Question 1

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

Accepted Answer

Loans between the auditor and the client are permitted in some circumstances, such as when they are on normal commercial terms, the amount involved is immaterial, and the loan does not create a conflict of interest or impair the auditor's independence. However, loans that are not on normal commercial terms, involve a substantial amount, or create a conflict of interest or impair independence are not permitted.

Question 2

A CPA firm is not considered independent when it performs which of the following services for a publicly traded audit client?

Accepted Answer

Basic accounting recordkeeping and financial statement preparation, as well as accounting information system design and implementation, both involve management functions and thus impair independence. Tax return preparation, on the other hand, does not impair independence as long as it is approved by the board of directors. Therefore, options A, B, and C are not correct answers.

Question 3

An auditor that exercises adequate professional skepticism will be less likely to overlook unusual circumstances,to over-generalize from limited audit evidence,or to use inappropriate assumptions in determining the nature,timing,and extent of audit procedures.

Accepted Answer

Adequate professional skepticism helps auditors approach their work with a questioning mindset and avoid making assumptions, leading to a higher likelihood of uncovering unusual circumstances and obtaining sufficient evidence to support their findings. Therefore, this statement is true.

Question 4

Julie Webb,CPA takes out an automobile loan with First national Bank of Wellville (FNBW)while attending the University of Wellville.Julie graduates one year later and is hired as an auditor by Best and Driftwood,LLP.Her first assigned audit engagement is with First national Bank of Wellville,a client of Best and Driftwood.As a new audit assistant,Julie continues to pay her automobile loan payments each month.According to the AICPA,Julie is considered a covered member for FNBW independence purposes because of which of the following conditions?

Accepted Answer

Julie is considered a covered member because she will be working on the audit engagement for FNBW, which affects independence.

Question 5

A member of the AICPA must safeguard the confidentiality of client information.Auditors,however,must disclose information to non-clients for the following reasons except to:

Accepted Answer

Disclosing information to members of the press regarding the financial viability of a client would violate the confidentiality requirement.

Question 6

Which one of the following is an example of a conflict of interest for a CPA?

Accepted Answer

The answer of Which one of the following is an...

Question 7

Professional skepticism is important because without it auditors are susceptible to accepting weak or inaccurate audit evidence.

Accepted Answer

Professional skepticism is a mindset that requires auditors to approach their work with a questioning mindset and not readily accept evidence at face value. Without this mindset, auditors may overlook important information or accept weak evidence as sufficient, which can lead to inaccurate audit conclusions. Therefore, professional skepticism is essential in promoting audit quality and credibility.

Question 8

Rule 201 of the General Standards of the Code of Professional Conduct defines professional competence in which of the following ways?

Accepted Answer

Rule 201 of the General Standards of the Code of Professional Conduct defines professional competence as "the ability to identify relevant ethical issues, to exercise professional judgment in addressing these issues, to work with professional skepticism, and to demonstrate sufficient technical knowledge." Part of demonstrating sufficient technical knowledge is accepting only those engagements that the firm's members can competently perform. While adequate planning and supervision of professional performance and sufficient collegiate and continuing professional education are important factors in maintaining professional competence, they are not the sole definition according to the Code of Professional Conduct.

Question 9

Which of the following is not an aspect of Rule 201 of the General Standards of the Code of Professional Conduct?

Accepted Answer

Rule 201 of the General Standards of the Code of Professional Conduct includes aspects related to competence, diligence, and planning and supervision of professional services. However, it does not include a provision related to advertising services to competing clients, making option D the correct answer.

Question 10

Audit committees should consider all factors that might affect the independence of the external auditor and should not approve nonaudit services that they believe might impair independence.

Accepted Answer

This statement is true. Audit committees play a critical role in ensuring the independence of the external auditor and should carefully consider any nonaudit services that they are asked to approve. They should be aware of any factors that may impair the independence of the auditor, such as conflicts of interest or financial relationships between the auditor and the client. If they believe that a particular nonaudit service may impair independence, they should not approve it.

Question 11

Audit committees should consider all factors that might affect the independence of which of the following:

Accepted Answer

Audit committees should consider all factors that might affect the independence of external auditors, as they are responsible for providing unbiased and objective opinions on the financial statements of the organization. Considering factors such as the level of fees received from the organization, non-audit services provided, and the length of the audit engagement, among others, can help ensure that the external auditors maintain their independence and integrity in carrying out their responsibilities. While the independence of the CEO and CFO is also important, it is not the primary focus of the audit committee's responsibilities.

Question 12

Brenda Hursch,an auditor,would be considered independent for purposes of an audit of Microship Company even though her spouse worked for Microship Company in which of the following positions?

Accepted Answer

Being an order entry staff is not a position of financial or managerial responsibility and therefore would not impair Brenda Hursch's independence. However, if her spouse held any role that involves financial or managerial authority, such as controller or treasurer, then her independence would be impaired.

Question 13

When using a general framework for making high-quality professional decisions,the auditor would typically take all of the following steps except which one of the following:

Accepted Answer

Assessing the risk of potentially losing the client and the impact of the lost fee on the firm is not a step in a general framework for making high-quality professional decisions. This decision should be made based on the auditor's commitment to ethical principles and professional responsibility, rather than financial considerations. Steps A and B are essential components of a general decision-making framework.

Question 14

Which of the following represents a situation in which an auditor is independent of the client?

Accepted Answer

Auditor independence is not compromised by being paid by the client organization, as this is standard practice. However, personal loans, stock ownership, and unpaid fees can impair independence.

Question 15

Members of the AICPA are required to act with integrity and objectivity for which of the following engagements?

Accepted Answer

Members of the AICPA are required to act with integrity and objectivity for all engagements. This is a fundamental ethical principle that applies to all services provided by AICPA members, including tax preparation, financial statement reviews, and financial statement audits. Therefore, the correct answer is D.

Question 16

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 confidentiality rule prohibits auditors from disclosing confidential information of their clients without their explicit consent, except in certain situations such as in response to a subpoena or a court order. However, an inquiry by a major shareholder of the client is not one of the exceptions, and therefore, the auditor cannot disclose confidential information without the client's consent.

Question 17

In determining the types of activities,engagements and interactions an auditor should have with a client,the CPA and the audit firm must do which of the following?

Accepted Answer

The CPA and the audit firm must assess all of their relationships with every client to ensure that independence is intact. This is necessary to maintain the integrity of the audit and provide unbiased opinions on the financial statements of the client. Client satisfaction is important, but it should not be the primary focus over independence and ethical considerations. Ethics are not just guidelines, but binding principles that must be adhered to in conducting audits.

Question 18

Julie Webb,CPA takes out an automobile loan with First National Bank of Wellville (FNBW)while attending the University of Wellville.Julie graduates one year later and is hired as an auditor by Best and Driftwood,LLP.Her first assigned audit engagement is with First National Bank of Wellville,a client of Best and Driftwood.As a new audit assistant,Julie continues to pay her automobile loan payments each month.According to the AICPA,Julie's independence would be considered

Accepted Answer

Julie's independence is not impaired because she is allowed to have normal loans from a bank client as long as the terms are standard and she continues to make regular payments.

Question 19

Mark Pulley is an auditor at Pulley and Hurst,LLC.If Pulley's five-year-old daughter owns shares of stock in McBurgers Corporation,then Pulley is considered to have what type of interest in McBurgers Corporation?

Accepted Answer

The answer of Mark Pulley is an auditor at Pulley...

Question 20

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

Accepted Answer

Compensation schemes may incentivize auditors to overlook certain issues or to provide a favorable opinion in order to please the client and maintain their business. Familiarity with a client can also create conflicts of interest, as auditors may become too sympathetic to the client's interests or overlook irregularities because of their relationship. Time pressures can lead to rush jobs that overlook important details or fail to address significant issues in a comprehensive manner. All of these factors can compromise the independence of the auditor and undermine the value of the audit process.

Quiz 3: Judgmental and Ethical Decision-Making Frameworks and Associated Professional Standards