Question 1

As compared to the AICPA Code of Professional Conduct,IFAC's International Code of Ethics for Professional Accountants:

Accepted Answer

IFAC's International Code of Ethics for Professional Accountants uses a conceptual approach, which means that it provides general principles that can be applied to a variety of situations. This is in contrast to the AICPA Code of Professional Conduct, which is more specific and provides more detailed rules.

Question 2

Which of the following is prohibited by the AICPA Code of Professional Conduct?

Accepted Answer

Charging and accepting a contingent fee for a financial statement review engagement is prohibited by the AICPA Code of Professional Conduct. A contingent fee is a fee that depends on the outcome or result of the service provided, which may compromise the objectivity and independence of the CPA.

Option A is not prohibited by the AICPA Code of Professional Conduct, but there are certain rules and requirements that must be followed in advertising.

Option B may create a conflict of interest and impair the independence of the CPA, but it is not always prohibited.

Option D is not related to professional conduct and is a normal business transaction.

Question 3

Pickens and Perkins,CPAs,decide to incorporate their practice of accountancy.According to the AICPA Code of Professional Conduct:

Accepted Answer

The AICPA Code of Professional Conduct allows for the incorporation of accounting practices, regardless of whether or not the firm performs audits.

Question 4

A client company has not paid its 20X6 audit fees.According to the AICPA Code of Professional Conduct,in order for the auditor to be considered independent with respect to the 20X7 audit,the 20X6 audit fees must be paid before the:

Accepted Answer

The AICPA Code of Professional Conduct requires that audit fees for prior years be paid before the current year's audit report is issued to maintain independence. Therefore, the 20X6 audit fees must be paid before the 20X7 report is issued.

Question 5

A CPA sole practitioner purchased stock in a client corporation and placed it in a trust as an educational fund for the CPA's minor child.The trust securities were not material to the CPA but were material to the child's personal net worth.Would the independence of the CPA be considered to be impaired with respect to the client?

Accepted Answer

The CPA's ownership of stock in a client corporation, even when placed in a trust for the CPA's minor child, is considered a direct financial interest. Independence is impaired regardless of materiality in such cases because the CPA has a financial interest in the client.

Question 6

Which of the following is a possible safeguard implemented by the client that might mitigate an audit independence threat?

Accepted Answer

Management having suitable skills to make managerial decisions can mitigate an audit independence threat by reducing the risk that auditors need to provide management advice or perform management functions, which could impair independence.

Question 7

When an accountant is not independent,the accountant is precluded from issuing a:

Accepted Answer

When an accountant is not independent, they are precluded from issuing a review report. Reviews require reasonable assurance, which can only be obtained by an independent accountant. However, an accountant may still issue a compilation report, a management advisory report, and a tax planning report, as independence is not required for those services.

Question 8

The AICPA Code of Professional Conduct states that a CPA shall not disclose any confidential information obtained in the course of a professional engagement except with the consent of the client.This rule should be understood to preclude a CPA from responding to an inquiry made by:

Accepted Answer

The rule about not disclosing confidential information without client consent applies to all external parties, including CPA-shareholders of the client corporation, unless they are authorized to receive such information as part of their role within the company. The other options (A, B, D) are exceptions where the CPA may be required or allowed to disclose information as part of professional or regulatory obligations.

Question 9

The concept of materiality would be least important to an auditor when considering the:

Accepted Answer

Materiality is least important when considering the effects of a direct financial interest in the client upon the CPA's independence. This is because independence is a fundamental ethical principle that cannot be compromised, regardless of the materiality of the issue. In contrast, materiality is relevant for determining the significance of financial information in the financial statements or disclosures. Options A, B, and C are related to financial statement audit procedures where materiality is an important consideration.

Question 10

An accounting association established a code of ethics for all members.The most likely primary purpose for establishing the code of ethics was to:

Accepted Answer

The primary purpose of establishing a code of ethics for a professional association is to outline criteria for professional behavior that maintain standards of competence, morality, honesty, and dignity within the association. This helps to ensure that members of the association adhere to a high standard of professional conduct, which ultimately benefits clients and society as a whole. The other choices either do not address the purpose of a code of ethics for an accounting association or are too narrow in scope.

Question 11

Competence as a certified public accountant includes all of the following except:

Accepted Answer

While a CPA must possess technical qualifications and the ability to supervise and evaluate staff work, they cannot guarantee the accuracy of the work performed. This is because audit or other related engagements involve obtaining reasonable assurance--not absolute assurance--that financial statements are free from material misstatement.

Question 12

The AICPA Code of Professional Conduct would be violated if a CPA accepted a fee for services and the fee was:

Accepted Answer

According to the AICPA Code of Professional Conduct, fees that are past due for over one year cannot be accepted by a CPA as it violates the integrity, objectivity, and due care principles of the code. Fees fixed by a public authority (A), based on competitive bidding (B), or performing work relating to judicial proceedings (C) are all acceptable under certain circumstances as per the code.

Question 13

The AICPA Code of Professional Conduct will ordinarily be considered to have been violated when the CPA represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representation that the:

Accepted Answer

A violation of the AICPA Code of Professional Conduct occurs when a CPA does not disclose a referral fee to the client. Transparency and disclosure of such fees are essential for maintaining trust and integrity in professional relationships.

Question 14

Which of the following is not a safeguard that is ordinarily considered in evaluating threats to auditor independence?

Accepted Answer

The Audit Committee Reference Group is not a standard source of safeguards for auditor independence. Safeguards created by the profession, legislation, or regulation, as well as those implemented by the attest client and CPA firm, are all typically considered in evaluating threats to auditor independence.

Question 15

An audit independence issue might be raised by the auditor's participation in consulting services engagements.Which of the following statements is most consistent with the profession's attitude toward this issue?

Accepted Answer

The auditor's role is to provide an independent and objective opinion on the financial statements, not to make management decisions for the client. Participating in management decisions could compromise the auditor's independence and objectivity.

Question 16

Which of the following organizations issue international ethics standards for auditors?

Accepted Answer

The International Federation of Accountants (IFAC) issues international ethics standards for auditors, such as the International Code of Ethics for Professional Accountants. The AICPA issues ethics standards for its members in the US, but not internationally. The SEC is a government agency that regulates securities markets in the US, but does not issue ethics standards for auditors. The FASB sets accounting standards for US companies, but not ethics standards for auditors.

Question 17

Which of the following is considered a type of threat to compliance with the Rules of the Code of Professional Conduct?

Accepted Answer

Self interest refers to situations where a professional's personal interests or financial gains may influence their decision-making, resulting in a violation of the Code of Professional Conduct. Therefore, it is considered a threat to compliance with the Rules of the Code of Professional Conduct. Illegitimate skepticism, lack of management participation, and irrevocability are not types of threats to compliance.

Question 18

While performing an audit of a public company,the auditors discovered material illegal acts and resigned due to the client's refusal to disclose them.The auditors' reason for resignation should be disclosed through:

$\begin{array} { lc c } 
  & \text { CPA Direct Corrrrurucation With } &   \
\text { Item} & \text {Shareholders } & \text { The Process of Filing } \
 \text { A } & \text { Yes } & \text { Yes } \ \text { B. } & \text { No } & \text { Yes } \ \text { C. } & \text { Yes } & \text { No } \ \text { D. } & \text { No } & \text { No } \end{array}$

Accepted Answer

When auditors resign due to the discovery of material illegal acts that the client refuses to disclose, they are required to ensure the reason for their resignation is disclosed through the process of filing with the appropriate regulatory bodies, but direct communication with shareholders is not mandated.

Question 19

A CPA's retention of client records as a means of enforcing payment of an overdue audit fee is an action that is:

Accepted Answer

Retaining client records as a means of enforcing payment of an overdue audit fee is considered discreditable to the profession according to the AICPA Code of Professional Conduct. This action can hinder the client's ability to conduct business or fulfill their own professional responsibilities.

Question 20

A primary purpose for establishing a code of conduct within a professional organization is to:

Accepted Answer

The primary purpose of establishing a code of conduct within a professional organization is to demonstrate acceptance of responsibility to the interests of those served by the profession. This means that the organization is committed to maintaining high standards, ethics, and values that benefit the profession's clients, customers, stakeholders, and society. A code of conduct also establishes guidelines for professional behavior, helps to ensure that members behave ethically and responsibly, and maintains public trust and confidence in the profession. While the other choices may be secondary or related benefits of a code of conduct, they are not the primary purpose.

Quiz 3: Professional Ethics