. Yes, because Lasco is required to direct prospective auditors to contact Spinner to make arrangements to view the audit documentation in Spinner's office. No, because Lasco has a legitimate business reason for demanding that Spinner surrender the audit documentation. No, because it was Lasco's financial statements that were audited.
Yes, because Spinner is the owner of the audit documentation.
The Yoyogurt accounting firm has developed an expertise in auditing airlines. Both FlySkies Airlines and SailAway Airlines wish to hire Yoyogurt as their auditor. FlySkies and SailAway are competitors. Which of the following is true? Yoyogurt may not audit two firms that are competitors. Yoyogurt may audit both firms and not concern itself with any conflicts of interest so long as it has disclosed to each client that it is auditing the other company. Yoyogurt may audit both firms even without disclosing to FlySkies that it is auditing SailAway and vice versa because both clients should be pleased with the extra expertise Yoyogurt is developing by auditing competitors. Yoyogurt may audit both firms, but should take steps to minimize the impact of the potential conflict of interest by, for example, using separate engagement teams.
Yoyogurt may audit both firms, but should take steps to minimize the impact of the potential conflict of interest by, for example, using separate engagement teams.
