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ACG 5627 > Chapter 4: Professional Ethics > Flashcards

Chapter 4: Professional Ethics Flashcards

1
Q

Ethics are

A) needed in the professions, but is not needed for society in general.

B) a set of moral principles or values.

C) not formed by life experiences.

D) always incorporated in laws.

A

B) a set of moral principles or values.

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2
Q

________ means that a person acts according to conscience, regardless of the situation.

A) Caring

B) Fairness

C) Integrity

D) Respect

A

C) Integrity

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3
Q

Which of the following is a prescribed set of moral principles or values?

A) codes of business ethics for professional groups

B) laws and regulations

C) codes of conduct within an organization

D) all of the above

A

D) all of the above

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4
Q

One of the main reasons people act unethically is that they choose to act selfishly.

TRUE OR FALSE

A

TRUE

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5
Q

Most people define unethical behavior as conduct that differs from what they believe is appropriate given the circumstances.

TRUE OR FALSE

A

TRUE

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6
Q

A six-step approach is often used to resolve an ethical dilemma. The first step in this process is to

A) identify the alternative actions available.

B) identify the ethical issues from the facts.

C) determine who will be affected by the outcome of the dilemma.

D) obtain the relevant facts.

A

D) obtain the relevant facts.

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7
Q

Ethical frameworks help identify the ethical issues and will always lead to the appropriate course of action.

TRUE OR FALSE

A

FALSE

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8
Q

A rationalization method that can easily result in unethical behavior is the argument that “everybody does it.”

TRUE OR FALSE

A

TRUE

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9
Q

If an action is considered legal, it must also be considered ethical.

TRUE OR FALSE

A

FALSE

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10
Q

The underlying reason for a code of professional conduct for any profession is

A) the need for public confidence in the quality of service of the profession.

B) it provides a safeguard to keep unscrupulous people out.

C) it is required by federal legislation.

D) it allows licensing agencies to have a yardstick to measure deficient behavior.

A

A) the need for public confidence in the quality of service of the profession.

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11
Q

Which of the following statements is true when the CPA has been engaged to perform an audit of financial statements?

A) The CPA firm is engaged and paid by the client; therefore, the firm has primary responsibility to be an advocate for the client.

B) The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are those who rely on the financial statements.

C) Should a situation arise where there is no convincing authoritative standard available, and there is a choice of actions which could impact a client’s financial statements, the CPA is free to endorse the choice which is in the investors’ interests.

D) The CPA firm has primary responsibility to the FASB.

A

B) The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are those who rely on the financial statements.

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12
Q

The ________ is a standard of conduct for all members of the AICPA.

A) IESBA Code of Conduct

B) SEC Code of Conduct

C) PCAOB Code of Professional Conduct

D) AICPA Code of Professional Conduct

A

D) AICPA Code of Professional Conduct

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13
Q

Professionals are expected to conduct themselves at a higher level than most other members of society.

TRUE OR FALSE

A

TRUE

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14
Q

Which of the following is(are) true concerning the Ethical Principles of the Code of Professional Conduct?

I. They identify ideal conduct.

II. They are general ideals and are not enforceable.

A) I only

B) II only

C) I and II

D) Neither I nor II

A

C) I and II

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15
Q

Which of the following is notone of the major parts of the AICPA’s Code of Professional Conduct?

A) principles

B) rules

C) interpretations

D) definitions

A

D) definitions

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16
Q

A CPA performs bookkeeping services for a client and then performs an audit of those financial statements. This is an example of a ________ threat.

A) familiarity

B) self-interest

C) self-review

D) management participation

A

C) self-review

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17
Q

Since the rules cannot address all circumstances, the Codeincludes a conceptual framework approach for members to use to evaluate threats to compliance. Using this framework,

A) the first step is to discuss the threat with the client’s management team.

B) all threats must be completely eliminated.

C) safeguards can be used to eliminate any threat.

D) more than one safeguard may be necessary.

A

D) more than one safeguard may be necessary.

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18
Q

Which part of the AICPA’s Code of Professional Conductis enforceable?

A) ethical rulings

B) rules of conduct

C) principles

D) interpretations

A

B) rules of conduct

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19
Q

Interpretations of the rules of conduct

A) are enforceable.

B) are finalized after being approved by the FASB.

C) are issued as exposure drafts to the profession and others for comments.

D) do not apply to members in business.

A

C) are issued as exposure drafts to the profession and others for comments.

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20
Q

The AICPA’s Code of Professional Conductrequires independence for all

A) attestation engagements.

B) services performed by accountants in public practice.

C) accounting and auditing services performed.

D) professional work performed by CPAs.

A

A) attestation engagements.

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21
Q

When a member observes the profession’s technical and ethical standards and strives to continually improve her competence and quality of services, she is exercising

A) due care.

B) integrity.

C) independence.

D) objectivity.

A

A) due care.

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22
Q

Four of the six Ethical Principles in the AICPA’sCode of Professional Conductare equally applicable to all members of the AICPA. Which of the following principles applies only to members in public practice?

A) Scope and Nature of Services

B) Integrity

C) Due Care

D) The Public Interest

A

A) Scope and Nature of Services

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23
Q

TheCode of Professional Conductis established by the membership of the AICPA, and the Interpretations of the Rules of Conduct are prepared by the

A) Financial Accounting Standards Board.

B) Securities and Exchange Commission.

C) CPA licensing agencies within each state.

D) Professional Ethics Executive Committee of the AICPA.

A

D) Professional Ethics Executive Committee of the AICPA.

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24
Q

Due to a shortage of personnel, the client asks a member firm to assist with the authorization of accounting transactions. This is an example of which type of threat to compliance with the rules under the AICPA Code of Professional Conduct?

A) management participation

B) self-interest

C) self-review

D) undue influence

A

A) management participation

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25
Q

The AICPA Code of Conductincludes a conceptual framework approach for the member to evaluate threats to compliance with the Code. List the three steps necessary to evaluate the threats.

A
  1. Identify the threats.
  2. Evaluate the significance of the threat.
  3. Identify and apply safeguards.
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26
Q

An advantage of specific rules in the Code of Professional Conductis the enforceability of minimum behavior and performance standards.

TRUE OR FALSE

A

TRUE

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27
Q

It is a violation of the rules of conduct if someone does something on behalf of a member that is a violation if the member does it.

TRUE OR FALSE

A

TRUE

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28
Q

An advantage of the principles of professional conduct in the Code of Professional Conduct is that they are more easily enforced than are the specific rules of conduct.

TRUE OR FALSE

A

FALSE

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29
Q

Safeguards can always reduce the threat to an acceptable level.

TRUE OR FALSE

A

FALSE

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30
Q

Interpretations of rules of conduct in the Code of Professional Conduct are notofficially enforceable and practitioners need not justify departure from them.

TRUE OR FALSE

A

FALSE

Interpretations provide guidelines about the scope and application of the rules, and members must justify any departure in a disciplinary hearing.

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31
Q

Adverse interest is the threat that a member will notact with objectivity because their interests are opposed to the client’s interests.

TRUE OR FALSE

A

TRUE

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32
Q

In the AICPA Code of Professional Conduct, the second principle of professional conduct, entitled “The Public Interest,” applies only to members of the AICPA in public practice and not to members who work as accountants in business, government, or education.

TRUE OR FALSE

A

FALSE

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33
Q

In the AICPA Code of Professional Conduct, the sixth principle of professional conduct, entitled “Scope and Nature of Services,” applies to members of the AICPA who work in public practice, business, government, or education.

TRUE OR FALSE

A

FALSE

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34
Q

TheConceptual Framework for AICPA Independence Standards can be used when making decisions on ethical matters notexplicitly addressed in the Code.

TRUE OR FALSE

A

TRUE

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35
Q

Each state also has rules of conduct that are required for licensing by the state.

TRUE OR FALSE

A

TRUE

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36
Q

For which of the following professional services must CPAs be independent?

A) management advisory services

B) audits of financial statements

C) preparation of tax returns

D) all of the above

A

B) audits of financial statements

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37
Q

“Independence” in auditing means

A) maintaining an indirect financial interest.

B) not being financially dependent on a client.

C) taking an unbiased viewpoint.

D) being an advocate for a client.

A

C) taking an unbiased viewpoint.

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38
Q

When CPAs are able to maintain their actual independence, it is referred to as independence in

A) conduct.

B) appearance.

C) fact.

D) total.

A

C) fact.

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39
Q

The Sarbanes-Oxley Act ________ a CPA firm from doing both bookkeeping and auditing services for the same public company client.

A) encourages

B) prohibits

C) allows

D) allows on a case-by-case basis

A

B) prohibits

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40
Q

The financial interests of a CPA’s family members can affect the CPA’s independence. Which of the following parties would notbe included as a “direct financial interest” of the CPA?

A) spouse

B) dependent child

C) relative supported by the CPA

D) sibling living in the same city as the CPA

A

D) sibling living in the same city as the CPA

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41
Q

Interpretations of the rules regarding independence allow an auditor to serve as

A) a director or officer of an audit client.

B) an underwriter for the sale of a client’s securities.

C) a trustee of a client’s pension fund.

D) an honorary director for a not-for-profit charitable or religious organization.

A

D) an honorary director for a not-for-profit charitable or religious organization.

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42
Q

Independence is required of a CPA when performing

A) management advisory services.

B) all attestation services.

C) all attestation and tax services.

D) all professional services.

A

B) all attestation services.

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43
Q

CPAs may provide bookkeeping services to their private company audit clients, but there are a number of conditions that must be met if the auditor is to maintain independence. Which of the following conditions is notnecessary?

A) The CPA must not assume a management role or function.

B) The client must hire an external CPA to approve all of the journal entries prepared by the auditor.

C) The auditor must comply with GAAS when auditing work prepared by his/her firm.

D) The client must accept responsibility for the financial statements.

A

B) The client must hire an external CPA to approve all of the journal entries prepared by the auditor.

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44
Q

An example of an “indirect financial interest in a client” would be

A) ownership of less than 10% of the client’s stock by the covered members spouse.

B) an ownership of less than 10% of the client’s stock by a staff member who is not involved in the audit.

C) the covered member’s ownership of a mutual fund that has an investment in the client.

D) All of the above are examples of an indirect financial interest in a client.

A

C) the covered member’s ownership of a mutual fund that has an investment in the client.

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45
Q

When determining whether independence is impaired because of an ownership interest in a client company, materiality will affect ownership

A) in all circumstances.

B) only for direct ownership.

C) only for indirect ownership.

D) under no circumstances.

A

C) only for indirect ownership.

46
Q

A direct financial interest violates independence in which of the following circumstances?

A) when close relatives such as nondependent children, brothers, and sisters have a significant financial interest in the client

B) when close relatives such as nondependent children, brothers, and sisters have any financial interest in the client

C) when the CPA owns shares in a mutual fund that has an ownership interest in the client

D) when close relatives such as a brother, sister, or in-laws are employed by the client in their engineering department

A

A) when close relatives such as nondependent children, brothers, and sisters have a significant financial interest in the client

47
Q

A CPA sole practitioner purchased stock in a client corporation and placed it in a trust as an educational fund for the CPA’s minor child. The trust securities were not material to the CPA but were material to the child’s personal net worth. Would the independence of the CPA be considered to be impaired with respect to the client?

A) Yes, because the stock is a direct financial interest.

B) Yes, because the stock is an indirect financial interest that is material to the CPA’s child.

C) No, because the CPA does not have a direct financial interest in the client.

D) No, because the CPA does not have a material indirect financial interest in the client.

A

A) Yes, because the stock is a direct financial interest.

48
Q

Julie and Lisa are sisters. Julie is a CPA auditing the company where Lisa works. Julie’s independence is impaired if

A) Lisa is the controller.

B) Lisa owns 2% of the company.

C) Lisa is the marketing manager.

D) all of the above.

A

A) Lisa is the controller.

49
Q

Oehlers, CPA, is a staff auditor participating in the engagement of Capital Trust, Inc. Which of the following circumstances impairs Oehlers’ independence?

A) Oehlers’ sister is an internal auditor employed by Capital Trust.

B) Oehlers’ friend, an employee of another local accounting firm, prepares the tax return of Capital Trust’s CEO.

C) Oehlers’ and Capital Trust’s 401K plans own stock with the same corporation.

D) During the period of professional engagement, Capital Trust and Oehlers discussed business over lunch at a first-class restaurant.

A

A) Oehlers’ sister is an internal auditor employed by Capital Trust.

50
Q

An auditor’s independence is considered impaired if the auditor has

A) an immaterial, indirect financial interest in a client.

B) an outstanding $8,000 balance on a credit card issued by a client.

C) an automobile loan from a client bank, collateralized by the automobile.

D) a joint, closely held business investment with the client that is material to the auditor’s net worth.

A

D) a joint, closely held business investment with the client that is material to the auditor’s net worth.

51
Q

According to the profession’s ethical standards, an auditor would be considered independent in which of the following instances?

A) The auditor’s checking account, which is fully insured by a federal agency, is held at a client financial institution.

B) The auditor is also an attorney who advises the client as its general counsel.

C) An employee of the auditor serves as treasurer of a charitable organization that is a client.

D) The client owes the auditor fees for two consecutive annual audits.

A

A) The auditor’s checking account, which is fully insured by a federal agency, is held at a client financial institution.

52
Q

Which of the following loans would be prohibited between a CPA firm or its members and an audit client?

A) automobile loans

B) loans fully collateralized by cash deposits at the same financial institution

C) new home mortgage loans

D) unpaid credit card balances not exceeding $10,000 in total

A

C) new home mortgage loans

53
Q

Under the AICPA independence rules, the auditor

A) is prohibited from performing a company’s audit and installing and designing the client’s new information system.

B) does not need to document the understanding and willingness of the client to perform all management functions associated with the nonaudit service.

C) is prohibited from doing any bookkeeping services for the client if performing the audit.

D) must follow the more restrictive SEC independence rules when dealing with a public company.

A

D) must follow the more restrictive SEC independence rules when dealing with a public company.

54
Q

Which of the following instances would impair a CPA’s independence when they have been retained as the auditor?

I. A charitable organization where the CPA serves as treasurer

II. A municipality where the CPA owns $250,000 of the $25 million outstanding bonds of the municipality

III.A company that the CPA’s investment club owns a 10% investment interest

A) I and II

B) I and III

C) II and III

D) I, II, and III

A

D) I, II, and III

55
Q

Under the AICPA independence rules, independence can be considered impaired when

A) billed fees remain unpaid for professional services for more than ninety days.

B) a client in bankruptcy has unpaid fees for more than one year.

C) there is litigation by the client related to the auditor’s tax or other nonaudit services for an immaterial amount.

D) there is a lawsuit by the client claiming deficiencies in the previous year’s audit.

A

D) there is a lawsuit by the client claiming deficiencies in the previous year’s audit.

56
Q

Which of the following is leastlikely to impair a CPA firm’s independence with respect to an audit client in the Oklahoma City office of a national CPA firm?

A) A partner in the Oklahoma City office owns an immaterial amount of stock in the client.

B) A partner in the Jersey City office owns 25% of the client’s stock.

C) A partner in the Oklahoma City office, who does not work on the audit engagement, previously served as controller for the audit client.

D) A partner in the Chicago office previously served as vice president of finance for the audit client.

A

D) A partner in the Chicago office previously served as vice president of finance for the audit client.

57
Q

A CPA’s financial interests in nonclients may have an effect on independence if the nonclients are investors in or investees of the client. Which situation would notimpair a CPA’s independence?

A) The client has an immaterial investment in a nonclient investee in which the CPA has an immaterial investment.

B) The CPA has a material indirect financial interest in a nonclient in which the client has a material investment.

C) The client investor has a nonmaterial investment in the nonclient investee in which the CPA has a material investment.

D) The CPA has a joint closely held investment with the client in a nonclient that is material to the client as well as the CPA.

A

A) The client has an immaterial investment in a nonclient investee in which the CPA has an immaterial investment.

58
Q

The CPA firm will lose its independence if

A) a staff auditor providing audit services to the client acquires stock in that client.

B) a staff tax preparer who provides 15 hours of non-audit services to the client acquires stock in that client.

C) an audit manager in an office different than the office providing audit services has a direct, immaterial financial interest in the audit client.

D) a covered member has an indirect, immaterial financial interest in an audit client.

A

A) a staff auditor providing audit services to the client acquires stock in that client.

59
Q

Interpretations to the Rules of Conduct permit a CPA firm to do both bookkeeping and auditing for the same private company client if three criteria are met. Which of the following is notone of those criteria?

A) The client must accept full responsibility for the financial statements.

B) The client is required to file an annual report, including audited financial statements, with the Securities and Exchange Commission.

C) The CPA must not assume the role of employee or of manager.

D) The CPA must follow applicable auditing standards.

A

B) The client is required to file an annual report, including audited financial statements, with the Securities and Exchange Commission.

60
Q

Which of the following circumstances impairs an auditor’s independence?

I. Litigation by a client against an audit firm claiming a deficiency in the previous audit

II. Litigation by a client against an audit firm related to tax services

III.Litigation by an audit firm against a client claiming management fraud or deceit

A) I and II

B) I and III

C) II and III

D) I, II, and III

A

B) I and III

61
Q

A CPA firm should decline an offer to perform consulting services engagement if

A) the proposed engagement is not accounting related.

B) recommendations made by the CPA firm are to be subject to review by the client.

C) acceptance would require the CPA firm to make management decisions for an audit client.

D) any of the above is true.

A

C) acceptance would require the CPA firm to make management decisions for an audit client.

62
Q

Interpretations of the AICPA Code of Professional Conduct are dominated by the concept of

A) independence.

B) compliance with standards.

C) accounting.

D) acts discreditable to the profession.

A

A) independence.

63
Q

Both SEC rules and the Sarbanes-Oxley Act prohibit auditors from providing bookkeeping services to their public company audit clients.

TRUE OR FALSE

A

TRUE

64
Q

Under the interpretations to the AICPA Code, independence is considered to be impaired if fees remain unpaid for professional services provided more than six months before the date of the current year’s report.

TRUE OR FALSE

A

FALSE

Interpretations indicate that independence is considered impaired if billed or unbilled fees remain unpaid for professional services provided more than one year before the date of the report.

65
Q

Auditors are allowed to have an indirect financial interest in an audit client, such as ownership of stock in a client’s company by the auditor’s brother, as long as the amount of the financial interest is immaterial to the brother.

TRUE OR FALSE

A

TRUE

66
Q

CPA firms are required to be independent when performing any professional service.

TRUE OR FALSE

A

FALSE

67
Q

The prohibition on direct financial interests applies to covered members in a position to influence an engagement.

TRUE OR FALSE

A

TRUE

68
Q

All litigation by a client related to tax or other nonaudit services will impair independence.

TRUE OR FALSE

A

FALSE

Litigation by the client related to tax or other nonaudit services for an amount that is immaterial, or litigation against both the client and the CPA firm by another party, does not usually impair independence.

69
Q

Under Sarbanes-Oxley, the audit committee of a public company

A) must meet on a monthly basis.

B) must be comprised entirely of financial experts.

C) is responsible for the oversight of the work of the independent auditor.

D) should have at least one independent member.

A

C) is responsible for the oversight of the work of the independent auditor.

70
Q

Which of the following statements is true with respect to audit committees?

A) Audit committee members should consist of members of the company’s management.

B) All members of the audit committee must be financial experts.

C) The audit committee of a public company is responsible for hiring the auditor.

D) Audit committees must have a minimum of ten members.

A

C) The audit committee of a public company is responsible for hiring the auditor.

71
Q

The provisions of the Sarbanes-Oxley Act are most likely to allow which of the following non-audit services for audit clients?

A) appraisal or valuation services (e.g., pension, post-employment benefit liabilities)

B) financial information systems design and implementation

C) internal audit outsourcing

D) tax consulting

A

D) tax consulting

72
Q

Which of the following services are allowed by the SEC whenever a CPA also audits the company?

A) internal audit outsourcing

B) legal services unrelated to the audit

C) appraisal or valuation services

D) services related to assessing the effectiveness of internal control over financial reporting

A

D) services related to assessing the effectiveness of internal control over financial reporting

73
Q

Which of the following services is notprohibited by the SEC whenever a CPA also audits the company?

A) actuarial services

B) assisting the company in preparing certain SEC registration statements (e.g., 10-Q, 10-K)

C) investment banker services

D) bookkeeping services

A

B) assisting the company in preparing certain SEC registration statements (e.g., 10-Q, 10-K)

74
Q

The members of a client’s “audit committee” should be

A) members of management.

B) directors who are not a part of company management.

C) non-directors and non-managers.

D) directors and managers.

A

B) directors who are not a part of company management.

75
Q

The Sarbanes-Oxley Act requires a cooling off period of ________ before a member of an audit team can work for a client in a key management position?

A) one year

B) eighteen months

C) three years

D) five years

A

A) one year

76
Q

Which of the following is an accurate statement?

A) Auditing standards detail the requirements that a CPA firm must follow when it is requested to provide an opinion on the application of accounting principles for a client of another CPA firm.

B) SEC rules prohibit ownership in audit clients by those persons who can influence the audit.

C) PCAOB rules require a CPA firm, before its selection as the company’s auditor to document all relationships between the firm and the company.

D) All of the above are accurate statements.

A

D) All of the above are accurate statements.

77
Q

Companies are required to disclose in their proxy statement or annual filings with the SEC the total amount of audit and non-audit fees paid to the audit firm for the two most recent years. Which of the following is notone of the categories of fees that must be disclosed?

A) tax fees

B) consulting fees

C) audit-related fees

D) all other fees

A

B) consulting fees

78
Q

A public company may obtain internal audit services from their financial statement auditor if it is approved by the company’s audit committee.

TRUE OR FALSE

A

FALSE

79
Q

For a public company, the Sarbanes-Oxley Act requires audit committee approval of all nonaudit services prior to their performance by the company’s external auditor.

TRUE OR FALSE

A

TRUE

80
Q

The CPA must notsubordinate his or her professional judgment to that of others in any

A) engagement.

B) audit engagement.

C) engagement excluding tax services.

D) engagement where the opinion of a specialist is used.

A

A) engagement.

81
Q

Under the rules and interpretations of the AICPA Code,

A) a CPA can be a client advocate during an audit, but not while performing tax or management services.

B) staff auditors should always defer to the judgment of their immediate supervisor.

C) a conflict of interest is a relationship that might interfere with objectivity or integrity.

D) even if a conflict of interest is disclosed to the member’s client or employer, it is still considered a violation of the rules of conduct.

A

C) a conflict of interest is a relationship that might interfere with objectivity or integrity.

82
Q

Several months after an unqualified audit report was issued, the auditor discovers the financial statements were materially misstated. The client’s CEO agrees that there are misstatements, but refuses to correct them. She claims that “confidentiality” prevents the CPA from informing anyone. Which of the following statements is correct?

A) The CEO is correct and the auditor must maintain confidentiality.

B) The CEO is incorrect, but since the audit report has been issued, it is too late to correct the report.

C) The CEO is correct, but to be ethically correct, the auditor should violate the confidentiality rule and disclose the error.

D) The CEO is incorrect, and the auditor has an obligation to issue a revised audit report, even if the CEO will not correct the financial statements.

A

D) The CEO is incorrect, and the auditor has an obligation to issue a revised audit report, even if the CEO will not correct the financial statements.

83
Q

A CPA firm may charge a contingent fee for

A) an audit.

B) consulting services for a client for which they do not perform any attestation services.

C) the preparation of an original tax return for a client for which they do not perform any attestation services.

D) the preparation of an amended tax return.

A

B) consulting services for a client for which they do not perform any attestation services.

84
Q

The AICPA’s Code of Professional Conduct states that a CPA should maintain integrity and objectivity. The term “objectivity” in the Code refers to a CPA’s ability to

A) choose independently between alternate accounting principles and auditing standards.

B) distinguish between accounting practices that are acceptable and those that are not.

C) be unyielding in all matters dealing with auditing procedures.

D) maintain an impartial attitude on matters that come under the CPA’s review.

A

D) maintain an impartial attitude on matters that come under the CPA’s review.

85
Q

Which of the following is required for a firm to designate itself “Member of the American Institute of Certified Public Accountants” on its letterhead?

A) At least one of the owners must be a member of the AICPA.

B) All CPA owners must be members of the AICPA.

C) The CPA owners whose names appear in the firm name must be members of the AICPA.

D) A majority of the owners must be members of the AICPA.

A

B) All CPA owners must be members of the AICPA.

86
Q

CPAs are prohibited from which of the following forms of advertising?

A) self-laudatory advertising

B) celebrity endorsement advertising

C) use of trade names, such as “Awesome Auditors”

D) use of phrases, such as “Guaranteed largest tax refunds in town!”

A

D) use of phrases, such as “Guaranteed largest tax refunds in town!”

87
Q

Which of the following would be considered a violation of the AICPA Code of Conduct?

A) The CPA makes the audit files available to the client’s bank without the permission of the client.

B) The CPA firm charges a contingent fee for nonattestation services to a client for whom he does not perform any attestation services.

C) The CPA firm takes a prospective client to lunch to discuss auditing services.

D) A CPA firm uses the name San Diego Tax Specialists.

A

A) The CPA makes the audit files available to the client’s bank without the permission of the client.

88
Q

The AICPA’s Code of Professional Conduct requires CPAs to maintain the confidentiality of client information. This rule would be violated if a CPA disclosed information without a client’s consent as a result of a

A) subpoena or summons.

B) peer review.

C) complaint filed with the trial board of the Institute.

D) request by a client’s largest stockholder.

A

D) request by a client’s largest stockholder.

89
Q

Which one of the following statements is false?

A) Confidentiality is broken when an auditor is presented with a subpoena concerning an audit client.

B) Information that a CPA obtains from a client is generally not privileged.

C) When a CPA firm conducts an AICPA-authorized peer review of the quality controls of another CPA firm, permission of the client is not needed to examine audit documentation.

D) A CPA firm which observes substandard audit documentation of another firm during a peer review can initiate a complaint to the AICPA.

A

A) Confidentiality is broken when an auditor is presented with a subpoena concerning an audit client.

90
Q

A CPA firm

A) can sell securities to a client for whom they perform an attestation service.

B) can receive a commission for a client that they are engaged to perform an attestation service for.

C) cannot receive a referral fee for recommending the services of another CPA.

D) can receive a commission from a nonattestation client as long as the situation is disclosed.

A

D) can receive a commission from a nonattestation client as long as the situation is disclosed.

91
Q

Which of the following represents all of the ways a CPA firm can be organized?

A) proprietorships and partnerships

B) proprietorships, partnerships, and professional corporations

C) proprietorships, general partnerships, general corporations, professional corporations, limited liability companies, and limited liability partnerships if permitted by state law

D) single proprietorships, partnerships, professional corporations if permitted by state law, or regular corporations

A

C) proprietorships, general partnerships, general corporations, professional corporations, limited liability companies, and limited liability partnerships if permitted by state law

92
Q

In which of the following circumstances would a CPA be ethically bound to refrain from disclosing any confidential client information?

A) The CPA is issued a summons enforceable by a court order which orders the CPA to present confidential information.

B) A major stockholder of a client company seeks accounting information from the CPA after management declined to disclose the requested information.

C) The confidential client information is made available as part of a quality review of the CPA’s practice by a peer review team authorized by the AICPA.

D) An inquiry by a disciplinary body of a state CPA society requests confidential client information.

A

B) A major stockholder of a client company seeks accounting information from the CPA after management declined to disclose the requested information.

93
Q

Which of the following fee arrangements is nota violation of the AICPA’s Code of Professional Conduct?

A) basing fees as an expert witness on the amount awarded to the plaintiff, even though the CPA performs a compilation for client use

B) basing consulting fees on a percentage of a bond issue, even though the CPA performs a review of the client’s financial statements

C) basing fees for a tax service on the amount of the refund that the client will receive

D) basing consulting fees on a percentage of a bond issue, even though the CPA performs an audit of the client’s financial statements

A

A) basing fees as an expert witness on the amount awarded to the plaintiff, even though the CPA performs a compilation for client use

94
Q

Which of the following is notdefined as an act discreditable in either the Rules or the Interpretations of the AICPA’s Code of Professional Conduct?

A) The CPA firm’s partner in charge failed to file his tax return for the past year.

B) The CPA firm discriminates in its hiring practices based on the age of the applicant.

C) The CPA retains the client’s books and records to enforce past-due payment of the CPA’s bill, even after the client has demanded they be returned.

D) The CPA firm’s partner-in-charge was a passenger in a car driven by his wife. On the way home from the firm’s Christmas party, she was charged with “driving while intoxicated.”

A

D) The CPA firm’s partner-in-charge was a passenger in a car driven by his wife. On the way home from the firm’s Christmas party, she was charged with “driving while intoxicated.”

95
Q

Freedom from ________ means the absence of relationships that might interfere with objectivity or integrity.

A) independence

B) acts discreditable

C) impartiality

D) conflicts of interest

A

D) conflicts of interest

96
Q

Membership in the AICPA can be terminated without a hearing for

A) a crime punishable by imprisonment for more than one year.

B) the filing of a fraudulent income tax return on a client’s behalf.

C) the willful failure of a CPA to file their own personal tax return.

D) all of the above.

A

D) all of the above.

97
Q

Which of the following activities is allowed for a CPA firm’s attestation clients?

A) contingent fees fixed by a court

B) commissions for referring a review client to an insurance agency for insurance coverage

C) preparation of tax returns for which fees are based upon client refunds

D) each of the above is allowed

A

A) contingent fees fixed by a court

98
Q

Imprisonment for a period of six months or longer will result in automatic expulsion from the AICPA.

TRUE OR FALSE

A

FALSE

99
Q

Under the Form of Organization and Name rule, a CPA firm is prohibited from practicing as a limited liability partnership.

TRUE OR FALSE

A

FALSE

100
Q

A CPA firm may use any name as long as it is not misleading.

TRUE OR FALSE

A

TRUE

101
Q

A CPA firm may practice public accounting only in a form of organization permitted by federal law or regulation.

TRUE OR FALSE

A

FALSE

102
Q

Under the Confidential Client Information rule, permission is notrequired from the client to use the audit documentation relating to that client during an AICPA authorized peer review program with another CPA firm.

TRUE OR FALSE

A

TRUE

103
Q

Information obtained by a CPA from a client is legally privileged in federal court.

TRUE OR FALSE

A

FALSE

104
Q

Members of the AICPA in public practice are prohibited from performing comparative advertising.

TRUE OR FALSE

A

FALSE

105
Q

Under the Form of Organization and Name rule, a CPA firm may notdesignate itself as “Members of the American Institute of Certified Public Accountants” unless a majority of its owners are members of the Institute.

TRUE OR FALSE

A

FALSE

106
Q

Under the AICPA’s Code of Professional Conduct, CPAs are prohibited from offering audit clients a discount for referring a prospective client even if they are disclosed.

TRUE OR FALSE

A

FALSE

107
Q

All owners of a CPA firm must be CPAs who are qualified to practice.

TRUE OR FALSE

A

FALSE

108
Q

If the board of accountancy in the state in which a CPA firm is licensed has rules that are different than the AICPA’s rules, the CPA firm must follow

A) whichever rules are less restrictive.

B) whichever rules are more restrictive.

C) the rules of the AICPA.

D) the rules of the state’s board of accountancy.

A

B) whichever rules are more restrictive.

109
Q

Which of the following is a true statement regarding the enforcement mechanism for CPA conduct?

A) The PCAOB has the authority to investigate and discipline registered public accounting firms.

B) All disciplinary action by the AICPA must go through the Joint Trial Board.

C) Disciplinary actions taken by the AICPA are not disclosed to the public.

D) Only a few states have adopted the AICPA rules of conduct.

A

A) The PCAOB has the authority to investigate and discipline registered public accounting firms.

110
Q

Expulsion from the AICPA for failing to follow the rules of conduct is, by itself, sufficient to prevent a CPA from practicing public accounting.

TRUE OR FALSE

A

FALSE

ACG 5627 (14 decks)

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