Chapter 19
Following the issuance of a PCAOB draft report, how many days does the CPA firm have to respond to accusations?
30 days
In which one of the following situations would a CPA be in violation of the AICPA Code of Professional Conduct in determining a fee?
A fee based on whether the CPA's report on the client's financial statements results in the approval of a bank loan.
The quality control standards are concerned primarily with
A firm's monitoring of its practice.
In which of the following circumstances would a CPA be bound by ethics to refrain from disclosing any confidential information obtained during the course of a professional engagement?
A major stockholder of a client company seeks accounting information from the CPA after management declined to disclose the requested information.
Which of the following bodies ordinarily would have the authority to suspend or revoke a CPA's license to practice public accounting?
A state board of accountancy
A basic objective of a CPA firm is to provide professional services that conform to professional standards. Reasonable assurance of achieving this basic objective is provided through
A system of quality control.
One of a CPA firm's basic objectives is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through
A system of quality control.
Which of the following is allowable for a CPA?
A used car loan from a banking client where the client has a lien on the car.
According to the ethical standards of the profession, which of the following acts is generally prohibited?
Accepting a commission for recommending a product to an audit client.
The profession's ethical standards would most likely 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 is required for a firm to designate itself as a "Member of the American Institute of Certified Public Accountants" on its letterhead?
All partners must be members.
Which of the following is an element of a CPA firm's quality control system that should be considered in establishing its quality control policies and procedures?
Assigning personnel to engagements.
In determining estimates of fees, an auditor may take into account each of the following, except the:
Attainment of specific findings.
Without the consent of the entity, a CPA should not disclose confidential entity information contained in working papers to a(n)
CPA firm that has been engaged to audit a former audit entity.
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 CPA's license to practice will ordinarily be suspended or revoked automatically for
Conviction of willful failure to file personal income tax return.
In order to achieve effective quality control, a firm of independent auditors should establish policies and procedures for
Deciding whether to accept or continue a client.
Which of the following statements best explains why public accounting, as a profession, promulgates ethical standards and establishes means for ensuring their observance?
Ethical standards are established so that users of accounting services know what to expect and accounting professionals know what behaviors are acceptable, and so that discipline can be applied when necessary.
Which of the following statements best describes why the profession of certified public accountants has deemed it essential to promulgate a code of conduct and to establish a mechanism for enforcing observance of the code?
Ethical standards are established so that users of accounting services know what to expect, the professionals know what behaviors are acceptable, and overseers can take disciplinary action when appropriate.
The Principles of Professional Conduct set forth the minimum standards.
False
The rules contained in Section 100 cover issues relating to independence, integrity, and auditing standards.
False
The term "ethics" refers to a person's propensity to follow the laws of the land.
False
Under the SEC's rules regarding independence, which of the following must an entity disclose?
Fees for the external audit, audit-related fees, tax fees, and fees for other nonaudit services performed by the audit firm.
An auditor is about to commence a recurring annual audit engagement. The continuing auditor's independence would ordinarily be considered to be impaired if the prior year's audit fee
Has not been paid and will not be paid for at least twelve months.
A CPA firm would be reasonably assured of meeting its overall responsibility to provide services that conform with professional standards by
Implementing an appropriate system of quality control.
Which of the following is not an element of quality control as defined by Statement of Quality Control Standards No. 8?
Independence.
Mavis, CPA, has audited the financial statements of South Bay Sales Incorporated for several years and had always been paid promptly for services rendered. Last year's audit invoices have not been paid because South Bay is experiencing cash flow difficulties and the current year's audit is scheduled to commence in one week. With respect to the past due audit fees, Mavis should
Inform South Bay's management that the past due audit fees are considered an impairment of auditor independence.
What is meant by the Code of Professional Conduct's definition of "holding out"?
Informing a client about one's status as a CPA.
With respect to ethics, the justice-based approach
Is primarily concerned with equity and impartiality.
A violation of the profession's ethical standards would most likely have occurred when a CPA
Issued an unqualified opinion on the 2011 financial statements when fees for the 2010 audit were unpaid.
In performing an audit, Jackson, CPA, discovers that the professional competence necessary for the engagement is lacking. Jackson informs management of the situation and recommends another local CPA firm and management engages this other firm. Under these circumstances
Jackson may request compensation from the other CPA firm for any professional services rendered to it in connection with the engagement.
Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide personnel within the firm with
Knowledge required to fulfill assigned responsibilities.
A CPA, while performing an audit, strives to achieve independence in appearance in order to
Maintain public confidence in the profession.
The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to
Minimize the likelihood of association with clients whose management lacks integrity.
In connection with the element of engagement performance, a CPA firm's system of quality control should ordinarily include procedures covering all of the following except
Performance evaluation.
What is the primary purpose of the acceptance and continuance of client relationships and specific engagements element of quality control?
Provide reasonable assurance that firms do not associate with clients whose management lacks integrity.
A violation of the profession's ethical standards is least likely to occur when a CPA
Purchases another CPA's accounting practice and bases the price on a percentage of the fees accruing from entities over a three-year period.
A CPA firm evaluates its personnel advancement experience to ascertain whether individuals assigned to increased degrees of responsibility meet predetermined criteria. This policy is evidence of the firm's adherence to which of the following prescribed standards?
Quality control.
A CPA firm's personnel partner periodically studies the CPA firm's personnel advancement experience to ascertain whether the individuals who were assigned increased degrees of responsibility met predetermined criteria. This is evidence of the CPA firm's adherence to prescribed standards of
Quality control.
With respect to ethics, the utilitarian theory
Recognizes that decisions involve trade-offs between costs and benefits.
A violation of the profession's ethical standards would most likely occur when a CPA who
Refused to hire a new employee does so because the CPA deemed the candidate to be "too old."
Which of the following is not a Principle of Professional Conduct as defined by the Code of Professional Conduct?
Reporting.
During the audit of Moon Co., the auditor disagrees with management's estimation of collectible accounts receivable. The possible misstatement amount is material. Which of the statements below should weigh more heavily for the auditor in this instance?
Requiring an adjustment to the allowance for doubtful accounts would give stockholders access to fair and adequate information.
In which of the following instances would the independence of the CPA not be considered to be impaired? The CPA has been retained as the auditor of a
Restaurant where the CPA dines frequently.
According to the ethical standards of the profession, which of the following acts is generally prohibited?
Retaining client records after an engagement is terminated prior to completion and the client has demanded its return.
The AICPA Code of Professional Conduct contains both general ethical principles that are aspirational in character and a
Set of specific, mandatory rules describing minimum levels of conduct a CPA must maintain.
All of the following nonaudit services are identified by the SEC as generally impairing an auditor's independence except
Some specific tax services.
In connection with a lawsuit, a third party attempts to gain access to the auditor's working papers. The client's defense of privileged communication will be successful only to the extent it is protected by the
State law.
With respect to ethics, the rights-based approach
Suggests that an individual's actions should not violate the rights of any individual.
In which of the following circumstances would a CPA who audits XM Corporation lack independence?
The CPA and XM's president each owns 25 percent of FOB Corporation, a closely-held company.
According to the profession's ethical standards, a CPA would be considered independent in which of the following instances?
The CPA belongs to a country club client in which membership requires an annual fee.
In auditing a privately held entity, an auditor must follow the professional standards established by all of the following except:
The PCAOB.
When auditing a public company, which of the following impairs an auditor's independence?
The auditor has been a partner on the engagement for ten years.
According to the Code of Professional Conduct, which of the following individuals is not in a position to influence an attest engagement (i.e., not a covered member)?
The partner in another office in a nearby city who regularly plays golf with the engagement partner.
As per the Conceptual Framework for AICPA Independence Standards made effective in 2006, a CPA is required to identify and assess the extent to which a threat to independence exists.
True
If an auditor is not independent of the client, it is unlikely that a user of financial statements will place much reliance on the CPA's work.
True
Principles are stated at a conceptual level, not a detailed level. True
True
Professionalism refers to the conduct, aims, or qualities that characterize or mark a given profession.
True
Rules of Conduct are enforceable.
True
The AICPA Code of Professional Conduct deals mainly with behavior and actions of individual auditors. True
True
When auditing a public company, a CPA must follow the auditing standards and Code of Professional Conduct of the PCAOB.
True
A violation of the profession's ethical standards 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.
Under which of the following circumstances would the independence of a CPA be considered impaired if the CPA, who also is an attorney, serves as auditor and provides legal services to the same client?
When the CPA, as legal agent, consummates a business acquisition for the client.
In which of the following instances would the independence of the CPA not be considered to be impaired? The CPA has been retained as the auditor of a brokerage firm
Which owes the CPA audit fees for current year services and has just filed a petition for bankruptcy.
The SEC has issued independence rules that differ from the AICPA's in all of the following areas except:
Working paper documentation.
An indirect financial interest is defined as a financial interest that is owned or is under the control of an individual or entity.
false
Ethical rulings are enforceable.
false
If a CPA owns an insurance policy issued by an attest client, independence would be considered impaired, even if the policy was purchased under the insurance company's normal terms and procedures and does not offer an investment option.
false
For private companies, accounting firms are prohibited from providing
none of these
A financial interest is "beneficially owned" when an individual or entity is NOT the recorded owner of the interest but has a right to some or all of the underlying benefits of ownership.
true
PCAOB rules require tax services provided by a public company auditor to be considered and approved by the company's audit committee.
true
The independence standards issued by the PCAOB do not prohibit the provision of tax services to an attest client. True
true