Question 1

The confidential relationship will be violated if,without the client's permission,the public accountant provides working papers about a client to

Accepted Answer

The confidential relationship between a public accountant and their client is violated if the accountant provides working papers about a client to another public accounting firm that has just purchased the public accountant's entire practice, without the client's permission. This is because the confidentiality agreement is between the original accountant and the client, and any transfer of sensitive information to a third party (even another accounting firm) requires the client's explicit consent. Options A, B, and D are exceptions where confidentiality may be breached without client permission due to legal obligations or regulatory requirements.

Question 2

What is the difference between auditors and lawyers with respect to privileged information?

Accepted Answer

The answer of What is the difference between auditors and...

Question 3

Independence is assessed in the eyes of external users and regulators.Which of the following is a tool that helps the auditor identify whether the auditor is independent for a particular audit engagement?

Accepted Answer

An independence threat analysis is a tool used by auditors to identify if there are any threats to their independence for a particular audit engagement. This analysis helps auditors to evaluate and manage any perceived or actual threats to their independence which in turn helps them to maintain their objectivity and credibility while conducting the audit. A completion of independence forms at the time of employment could be helpful in identifying any potential conflicts of interest, but it may not fully address independence threats that may arise during the course of the audit engagement. An audit risk model assessment and professional skepticism are important aspects of the audit process but do not directly relate to identifying independence threats.

Question 4

Which one of the following forms of advertisement would violate solicitation rules? PA

Accepted Answer

Conducting a cold-calling campaign and asking companies if they would like to change PA firms would violate solicitation rules because it is an active attempt to persuade potential clients to switch PA firms. This type of direct solicitation is typically prohibited by professional codes of conduct. The other options involve general advertising or market research, which are typically not considered active solicitation.

Question 5

The provincial institutes' Rules of Professional Conduct state,in part,that a public accountant should maintain integrity and due care.Integrity in the Rules refers to a public accountant's

Accepted Answer

The Rules of Professional Conduct state that integrity refers to a public accountant's reputation for honesty and fair dealing. This includes ethical behavior, adherence to professional standards, and acting in the best interest of clients and the public. Maintaining due care refers to exercising professional judgment and taking reasonable steps to ensure all work is completed accurately and with the necessary level of care.

Question 6

Which of the following situations best describes an advocacy threat? PA has been hired to

Accepted Answer

An advocacy threat occurs when a professional accountant promotes a position or opinion to the point that subsequent objectivity may be compromised. Consulting with the corporate controller and the bank manager about conditions for financing a loan could place the accountant in a position of advocating for the client's interests, potentially compromising objectivity.

Question 7

The Rules of Professional Conduct require a successor auditor to communicate with the previous auditor.The primary concern in this communication is

Accepted Answer

The primary concern of communication between successor and previous auditor is to acquire information that will help the successor auditor determine whether the client management has integrity or not. This helps in assessing audit risk and planning the audit accordingly. Learning about the client by examining the predecessor's working papers, enabling the successor to perform a more efficient audit, or saving time and money are not the primary concerns of this communication.

Question 8

PA has been asked to accept the audit engagement of BarneyBlues Corporation.PA sent a letter to the predecessor auditor asking whether there was any reason why he should not accept the engagement.Assuming that the prior year audit went smoothly,what would be an appropriate response by the predecessor auditor?

Accepted Answer

The appropriate response by the predecessor auditor would be to provide a brief statement that there is no reason of which he or she is aware that would prevent accepting the engagement. This response would indicate that the prior year audit went smoothly and there are no issues that would prevent the new auditor from accepting the engagement. Sending the entire working paper file or tax returns and tax assessments would not be necessary or appropriate. The telephone call suggesting not accepting the engagement due to the fee charged would be unprofessional and inappropriate.

Question 9

Each of the following situations involves a possible violation of the provincial institutes' Rules of Professional Conduct.For each situation,(1)decide whether or not the Rules have been violated,and (2)briefly explain how the situation violates (or does not violate)the Rules.A)Johnny Line has a successful dentistry practice in Calgary.Johnny has recommended one of his patients to Leslie King,public accountant.To show gratitude for the referral,Leslie has agreed to pay Johnny 5% of the fee for audit services rendered by Leslie to Johnny's patient.Leslie discloses the payment agreement to her new client.
Violation? Yes No
B)The accounting firm of Bayer & Peng,public accountants,is negotiating a fee with a new audit client.They agree the client will pay $75 000 if Bayer & Peng issues a clean,unqualified opinion,$50 000 if a qualified opinion is issued,$40 000 if an adverse opinion is issued,and $10 000 if a denial of opinion is issued.
Violation? Yes No
C)Don Smith,public accountant,takes part in the audit of Shaw Corporation.Don is not a partner or a manager in the public accounting firm,and does not own any stock in Shaw Corporation.Don's five year-old daughter,Betty Lou,received one share of Shaw Corporation's common stock for her fifth birthday.The stock was a gift from Betty Lou's grandmother.Betty Lou treasures that share of stock and is absolutely unwilling to part with it.
Violation? Yes No
D)On August 5,2017,Page Dane,public accountant,issued the audit report on Borhut Corporation's June 30,2017 financial statements.On August 30,2017,Borhut paid Page's audit fee with stock rather than cash.Page sold the stock on September 15,2017,two months prior to the beginning of the planning phase for the audit of the June 30,2018,financial statements.
Violation? Yes No

Accepted Answer

The answer of Each of the following situations involves a...

Question 10

How do quality control processes for the financial statement audit process incorporate consideration of legislation that affects the client?

Accepted Answer

Quality control processes for the financial statement audit process typically include audit checklists to ensure all relevant areas are covered. To incorporate consideration of legislation that affects the client, the checklists should include questions specific to the relevant new legislation to ensure the auditors are taking these factors into account during their audit procedures. Providing auditors with copies of legislation or requiring second partner review of all working papers related to legislative matters are not common quality control procedures in addressing legislation. Training all auditors in legislation details that could affect all clients may be beneficial, but it is not a requirement for ensuring compliance with legislation affecting a specific client.

Question 11

Kimora is a senior manager at a public accounting firm.Kimora was assigned to the audit of Toble Corp.Upon arriving at the client,Kimora met with the controller,Brad,who was a classmate in college,20 years ago.She had not been in contact with Brad since college,but they realized that they still had many friends in common.Brad invited Kimora to go to the company box to watch a hockey game and catch up.
Discuss the issue of independence between Kimora and Toble Corp.

Accepted Answer

The answer of Kimora is a senior manager at a...

Question 12

How is use of an applicable accounting framework enforced via legislation?

Accepted Answer

The Canada Business Corporations Act and many provincial incorporating acts require that financial statements be prepared in accordance with a specific accounting framework. This standard is set out in the CPA Canada Handbook, which is adopted as regulation by the appropriate governing bodies. Failure to comply with these regulations can result in legal action and penalties for non-compliance.

Question 13

Which of the following situations would be an example of a self-interest threat that would prevent a PA from auditing the client?

Accepted Answer

A self-interest threat arises when a PA could benefit financially from a decision or activity of the audit client. In option B, the PA creating a loan agreement with the client for unpaid fees introduces a financial dependency on the client, which could compromise the auditor's objectivity and independence.

Question 14

You are having lunch with a former employee of your firm,a friend of yours.Gino had been laid off last year when he had failed to pass his professional examinations for the third year in a row.Gino told you that he managed to obtain a CPA designation in the past year,and has started his public practice.
He has been circulating flyers and electronic email announcements with fixed rates: $400 for a compilation engagement,$1000 for a review,and $5000 for an audit where revenues are less than $1 million,$15 000 for an audit for a client with revenues up to $5 million.He already has clients to keep him busy for the next three months.He even has some feelers for clients that he personally handled while he was working for your firm - there were a lot of contacts developed during the five years that he was working there! To help attract some of the larger clients,he is considering not charging any fee for the first ten hours spent on tax-related services.
Gino ended the conversation by asking you if you would like to join him in his new firm,because at this rate he'll need a second person really soon!
Required:
Identify the violations in the professional rules of conduct and explain why they are violations.

Accepted Answer

The answer of You are having lunch with a former...

Question 15

The rules of accounting bodies in Canada require their members to behave in the best interest of the profession and the public.Identify the situation where the accountant is acting in the best interest of the profession.An accountant

Accepted Answer

Reporting a fellow accountant for engaging in illegal activity (tax evasion) is not only in the best interest of the public but also the profession. It upholds the integrity and reputation of the accounting profession, which relies heavily on trust and honesty.

Question 16

What should a PA do if approached by a client where he and his firm lack or do not have access to the technical knowledge required to complete the audit?

Accepted Answer

A PA should decline the audit engagement if they lack the necessary technical knowledge, as conducting an audit without the required expertise could compromise the quality and integrity of the audit.

Question 17

Sandra is a new partner at a PA firm.Sandra recently signed a new contract with Gretchen Fabrics to become its auditor.In the process of accepting the client and planning the first year's audit,Sandra did the following:
- Sandra contacted the previous auditor to enquire if there were any reasons not to accept the audit of this client.Unfortunately,the previous auditor was on vacation and did not respond to Sandra before she accepted the client.
- Upon his return,the previous auditor did communicate with Sandra and indicated that the client had aggressive expense deferral policies that they disagreed on.Sandra asked to review the working papers of the previous auditor with regards to these expenses and found them to be right below the materiality threshold.
- Gretchen Fabrics imports most of its fabrics and has two production facilities in Asia.The company therefore has a complex tax structure and many import duties.Since this is not the area of expertise of Sandra,she asked another auditing firm to provide the required audit procedures for the international taxes and duties expense.When selecting the other audit firm,Sandra researched the firm online.She also ensured that they had their professional designation and enquired with the CPA and provincial association if the firm had any complaints or litigation outstanding for malpractice.
- Since the bidding process took time,Sandra had to start the audit almost right after learning she had the winning bid.She did not prepare an engagement letter before starting the work.She does not see this as being a problem since waiting until the audit has begun will provide her with a better idea of what work has to be done and what the engagement letter should include.
Required:
Identify the good and bad steps that Sandra has undertaken in reducing her exposure to legal liability.

Accepted Answer

The answer of Sandra is a new partner at a...

Question 18

For which of the following engagements is a contingent fee permitted?

Accepted Answer

A contingent fee is generally not permitted for audit and assurance engagements, and a review engagement also falls under this category. However, a tax consulting assignment may permit a contingent fee arrangement as it is not considered an attest engagement. Therefore, the only option in which a contingent fee may be permitted is option B, which is a tax consulting assignment.

Question 19

Which one of the following situations is a violation of the professional rules of conduct? PA

Accepted Answer

Accepting money from client management can be considered a bribe or an unethical inducement, which violates professional rules of conduct regarding integrity and objectivity.

Question 20

When should a PA assess the five threats to independence with respect to an audit engagement?

Accepted Answer

Assessing the five threats to independence is a vital part of determining whether to accept a client or continue an existing engagement. This assessment helps the PA to identify and mitigate any possible risks and threats to independence before commencing any fieldwork.

Quiz 3: Professional Ethics and Legal Liability