Terms in this set (88)
Which AICPA Conduct Rule applies only to members in the practice of public accounting?
The AICPA Code of Professional Conduct
Expects the CPA to honor the public trust.
Which of the following statements best explains why the CPA profession has found it essential to establish ethical standards and means for ensuring their observance?
A distinguishing mark of a profession is its acceptance of responsibility to the public.
The AICPA Code of Professional Conduct contains both general ethical principles that are aspirational in character and also a
Set of specific, mandatory rules describing minimum levels of conduct a member must maintain.
The AICPA Code of Professional Conduct does not include enforceable Rules of Conduct on which of the following?
Responsibilities to colleagues.
CPAs are required to complete engagements competently. Competence includes all of the following except
An unbiased mental attitude.
When management refuses to disclose material noncompliance with laws and regulations identified by the independent auditor, the independent auditor may be charged with violating the AICPA Code of Professional Conduct for
Disclaiming an opinion.
Which of the following most completely describes how independence has been defined by the accounting profession?
Possessing the ability to act with integrity and objectivity.
Jaye B. Honest, CPA, was offered the engagement to audit Wicket Corporation for the year ended June 30, Year 3. She had served as a director of Wicket Corporation until June 30, Year 1, and her spouse currently owns 600 of the 10,000 outstanding shares of Wicket Corporation. Jaye disassociated from Wicket prior to being offered the engagement. Moreover, the engagement does not cover any period that includes Jaye's association or employment with Wicket. Under the AICPA Code of Professional Conduct, she should
Refuse the engagement because of her spouse's stock ownership.
The Conceptual Framework for AICPA Independence Standards
Adopts a risk-based approach to analysis of independence matters.
An auditor strives to achieve independence in appearance to
Maintain public confidence in the profession.
The concept of materiality is least important to an auditor when considering the
Effects of a direct financial interest in the client on the CPA's independence.
Dickins & Co., CPAs, offers to maintain on its computer certain routine accounting records for its audit client, Lake. If Lake accepts the offer and Dickins & Co. continues to function as independent auditor, Dickins & Co. is most likely to violate the rules relating to auditor's independence of which organization(s)?
A CPA who has a direct financial interest in a nonclient having a material investment in the CPA's audit client
Under the ethical standards of the profession, which of the following situations involving nondependent members of an auditor's family is most likely to impair the independence of an individual participating in an audit engagement?
A spouse's employment with a client.
Jordan is the executive partner of Cain & Jordan, CPAs. One of its clients is a large nonprofit charitable organization. The organization has asked Jordan to be on its board of directors, which consists of a large number of the community's leaders. For Jordan to be considered independent, which of the following requirements must be met?
A CPA purchased stock in an audit client corporation and placed it in a revocable educational trust for the CPA's dependent minor child. The trust securities were not material to the CPA but were material to the child's personal net worth. Is the independence of the CPA considered to be impaired with respect to the client?
Yes, because the stock is considered a direct financial interest and, consequently, materiality is not a factor.
Under the Code's Independence Rule, which of the following must be independent in the performance of an audit?
All individuals on the attest engagement team, except those performing routine clerical functions.
The appearance of independence of a CPA, or that CPA's firm, is most likely to be impaired if the CPA
Serves as an executor and trustee of the estate of an individual who owned the majority of the stock of a closely held client corporation.
In which of the following circumstances will a CPA who audits XM Corporation lack independence?
The CPA and XM's president each own 25% of FOB Corporation, a closely held company.
Under the AICPA Code of Professional Conduct, a covered member is most likely not permitted to
Have any joint closely held investment with a principal shareholder of an audit client during the period of the audit engagement.
According to the profession's ethical standards, an auditor would be considered independent in which of the following instances?
The auditor's checking account, which is fully insured by a federal agency, is held at a client financial institution.
A CPA audits the financial statements of a local bank. According to the AICPA Code of Professional Conduct, the appearance of independence ordinarily is not impaired if the CPA
Uses the bank's time-sharing computer service to solve client-related problems.
The Code prohibits loans to a covered member from a client financial institution except for certain permitted loans made under normal lending procedures, terms, and requirements. When making the comparison between the terms of the member's loan and those of other borrowers, which item(s) should be considered in the determination of normal lending procedures?
All of the answers are correct.
In which of the following instances is the independence of the CPA most likely not considered to be impaired? The CPA has been retained as the auditor of a
Credit union of which the CPA is a member.
A CPA who performs primary actuarial services for a nonissuer client normally is precluded from expressing an opinion on the financial statements of that client if the
CPA prepared an actuarial report using assumptions not approved by the client.
Which of the following legal situations would be considered to impair the auditor's independence?
Actual litigation by the auditor against the current management alleging management fraud or deceit.
In which of the following situations would a covered member's independence be considered to be impaired?
l. The covered member maintains a checking account that is fully insured by a government deposit insurance agency at an audit-client financial institution.
ll. The covered member has a direct financial interest in an audit client, but the interest is maintained in a blind trust.
lll. The covered member owns a commercial building and leases it to an audit client. The lease is properly classified as a capital lease, and the rental income is material to the CPA.
II and III.
According to the profession's ethical standards, a CPA is considered independent in which of the following instances?
The CPA belongs to a country club client in which membership requires the acquisition of a pro rata share of equity.
An audit independence issue might be raised by the auditor's participation in consulting services engagements. Which of the following statements is most consistent with the profession's attitude toward this issue?
The auditor should not make management decisions for an audit client.
Which of the following does not impair a CPA's independence?
The client is in bankruptcy and has not paid fees related to the previous year's audit.
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 field work for the current year's audit. Under the ethical standards of the profession, which of the following arrangements will permit Burrow to begin the field work on Mare's audit?
Mare commits to pay the past due fee in full before the audit report is issued.
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.
Within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, an accountant deemed to be independent with regard to a specific entity must
l. Confirm in writing its independence from the audit client.
ll. Have no relationships with the audit client.
lll. Discuss its independence with the audit committee.
I and III only.
A CPA who is employed by a nonaccounting corporation performs services for the employer, including auditing the employer's financial statements. Reports issued with respect to such activities are distributed with the CPA's name and CPA designation appearing on the corporate letterhead. These reports should
Make no reference to GAAS.
Which of the following is prohibited by the AICPA Code of Professional Conduct?
Prematurely expressing an opinion based on an audit because of time pressures from the client.
A CPA most likely does not violate the Code's Integrity and Objectivity Rule, if the CPA
Performs expert witness services for a nonissuer attest client that is one of many plaintiffs in a class action lawsuit.
Which of the following acts by a CPA who is not in public practice is most likely to be a violation of the ethical standards of the profession?
Using the CPA designation without disclosing employment status in connection with financial statements issued for external use by the CPA's employer.
The AICPA Code of Professional Conduct states, in part, that a CPA should maintain integrity and objectivity. Objectivity in the Code refers to a CPA's ability
To maintain an impartial attitude on all matters that come under the CPA's review.
A violation of the profession's ethical standards would most likely have occurred when a CPA in public practice
Serves on a municipal board of income tax appeals, discloses that status to concerned parties, participates as a board member in a tax appeal involving a client, but does not receive the client's consent for such action.
Eagle Company's financial statements contain a departure from generally accepted accounting principles because, due to unusual circumstances, the statements would otherwise be misleading. The auditor should express an opinion that is
Unmodified and describe the departure in an other-matter paragraph.
The General Standards Rule does not require a member to
Provide assurance about prospective financial statements.
Ann Covington, CPA, has been asked to perform a consulting services engagement concerning the analysis of a potential merger. She has little experience with the industry involved. What is her most appropriate action?
Accept the engagement and perform additional research or consult with others to obtain sufficient competence.
According to the standards of the profession, which of the following activities may be required in exercising due professional care?
When a CPA is associated with financial statements that do not comply with promulgated GAAP because the statements would be misleading without the departure, the CPA is not required to disclose
The reason the departure does not have a material effect on the statements.
Under the AICPA Code of Professional Conduct, a CPA may express an unmodified opinion on financial statements that contain a departure from GAAP if (s)he can demonstrate that because of unusual circumstances the financial statements would be misleading if the departure were not made. Which of the following is an example of unusual circumstances that could justify such a departure?
The evolution of a new form of business.
Which of the following statements concerning an accountant's disclosure of confidential client data is ordinarily true?
Disclosure may be made to any party on consent of the client.
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.
A CPA's retention of client-provided records after a demand has been made for them is an action that is
Prohibited under the AICPA Code of Professional Conduct.
A member of the AICPA may render which service under a contingent fee arrangement?
A CPA provides investment advisory services, with the fee based on a percentage of the client's investment portfolio.
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.
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.
Thorp, CPA, was engaged to audit Ivor Co.'s financial statements. During the audit, Thorp discovered that Ivor's inventory contained stolen goods. Ivor was indicted and Thorp was subpoenaed to testify at the criminal trial in state court. Ivor claimed accountant-client privilege to prevent Thorp from testifying. Which of the following statements is most likely true regarding Ivor's claim?
Ivor can claim an accountant-client privilege only in jurisdictions that have enacted a statute creating such a privilege.
The AICPA Code of Professional Conduct is violated if a CPA accepts a fee for services and the fee is
Payable after a specified finding is attained in a review of financial statements.
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.
An issuer client who disagrees with the independent auditor on a significant matter affecting its financial statements has several courses of action. Which of the following courses of action would be inappropriate?
Appeal to the FASB to review the significant matter.
According to the AICPA Code of Professional Conduct, under which of the following circumstances may a CPA receive a contingent fee for services?
Representing a client in an IRS examination of the client's federal income tax return.
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.
Advertising or other forms of solicitation that are false, misleading, or deceptive are not in the public interest, and AICPA members in public practice shall not seek to obtain clients in such a manner. Such activities include all the following except those that
Indicate the CPA's educational and professional attainments.
The profession's ethical standards most likely are violated when a CPA represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representation that the
Actual fee would be substantially higher.
Ann Able, CPA, is considering forming a partnership with Ben Brown for the purpose of practicing public accounting. Which of the following is true?
Brown need not be a CPA if the partnership does not represent itself as a partnership of CPAs.
Based on the Code of Professional Conduct, a CPA
May not, upon leaving a firm, take any of the firm's client files without permission.
Inclusion of which of the following statements in a CPA's advertisement is not acceptable pursuant to the AICPA Code of Professional Conduct?
Certified Public Accountant
Endorsed by AICPA
Richard, CPA, performs compilation services for Norton Corporation, a nonpublic entity. The compilation reports issued by Richard disclose lack of independence and are not used by third parties. Richard has accepted a commission from a software company for recommending its products to Norton. The commission agreement was disclosed to Norton. Richard also refers Norton to Cruz, CPA, who is more competent with respect to engagements involving the industry in which Norton operates. Cruz performs an audit of Norton's financial statements and subsequently remits to Richard a portion of the fee collected. The referral fee agreement was likewise disclosed to Norton. Richard accepts the fee. Who, if anyone, has violated the Code of Professional Conduct?
Neither Richard nor Cruz.
A violation of the profession's ethical standards most likely occurs when a CPA
Receives as a commission a percentage of the amounts invested by the CPA's audit clients in a tax shelter with the client's knowledge and approval.
Under the Form of Organization and Name Rule, and the related resolution of the AICPA Council, which of the following is a characteristic of a form of organization in which a member may practice public accounting?
A majority of the ownership of the firm must belong to CPAs.
Which of the following is required for a CPA firm to designate itself as "Members of the American Institute of Certified Public Accountants" on its letterhead?
All CPA owners must be members.
A violation of the profession's ethical standards most likely occurs when a CPA who
Maintains a separate, distinct practice but forms an association with other CPAs for joint advertising. The group practices public accounting under the association's name.
Which action is not considered a discreditable act under the Code's Acts Discreditable Rule?
A CPA has a bank collect notes received from a client in payment of fees.
Which of the following violates the AICPA's Code of Professional Conduct?
A member shares offices with another member. Their joint letterhead implies that a partnership exists when each member is in fact practicing individually.
Which is most likely a violation of the AICPA Code of Professional Conduct?
A member does not timely file his or her own personal federal income tax return.
According to SEC independence regulations,
Preapproval of accountants' services may be in accord with detailed policies and procedures rather than explicit.
According to the PCAOB, an accounting firm's independence is least likely to be impaired if the firm
Has an audit client that employs a former firm professional.
According to the PCAOB, an accounting firm is most likely to be independent of its audit client if
The firm recommended an aggressive tax position to the client that is more likely than not to be legally allowed.
The IFAC's Code of Ethics for Professional Accountants considers threats to compliance with fundamental principles and safeguards that eliminate or reduce them. Threats may involve
Familiarity, such as an immediate relative's service as a director of the client.
Under the IFAC's Code of Ethics for Professional Accountants, independence is most likely impaired when
An immediate family member of a member of the audit team is a director of the client.
According to the IFAC's Code of Ethics for Professional Accountants section on professional appointment,
An accountant generally needs the client's permission to communicate with the current accountant.
Under the IFAC's Code of Ethics for Professional Accountants,
An accountant in public practice may accept an inconsequential gift from a client.
The Sarbanes-Oxley Act limits the nonaudit services that an audit firm can provide to issuer audit clients. Which of the following services is still an allowable service that an auditor may provide to an issuer client?
Tax compliance services.
Inspections performed by the PCAOB focus on quality control of registered CPA firms that perform audits of public companies (issuers). As required by the Sarbanes-Oxley Act, inspections determine all of the following except that
Only staff with prior experience work on audits.
The Sarbanes-Oxley Act of 2002 has strengthened auditor independence by requiring that management of a public company
Select auditors through audit committees.
When Congress passed the Sarbanes-Oxley Act of 2002, it imposed greater regulation on public companies and their auditors and required increased accountability. Which of the following is not a provision of the act?
Audit firms must be rotated on a periodic basis.
Which of the following most likely is an allowable service that an auditor may provide to a public client?
Tax compliance services.
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.
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.
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.
When a former partner of a registered public accounting firm who left the firm 2 years ago accepts a financial reporting oversight role at an issuer audit client, the independence of the registered public accounting firm is considered impaired unless which of the following is true?
The former partner has no remaining capital balance in the registered public accounting firm.
Each of the following is a required attribute of an issuer's audit committee financial expert except
Significant audit experience as a certified public accountant.
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