Question 1

The auditor is permitted to violate the confidentiality rule in providing relevant information to an inquiry by a major shareholder of the client.

Accepted Answer

The auditor is bound by the confidentiality rule and cannot disclose any information without the client's permission, except under certain circumstances like when required by law or regulatory requirement. Responding to an inquiry by a major shareholder of the client would not be a justifiable reason to violate the confidentiality rule.

Question 2

The AICPA may revoke a member's CPA license for violations of its Code of Professional Conduct.

Accepted Answer

The answer of The AICPA may revoke a member's CPA...

Question 3

An ethical dilemma occurs in a situation in which moral duties or obligations conflict.

Accepted Answer

This is the definition of an ethical dilemma, where there is a conflict between moral duties or obligations.

Question 4

The Sarbanes Oxley Act requires management to pre-approve any non-audit service by the auditor,including tax services not specifically prohibited.

Accepted Answer

The answer of The Sarbanes Oxley Act requires management to...

Question 5

The expectations gap represents a misunderstanding whereby shareholders mistakenly believe that they are entitled to recover losses on investments for which the auditor provided an unqualified opinion on the financial statements.

Accepted Answer

The expectations gap is a real issue in the accounting world where shareholders may expect auditors to catch fraudulent or misleading financial statements, but auditors are only responsible for providing a reasonable assurance that the financial statements are free from material misstatements. However, if an auditor fails to identify a material misstatement, shareholders may have a legal claim against the auditor for negligence.

Question 6

CPAs are no longer able to practice as a sole proprietorship.

Accepted Answer

CPAs are still able to practice as a sole proprietorship. However, certain states may have laws or regulations that restrict or limit the ability of CPAs to practice in this manner. It is always important for CPAs to check their state laws and regulations regarding their practice structure.

Question 7

The highest-order rights include rights granted by the government,such as civil rights,legal rights,rights to own property,and license privileges.

Accepted Answer

The highest-order rights are typically considered to be natural or human rights, which are inherent and universal, rather than those granted by governments.

Question 8

There is a hierarchy of rights to consider when applying rights theory.

Accepted Answer

Rights theory posits that there is a hierarchy of rights, such as basic human rights, legal rights, and contractual rights, that need to be considered when determining the appropriate course of action in any given situation.

Question 9

A covered member under the AICPA's rules includes individuals on the engagement team,any individual in a position to influence the engagement team,and all professional staff in the office of the engagement.

Accepted Answer

The answer of A covered member under the AICPA's rules...

Question 10

Loans between the auditor and the client are permitted in some circumstances.

Accepted Answer

According to the International Ethics Standards Board for Accountants (IESBA), loans between auditors and clients are permitted if they meet certain conditions. These conditions include the loan being made on normal commercial terms, being properly documented, and not impairing the auditor's independence or objectivity. However, auditors should still exercise caution when entering into any financial relationship with their clients.

Question 11

An ethical dilemma occurs an ethically correct action may conflict with an individual's immediate self-interest.

Accepted Answer

An ethical dilemma arises when a person is faced with choosing between two or more courses of action, where each option poses a conflict of ethical principles and where the decision for the ethically correct action may conflict with an individual's immediate self-interest.

Question 12

Utilitarian theory is an approach for addressing ethical problems by identifying a hierarchy of rights that should be considered in solving ethical dilemmas.

Accepted Answer

This description does not accurately represent utilitarian theory. Utilitarianism is a consequentialist ethical theory that evaluates actions based on their ability to promote the greatest good for the greatest number of people. It does not involve a hierarchy of rights.

Question 13

A contingency fee is a situation in which no fee will be charged unless a specified finding or result is attained.

Accepted Answer

This statement defines a contingency fee accurately.

Question 14

The Principles of the AICPA Code of Professional Conduct are aspiration in nature; only the Rules of Conduct and their Interpretations are enforceable against members.

Accepted Answer

The Principles of the AICPA Code of Professional Conduct are not enforceable, but provide a framework and guide for ethical behavior. Only the Rules of Conduct and their Interpretations are enforceable against members.

Question 15

The deep pocket theory represents a misunderstanding whereby shareholders mistakenly believe that they are entitled to recover losses on investments for which the auditor provided an unqualified opinion on the financial statements.

Accepted Answer

The deep pocket theory refers to the notion that shareholders may sue the auditor for their investment losses because the auditor has deeper pockets than the company itself. It does not relate to the idea that shareholders are entitled to recover losses based on an unqualified audit opinion. Shareholders may attempt to recover losses if the auditor was negligent in performing the audit or in issuing an opinion, but an unqualified opinion does not guarantee investment success.

Question 16

Rights theory focuses on evaluating actions in terms of the fundamental rights of the parties involved.

Accepted Answer

Rights theory is a moral framework which assesses actions based on the fundamental rights of individuals or groups involved. It emphasizes the importance of respecting and protecting rights such as freedom, equality, and privacy.

Question 17

Rule 101 on integrity and objectivity only applies to covered members as defined by the AICPA.

Accepted Answer

The answer of Rule 101 on integrity and objectivity only...

Question 18

Major threats to the independence of the auditor include compensation schemes,familiarity with the client,and time pressures.

Accepted Answer

Compensation schemes can incentivize auditors to overlook financial discrepancies or misstatements in order to maintain a positive relationship with the client and secure future business. Familiarity with the client can lead to a lack of objectivity and impartiality, while time pressures may force auditors to cut corners and not thoroughly investigate all aspects of the financial statements. All of these factors can undermine the independence of the auditor and compromise the quality of the audit.

Question 19

If a member owns several shares of stock of a company during the first few months of the fiscal year under audit and then sells the shares before accepting the engagement,the firm does not violate the independence rules of the AICPA.

Accepted Answer

The AICPA independence rules allow for the sale of shares before accepting an engagement, as long as the member no longer holds a financial interest in the client at the time of the engagement.

Question 20

On an audit,only CPAs are required to comply with the AICPA's independence rules.

Accepted Answer

All members of an audit team, including non-CPAs, must comply with the AICPA's independence rules in order to maintain the integrity and credibility of the audit.

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