Question 1

The CPA firm that became involved in tax shelter controversies with the IRS was:
A) Ernst & Young
B) Deloitte & Touche
C) PricewaterhouseCoopers
D) KPMG

Accepted Answer

KPMG became involved in a tax shelter controversy with the IRS in the early 2000s, resulting in a $456 million settlement in 2005.

Question 2

A CPA can accept a contingent fee in providing tax services for an attest client if:
A) The CPA discloses this fact to the tax client
B) The CPA receives the permission of the client to accept such a form of payment
C) The CPA's tax services will be reviewed by a taxing authority
D) All of these

Accepted Answer

A CPA can accept a contingent fee for tax services if the services will be reviewed by a taxing authority, as this is an exception to the general prohibition on contingent fees for attest clients.

Question 3

A CPA who informs management of a material misstatement in the financial statements can go to the SEC with his/her concerns if:
A) The CPA informed the client of this matter and the client did not inform the SEC within one business day of being informed by the CPA
B) The CPA informed the client of this matter and the client refuses to correct the financial statements
C) The CPA informs the client of this matter and the client fires the CPA
D) All of these

Accepted Answer

The answer of A CPA who informs management of a...

Question 4

In the PeopleSoft case, the auditors violated what aspect of independence?
A) The auditor was exposed to an intimidation threat by the client
B) The auditor was involved in a business relationship with the client
C) The auditor served in a management decision making position with the client
D) All of these

Accepted Answer

The answer of In the PeopleSoft case, the auditors violated...

Question 5

A unique aspect of the HealthSouth case discussed in the text of this chapter is:
A) The external auditors failed to assess whether the internal controls operated as intended
B) Top management certified that the financial statements were accurate
C) The external auditors violated the independence standards because they were involved in a business venture with members of top management
D) Top management hyped the stock price to increase the value of their stock options

Accepted Answer

Top management certified that the financial statements were accurate, which was a unique aspect of the HealthSouth case, as it involved fraudulent financial reporting despite such certifications.

Question 6

Circular 230 applies to CPAs who:
A) Audit the financial statements of a tax client
B) Practice before the IRS
C) Practice before the SEC
D) All of these

Accepted Answer

Circular 230 applies to practitioners who practice before the IRS, including CPAs who provide clients with tax advice or prepare tax returns. Therefore, choice B, which refers to practicing before the IRS, is the best choice. Choices A and C are incorrect because they do not accurately describe the scope of Circular 230.

Question 7

CPAs can advertise and solicit clients as long as such practices are:
A) Conducted in a professional manner
B) Informative about the CPA's services
C) Not conducted in a misleading or deceptive manner
D) Paid for by outside parties

Accepted Answer

The answer of CPAs can advertise and solicit clients as...

Question 8

To avoid violating independence when engaged in nonattest services for an audit client, a CPA must:
A) Make all management decisions and perform all management decisions
B) Evaluate the adequacy and results of the services performed
C) Avoid being biased when providing nonattest services for the audit client
D) Avoid being pressured by the client when providing nonattest services for the audit client

Accepted Answer

The answer of To avoid violating independence when engaged in...

Question 9

Objectivity may be impaired when a CPA prepares a tax return for a client because:
A) The CPA violates the independence rule
B) The CPA violates the integrity rule
C) The CPA serves in a tax advocacy position for the client
D) The CPA must prepare the tax return solely based on the information provided by the client

Accepted Answer

Serving in a tax advocacy position for the client may impair objectivity because it may lead the CPA to take positions that are advantageous to the client, even if they are not fully supported by the tax laws or regulations. The other choices are not applicable as violating the independence or integrity rules would not necessarily result in impaired objectivity in preparing a tax return, and preparing the tax return solely based on the client's information is a normal part of the CPA's responsibilities.

Question 10

A common requirement/effect of the commissions and contingent fees rule is:
A) A CPA who accepts such a payment always violates independence
B) The CPA must disclose the acceptance of such a payment to the client
C) A CPA is prohibited from accepting such a form of payment when engaged in attest services for a client
D) All of these

Accepted Answer

A CPA is prohibited from accepting commissions and contingent fees when performing attest services for a client, as it could impair independence.

Question 11

Statement on Standards for Tax Services No. 1 establishes as a basic principle of providing tax services that the CPA:
A) Must have a good faith belief that the tax return position can be justified if challenged
B) Must have a good faith belief that the information provided by the client is accurate
C) Can never recommend a tax position to the client when it is frivolous
D) All of these

Accepted Answer

The answer of Statement on Standards for Tax Services No....

Question 12

In the Fund of Funds case discussed in this chapter, the external auditors violated which rule of conduct?
A) Due care
B) The financial statements were certified as being in conformity with GAAP when that was not the case
C) The financial statements were certified as being in conformity with generally accepted auditing standards when that was not the case
D) Confidentiality

Accepted Answer

The answer of In the Fund of Funds case discussed...

Question 13

If a client refuses to accept an auditors' report that has been modified, the public accounting firm should withdraw from the engagement and give its reasons in writing to the board of directors except when:
A) The auditor is unable to obtain sufficient appropriate evidence about a suspected illegal act
B) The client fails to account for or disclose properly a material amount connected with an illegal act
C) The auditor is unable to estimate amounts involved in an illegal act
D) The auditor is unable to observe the physical inventory

Accepted Answer

If the auditor is unable to observe the physical inventory, it may not necessarily require withdrawal from the engagement, as alternative procedures can often be performed to obtain sufficient evidence.

Question 14

Which rule of professional conduct in the AICPA code does not apply both to internal and external accountants who are CPAs and members of the Institute?
A) Independence
B) Integrity
C) Objectivity
D) Due care

Accepted Answer

Independence only applies to external accountants who are performing auditing and attestation services. It does not apply to internal accountants who are not providing these services.

Question 15

The requirement that there should be reasonable support for a tax return position before a CPA recommends it to a client most directly aligns with which tax standard:
A) The tax return should not be based on a frivolous position
B) There is a realistic possibility of success if the tax position is challenged
C) It is more likely than not that the tax position will be upheld if challenged
D) Contingent fees cannot be accepted when providing tax services for an audit client

Accepted Answer

The requirement for reasonable support for a tax return position aligns with the tax standard that there is a realistic possibility of success if the tax position is challenged. This standard is one of the three levels of confidence that a tax position must meet, with the other two being more likely than not and substantial authority. The requirement that a tax return should not be based on a frivolous position also plays a role in ensuring that the tax return is prepared with reasonable support, but it is not the most direct alignment with this particular requirement. The ban on accepting contingent fees when providing tax services for an audit client is a separate issue altogether.

Question 16

The due care principle in the AICPA code:
A) Addresses the quality of the individual who performs professional services
B) Addresses the quality of services performed by the CPA
C) Addresses whether the independence standards has been met
D) All of these

Accepted Answer

The due care principle in the AICPA code focuses on the quality of services performed by the CPA, ensuring that they are conducted with competence and diligence.

Question 17

Under the Sarbanes-Oxley Act, the auditor's responsibility with respect to internal controls can best be stated as:
A) Develop a system of internal controls that helps to prevent and detect fraud
B) Assess whether the internal controls helps to prevent and detect fraud
C) Assess management's report on internal controls
D) All of these

Accepted Answer

The Sarbanes-Oxley Act requires auditors to assess management's report on the effectiveness of internal controls over financial reporting.

Question 18

An alternative practice structure can best be described as:
A) A form of ownership where a CPA firm owns a public company and audits that company
B) A form of structure where a public company provides nonattest services for a client that is also provided with attest services by an affiliate of the public company
C) A form of structure where a CPA firm provides nonattest services for a client that is also provided with attest services by a public company
D) A form of structure other than LLP and LLC

Accepted Answer

The answer of An alternative practice structure can best be...

Question 19

The confidentiality standard in the AICPA code provides for exceptions to the rule in:
A) In response to a validly issued court summons
B) To provide information to the CPA's peer reviewers
C) To defend oneself in an ethics investigation
D) All of these

Accepted Answer

The exceptions to the confidentiality standard in the AICPA code include responding to a validly issued court summons, providing information to the CPA's peer reviewers, and defending oneself in an ethics investigation. Therefore, all of these options are correct.

Question 20

Each of the following is an outright restriction on providing nonattest services for an attest client except for:
A) Tax services
B) Financial information systems design and implementation
C) Appraisal or valuation services
D) Internal audit outsourcing services

Accepted Answer

Tax services are not an outright restriction on providing nonattest services for an attest client. However, the other choices listed are considered outright restrictions as they are specifically prohibited by the AICPA's Code of Professional Conduct.

Quiz 4: Aicpa Code of Professional Conduct

The CPA firm that became involved in tax shelter controversies with the IRS was:

A CPA can accept a contingent fee in providing tax services for an attest client if:

A CPA who informs management of a material misstatement in the financial statements can go to the SEC with his/her concerns if:

In the PeopleSoft case, the auditors violated what aspect of independence?

A unique aspect of the HealthSouth case discussed in the text of this chapter is:

Circular 230 applies to CPAs who:

CPAs can advertise and solicit clients as long as such practices are:

To avoid violating independence when engaged in nonattest services for an audit client, a CPA must:

Objectivity may be impaired when a CPA prepares a tax return for a client because:

A common requirement/effect of the commissions and contingent fees rule is:

Statement on Standards for Tax Services No. 1 establishes as a basic principle of providing tax services that the CPA:

In the Fund of Funds case discussed in this chapter, the external auditors violated which rule of conduct?

If a client refuses to accept an auditors' report that has been modified, the public accounting firm should withdraw from the engagement and give its reasons in writing to the board of directors except when:

Which rule of professional conduct in the AICPA code does not apply both to internal and external accountants who are CPAs and members of the Institute?

The requirement that there should be reasonable support for a tax return position before a CPA recommends it to a client most directly aligns with which tax standard:

The due care principle in the AICPA code:

Under the Sarbanes-Oxley Act, the auditor's responsibility with respect to internal controls can best be stated as:

An alternative practice structure can best be described as:

The confidentiality standard in the AICPA code provides for exceptions to the rule in:

Each of the following is an outright restriction on providing nonattest services for an attest client except for: