Question 1

The AICPA's Code of Professional Conduct:
A) Applies only to accountants who work in public accountant practice as licensed CPAs
B) Potentially applies to all licensed CPAs, whether they work in government, industry, academia, or public practice
C) Provides a comprehensive definition of the accounting standards that collectively comprise GAAP
D) Provides a comprehensive set of the accounting standards that comprise both GAAP and GAAS

Accepted Answer

The AICPA's Code of Professional Conduct potentially applies to all licensed CPAs, whether they work in government, industry, academia, or public practice. It outlines the ethical and professional responsibilities that CPAs must abide by in order to maintain public trust and protect the integrity of the profession. It does not define GAAP, but rather establishes guidelines for how CPAs should behave and operate within the context of GAAP and other professional standards.

Question 2

Can you identify a tax accounting decision that requires a tax return preparer for individual clients to make an ethical choice?

Accepted Answer

Certainly, a tax accounting decision that requires a tax return preparer for individual clients to make an ethical choice involves the handling of ambiguous tax situations where the tax law may not be clear or is open to interpretation. One common scenario is the decision on whether to claim a deduction or credit that the tax preparer believes has a legitimate basis but is not unequivocally supported by the tax code or existing regulations.

For example, suppose a tax preparer is working with a client who has a home office and wants to claim a deduction for expenses related to that office. The tax code allows for such deductions under certain conditions, but the specific circumstances of the client's use of the home office may not be entirely clear-cut as to whether it qualifies. The preparer must decide whether to claim the deduction, which could result in a lower tax liability for the client.

The ethical choice here involves a careful consideration of the following:

1. **Due Diligence**: The preparer must exercise due diligence in determining the accuracy of the tax return. This includes investigating the facts and the applicable law to ascertain the likelihood of the home office deduction being allowable.

2. **Honesty and Integrity**: The preparer should be honest and not knowingly prepare a return that claims a deduction or credit that is not warranted. This would be in violation of ethical standards and could potentially lead to penalties for both the preparer and the client.

3. **Professional Judgment**: The preparer must use professional judgment in interpreting the tax laws and applying them to the client's situation. If there is a reasonable basis for the deduction and it is well-documented, the preparer may decide to claim it, but they should also advise the client of the potential for audit and the associated risks.

4. **Client Advisement**: The preparer should fully inform the client of the implications of claiming a questionable deduction, including the possibility of additional taxes, interest, and penalties if the deduction is later disallowed upon review by the tax authorities.

5. **Compliance with Circular 230**: For preparers in the United States, adherence to the Treasury Department's Circular 230, which governs practice before the IRS, is mandatory. Circular 230 outlines the duties and restrictions relating to practice before the IRS, including the need to provide competent representation and the prohibition against endorsing or negotiating any refund check issued to the client.

In making the ethical choice, the tax return preparer must balance the client's desire to minimize tax liability with the legal and ethical obligations to file a correct and compliant tax return. The preparer's decision should ultimately be guided by a commitment to uphold the integrity of the tax system while acting in the best interest of the client within the bounds of the law.

Question 3

Identify an ethical dilemma that you have encountered. How did you resolve it? Looking back, could you have achieved a better resolution?

Accepted Answer

One ethical dilemma I encountered was when I discovered that a colleague was engaging in unethical behavior by manipulating data to make their performance look better than it actually was. I was torn between reporting the behavior and potentially damaging my working relationship with this colleague, or turning a blind eye and allowing the unethical behavior to continue.

In the end, I chose to address the issue directly with my colleague and express my concerns about the unethical behavior. I also brought the issue to the attention of our supervisor, providing evidence to support my claims. This led to a difficult conversation and some tension in the workplace, but ultimately the behavior was addressed and the necessary steps were taken to prevent it from happening again.

Looking back, I believe I could have achieved a better resolution by involving HR or a higher authority sooner in the process. This would have provided a more neutral and objective approach to addressing the unethical behavior and may have prevented some of the tension and discomfort in the workplace. However, I am proud that I chose to confront the issue and take a stand for ethical behavior, even though it was a difficult decision to make.

Question 4

A CPA who is not a member of the AICPA failed to abide by the AICPA's Code of Professional Conduct. The state in which she practices accounting requires all CPAs to abide by "all professional standards." This CPA's license to practice accounting will potentially be:
A) Suspended
B) Revoked
C) Not affected
D) All of the above

Accepted Answer

The CPA's license could potentially be suspended, revoked, or not affected depending on the specific circumstances and the state board's interpretation of "all professional standards." Since the state requires adherence to all professional standards and the AICPA's Code of Professional Conduct is considered a professional standard, failing to abide by it could lead to various disciplinary actions, including suspension or revocation of the license, or possibly no action, depending on the severity and specifics of the violation.

Question 5

The AICPA's Code of Professional Conduct expressly applies to:
A) All CPAs who are compelled by state law to join the AICPA
B) All CPAs who have valid CPA licenses in good standing
C) All CPAs who have valid CPA licenses, even if their licenses temporarily are suspended due to misconduct
D) All CPAs who voluntarily join the AICPA

Accepted Answer

The AICPA's Code of Professional Conduct applies to all CPAs who voluntarily join the organization, regardless of whether they are required by state law to do so or whether their licenses are in good standing.

Question 6

The IFAC Code of Conduct applies to:
A) All accountants, even if they are not licensed by the IFAC itself
B) All professional accountants who work in industry
C) All professional accountants who work in auditing, including both internal and external auditing
D) All professional accountants

Accepted Answer

The IFAC Code of Conduct applies to all professional accountants, regardless of their specific field of work or whether they are licensed by the IFAC. This includes those in industry, auditing (both internal and external), and other areas of accounting.

Question 7

The rules of the AICPA are required to be:
A) Identical to the rules of the IFAC
B) Developed by the international professional accounting community through IFAC and then applied through the IFAC to professional accountants practicing in the United States
C) More rigorous than IFAC's rules due to the mandates imposed by American stock exchange trading rules
D) Never more lenient that the rules of the IFAC

Accepted Answer

The AICPA's rules cannot be more lenient than those of the IFAC, ensuring a baseline of professional standards globally while allowing for stricter regulations based on local requirements, such as those in the United States.

Question 8

The AICPA's Code of Professional Conduct establishes:
A) The rules of conduct for structuring and conducting audits and other attestation engagements
B) The rules of conduct for conducting audits, but no other forms of attestation
C) The rules for resolving technical judgments in achieving a fair presentation of financial statements
D) The normative rules of ethical behavior that guide professional accountants

Accepted Answer

The AICPA's Code of Professional Conduct establishes the normative rules of ethical behavior that guide professional accountants. It sets the ethical standards that are expected of AICPA members and provides a framework for making ethical decisions in the course of their professional activities. It consists of principles, rules, and interpretations that guide the behavior of AICPA members.

Question 9

The membership rules of IFAC:
A) Prevent CPAs from joining it if they are not actively in practice
B) Encourage CPAs from around the world to join it
C) Deny membership to CPAs who are unwilling to abide by its rules of ethical conduct
D) Deny membership to all individual CPAs

Accepted Answer

The answer of The membership rules of IFAC:
A) Prevent CPAs...

Question 10

A CPA who is a member of the AICPA failed to abide by the AICPA's Code of Professional Conduct. The state in which she practices accounting requires all CPAs to abide by "all professional standards." This state requirement mandates that the CPA follow:
A) Generally accepted accounting principles
B) Generally accepted auditing standards
C) The AICPA's Code of Professional Conduct
D) All of the above

Accepted Answer

The state requirement for CPAs to abide by "all professional standards" encompasses generally accepted accounting principles (GAAP), generally accepted auditing standards (GAAS), and the AICPA's Code of Professional Conduct. This broad requirement ensures CPAs adhere to the full spectrum of professional standards relevant to their practice.

Question 11

Can you identify a tax accounting decision that requires an accountant working in the Tax Department of a small Limited Liability Company to make an ethical choice?

Accepted Answer

The answer of Can you identify a tax accounting decision...

Question 12

If a single woman is working as a professional accountant outside the United States, joining IFAC is:
A) Impossible
B) Mandatory
C) Permitted only if an existing IFAC member recommends her
D) Optional but highly recommended as a reputational tool for attracting and retaining clients

Accepted Answer

The answer of If a single woman is working as...

Question 13

Can you identify a financial accounting decision that requires an accountant working in industry to make an ethical choice?

Accepted Answer

The answer of Can you identify a financial accounting decision...

Question 14

The AICPA's Code of Professional Conduct expresses professional standards:
A) That are mandatory minimum rules of behavior that all members of the AICPA must comply with
B) That, when violated, constitute crimes under most, if not all, state accountancy licensing statutes
C) That are aspirational goals, but yet are rarely achieved by most professional accountants
D) That establish worldwide standards that all professionals accountants must, at minimum, comply with

Accepted Answer

The AICPA's Code of Professional Conduct expresses mandatory minimum rules of behavior that all members of the AICPA must comply with. It is not a criminal statute and does not establish worldwide standards. Aspirational goals are expressed in the AICPA's Statement on Standards for Attestation Engagements (SSAE).

Question 15

Normative ethics focuses on:
A) How people normally behave
B) How people have been observed to behave, based on one or more empirical studies
C) How people should behave
D) The conduct of accountants that is most prevalent in their profession

Accepted Answer

Normative ethics is concerned with how people should behave, rather than how they actually behave (which is the focus of descriptive ethics). It is not specifically focused on the conduct of accountants, which would fall under professional ethics.

Question 16

Membership in the AICPA:
A) Automatically makes a CPA a member of IFAC as well
B) Automatically subjects a CPA to the ethical rules established by the IFAC Code as well
C) Does not entitle a CPA to join IFAC
D) Entitles a CPA to join IFAC upon payment of additional dues

Accepted Answer

The answer of Membership in the AICPA:
A) Automatically makes a...

Question 17

A CPA who is a member of the AICPA failed to abide by the AICPA's Code of Professional Conduct. The state in which she practices accounting requires all CPAs to abide by "all professional standards." This CPA's license to practice accounting will potentially be:
A) Suspended
B) Revoked
C) Not affected
D) All of the above

Accepted Answer

The CPA's license could potentially be suspended, revoked, or not affected depending on the specific circumstances of the violation and the decision of the state's accounting board.

Question 18

The SEC had:
A) A primary role in the development of the AICPA Code of Professional Conduct
B) A secondary role in the development of the AICPA Code of Professional Conduct
C) No role in the development of the AICPA Code of Professional Conduct, but it retains the authority to override this code of conduct concerning the behavior of both internal and external auditors performing services relating to the financial activities of regional and local financial institutions
D) No role in the development of the AICPA Code of Professional Conduct

Accepted Answer

The SEC did not have any role in the development of the AICPA Code of Professional Conduct. The AICPA Code of Professional Conduct is developed and updated by the Professional Ethics Executive Committee of the AICPA.

Question 19

IFAC is often referred to as:
A) The "Global Watchdog"
B) The "Global Accounting Police"
C) An "Organization of Organizations"
D) The "AICPA's Little Brother"

Accepted Answer

IFAC, the International Federation of Accountants, is often described as an "Organization of Organizations" because it is a global organization that represents the accounting profession worldwide through its membership of professional accounting organizations.

Question 20

An Enrolled Agent is subject to the AICPA's Code of Professional Conduct:
A) Automatically
B) Only if she also holds a state CPA license as well
C) Only if she is granted membership in the AICPA
D) Only if she performs auditing services as an employee or partner in a CPA firm that is an AICPA member

Accepted Answer

Enrolled Agents are subject to the AICPA's Code of Professional Conduct only if they are granted membership in the AICPA. Membership is what binds them to the AICPA's standards and ethical guidelines.

Quiz 1: Introduction to Ethics

The AICPA's Code of Professional Conduct:

Can you identify a tax accounting decision that requires a tax return preparer for individual clients to make an ethical choice?

Identify an ethical dilemma that you have encountered. How did you resolve it? Looking back, could you have achieved a better resolution?

A CPA who is not a member of the AICPA failed to abide by the AICPA's Code of Professional Conduct. The state in which she practices accounting requires all CPAs to abide by "all professional standards." This CPA's license to practice accounting will potentially be:

The AICPA's Code of Professional Conduct expressly applies to:

The IFAC Code of Conduct applies to:

The rules of the AICPA are required to be:

The AICPA's Code of Professional Conduct establishes:

The membership rules of IFAC:

A CPA who is a member of the AICPA failed to abide by the AICPA's Code of Professional Conduct. The state in which she practices accounting requires all CPAs to abide by "all professional standards." This state requirement mandates that the CPA follow:

Can you identify a tax accounting decision that requires an accountant working in the Tax Department of a small Limited Liability Company to make an ethical choice?

If a single woman is working as a professional accountant outside the United States, joining IFAC is:

Can you identify a financial accounting decision that requires an accountant working in industry to make an ethical choice?

The AICPA's Code of Professional Conduct expresses professional standards:

Normative ethics focuses on:

Membership in the AICPA:

A CPA who is a member of the AICPA failed to abide by the AICPA's Code of Professional Conduct. The state in which she practices accounting requires all CPAs to abide by "all professional standards." This CPA's license to practice accounting will potentially be:

The SEC had:

IFAC is often referred to as:

An Enrolled Agent is subject to the AICPA's Code of Professional Conduct: