Prof. Responsibilities & Ethics

Question 1

privilege

Answer 1

Communication between and CPA and client is not privileged in most jurisdictions.

Question 2

general rule of confidentiality

Answer 2

is divulging (make known) information in response to a valid subpoena or court order

Question 3

may a CPA receive a contingent fee for:

1. review
2. audit
3. examination of prospective fs

Answer 3

An accountant may not accept a contingent fee for the performance of any service for a client for whom the accountant performs an audit or review; a compilation of financial statements that are expected to be used by a third party when a lack of independence is not disclosed; or an examination of prospective financial information.

Question 4

when can CPA receive contingent fee

Answer 4

• engagement to represent a client in connection with obtaining a private letter ruling
• influencing the drafting of a regulation or statute
• representing a client in an examination of an income tax return
• filing an amended income tax return claiming a refund

Question 5

Title II of Sarbanes-Oxley prohibits a registered public accounting firm from performing

Answer 5

non attest services to attest client

except tax services

Question 6

when can CPA charge fees that are contingent upon finding a specific result

Answer 6

CPA may only 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

Question 7

One standard for consulting services requires

Answer 7

communication to the client of any significant reservations about the potential benefits of the engagement

Question 8

rule 404 of Sarbanes-Oxley requires

Answer 8

management to assess the effectiveness of internal control over financial reporting and requires the auditor to express an opinion on management’s assessment

Question 9

independence is impaired if

Answer 9

auditor takes on mgmt responsibilities.

1. performing bookkeeping services
2. management functions or human resources
3. internal audit outsourcing services

Question 10

consulting services

Answer 10

1. advisory services
2. EDP system implementation services
3. product services
4. transaction services
5. support services

Question 11

Rules issued under the Sarbanes-Oxley Act of 2002 restrict former members of an audit engagement team from accepting employment as a chief executive, chief financial or chief accounting officer, or controller of an audit client that files reports with the Securities and Exchange Commission. How many annual audit period(s) must be completed before such employment can be accepted?

Answer 11

one year

Question 12

procedures that can be performed regardless of whether or not there is an audit trail of documentary evidence and would be used by an auditor when performing tests of controls under those circumstances.

Answer 12

Inquiry and observation

Question 13

audit committee

Answer 13

must be independent

subcommittee of board of directors

Question 14

7 categories of threats to independence

Answer 14

1. adverse interest threat
2. advocacy threat
3. familiarity threat
4. management participation threat
5. self-interest threat
6. self-review threat
7. undue influence threat

Question 15

undue influence debt example

Answer 15

accepting gift from client

Question 16

adverse interest threat

Answer 16

some conflict, such as a lawsuit, between the CPA and the client

Question 17

familiarity threat results from a

Answer 17

long standing relationship with the client

Question 18

advocacy threat results from

Answer 18

the CPA supports or promotes the activities of the client

Question 19

Which Boards has the responsibility to regulate CPA firms that audit public companies

Answer 19

Public Company Accounting Oversight Board

PCAOB

Question 20

which organization has oversight and enforcement authority over the Public Company Accounting Board (PCAOB)

Answer 20

SEC

Securities and Exchange Commission

Question 21

FASB

Answer 21

FASB is the body designated by the SEC to have responsibility for GAAP

Question 22

PCAOB established when, and whose in it, and for what?

Answer 22

The PCAOB was established by the Sarbanes-Oxley Act of 2002

to oversee the audits of publicly held entities.

It requires CPA firms to register with the PCAOB before performing an audit of a public entity.

The board includes exactly two CPAs (out of 5 members)

Question 23

realistic possibility of success

Answer 23

(33% likelihood threshold)

Question 24

reasonable basis

Answer 24

20% likelihood

Question 25

direct financial interest

Answer 25

blind trust

retirement plan

participation in investment club

Question 26

indirect financial interest

Answer 26

regulated mutual fund

Question 27

The AICPA Statements on Responsibilities in Tax Practice is

Answer 27

merely advisory and has no formal administrative authority.