Deck 3: Auditors Ethical and Legal Responsibilities

Question 1

In common law actions, the burden of proof lies with the ________.

A) bailiff
B) defendant
C) plaintiff
D) jury

Answer 1

C

Question 2

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.

Answer 2

B

Question 3

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.

Answer 3

A

Question 4

A private or civil wrong or injury is known as a ________.

A) breach
B) tort
C) misconduct
D) deceit

Question 5

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 6

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 7

The failure to perform a duty with the requisite standard of care is known as _______.

A) lack of independence
B) negligence
C) lack of objectivity
D) misconduct

Question 8

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 9

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 10

Regarding honorary positions in non-profit organizations, which of the following statements is FALSE?

A) Professional accountants can be honorary directors of charity hospitals, fund drives, symphony orchestra societies, and other non-profit organizations, as long as the position is purely honorary.
B) The professional accountant cannot be identified as an honorary director on letterheads and other literature.
C) The only form of participation is the use of the professional accountant's name.
D) The professional accountant does not vote with the board or participate in management functions.

Question 11

How can competence and due care best be described?

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 12

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 13

A complaint has been made against a member for an audit failure. If this complaint is found to have merit, under which CPA Ontario 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 Contingent fees.

Question 14

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 15

Which of the following statements regarding independence with respect to accounting and other services is FALSE?

A) If a professional accountant (PA) performs the bookkeeping and makes accounting decisions for a company and the management does not know enough about the financial statements to take primary responsibility for them, the PA cannot be considered independent for assurance services.
B) If a PA performs the bookkeeping and makes accounting decisions for a company and the management does not know enough about the financial statements to take primary responsibility for them, it might be perceived that the PA has both prepared the financial statements or other data and given an audit report or other assurance on his or her own work.
C) The PA cannot perform the bookkeeping for a company and also provide assurance services.
D) The PA can counsel the client management about the accounting principle choices, but in the final analysis the management must be able to say, "These are our financial statements (or other data); we made the choices of accounting principles; we take primary responsibility for them."

Question 16

The goal of the critical-thinking framework reflects ________.

A) independence
B) ideal audit virtues
C) skepticism
D) ethics

Question 17

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 not affect his or her judgment.
B) The auditor has an obligation to CPA Canada to not use his or her training for 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 18

In a study of law cases of accountants' and auditors' legal troubles, the greatest percentage arose from ________.

A) faulty implementation of audit procedures
B) client fraud
C) misinterpretation of accounting principles
D) fraud by the auditor

Question 19

The CPA Ontario 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 20

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 or her immediate family

Question 21

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 22

The auditor has a duty of care to a company that hires the auditor and has a contract with him or her under privity of contract.

Question 23

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

Question 24

If a public accountant (PA) performs the bookkeeping and makes accounting decisions for a company and the management does not know enough about the financial statements to take primary responsibility for them, the PA cannot be considered independent for assurance services.

Question 25

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

Question 26

In addition to liabilities imposed by common law, auditors need also be concerned about what other type of liability?

A) Statutory law.
B) Tort law.
C) Professional liability.
D) Negligence.

Question 27

A letter where accountants sign that they have been notified that a particular recipient of the financial statements and audit report intends to rely upon them for particular purposes is known as a(n) ________.

A) management letter
B) compliance letter
C) reliance letter
D) engagement letter

Question 28

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

Question 29

Legal liabilities of professional accountants arise only from lawsuits brought on the basis of the law of contracts.

Question 30

Consequentialism says that the right choice is the one that results in the greatest good for the greatest number of people.

Question 31

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

Question 32

That a legal duty arises when there is a contractual agreement with the client is called ________.

A) standard of care
B) privity of contract
C) professionalism
D) independence

Question 33

If a professional accountant is convicted of a criminal offence or fraud, he or she is usually thrown out of the profession.

Question 34

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

Question 35

Historically, auditors' liability in Canada has been based on common law liability.

Question 36

If a party is found to be partially liable and thus only responsible for paying part of the damages relative to their share of the blame, this is known as ________.

A) due care
B) breaking even
C) proportionate liability
D) a tort

Question 37

Once public accountants (PAs) retire from a firm, they are no longer required to maintain independence from former clients.

Question 38

Many users of audit reports expect auditors to detect fraud, theft, and illegal acts, and to report them publicly.

Question 39

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

Question 40

Auditors need not be concerned about statutory law liability.

Question 41

Ethical theories can be divided into two types: monistic and pluralistic. Explain each.

Question 42

What is joint and several liability?

Question 43

Identify five threats to the independence of a professional accountant.

Question 44

What is professional skepticism?

Question 45

Explain the difference among integrity, independence, and objectivity.

Question 46

What is meant by "privity?"

Question 47

It is sometimes said that there is a strong link between codes of conduct and GAAS. Explain.

Question 48

Discuss how a public accountant (PA) can preserve independence while accepting an honorary position in non-profit organizations.

Question 49

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

Question 50

When a professional accountant is sued, what is the lawsuit typically based on?

Question 51

Discuss the rules relating to the provision of accounting and other services by a public accountant (PA).

Question 52

What must a plaintiff prove regarding an action brought under common law against a PA?

Question 53

Summarize the professional competence and due care rules of the various codes of conduct.