2.3 Flashcards
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.
Audit documentation may be disclosed to another partner of the accounting firm without the client’s consent because such information has not been communicated to outsiders. A partner of the CPA has a fiduciary obligation to the client not to disclose confidential information without consent.
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.
If the member concludes that the position taken by others is not in compliance, but does not result in a material misrepresentation of fact or violation of laws or regulation, the threats to integrity and objectivity are not significant. However, the member should discuss the matter with the supervisor and, if not resolved, higher levels of management. If still not resolved, the member should consider (1) determining whether any additional reporting requirements exist, (2) consulting legal counsel, and (3) documenting his or her understanding of the issues and the nature of the discussions. If the member concludes that appropriate action was not taken and a material misrepresentation of fact or violation of laws or regulation exists, the member should consider ending his or her relationship with the member’s organization and take appropriate steps to eliminate his or her exposure to subordination of judgment.
Which of the following, if any, is prohibited by the AICPA Code of Professional Conduct?
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.
Failing to provide working papers to the client after a request has been made.
Practice of public accounting in the form of a professional corporation that uses a firm name indicating specialization.
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.
Prior to disclosing confidential client profit and loss percentages to a trade association, the CPA must have specific client consent.
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.
A contingent fee is established as part of an agreement under which the amount of the fee is dependent upon the finding or result. Fees are not deemed to be contingent if fixed by courts or other public authorities, or in tax matters, if they are based on the results of judicial proceedings or the finding of governmental agencies.
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.
The member’s duty to return client-provided records is absolute. However, the duty to return other information not reflected in the client’s books and records is not absolute. For example, the duty to return supporting records for an issued work product is conditional upon payment of fees with respect to information such as adjusting, closing, combining, or consolidating entries. Supporting records contain information not in the client’s books and records without which its financial information is incomplete. They are produced by the member and are not otherwise available to the client.
According to the PCAOB, which of the following tax services may be provided jointly with the audit of an issuer’s financial statements without impairing independence?
Reviewing a proposed transaction and informing the client of the tax consequences.
When the client is an issuer, PCAOB and SEC independence standards apply. Under these standards, tax compliance services preapproved by the audit committee are permitted.
A violation of the profession’s ethical standards would most likely occur when a CPA
Is the sole shareholder in a professional accountancy corporation and uses the designation “and company” in the firm title.
A firm name may not be misleading. The designations “and Company,” “and Associates,” or “& Co.” are misleading when a member is a sole owner because they may be interpreted to mean more than one owner.
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.
This prohibition does not prevent a CPA from disclosing confidential client information
In compliance with a validly issued and enforceable subpoena or summons;
In the proper discharge of his or her professional obligations under the Compliance with Standards Rule and the Accounting Principles Rule;
In a review of the CPA’s professional practice under AICPA or state CPA society or board of accountancy authorization; or
During the initiation of a complaint with, or in response to any inquiry made by, the professional ethics division, trial board of the AICPA, or an investigative or disciplinary body of a state society or board of accountancy.
At least how often should the PCAOB inspect a registered public accounting firm that regularly issues audit reports to 50 issuers?
Every 3 years.
A registered public accounting firm is inspected at least once every 3 calendar years. This requirement must be met beginning with the 3-year period following the calendar year in which its application for registration with the PCAOB is approved. But the requirement does not apply unless the firm, during any of the 3 previous calendar years, (1) issued an audit report for at least 1, but no more than 100, issuers or (2) was substantially involved in preparing or providing an audit report for at least one issuer.
A violation of the AICPA’s ethical standards most likely would have occurred when a CPA
Received a fee for referring audit clients to a company that sells limited partnership interests.
A member in public practice cannot accept a commission for recommending any product or service to a client when the firm performs (1) an audit or review of financial statements, (2) a compilation of a financial statement that is reasonably expected to be used by a third party if the report does not disclose the CPA’s lack of independence, or (3) an examination of prospective financial information for that client.
A CPA serving as a bank director should not be concerned with
The compatibility of serving as a bank director and the possibility of soliciting clients.
The Code of Professional Conduct does not prohibit solicitation of clients. Solicitation is permitted if it is not false, misleading, or deceptive.
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.
The Acts Discreditable Rule states that a member shall not commit an act discreditable to the profession. After the relationship of a member who is not an owner of the firm is terminated, the member may not take or retain copies or originals from the firm’s client files or proprietary information without permission.
In which of the following circumstances would a covered member’s independence be impaired with respect to a nonissuer client?
The member owns municipal utility bonds issued by a client, and the bonds are not material to the member’s wealth.
Independence is impaired if a covered member has a direct financial interest in a client, e.g., ownership of equity, debt securities (such as bonds issued by an attest client), or other investments in a client. A direct financial interest impairs independence even if it is not material to the member’s wealth.
With respect to records in a CPA’s possession, the Code of Professional Conduct provides that
Extensive analyses of inventory prepared by the client at the auditor’s request are working papers that belong to the auditor and need not be furnished to the client upon request.
A member’s working papers include, among other items, audit programs, analytical review schedules, statistical sampling results, analyses, and schedules prepared by the client at the request of the member. Working papers are the property of the member and need not be provided to the client unless required by (1) statute, (2) regulation, or (3) contract.
