Question 1

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

Accepted Answer

Materiality is not relevant to the auditor's independence, which is related to conflict of interest and objectivity. Positive or negative confirmations (A), disclosure of illegal acts (B), and weaknesses in internal control (C) all involve materiality considerations.

Question 2

CPAs are allowed to advertise under the Rules of the AICPA Code of Professional Conduct.
a.List the general guidelines regarding the nature of acceptable advertising.
b.Describe two specific forms of unacceptable advertising.
a.Advertising is acceptable if it is not false,misleading,or deceptive.
b.Unacceptable forms of advertising include advertising that (only two required):
· Creates unjustified expectations of favorable results.
· Indicates an ability to influence a court or other official body.
· Misstates professional qualifications.

Accepted Answer

The answer of CPAs are allowed to advertise under the...

Question 3

A CPA firm may not designate itself as "members of the AICPA" unless:

Accepted Answer

A CPA firm may only designate itself as "members of the AICPA" if all of its partners or shareholders are members of the Institute, ensuring full compliance with AICPA membership requirements.

Question 4

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

Accepted Answer

Competence as a CPA includes having the technical qualifications, the ability to supervise and evaluate staff work, consulting others if needed, but it does not warrant the infallibility of work performed. No one is perfect and errors can occur despite the best efforts of a CPA.

Question 5

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

Accepted Answer

The IFAC (International Federation of Accountants) issues international ethics standards for auditors, including the International Ethics Standards Board for Accountants (IESBA). The AICPA (American Institute of Certified Public Accountants) provides guidelines for its members, but these are not necessarily applicable internationally. The SEC (Securities and Exchange Commission) and the FASB (Financial Accounting Standards Board) do not issue ethics standards for auditors.

Question 6

While performing an audit 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}{l}

\begin{array} { c} 
\text {  } & \text { CPA Direct Communication } & \text { The Process of Filing } \
\text { Item } & \text { With Shareholders } & \text { a Form 8-K } \
\text { A) } & \text { Yes } & \text { Yes } \
\text { B) } & \text { Yes } & \text { No } \
\text { C) } & \text { No } & \text { Yes } \
\text { D) } & \text { No } & \text { No }
\end{array}
\end{array}$$

Accepted Answer

The answer of While performing an audit an audit of...

Question 7

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

Accepted Answer

The answer of As compared to the AICPA Code of...

Question 8

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

Accepted Answer

When an accountant is not independent, they are not eligible to issue a review report. This is because independence is a fundamental principle of auditing, and lack of independence can affect the credibility of the opinion expressed in the review report. However, an accountant who is not independent can still issue a compilation report, management advisory report, or tax planning report, although they must disclose their lack of independence in the report.

Question 9

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, a CPA cannot accept a fee that is contingent upon the corroboration or result of any transaction or service they provide to their client. Therefore, accepting a fee payable if the audit of the financial statements led to a loan violates the code. Options A, B, and C are all acceptable fee arrangements under certain circumstances, as long as they are reasonable and do not compromise the independence or integrity of the CPA.

Question 10

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 11

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

The AICPA Code of Professional Conduct requires that fees charged by CPAs for services should be reasonable and not misrepresentative. If a 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 actual fee would be substantially higher, it would be considered a violation of the code. This is because the representation would be misleading and could lead to a client being surprised by the higher fee.

Question 12

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

Accepted Answer

A code of conduct demonstrates that a professional organization accepts responsibility to the interests of those it serves, including clients or the public. It outlines ethical standards and behaviors that members are expected to follow to maintain the trust and confidence of those they serve. While it may indirectly help reduce the likelihood of lawsuits or ensure a certain level of competence, those are not the primary purposes for establishing a code of conduct. Requiring loyalty is also not a primary purpose and could potentially conflict with ethical standards outlined in the code.

Question 13

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 14

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 15

A client company has not paid its 20X3 audit fees.According to the AICPA Code of Professional Conduct,in order for the auditor to be considered independent with respect to the 20X4 audit,the 20X3 audit fees must be paid before the:

Accepted Answer

The answer of A client company has not paid its...

Question 16

Pickens and Perkins,CPAs,decide to incorporate their practice of accountancy.According to the AICPA Code of Professional Conduct,shares in the corporation can be issued:

Accepted Answer

The answer of Pickens and Perkins,CPAs,decide to incorporate their practice...

Question 17

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 18

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 for establishing a code of ethics would be to outline criteria for professional behavior to maintain standards of competence, morality, honesty, and dignity within the association. The code of ethics serves as a guideline for members to follow in order to uphold ethical and professional standards. The other choices do not accurately reflect the primary purpose of establishing a code of ethics for the accounting association.

Question 19

The following is a list of circumstances that might be faced by a public accounting firm.Select the rule violated of the AICPA Code of Professional Conduct in the second column.If no rule is violated select 10--no violation (this may be used once,more than once,or not at all).Rules 1 through 9 may be used either once,or not at all.
1.A CPA does not follow generally accepted auditing standards in the audit of a nonpublic US company
2.A CPA discloses information about a client because the information was subpoenaed
3.A CPA robs a bank
4.A CPA charges an audit fee that depends on the amount of credit the client obtains
5.A CPA advertises in a local newspaper
6.A client knowingly issues financial statements that inappropriately and materially depart from an FASB standard
7.A CPA and the president of an audit client both have an immaterial joint investment in another company.The CPA firm provides no services for the other company
8.In preparing a tax return,a CPA takes a deduction at the client's request that the CPA believes is not justified
9.The dependent-son of a partner in a CPA firm owns ten shares of stock in an audit client
10.A CPA owns 100 shares in a consulting client for which the firm provides no attest services

Accepted Answer

The answer of The following is a list of circumstances...

Question 20

Which of the following statements best describes why the profession of certified public accountants has deemed it essential to promulgate a code of professional conduct and to establish a mechanism for enforcing observation of the code?

Accepted Answer

A distinguishing characteristic of a profession is its recognition of its responsibility to the public. As a result, the professional organizations have developed a code of ethics and a system for enforcing it, which assures the public that the profession assumes this responsibility seriously. Therefore, the primary reason why the profession of certified public accountants has deemed it essential to formulate a code of professional conduct and enforce its observation is to convey its commitment to public responsibility.

Quiz 3: Professional Ethics