Question 1

Explain how the Principles of the AICPA Code of Professional Conduct establish standards of behavior for CPAs that are similar to those discussed in chapters 1 and 2.

Accepted Answer

The answer of Explain how the Principles of the AICPA...

Question 2

The revenue recognition issue in the Family Games case is:
A) Whether a company can record revenue before it is signed-off by the lawyers
B) Whether a company can record revenue before it is shipped to the customer
C) Whether a company can record revenue before the revenue recognition rules are met
D) All of these

Accepted Answer

All of the choices are correct because they all relate to the revenue recognition issue in the Family Games case.

Question 3

In the Lee & Han, LLC case, Barbara Strom should:
A) Report the situation to SEC under the Dodd-Frank Act.
B) Change the audit workpapers to not reflect the market decline in inventory.
C) Discuss the matter with Kate Boller.
D) Report the situation to the firm's oversight or similar committee.

Accepted Answer

Reporting the situation to the firm's oversight or similar committee is the best option as it allows for internal resolution of the matter, while also fulfilling the auditor's responsibility to report any instance of fraud or illegal activities within the company. Reporting to SEC under the Dodd-Frank Act may not be necessary unless there is evidence of significant financial harm or risk to shareholders, and changing the audit workpapers to not reflect the market decline in inventory would be unethical and may amount to fraud. Discussing the matter with Kate Boller may not lead to a satisfactory resolution of the situation.

Question 4

What steps should an auditor take when she suspects illegal acts have occurred at a client entity?

Accepted Answer

The answer of What steps should an auditor take when...

Question 5

What are the major threats to independence addressed by the AICPA Conceptual Framework for Independence Standards and how can CPAs/CPA firms mitigate such threats?

Accepted Answer

The answer of What are the major threats to independence...

Question 6

In the HealthSouth case, the auditors failed to meet their ethical and professional obligations because they failed to uncover fraud in which account?
A) Inventory
B) Contractual allowance
C) Sales returns
D) All of these

Accepted Answer

The auditors failed to meet their ethical and professional obligations in relation to the contractual allowance account, which contained fraudulent entries. They also failed to adequately test the allowance for doubtful accounts, leading to material misstatements in the financial statements. There is no evidence to suggest that they failed to uncover fraud in inventory or sales returns.

Question 7

PricewaterhouseCoopers was investigated by the SEC for independence violations due to:
A) Reporting systems that relied on self-reporting of violations
B) Ownership of client stock
C) Investments by PwC professionals in bank accounts of audit clients
D) All of these
Essay Questions

Accepted Answer

PricewaterhouseCoopers was investigated for multiple independence violations, including self-reporting systems, ownership of client stock, and investments in audit clients' bank accounts, making all options relevant.

Question 8

The main ethical issue in Healthcare Fraud case is:
A) Maintaining two sets of accounting books.
B) Inflating healthcare costs submitted to Medicare.
C) Outsourcing operations to a firm known for maximizing expense reimbursements.
D) All of these.

Accepted Answer

Inflating healthcare costs submitted to Medicare is a direct form of healthcare fraud, which is unethical and illegal.

Question 9

Which statement is correct with respect to a CPA's ethical obligation to return client books and records and CPA work papers:
A) Client-provided records in the custody or control of the CPA should be returned to the client at the client's request.
B) CPA work papers should be given to the client at the end of each audit.
C) CPA work product never has to be turned over to the client.
D) All of these

Accepted Answer

CPA's ethical obligation is to return client-provided records in the custody or control of the CPA to the client at the client's request. The CPA work papers are the property of the CPA and do not have to be given to the client unless required by law or regulation. However, the CPA should retain the work papers for a period of time sufficient to satisfy professional standards and applicable statutes of limitations.

Question 10

Which tax service is still permitted by the PCAOB for audit clients following the KPMG tax shelter case?
A) Aggressive tax shelter for audit clients
B) Auditing of deferred taxes
C) Tax services to audit client management or family members
D) Tax services for a contingent fee

Accepted Answer

The KPMG tax shelter case led to the PCAOB imposing stricter rules on tax services offered to audit clients. However, auditing of deferred taxes is still permitted as it does not pose a threat to auditor independence or conflict of interest.

Question 11

The ethical issue raised in the Beauda Medical Center case is similar to that in:
A) ESM Government Securities
B) PeopleSoft
C) Fund of Funds
D) Enron

Accepted Answer

The answer of The ethical issue raised in the Beauda...

Question 12

The AOL case described in the text focused mainly on:
A) Proper accounting for line costs
B) Proper accounting for advertising costs
C) Proper accounting for special purpose entities
D) All of these

Accepted Answer

The answer of The AOL case described in the text...

Question 13

Under what circumstances do you think it would be acceptable for a CPA to blow the whistle on financial wrongdoing by a client? What steps should the CPA take before carrying through with the whistle-blowing action?

Accepted Answer

The answer of Under what circumstances do you think it...

Question 14

In the Gee Wiz case, the main ethical issue was:
A) Independence of David in providing tax services to an audit client
B) Confidentiality in disclosing sensitive information about a client of the CPA firm
C) Integrity in providing tax services to an audit client through her own entity
D) Whistleblowing on a client

Accepted Answer

The main ethical issue in the Gee Wiz case was the integrity of providing tax services to an audit client through her own entity, which could lead to conflicts of interest and compromise professional standards.

Question 15

Describe each of the investigations of the accounting profession during the 1970s and 1980s. Given the passage of the Sarbanes-Oxley Act in 2002, do you think these investigations helped to pave the way for SOX improvements?

Accepted Answer

The answer of Describe each of the investigations of the...

Question 16

What ethical rules are violated when a CPA auditing a client provides inside information about the client to a friend?
A) Independence and objectivity
B) Objectivity and due care
C) Due care and confidentiality
D) Confidentiality and integrity

Accepted Answer

Providing inside information about a client violates confidentiality, which is the duty to not disclose any information about the client without their permission. Additionally, it violates integrity, which is the duty to be honest and straightforward in all professional and business relationships. Independence and objectivity, as well as due care, are not directly related to this specific violation.

Question 17

In the Family Outreach case, Yimei finds three accounts all using the same documentation and amounts. Being skeptical, Yimei should consider doing all but:
A) Report her findings to Kwami, her supervisor
B) Talk to the agency's board of directors
C) Examine more evidence to support her finding
D) Check to see if the accounts were in the prior years' workpapers

Accepted Answer

Talking to the agency's board of directors may not be necessary at this point, as it may cause unnecessary panic and unrest. Instead, Yimei should first report her findings to her supervisor, examine more evidence to support her findings, and check if the accounts were in prior years' workpapers. This will help her to validate her suspicions and take appropriate actions moving forward.

Question 18

What are the similarities and differences in the application of the rules of professional conduct in the AICPA with respect to internal accountants who are CPAs and CPA-external auditors?

Accepted Answer

The answer of What are the similarities and differences in...

Question 19

Which is not a permitted form of organization for a CPA practice?
A) Sole proprietorship with name of sole proprietor
B) Limited liability partnership
C) Professional corporation
D) Corporation

Accepted Answer

Corporation is not a permitted form of organization for a CPA practice. The other three options (sole proprietorship with name of sole proprietor, limited liability partnership, and professional corporation) are all permitted forms of organization for a CPA practice.

Question 20

The question that arises in the First Community Church case is whether:
A) The financial statements have been materially misstated
B) There has been a misappropriation of assets
C) The auditors lacked independence
D) All of these

Accepted Answer

The answer of The question that arises in the First...

Quiz 4: Aicpa Code of Professional Conduct

Explain how the Principles of the AICPA Code of Professional Conduct establish standards of behavior for CPAs that are similar to those discussed in chapters 1 and 2.

The revenue recognition issue in the Family Games case is:

In the Lee & Han, LLC case, Barbara Strom should:

What steps should an auditor take when she suspects illegal acts have occurred at a client entity?

What are the major threats to independence addressed by the AICPA Conceptual Framework for Independence Standards and how can CPAs/CPA firms mitigate such threats?

In the HealthSouth case, the auditors failed to meet their ethical and professional obligations because they failed to uncover fraud in which account?

PricewaterhouseCoopers was investigated by the SEC for independence violations due to:

The main ethical issue in Healthcare Fraud case is:

Which statement is correct with respect to a CPA's ethical obligation to return client books and records and CPA work papers:

Which tax service is still permitted by the PCAOB for audit clients following the KPMG tax shelter case?

The ethical issue raised in the Beauda Medical Center case is similar to that in:

The AOL case described in the text focused mainly on:

Under what circumstances do you think it would be acceptable for a CPA to blow the whistle on financial wrongdoing by a client? What steps should the CPA take before carrying through with the whistle-blowing action?

In the Gee Wiz case, the main ethical issue was:

Describe each of the investigations of the accounting profession during the 1970s and 1980s. Given the passage of the Sarbanes-Oxley Act in 2002, do you think these investigations helped to pave the way for SOX improvements?

What ethical rules are violated when a CPA auditing a client provides inside information about the client to a friend?

In the Family Outreach case, Yimei finds three accounts all using the same documentation and amounts. Being skeptical, Yimei should consider doing all but:

What are the similarities and differences in the application of the rules of professional conduct in the AICPA with respect to internal accountants who are CPAs and CPA-external auditors?

Which is not a permitted form of organization for a CPA practice?

The question that arises in the First Community Church case is whether: