2.02 - Professional Responsibilities and Ethics Flashcards
2.02 - Professional Responsibilities and Ethics
Which of the following bodies ordinarily would have the authority to suspend or revoke a CPA’s license to practice public accounting?
A) The AICPA
B) The state CPA society
C) The SEC
D) A state board of accountancy
D) A state board of accountancy
The licensing of CPAs is the responsibility of the various state boards of accountancy, which have the authority to suspend or revoke the CPA’s license.
The SEC can suspend or revoke a person’s right to participate in statutory securities filing but not the right to practice public accounting.
The AICPA is a voluntary membership body whose enforcement of its code of conduct is limited to suspension or revocation of the CPA’s membership in the AICPA.
State societies are also voluntary bodies and their enforcement of their codes of conduct is limited to suspension or revocation of the CPA’s membership in the state society.
2.02 - Professional Responsibilities and Ethics
Identify the correct statement(s) regarding threats to independence:
I. The management participation threat involves a risk of the auditor essentially reviewing the reports indicating the results of decisions that the auditor participated in when serving in an attest client
management role.
II. The advocacy threat involves an appearance of preferentially serving the audit firm and its interests over the interests of the client and the investing public.
III. The AICPA requires audit partner rotation every three years as a safeguard to independence.
A) II only
B) II and III only
C) I only
D) I, II and III
C) I only
When the auditor takes on the role of management for an attest client, perhaps involving advising the client as to investment or other business decisions, there is the risk that the auditor may be susceptible to allowing or causing the financial
information to be materially misstated in order to enhance the quality of the decision, referred to as the management participation threat.
A CPA acting to serve the interests of the CPA or the CPA’s firm, rather than those of the client, is an example of the self-interest threat, not the advocacy threat, which is the threat that the CPA will promote the attest client to the extent that independence is impaired.
The PCAOB, not the AICPA, requires audit partner rotation every five years for firms auditing publicly held entities. No such rule exists for nonpublic entities.
2.02 - Professional Responsibilities and Ethics
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) A distinguishing mark of a profession is its acceptance of responsibility to the public.
B) A requirement for a profession is to establish ethical standards that stress primary responsibility to
clients and colleagues.
C) Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts.
D) Ethical standards that emphasize excellence in performance over material rewards establish a reputation for competence and character.
A) A distinguishing mark of a profession is its acceptance of responsibility to the public.
The CPA profession established ethical standards to emphasize the profession’s responsibility to the public, and not as one that sees its primary role merely in serving the interests of its own members and clients.
2.02 - Professional Responsibilities and Ethics
A CPA audits the nancial
statements of a client. The CPA has also been asked to perform bookkeeping functions for the client. Under the AICPA Code of Professional Conduct, which of the following activities would impair the
CPA’s independence with respect to the client?
A) The CPA authorizes client transactions and reports them to management.
B) The CPA prepares financial
statements from a trial balance provided by management.
C) The CPA records transactions in accordance with classifications
determined by management.
D) The CPA posts adjusting journal entries prepared by management to the trial balance.
A) The CPA authorizes client transactions and reports them to management.
Authorizing transaction is a management responsibility and accepting such a responsibility would impair an
accountant’s independence.
An accountant may provide a variety of bookkeeping services for a client without impairing independence as long as management maintains certain responsibilities, including determining account classifications and either
preparing or approving journal entries.
Preparing financial statements from a trial balance prepared by management does not
require making any decisions or accepting any of management’s responsibilities and would not impair independence.
