Deck 18: Professional Rules of Conduct Details and Auditor Responsibilities

Question 1

Auditors' moral responsibilities can be summarized as

A) Formal ethical responsibilities of auditors.
B) Rules that must be followed by auditors.
C) The idea that public accountants (PAs) should be upright, not kept upright
D) A formal set of rules for the proper conduct of the auditor.

Answer 1

C

Question 2

Which of the following statements regarding advertising is FALSE?

A) Advertising may not create false or unjustified expectations of favorable results.
B) Advertising may not imply the ability to influence any court, tribunal, regulatory agency, or similar body or official.
C) Advertising may contain a fee estimate even if the public accountant (PA) knows it is likely to be substantially increased.
D) Advertising may not contain any representation that is likely to cause a reasonable person to misunderstand or be deceived, or that contravenes professional good taste.

Answer 2

C

Question 3

Which of the following statements regarding independence and litigation is FALSE?

A) When a public accountant (PA) and a client move into an adversary relationship and away from the cooperative one needed in an assurance engagement, independence is threatened by appearances of the PA trying to serve his or her own best interests.
B) PAs are still considered independent even if company management threatens to start a lawsuit against them.
C) PAs are not considered to be independent when company management actually starts a lawsuit against them.
D) PAs are not considered to be independent when company management alleges deficiencies in audit or other assurance work.

Answer 3

B

Question 4

Which of the following conditions is consistent with a contingency fee?

A) Its terms must be contracted for before any services are performed.
B) Its terms must be contracted for after any services are performed.
C) The fees are fixed by a court.
D) The amount paid for the performance is not affected by the results obtained.

Question 5

CPA Ontario Rule 214 regarding fee quotation is ultimately concerned with ________.

A) auditor independence
B) confidentiality
C) audit quality
D) contingency fees

Question 6

Withholding a client's books and records when the client has requested their return is an example of ________.

A) a contingency
B) a discreditable act
C) fraud
D) self-regulation

Question 7

The interpretations related to the rules governing objectivity or independence allow ________.

A) a public accountant (PA) to hold a material indirect interest in a client
B) a PA to finance a home mortgage with a client if the mortgage is made under the client's normal lending procedures and terms
C) a PA's spouse to hold a position as a director of a client's organization
D) a PA to serve as a trustee of the pension fund of a client

Question 8

Which of the following statements regarding communications between predecessor and successor auditors is FALSE?

A) Successor auditors are required to make certain inquiries of predecessor auditors when a new client is obtained.
B) The successor auditor should ask the new client to notify the predecessor auditor of the proposed change.
C) The successor auditor should then ask the predecessor "whether there are any circumstances that should be taken in account which might influence the potential successors' decision whether to accept the appointment."
D) When enquiries are made, the successor auditor does not need the client's permission for the predecessor auditor to disclose confidential information.

Question 9

In which of the following circumstances would a CPA be in violation of the "Rules of Professional Conduct" in quoting a fee to a client?

A) A fee fixed by a court.
B) A fee based on the approval of a bank loan.
C) A fee based on the time estimated to complete the engagement plus out-of-pocket expenses.
D) A fee based on the complexity of the engagement.

Question 10

The interpretation of the phrase "acts discreditable to the profession" would NOT include ________.

A) membership in an activist political party
B) withholding a client's books until a professional fee is paid
C) being convicted of a criminal offence
D) permitting others to make misleading entries in records

Question 11

In the interest of independence, CPAB and SOX require the rotation of the lead audit partner and/or concurring review partner every ________.

A) year
B) two years
C) five years
D) ten years

Question 12

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 13

In which of the following situations would a public accountant (PA) still be considered independent?

A) The PA received a set of professional-quality, graphite golf clubs from a client as an expression of appreciation for the quality of the work performed.
B) The PA is suing the client for non-payment of fees.
C) The fees from one audit client comprise 65% of the PA's total billings for the year.
D) The PA serves in an honorary and non-participating role as a director for a non-profit audit client.

Question 14

If a discipline committee requires a member to take continuing professional education, and the member fails to complete it in the required time, what is the likely further penalty?

A) More continuing education courses will be assigned.
B) The member will be fined or suspended from the institute.
C) The member will be expelled from the institute as a second offender.
D) The member will have to complete a period of supervised practice.

Question 15

Which of the following statements regarding confidentiality principles is FALSE?

A) The general principle of confidentiality is that a public accountant (PA) must not disclose any confidential information without the specific consent of the client.
B) These principles allow a PA to ignore the obligation to comply with a validly issued subpoena or summons.
C) Members of any professional association involved with professional practice reviews may not disclose any confidential client information that comes to their attention in carrying out those reviews, but neither should it restrict any exchange of information that is necessary for the review.
D) Confidential information is information that should not be disclosed to outside parties unless demanded by a court or an administrative body with the power to do so.

Question 16

Which of the following statement regarding advertising is FALSE?

A) Advertising consists of messages designed to attract business and are broadcast widely (e.g., through print, radio, television, billboards, and pop-up ads on various websites) to an undifferentiated audience.
B) The advertising guidelines basically prohibit false, misleading, and deceptive messages.
C) Firms commonly obtain new clients through advertising.
D) Overall, except for some isolated examples of creative advertising by some firms, the profession has not pursued advertising aggressively.

Question 17

Canada Revenue Agency (CRA) has requested the taxes payable working papers of ABC Co. from CPA. CPA should ________.

A) request client permission, and then provide the working papers
B) not provide the working papers nor discuss the matter with the client
C) inform the client that the working papers should not be provided
D) provide the working papers immediately to avoid tax problems

Question 18

Which of the following statements is FALSE when a public accountant (PA) has an investment in a non-client investor?

A) This investment may be a direct or material indirect financial interest that will diminish independence with respect to a client investee.
B) Independence is not impaired, as long as the PA does not have significant influence over the actions or financial statements of the non-client investor.
C) Independence is impaired when the PA's investment gives him or her significant influence over the actions of the non-client investor, which might in turn influence the client investee.
D) The independence of the PA is always impaired when a PA has an investment in a non-client investor because it puts him or her in a position similar to that of a member of management of the client investee.

Question 19

How are competence and due care best described?

A) Competence and due care both refer to public accountants (PAs) doing their best for their clients.
B) Competence refers to technical ability; due care refers to strictly following official pronouncements of accounting principles.
C) Competence is knowing what do; due care is doing it to the best of one's abilities.
D) Competence and due care both refer to ongoing technical training.

Question 20

The duty of confidentiality requires a public accountant (PA) to do which of the following?

A) Not disclose client information under any circumstances.
B) Not disclose client information if it is deemed to be confidential.
C) Not disclose client information unless required to do so by a validly issued subpoena or summons.
D) Not disclose evidence of illegal acts to the relevant authorities.

Question 21

If a CPA is expelled from his or her provincial institute, what does that mean in practical terms?

A) The member can no longer use the initials CPA behind his or her name on any cards or correspondence.
B) The member can no longer practice as an accountant.
C) The member will no longer be permitted to practice as a public accountant in Canada.
D) The member will no longer be permitted to receive copies of the CPA magazine.

Question 22

Discuss the deficiencies in professional codes of conduct for public accountants (PAs).

Question 23

Independence is not impaired if a public accountant (PA) serves on an organization's board of directors.

Question 24

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

Question 25

Successor auditors are required to make certain enquiries of predecessor auditors when a new client is obtained.

Question 26

Discuss the rules allowing members to practice in any form of organization.

Question 27

Discuss communications between predecessor and successor auditors.

Question 28

Confidentiality principles allow a PA to ignore the obligation to comply with a validly issued subpoena or summons.

Question 29

Firms commonly obtain new clients through advertising.

Question 30

Any complaint against a member must be submitted in writing.

Question 31

Describe how actual or threatened litigation affects auditor independence.

Question 32

Discuss self-regulation discipline and public regulation discipline.

Question 33

When a public accountant (PA) and a client move into an adversary relationship and away from the cooperative one needed in an assurance engagement, independence is threatened by appearances of the PA trying to serve his or her own best interests.

Question 34

The CPA Ontario Rules of Professional Conduct prohibit CAs from accepting contingency fees under any and all circumstances.

Question 35

Briefly describe the process followed by CPA Ontario when investigating and charging a member with violating one of the rules of professional conduct.

Question 36

Whenever there is a conflict-of-interest situation for the auditor, there is a potential to create a threat to the auditor's independent state of mind.

Question 37

Under the limited liability partnership (LLP) form of organization, the only partners with personal assets at risk are those involved in the litigated engagement, while the others risk only their investment in the partnership.

Question 38

A public accountant (PA) in a large firm has been asked to take over the audit of a client in the pharmaceutical industry from another PA who quit abruptly. The PA is unfamiliar with the pharmaceutical industry. The PA should trust that the work was properly planned by the previous PA and should follow that plan carefully.

Question 39

Specific items in the rules of conduct may not necessarily be based on one of the ethics principles, but, instead, they may involve various elements of different ethical theories.

Question 40

As self-regulating bodies, professional institutes have a duty to investigate all written complaints received about their members and students accepted into their programs.

Question 41

What are the sanctions that can be imposed by CPA Ontario if a member is found guilty of violating one of the rules of professional conduct?