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31 terms

Ch 3 MC

Modern Auditing 8th Edition
STUDY
PLAY
The profession's ethical standards would most likely be considered to have been violated when a CPA
Issued a report on a financial forecast that omitted a caution regarding achievability.
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.
The ethical standards of the profession would most likely be considered to be violated if a CPA
Owns a building and leases a portion of the space to an audit client.
The materiality concept would be least important to an auditor when considering the
Effects of a direct financial interest in the client on the CPA's independence.
Which of these nonaudit services is allowed for public audit clients under rules of the PCAOB?
None of these
Which one of the following is allowed under the AICPA Code of Professional Conduct?
Joint, closely-held investments with audit clients that are immaterial to the CPA.
The AICPA Code of Professional Conduct states that a CPA shall not disclose any confidential information obtained in the course of a professional engagement except with the consent of the client. This rule should be understood to preclude a CPA from responding to an inquiry made by
A CPA shareholder of the client corporation.
A CPA=s retention of client records as a means of enforcing payment of an overdue audit fee is an action that is
Prohibited under the AICPA Code of Professional Conduct.
According to the AICPA Rules of Conduct, contingent fees are permitted for which engagement?
Consulting services.
Brown, a non CPA, has a law practice. Brown has recommended one of his clients to Morrison, CPA. Morrison has agreed to pay Brown 10 percent of the fee for services rendered by Morrison to Brown's client and has informed this client about the referral fee. Who, if anyone, is in violation of the Code of Professional Conduct?
Neither Brown nor Morrison.
Below are the names of four CPA firms and pertinent facts relating to each firm. Unless otherwise indicated, the individuals named are CPAs and partners, and there are no other partners. Which firm name and related facts indicates a violation of the AICPA Code of Professional Conduct?
George and Howard, CPAs (Howard died three years ago; George is continuing the firm as a sole proprietorship).
Under procedures administered by the Professional Ethics Division of the AICPA, if a member is found in violation of the Code of Professional Conduct, the Joint Trial Board may impose any of the following penalties except
Revocation of the member=s license to practice.
A CPA=s license to practice will ordinarily be suspended or revoked automatically for
Conviction of willful failure to file personal income tax returns.
Which of the following would impair the CPA's independence under strict interpretation of the Code of Professional Conduct?
a manager in the Chicago office of a CPA firm owns stock in a company currently audited by the Chicago office
The CPA may receive a commission for recommending services to a client for which of the following engagements, provided the client is informed?
Regular or amended tax returns
Which of these would be an AAct Discreditable to the profession by you under the Code of Professional Conduct?
Being sued for ordinary negligence by your audit client and losing
Under the latest Code of Professional Conduct, a contingent fee may be charged on which of the following engagements?
None of these
Under the latest Code of Professional Conduct, a member of the AICPA may pay a commission to a third party for referring business to the CPA (assuming the client is informed of the commission) for which engagement?
all of these
Which of the following is not an acceptable form of organization for a CPA practice?
General Corporation
Which of the following would not impair the independence of the CPA?
Threatened litigation by the audit client against the CPA for consulting services.
The AICPA Code of Professional Conduct contains both principles that are aspirational in character and also a
set of specific, mandatory rules describing minimum levels of conduct the CPA must maintain.
The AICPA rule on integrity and objectivity applies to
CPAs in public practice - yes; CPAs in industry - yes
According to the profession's ethical standards, an auditor would be considered independent in which of the following instances?
A professional employee, who does not work on the audit, has a spouse who is a marketing manager for an audit client
A CPA who is a "covered person" 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 impaired with respect to the client?
Yes, because the stock would be considered a direct financial interest and, consequently, materiality is not a factor
Under the AICPA ethics rules on independence, which of the following individuals would NOT be a covered member?
tax partner in another office who provides 9 hours of tax services to the audit client.
Fred Fastfoot is a chief financial officer of a not-for-profit organization, and a CPA. Fred was also a member of the AICPA. At year-end Fred accepted the word of a CEO and booked a loan from a bank as contribution income. The CEO represented that the loan had been forgiven as a contribution from the bank to the not-for-profit organization. Fred made no investigation to obtain evidence that the loan was forgiven. Subsequently it was learned that the loan had not been forgiven, and that the financial statements were materially misstated.
Fred violated rule 102 on integrity and objectivity because he subordinated judgment to his boss, the CEO, without making any investigation of his own
Which of the following best describes independence in fact?
Independence in fact refers to a CPAs state of mind - yes; Independence in fact refers to being unbiased and not subordinating the public trust - yes
Which of the following best describes the independence requirements for a close relative of a covered member?
A close relative cannot hold a key position with an audit client
Which of the following legal situations would be considered to impair the auditor's independence?
actual litigation by the auditor against the present management alleging management fraud or deceit
Which of the following non-audit service would impair independence for an auditor of a private company?
When performing benefit plan administration a CPA may maintains custody of client securities.
Without the consent of the client, a CPA should not disclose confidential client information contained in working papers to a
CPA firm that is a likely successor auditor