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Flashcards in section 2 Deck (33):

During a consulting engagement, a CPA must act with


Intg and obj


Which of the following would impair a CPA’s independence in regards to attest clients?

I. The CPA is a member of the same exclusive country club as the CEO of the client company.

II. The CPA prepares routine invoices for the client.

III. The CPA has a money market account with a financial institution client; the account in excess of insured amounts is immaterial to the CPA’s net worth.

2 only


Which of the following statements is true regarding confidentiality?

An auditor may allow other accountants and the PCAOB to see confidential information in connection with a valid program of peer review.


Which of the following statements are true regarding the ethical requirements of the profession?

In some circumstances it may be reasonable and necessary for the accountant to retain client records in order to ensure client payment for work performed.
It is acceptable to charge a contingent fee for filing an amended tax return in a case where the client had inadvertently omitted a common deduction in the original return.



Which statement is true regarding a situation where an auditor agrees to become an employee of an audit client?

The next annual audit must be separately reviewed by an audit firm professional uninvolved in the audit.


According to the profession’s standards, which of the following statements is correct regarding the standards a CPA should follow when recommending tax return positions and preparing tax returns?

I. The practitioner should not recommend a position or prepare or sign a tax return taking a position that the practitioner does not believe in good faith will have at least a remote possibility of being sustained on its merits.
II. The practitioner should be aware that the ‘reasonable basis’ of success standard is generally understood to mean that there is approximately a 20% likelihood that a tax position will be sustained on the basis of its merits.
III. At a minimum, the practitioner should recommend a position or prepare or sign a tax return taking a position in support of which the practitioner can present a well-documented argument.



Weller, CPA is conducting an audit of Wadd, LLC. Weller wishes to independently perform procedures to validate assumptions inherent in certain reserve accounts on Wadd’s balance sheet. The CEO of Wadd asks if Weller could rely primarily on Wadd’s own internal support for the accounts, citing a pressing need to provide audited financial statements to prospective investors as soon as possible, and as a sign of Wadd’s gratitude, presents Weller with valuable tickets to a sporting event. What category of threat to independence is Weller being subjected to?

Undue infl


Under the ethical standards of the profession, which of the following investments in a client is not considered to be a direct financial interest?

An investment held through a nonclient regulated mutual fund.


Under the ethical standards of the profession, which of the following business relationships would generally not impair an auditor's independence?

Advisor to a client's board of trustees.


Each of the following broker-dealer relationships impairs auditor independence with respect to a broker-dealer issuer audit client, except:

The auditor has a cash balance in a brokerage account that is fully covered by the Securities Investor Protection Corporation.


Choose the correct statement(s) regarding the Public Company Accounting Oversight Board (PCAOB):

I. Public accounting firms must register with the PCAOB in order to perform audits of public companies.

II. The PCAOB is a private, nonprofit organization established in 1933.

III. Two of the five board members of the PCAOB are CPAs.

I and III


According to the standards of the profession, which of the following activities may be required in exercising due care?

I. Consulting with experts

II. Obtaining specialty accreditation

I only


hoose the correct statement(s) regarding corporate audit committees:

I. Corporate audit committees are responsible for establishing and maintaining effective internal control.
II. As established by the Sarbanes-Oxley Act of 2002, audit committees of issuer companies must be independent.
III. The audit committee consists of managers assigned from within the company to serve terms that usually last one ye



In which of the following circumstances would a covered member's independence be impaired with respect to an "issuer" client under PCAOB auditing standards?

The member owns municipal utility bonds issued by a client, and the bonds are not material to the member's wealth.


An issuer's auditor is prohibited from providing tax services to which of the following individuals?



On June 1, 20X0, a CPA obtained a $100,000 personal loan from a financial institution client for whom the CPA provided compilation services. The loan was fully secured and considered material to the CPA’s net worth. The CPA paid the loan in full on December 31, 20X0. On April 3, 20X1, the client asked the CPA to audit the client’s financial statements for the year ended December 31, 20X1. Is the CPA considered independent with respect to the audit of the client’s December 31, 20X1, financial statements?

Yes, because the CPA was not required to be independent at the time the loan was granted.


Under the ethical standards of the profession, which of the following investments by a CPA in a corporate client is an indirect financial interest?

An investment held through a regulated mutual fund.


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 CPA audits the financial 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?

The CPA authorizes client transactions and reports them to management.


Which of the following best describes the effect of a contingent fee arrangement on the auditor's independence?

The contingent fee arrangement impairs independence.


Under the Statements on Standards for Consulting Services, which of the following statements best reflects a CPA’s responsibility when undertaking a consulting services engagement? The CPA must

Inform the client of significant reservations concerning the benefits of the engagement.


Which of the following services may a CPA perform in carrying out a consulting service for a client?

I. Analysis of the client's accounting system.

II. Review of the client's prepared business plan.

III. Preparation of information for obtaining financing.



Which of the following services is a CPA generally required to perform when conducting a personal financial planning engagement?

Assisting the client to identify tasks that are essential in order to act on planning decisions.


To ensure that the audit report for an issuer is prepared in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the report must

Attest to and report on the internal control assessment made by the management of the issuer.


According to the standards of the profession, which of the following would be considered a part of a consulting service engagement?

I. Expressing a conclusion about the reliability of a client’s financial statements.

II. Reviewing and commenting on a client-prepared business plan.



According to Title III of the Sarbanes-Oxley Act of 2002, the CEO and CFO of a public company must explicitly certify in each annual or quarterly report which of the following?

I. That the signing officers reviewed the report.

II. That the signing officers cooperated fully with the audit performed by the auditing firm.

III.That the signing officers have evaluated the effectiveness of internal controls within 90 days prior to the report.

i and iii


At a confidential meeting, an audit client informed a CPA about the client's illegal insider-trading actions. A year later, the CPA was subpoenaed to appear in federal court to testify in a criminal trial against the client. The CPA was asked to testify to the meeting between the CPA and the client. After receiving immunity, the CPA should do which of the following?

Discuss the entire conversation including the illegal acts.


According to the standards of the profession, which of the following events would require a CPA performing a consulting services engagement for a nonaudit client to withdraw from the engagement?

I. The CPA has a conflict of interest that is disclosed to the client and the client consents to the CPA continuing the engagement.

II. The CPA fails to obtain a written understanding from the client concerning the scope of the engagement.

Neither I nor II


According to professional standards, which of the following circumstances will impair a CPA’s independence?

The CPA’s nondependent stepchild has a material indirect financial interest in the client.


Burrow & Co., CPAs, have provided annual audit and tax compliance services to Mare Corp. for several years. Mare has been unable to pay Burrow in full for services Burrow rendered 19 months ago. Burrow is ready to begin fieldwork for the current year’s audit. Under the ethical standards of the profession, which of the following arrangements will permit Burrow to begin the fieldwork on Mare’s audit?

Mare commits to pay the past due fee in full before the audit report is issued.


Of the five full-time members of the Public Company Accounting Oversight Board (PCAOB), how many are CPAs?

Exactly 2


According to the AICPA Code of Professional Conduct, which of the following disclosures of client information by a member CPA to an outside party would normally require client consent?

Disclosure of confidential client information to a third-party service provider when the member does not enter into a confidentiality agreement with the provider.


During an audit of the financial statements of a company, the CFO provides a spreadsheet to the audit team that contains a number of errors that are material to the financial statements. Under what circumstances would this situation be a violation of the rules of the Sarbanes-Oxley Act of 2002 on improper influence on the conduct of audits?

The audit team discovers the errors through alternate procedures when they discern that the spreadsheet was improperly manipulated by the CFO. This intentional conduct of the CFO does not succeed in affecting the audit.