Question 1

The advocacy threat to independence exists when:

Accepted Answer

Advocacy threat to independence occurs when an auditor promotes a client's position or opinion, which can compromise objectivity.

Question 2

According to the AICPA's Code of Professional Conduct,if a CPA renders more than ten hours of nonaudit services to an audit client,the CPA :

Accepted Answer

A

Question 3

Can a tax partner in a CPA firm with multiple offices be a "covered member" on an audit?

Accepted Answer

A tax partner can be a "covered member" if they work out of the same office as the audit partner in charge, regardless of whether they render services to the audit client.

Question 4

A CPA has multiple office locations.In evaluating whether a CPA firm satisfies the independence rules with regard to an audit client,the concept of a "covered member" includes:

Accepted Answer

A "covered member" includes individuals who are part of the audit engagement team, those who can influence the audit, and partners providing concurring opinions, regardless of their office location.

Question 5

If a CPA prepares a few sales invoices on behalf of an audit client without charge because the client does not want to have to pay overtime to the workers who normally perform this task,the CPA's independence is:

Accepted Answer

The CPA's independence is impaired due to the self-review threat. The CPA has essentially performed a management function by preparing sales invoices on behalf of the audit client, which creates a self-review threat because the CPA is now reviewing their own work. This threatens the independence of the CPA and compromises their ability to provide an objective opinion on the financial statements.

Question 6

A paid tax return preparer is allowed to have:

Accepted Answer

The answer of A paid tax return preparer is allowed...

Question 7

The adverse interest threat exists when:

Accepted Answer

The adverse interest threat exists when a client sues its auditor for incompetence, as it creates a conflict of interest and may affect the auditor's objectivity and independence.

Question 8

In applying independence rules,the concept of a "covered member" on an audit applies to:

Accepted Answer

The concept of a "covered member" includes all accounting professionals who provide audit services to an audit client, as they must maintain independence to ensure the integrity of the audit.

Question 9

The undue influence threat exists when:

Accepted Answer

The answer of The undue influence threat exists when:
...

Question 10

The undue influence threat is most likely to be present when:

Accepted Answer

The undue influence threat is most likely present when a CPA firm generates a significant portion of its revenue from a single client, as this may compromise the CPA's objectivity and independence.

Question 11

A CPA firm has multiple locations throughout the Midwest of the United States.This firm has an audit client that is headquartered in Milwaukee,Wisconsin and the partner in charge of this audit is also located in the Milwaukee office of the firm.The audit client is a beverage manufacturer and the partner in charge of this audit is the Chairman of the firm's Food and Beverage Industry Audit Committee.To preserve the CPA firm's independence,which of the following individuals definitely must not own any direct interests in this beverage manufacturer?

Accepted Answer

According to the AICPA Code of Professional Conduct, "Partners or professional staff members in the office of the partner responsible for an audit engagement and partners or professional staff members who participate in or can influence the outcome of the audit or other attestation engagement team must not have a direct financial interest in an attest client." Therefore, option C is not allowed to own any direct interest in the beverage manufacturer as he/she serves on the firm's Food and Beverage Industry Audit Committee. Option A is the aunt of the partner in charge and isn't involved in the audit. Option B is a partner from another office who doesn't work for this client, so he/she is allowed to own a direct interest in the beverage manufacturer. Option D is a junior staff member who only worked on a tax research memorandum, and his/her ownership of a direct interest in the beverage manufacturer wouldn't harm the CPA firm's independence.

Question 12

For many years,a partner in a CPA firm worked on the audit of Grossnomics,Inc.This partner now has retired from the CPA firm and serves as a consultant to Grossnomic's Audit Committee.This partner's former CPA firm:

Accepted Answer

The CPA firm maintains independence as long as the former partner has no financial ties to the firm, ensuring no conflict of interest.

Question 13

Status as a "covered member" is important in determining independence because CPAs who are classified as a "covered member" lack the independence to conduct an audit if:

Accepted Answer

A covered member's independence is impaired if an immediate family member, such as a sister, holds a key position with the audit client, such as General Counsel.

Question 14

A CPA's mother-in-law owns stock in one of the CPA's audit clients.The CPA just learned this fact.In all likelihood,the CPA's independence is:

Accepted Answer

The CPA's independence is not impaired because the stock is owned by the mother-in-law, who is not considered an immediate family member under independence rules.

Question 15

A CPA firm has an office in New York and an office in San Francisco.The CPA firm's New York office has been retained to audit the financial statements of a new bank client based in New York.The bank is a very large provider of consumer loans.As a result,numerous professionals who work at the CPA firm have outstanding loan and credit card balances owed to this bank.Which of the following loans potentially will impair the CPA firm's independence to audit this bank?

Accepted Answer

The answer of A CPA firm has an office in...

Question 16

A CPA firm billed for audit services performed for a client more than one year ago.The client has paid a portion of the fees outstanding,but it has not been able to pay the remaining balance due to cash flow problems.The CPA firm has verified that the cash flow problems are authentic and expects the client to be able to pay the remainder of the bill,but the CPA firm cannot reasonably estimate the timing of such payments.As a result,the CPA firm:

Accepted Answer

According to the AICPA Code of Professional Conduct, a CPA firm lacks independence if the client has outstanding fees that are more than one year old and the CPA firm cannot reasonably estimate the timing of payment. Even though the CPA firm has verified the authenticity of the client's cash flow problems, the fact remains that independence is impaired due to the outstanding fees. Therefore, the CPA firm cannot perform further attestation services for this client until the independence issue is resolved.

Question 17

An auditor is allowed to have:

Accepted Answer

An auditor can have an indirect financial interest in a client if it is immaterial to the auditor's net worth, ensuring independence is not compromised.

Question 18

A CPA recently was presented with the opportunity to bid to become the auditor for a corporation.This CPA's husband owns stock in that company.Does this CPA satisfy the independence requirement to audit this company?

Accepted Answer

According to the AICPA Code of Professional Conduct, an auditor must be independent in fact and appearance. If the auditor or their immediate family members have any direct financial interest in the company being audited, independence is impaired. It does not matter whether the stock is held jointly or individually, or whether it was purchased with funds earned solely by the husband. Therefore, the CPA in this scenario does not satisfy the independence requirement to audit this company.

Question 19

In accordance with the Independence Rule,an ownership interest in an audit client is considered to be an indirect interest if:

Accepted Answer

An ownership interest in an audit client is considered to be an indirect interest if the auditor benefits from it, but cannot meaningfully influence or control it. This is in line with the Independence Rule which requires auditors to maintain independence in order to ensure the integrity of the audit process. Option B is incorrect because a partnership interest in an audit client is considered to be a direct interest, and would result in a conflict of interest. Option C is incorrect because the benefits from an ownership interest that have accrued in the form of price appreciation but not realized are still considered to be a direct interest. Option D is incorrect because direct or indirect financial interests held by immediate family members of auditors are also considered direct interests.

Question 20

A CPA firm has multiple locations in Europe,Asia,and North America.The principal partner overseeing the audit is located in Dallas,Texas.Are all partners who commute to offices in Dallas,Texas considered to be covered members?

Accepted Answer

The answer of A CPA firm has multiple locations in...

Quiz 10: Independence and Moral Seduction