Question 1

An accountant is most likely to be held to a fiduciary standard when:

Accepted Answer

An accountant is held to a fiduciary standard when the client is in a vulnerable position, requiring the accountant to act in the client's best interest with a high degree of care and loyalty.

Question 2

The duty of impartiality is most likely to arise when an accountant serves as the trustee of:

Accepted Answer

A split-interest trust involves managing assets for both charitable and non-charitable beneficiaries, requiring the trustee to balance interests impartially.

Question 3

When an accountant serves as a trustee of a blind trust and prepares annual state and federal tax returns for the trust,the accountant:

Accepted Answer

A

Question 4

An inter vivos trust is created:

Accepted Answer

An inter vivos trust, also known as a living trust, is created during the grantor's lifetime to hold assets for the benefit of themselves and/or their beneficiaries. This distinguishes it from a testamentary trust, which is created through a will and only takes effect upon the death of the grantor. Therefore, choice D is the correct answer.

Question 5

A CPA acting as an executor of an estate:

Accepted Answer

As an executor, the CPA owes a fiduciary duty of loyalty to the deceased. This means that they must manage the estate's assets with the utmost good faith and loyalty to the deceased's wishes. The executor must use their best judgment to ensure that the estate is managed and distributed according to the deceased's wishes, and they must do this while taking into account the best interests of the beneficiaries. The CPA acting as an executor must always act in the best interests of the estate, with complete integrity, and without any conflicts of interest.

Question 6

A CPA audits Amberset Corporation.This CPA has been named to serve as the trustee of a trust fund that a client set up for the benefit of her grandchildren.The client is the majority shareholder of Amberset Corporation,and Amberset stock is one of the trust's assets.The CPA potentially retains the independence to continue to audit Amberset Corporation only if:

Accepted Answer

The CPA must refuse to serve as the client's trustee to maintain independence, as serving as a trustee for a trust that holds stock in the audited company creates a conflict of interest.

Question 7

Stock in Avonictech,Inc.is a major asset of a split-interest trust.The trust is comprised of a single income beneficiary,who is the grantor's husband,and three grandchildren,who collectively constitute the principal beneficiaries (remaindermen)of the split-interest trust.The stock was worth $5 million at the time the trust was created,and the stock recently was sold for $17 million.The trust does not recite how gains on the sale of assets should be allocated.The $12 million gain on sale should be allocated:

Accepted Answer

The gain on the sale of the principal asset should be allocated to the principal beneficiaries, the grandchildren, as they are the remaindermen of the trust.

Question 8

According to the IFAC Code of Conduct,if a professional accountant acting as a money manager discovers that client funds are derived from illegal weapons sales to terrorists,the accountant has:

Accepted Answer

The answer of According to the IFAC Code of Conduct,if...

Question 9

A CPA is most likely to be held to the standards of a fiduciary when she:

Accepted Answer

Serving as an investment fund manager involves managing other people's money, which creates a fiduciary relationship where the CPA is required to act in the best interests of the investors. As a result, a CPA acting as an investment fund manager is held to the highest standard of care and must put the interests of the clients ahead of their own. While performing audits and providing attest services may involve considerable professional responsibilities, they do not generally create a fiduciary relationship between the CPA and the clients. Similarly, performing tax accounting services may require a high level of professional judgment, but it does not typically involve a fiduciary duty to clients.

Question 10

Sherry Hartwog is the managing partner of Hartwog and Associates,CPAs.This CPA firm operates out of a single office in Greenwich,Connecticut.Bantam Boxers,Inc.is an audit client of Hartwog and Associates,CPAs.The CEO of Bantam Boxers,Inc.recently told Hartwog that he had named Hartwog to serve as an executor of his estate after his death.The CEO owns 40% of the stock outstanding in Bantam Boxers,Inc.Does Hartwog and Associates,CPAs retain the independence to complete its current-year audit Bantam Boxers,Inc.?

Accepted Answer

The answer of Sherry Hartwog is the managing partner of...

Question 11

The duty of impartiality is owed by a trustee to:

Accepted Answer

The duty of impartiality is owed by a trustee to the income beneficiary and remainderman of a split-interest trust. This duty requires the trustee to act fairly and impartially between the two parties, and not favor one over the other. Choices A, C, and D do not involve split-interest trusts and therefore are not appropriate answers.

Question 12

A CPA recently inherited $400,000 of stock outstanding in one of her audit clients.In an attempt to maintain her independence,she placed her holdings of this audit client's stock into a trust.The trust is managed by a well-known independent trustee,JP Bankers Trust Services.The CPA's two young children are the sole beneficiaries of this trust.The CPA:

Accepted Answer

The CPA has not maintained her independence because she still has a beneficial interest in the audit client through her children, who are the beneficiaries of the trust.

Question 13

"Disgorgement," in the context of fiduciaries,means that:

Accepted Answer

Disgorgement, in the context of fiduciaries, means that a client is entitled to recover the amount of the profits earned by the fiduciary as a result of its misconduct, even if the client did not suffer any actual damages. Therefore, option C is the correct choice. Options A, B, and D are incorrect as they do not accurately define disgorgement.

Question 14

The Dodd-Frank Act:

Accepted Answer

The Dodd-Frank Act did not affect CPAs' potential duties as fiduciaries. It primarily focused on financial regulatory reforms and consumer protection measures, such as creating the Consumer Financial Protection Bureau and implementing new rules for the derivatives market.

Question 15

Tyus Jackson recently established two trusts.Meryl,a CPA,is the trustee of Trust Number 1.Daryl,is a skilled,non-CPA accountant who is the trustee of Trust Number 2.Meryl is subject to:

Accepted Answer

Meryl, as a CPA, is already subject to fiduciary duties that apply to trustees regardless of the type of trust created. The AICPA's Statement on Conduct in Fiduciary Services may provide additional guidance for CPAs serving as trustees, but it does not impose stricter fiduciary duties on them compared to non-CPA trustees.

Question 16

An auditor that properly satisfies the Independence Rule will,with regard to an audit client:

Accepted Answer

The Independence Rule of the American Institute of Certified Public Accountants (AICPA) prohibits auditors from being a fiduciary of their audit clients. Therefore, choice A is correct. Choices B, C, and D are incorrect as they contradict the Independence Rule.

Question 17

An accountant who is not a CPA:

Accepted Answer

An accountant providing financial planning services and selling sophisticated products like tax-sheltered insurance policies is likely to be considered a fiduciary due to the trust and reliance placed on their expertise by clients.

Question 18

Refer to the question above.If the CEO of Bantam Boxers dies and Hartwog fulfills her duties as the executor of the CEO's estate,will Hartwog and Associates,CPAs retain the independence to continue to serve as Bantam Boxers' auditor?

Accepted Answer

The executor of an estate is responsible for managing the estate's assets, including making investment decisions. If Hartwog makes investment decisions for the CEO's estate concerning Bantam Boxers, she would have a conflict of interest and would not be able to retain the independence to continue to serve as Bantam Boxers' auditor.

Question 19

A CPA audits Waltonvillemart,Inc.This CPA also serves as the trustee of a trust for the CEO of Waltonvillemart,Inc.The sole asset of this trust is a $1 million life insurance policy that is payable upon the CEO's death to his seven grandchildren.In equal amounts.This CPA:

Accepted Answer

The answer of A CPA audits Waltonvillemart,Inc.This CPA also serves...

Question 20

When an accountant acts as a trustee of a split-interest trust,which of the following fiduciary duties applies to the accountant?

Accepted Answer

When an accountant acts as a trustee of a split-interest trust, they are required to fulfill all fiduciary duties, which include the duty of care, duty of loyalty, and duty of impartiality. The duty of care requires the trustee to act with reasonable care, skill, and caution in managing the trust assets. The duty of loyalty requires the trustee to act solely in the best interest of the beneficiaries, avoiding conflicts of interest, and disclosing any potential conflicts. The duty of impartiality requires the trustee to balance the interests of the income and remainder beneficiaries of the trust. Therefore, all three duties apply to an accountant who acts as a trustee of a split-interest trust.

Quiz 15: Duties of Fiduciaries: Financial Planners,trustees,and Executors