Question 1

An individual does not need to agree to uphold the code of professional conduct in order to become licensed as a CPA.

Accepted Answer

In most jurisdictions, agreeing to uphold the code of professional conduct is a requirement for obtaining and maintaining a CPA license.

Question 2

Under Common Law,liability concepts are developed through court decisions based on negligence,gross negligence,or fraud.

Accepted Answer

Under Common Law, liability concepts are developed through court decisions based on negligence, gross negligence, or fraud.

Question 3

Audit reports on financial statements can be signed only by those who are licensed as CPAs by their state board of accountancy

Accepted Answer

It is a requirement that only licensed CPAs can sign audit reports on financial statements, as they have the necessary education and experience in accounting and auditing to provide reliable and unbiased opinions on the financial statements of an organization. This requirement is enforced by state boards of accountancy and regulatory bodies such as the Public Company Accounting Oversight Board (PCAOB) in the United States.

Question 4

The Sarbanes-Oxley Act of 2002 amends the Securities and Exchange Act of 1934 and places prohibitions on certain consulting services by auditors for their audit clients.

Accepted Answer

The Sarbanes-Oxley Act of 2002 did place prohibitions on certain consulting services by auditors for their audit clients, as a measure to prevent conflicts of interest and ensure auditor independence.

Question 5

According to the framework for professional decision making,the first step in decision-making is to structure the audit problem

Accepted Answer

According to the framework for professional decision making, the first step is to structure the audit problem by defining the issue, gathering relevant information, and identifying the objectives and stakeholders involved.

Question 6

Public confidence is mostly maintained by the public accounting profession through integrity based on personal moral standards and it is reinforced by codes of conduct.

Accepted Answer

Maintaining public confidence is a core responsibility of the public accounting profession and it is achieved through professional integrity based on personal moral standards and reinforced by codes of conduct. This helps to promote transparency, fairness, and accountability in financial reporting, which are essential for maintaining public trust and confidence.

Question 7

The confidentiality between auditor and client is legally equivalent as the confidentiality shared between attorney and client.

Accepted Answer

The answer of The confidentiality between auditor and client is...

Question 8

The SEC is concerned with situations between an auditor and a public company that allow the auditor to act as management of the client.

Accepted Answer

The SEC is concerned with auditors acting as management of their clients, as it can compromise their independence and objectivity in performing their audit duties.

Question 9

Auditors are permitted to perform for a contingent fee an audit of the financial statements if the audit committee approves the agreement in advance of the services being provided.

Accepted Answer

Auditors are not permitted to perform an audit for a contingent fee, regardless of approval from the audit committee. This violates independence requirements set forth by auditing standards.

Question 10

One issue that may threaten independence is that of the fee pressures placed on the auditor when an audit is under bid.

Accepted Answer

When an audit is under bid, the auditor may face fee pressures that could compromise their independence. This is because they may be tempted to cut corners or compromise their objectivity in order to meet the client's expectations and secure future business.

Question 11

The Rules of Conduct govern the performance of CPAs in carrying out their public responsibilities.

Accepted Answer

The statement is true. The Rules of Conduct provide guidance for the ethical conduct of CPAs in fulfilling their professional duties.

Question 12

An auditor of a public client may assist a client in designing and implementing internal controls over financial reporting.

Accepted Answer

An auditor of a public client is prohibited from assisting in designing and implementing internal controls over financial reporting to maintain independence and avoid conflicts of interest.

Question 13

An auditor of a public client may perform internal audit outsourcing services for a client because such services coincide with external audit functions.

Accepted Answer

Performing internal audit outsourcing services for a client can impair an auditor's independence, as it involves taking on management responsibilities, which is not allowed for auditors of public clients.

Question 14

Contingent fees are prohibited for any client for which the auditor performs audit services,but are otherwise permitted.

Accepted Answer

The answer of Contingent fees are prohibited for any client...

Question 15

The Principles of the AICPA Code of Professional Conduct provide a very detailed set of rules that represent a low level of actions.

Accepted Answer

The Principles of the AICPA Code of Professional Conduct provide a high level of ethical principles and values, not a detailed set of rules. The rules and interpretations that make up the Code provide guidance on how to apply these principles and values in specific situations.

Question 16

The AICPA's Code of Professional Conduct defines an indirect financial interest as an investment of one percent or less of a client's organization,and because the amount is so small it is considered immaterial

Accepted Answer

The AICPA's Code of Professional Conduct defines an indirect financial interest as any investment in the client's organization, regardless of the amount.

Question 17

Confidentiality is the cornerstone of the auditing profession.

Accepted Answer

The answer of Confidentiality is the cornerstone of the auditing...

Question 18

Commissions and referral fees are allowed to audit firms as long as the audit client is informed of the fees.

Accepted Answer

Accepting commissions or referral fees from or paying them to audit clients compromises the auditor's independence, which is a fundamental principle that must be maintained to ensure the integrity of the audit.

Question 19

Gross negligence is a failure to use even minimal care or evidence of activities that show a recklessness or careless disregard for the truth.

Accepted Answer

Gross negligence is defined as a complete disregard for the safety and well-being of others, and failure to use even minimal care in certain situations. It goes beyond simple negligence which is a lack of reasonable care, and shows a reckless or careless attitude towards one's actions.

Question 20

Contingent fees are prohibited for tax professionals when preparing tax returns for clients

Accepted Answer

Contingent fees are generally prohibited for tax professionals when preparing original or amended tax returns because the fee cannot depend on the outcome of the tax return. This is to ensure objectivity and integrity in the preparation of tax documents.

Quiz 4: Professional Liability and the Need for Quality Auditor Judgments and Ethical Decisions