Deck 3: Auditors Ethical and Legal Responsibilities

Question 1

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 or material indirect 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

Answer 1

A

Question 2

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.

Answer 2

A

Question 3

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.

Answer 3

C

Question 4

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 5

The Kantian principle is a philosophical principle that places emphasis on which of the factors when deciding on the right course of action?

A)Minimizing harm to ones' self
B)The maximization of benefits.
C)The consequences of actions
D)Following Rules

Question 6

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

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

Question 7

The goal of the critical-thinking framework reflects ________.

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

Question 8

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 9

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 10

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 11

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 12

An auditor's responsibility to society can be divided into which three categories?

A)Moral,professional,and fiscal.
B)Moral,professional,and legal.
C)Fiduciary,professional,and legal.
D)Moral,spiritual,and legal

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

Guy,CPA,is the auditor in-charge of the Big Pulp and Paper Company (BPPC).During the audit,he discovers BPPC's safety equipment has broken down,resulting in deadly chemicals pouring into the only water source of a small village.Which of the following statements best reflects a Kantian analysis of Guy's ethical dilemma?

A)Guy's professional duty to protect his client and his firm is outweighed by the greater duty to ensure no harm is done to the people who depend on the water BPPC is polluting.
B)Guy's legal obligation is to maintain the confidentiality of BPPC's information and therefore,in this specific context,his professional responsibilities preclude his from helping the citizens impacted by the equipment breakdown.
C)When comparing the hundreds of people who would lose their jobs and suffer hardship if the chemical leak were made public,versus the small number of citizens affected by the chemical leak,Guy decides revealing the leak cause less good than if he keeps it quiet.
D)Guy's decision will be based on what he believes are the universally true principles of his personal religious faith.

Question 15

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 16

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 17

Tom,a PA,is approached by Acme Pest Control Inc.to perform the audit of their financial statements.The founder and CEO of Acme Pest Control is Jerry,how is an old high classmate and close personal friend of Tom.Consequently,before Tom accepts to perform the audit of Acme,he will need to be especially mindful of which threat to his independence?

A)Advocacy
B)Familiarity
C)Self-interest
D)Self-review

Question 18

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 19

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 20

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 21

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 22

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

Question 23

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 24

Under tort law,the claimant must prove both that a loss was suffered and that the auditor caused that loss,before a claim against the auditor can be successful.

Question 25

The legal liability regime that states that a plaintiff can recover all damages from any defendant that's named part of the lawsuit,regardless of individual responsibility,is known as ______.

A)Joint Liability Partnership
B)Unlimited liability
C)Privity of contract
D)Joint and several liability

Question 26

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

Question 27

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

A)Government,who initiates the legal action on behalf of society
B)defendant
C)plaintiff
D)jury

Question 28

Codes of Professional Conduct " are organized hierarchically from general principles,to rules,then to specific interpretations of rules.The general principles are considered ideal standards and the rule and interpretations are considered to be minimum standards.

Question 29

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

Question 30

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 31

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 32

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

Question 33

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

Question 34

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 35

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

Question 36

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

Question 37

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 representation letter
B)compliance letter
C)reliance letter
D)engagement letter

Question 38

The "CPA Code of Professional Conduct" need only be observed by members and firms engaged in the practice of public accounting

Question 39

Utilitarianism says that the right choice is the one that maximizes utility.

Question 40

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

Question 41

Distinguish between a business failure and an audit failure.

Question 42

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

Question 43

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

Question 44

What is professional skepticism?

Question 45

List and explain the three facets of an auditor's responsibility towards society.

Question 46

Explain the difference among integrity,independence,and objectivity.

Question 47

Explain what a Limited Liability Partnership (LLP)is and why it is beneficial to public accountants.

Question 48

What is a critical thinking framework and why is it important?

Question 49

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

Question 50

What is meant by "privity?"

Question 51

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

Question 52

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

Question 53

Critical thinking is essential to the proper comprehension of auditing standards and the development of new standards in the future.

Question 54

In financial reporting,the going-concern assumption.Is considered a negative proposition,because auditors traditionally assumed that this assertion is true unless there is evidence to the contrary.

Question 55

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

Question 56

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

Question 57

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