Deck 4: Professional Ethics and Auditor Responsibilities

Question 1

An ethical dilemma is one in which the choice of alternative actions affects the well being of other persons.

Answer 1

True

Question 2

Once a PA retires from a firm they are no longer required to maintain independence from former clients.

Answer 2

False

Question 3

"Let your conscience be your guide" is an ethical principle which fits all situations.

Answer 3

False

Question 4

Which of the following philosophical principles in ethics places emphasis on the importance of following rules rather than on weighing the consequences of actions?

A)Kantian principle
B)Utilitarian principle.
C)Consequentialism principle.
D)Moral principle.

Question 5

Rules of professional conduct provide some direct solutions to specific, profession-related problems that may not be easily derived from general theories of ethics.

Question 6

A succinct, but comprehensive definition of independence is that an auditor

A)Must be independent in fact and in appearance in order to maintain credibility.
B)Must not have a direct financial interest in a client.
C)Must have a license to practice as a public accountant.
D)Must not take on as an audit client a company owned by a member of his/her immediate family.

Question 7

A PA in a large firm has been asked to take over the audit of a client in the pharmaceutical industry from another PA who quit abruptly.The PA is unfamiliar with the pharmaceutical industry.The PA should trust that the work was properly planned by the previous PA and should follow that plan carefully.

Question 8

The ICAO Rules of Professional Conduct prohibit CAs from accepting commissions for recommending products or services to clients under any and all circumstances.

Question 9

The codified "Rules of Professional Conduct" derives its authority from the CICA Handbook.

Question 10

As self-regulating bodies, professional institutes have a duty to investigate all written complaints received about their members as well students accepted into their programs.

Question 11

In the "Rules of Professional Conduct", the set of very specific rules that flow from the general principles and are considered to be minimum standards.

Question 12

The fundamental principles of accepted conduct are only general guidelines, therefore they are not as important as the specific rules.

Question 13

What is a key characteristic of critical thinking?

A)It is a means of eliminating alternatives to arrive at one right answer.
B)It requires making the right assumptions to support an argument.
C)It requires a questioning mind.
D)It is a means of picking out things wrong with another person's argument.

Question 14

The "Rules of Professional Conduct" for professional accountants apply to services performed by members in both public and private practice.

Question 15

The ICAO Rules of Professional Conduct contain both general ethical principles that are idealistic in character and also a

A)List of violations that would cause the automatic suspension of a member's license.
B)Set of specific, mandatory rules describing minimum levels of conduct required of members.
C)Description of the procedures to be followed by a member who must respond to an inquiry from the disciplinary committee.
D)List of specific acts discreditable to the profession.

Question 16

The ICAO Rules of Professional Conduct allow advertising that praises the PA as long as the praise is based on verifiable facts.

Question 17

Which of the following philosophical principles of ethics places emphasis on the consequences of action, rather than on following the rules?

A)Imperative principle.
B)Utilitarianism principle.
C)Generalization principle.
D)Moral principle.

Question 18

Which of the following items is the most important principle in the "fundamental statements of accepted conduct"?

A)Maintain the reputation of the profession
B)Act with due care
C)Maintain independence
D)Act with professional courtesy

Question 19

A complaint has been made against a member for an audit failure.If this complaint is found to have merit, under which ICAO Rule of Professional Conduct is the member likely to be charged?

A)§ 202 Integrity and due care.
B)§ 204 Independence.
C)§ 210 Conflict of interest.
D)§ 215 Contingency fees.

Question 20

If a professional accountant is convicted of a criminal offense or fraud, they are usually thrown out of the profession.

Question 21

The duty of confidentiality requires a member to do what?

A)Not disclose client information under any circumstances.
B)Not disclose client information if it is deemed to be confidential.
C)Not disclose client information except before a provincial peer review committee.
D)Not disclose evidence of illegal acts to the relevant authorities.

Question 22

If a discipline committee requires a member to take continuing professional education, and the member fails to complete it in the required time, what is the likely further penalty?

A)More continuing education courses will be assigned.
B)The member will be fined or suspended from the institute.
C)The member will be expelled from the institute as a second offender.
D)The member will have to complete a period of supervised practice.

Question 23

In which of the following circumstances would a CA be in violation of the "Rules of
Professional Conduct" in quoting a fee to a client?

A)A fee fixed by a court.
B)A fee based on the approval of a bank loan.
C)A fee based on the time estimated to complete the engagement plus out-of-pocket expenses.
D)A fee bases on the complexity of the engagement.

Question 24

The interpretations related to the rules governing objectivity or independence allow

A)A member to hold a material indirect interest in a client.
B)A member to finance a home mortgage with a client if the mortgage is made under the client's normal lending procedures and terms.
C)A member's spouse to hold a position as a director of a client of a member.
D)A member to serve as a trustee of the pension fund of a client.

Question 25

Canada Customs and Revenue Agency has requested the taxes payable working papers of
ABC Co.from CA.CA should

A)Request client permission, and then provide the working papers.
B)Not provide the working papers nor discuss the matter with the client.
C)Inform the client that the working papers should not be provided.
D)Provide the working papers immediately to avoid tax problems.

Question 26

Competence and due care can best be described as:

A)Competence and due care both refer to the PA doing their best for their clients.
B)Competence refers to technical ability; due care refers to strictly following official pronouncements of accounting principles.
C)Competence is knowing what do.Due care is doing it to the best of one's abilities.
D)Competence and due care both refer to ongoing technical training.

Question 27

A client's management claims that they have to restrict an auditor's access to a research laboratory to protect the safety of the auditor.This could be an example of a lack of?

A)Programming independence.
B)Investigative independence.
C)Control independence.
D)Reporting independence.

Question 28

The familiarity threat refers to:

A)Becoming too sympathetic to a client's interests.
B)Providing assurance on one's own work.
C)Promoting a client's position or opinion.
D)Benefiting from a financial interest in a client.

Question 29

Ben Big is a partner in the Burnaby office of the national accounting firm of Price Brickhouse.He owns 1,000 shares of common stock in Public, Inc., an audit client of the firm.This amount is not material to his personal investments.The Public, Inc.audit is performed by the Toronto office.Ben Big has not informed the firm that he owns the shares.Required:
The situation above may involve a violation of one of the rules of professional conduct of the ICAO.State the rule in question and explain why or why not there is a violation of the rule.You need not refer to the rule number but should clearly describe the rule in question.

Question 30

What is the meaning of the rule of professional conduct that requires an auditor to be objective?

A)The auditor may have a material, indirect financial interest in a client's business as long as it does affect his or her judgement.
B)The auditor has an obligation to the CICA to not use their training to their personal advantage.
C)The auditor has an obligation to serve the needs of the audit client.
D)The auditor must have an attitude of professional skepticism toward an auditee's management.

Question 31

Wally Wide is the partner on the audit engagement of First National Bank for its fiscal year-end of January 31.Wally was recently promoted to partner.Based on his increase in income, Wally and his family bought a larger home.First National Bank had the most competitive mortgage rate so Wally obtained his mortgage loan from First National.
Wally paid 20% down and received no special rate of interest.Required:
The situation above may involve a violation of one of the rules of professional conduct of the ICAO.State the rule in question and explain why or why not there is a violation of the rule.You need not refer to the rule number but should clearly describe the rule in question.

Question 32

For each of the following cases indicate whether or not the action by the CA, a member in good standing of the ICAO, is a violation of the ICAO "Rules of Professional Conduct".In all cases, cite the rule(s) that apply.
a.On an engagement, CA observed all of the quality control guidelines required by the firm.b.CA refused to disclose information demanded by a court of law about a client because of "client-accountant privilege".
c.CA took out a conventional, new home mortgage with a financial institution that is a client.d.CA quoted a fee that was based on whether the CA's report on the client's financial statements resulted in the approval of a bank loan.
e.CA disclosed a lack of independence in the audit report.f.CA acted as a trustee for a client's profit-sharing trust.
g.CA accepted fees from local lawyers referring clients to them.
h.CA performed the audit in accordance with generally accepted auditing standards.
i.CA advised a client to invest in a tax shelter, in which CA has an undisclosed interest.j.CA bought several spots on the local TV station to promote the firm's tax services.

Question 33

If a CA is expelled from their provincial institute, what does that mean in practical terms?

A)The member can no longer use the initials CA behind their name on any cards or correspondence.
B)The member can no longer practice as an accountant.
C)The member will no longer be permitted to practice as a public accountant in Canada.
D)The member will no longer be permitted to receive copies of the CA magazine.

Question 34

Explain the difference among integrity, independence, and objectivity.

Question 35

Explain how the ICAO enforces the "fundamental statements of accepted conduct" and the "Rules of Professional Conduct".

Question 36

According to the profession's rules of conduct, an auditor would be considered independent in which of the following instances?

A)The auditor is the officially appointed stock transfer agent of a client.
B)The auditor has a personal chequing account in a branch of a client bank.
C)The client has not paid its audit fees for the past three years.
D)The client is the only tenant in a commercial building owned by the auditor.

Question 37

In the course of performing an audit, an auditor begins dating the CFO of the auditee.What kind of threat to independence might arise?

A)Self review threat
B)Self interest threat
C)Familiarity threat
D)Intimidation threat

Question 38

The interpretation of the phrase "acts discreditable to the profession" would not include

A)Membership in an activist political party.
B)Withholding a client's books until a professional fee is paid.
C)Being convicted of a criminal offense.
D)Permitting others to make misleading entries in records.

Question 39

In which of the following situations would a PA still be considered independent?

A)The PA received a set of professional quality, graphite golf clubs from a client as an expression of appreciation for the quality of the work performed.
B)The PA is suing the client for non-payment of fees.
C)The fees from one audit client comprise sixty-five percent of the PA's total billings for the year.
D)The PA serves in an honorary and non-participating role as a director for a non-profit audit client.

Question 40

CA suspects that a Mega Corp., a tax client, has not reported all of its revenue for a federal income tax return.Furthermore, Mega does not give satisfactory answers when questioned by CA about its revenue sources.Nonetheless, CA signs the income tax return as the CA who has prepared it.Which rule of professional conduct has the CA violated?

A)Rule 205, false or misleading documents
B)Rule 209, improper use of confidential information
C)Rule 211, duty to report breach of rules of professional conduct
D)Rule 103, false or misleading applications

Question 41

What are the sanctions that can be imposed by the ICAO if a member is found guilty of violating one of the rules of professional conduct?

Question 42

Susan Small CA has Medium Corporation as an audit client.Medium asked Small to create and install a new computerized payroll system.Because Small does not have the appropriate level of expertise, she referred Medium to Compusystems, Inc., a local software consulting company.Small has an arrangement with Compusytems wherein she is paid ten percent of any fee received by Compusystems from her referrals.Small has disclosed this to her client.
Required:
The situation above may involve a violation of one of the rules of professional conduct of the ICAO.State the rule in question and explain why or why not there is a violation of the rule.You need not refer to the rule number but should clearly describe the rule in question.

Question 43

Briefly describe the process followed by the ICAO when investigating and charging a member with violating one of the rules of professional conduct?