Question 1

A public accountant would be facing an ethical dilemma when deciding whether or not to

Accepted Answer

A) overlook a material overstatement of revenues to maintain a good client relationship. 
B) overlook a non-material error in the financial statements. 
C) accept an invitation from the client to go golfing in order to maintain a good client relationship. 
D) participate in a charitable activity organized by the client. 
A) overlook a material overstatement of revenues to maintain a good client relationship. 
B) overlook a non-material error in the financial statements. 
C) accept an invitation from the client to go golfing in order to maintain a good client relationship. 
D) participate in a charitable activity organized by the client.

Question 2

Why does a self-review threat pose a problem when conducting an audit engagement?

Accepted Answer

A) The audit can be conducted more efficiently. 
B) You are auditing your own work,and may not detect inadequacies. 
C) The audit is more expensive,as you have to provide clear documentation. 
D) The auditor may not have the expertise to complete the special work. 
A) The audit can be conducted more efficiently. 
B) You are auditing your own work,and may not detect inadequacies. 
C) The audit is more expensive,as you have to provide clear documentation. 
D) The auditor may not have the expertise to complete the special work.

Question 3

The failure to perform a duty with the requisite standard of care is known as

Accepted Answer

A) lack of objectivity. 
B) lack of independence. 
C) negligence. 
D) lack of CPA education. 
A) lack of objectivity. 
B) lack of independence. 
C) negligence. 
D) lack of CPA education.

Question 4

In which of the following circumstances would a public accountant be bound by ethics to refrain from disclosing any confidential information obtained during the course of a professional engagement?

Accepted Answer

A) The public accountant is issued a subpoena that orders the public accountant to present confidential information. 
B) A major shareholder of a client company seeks accounting information from the public accountant after management declined to disclose the requested information. 
C) Confidential client information is made available as part of a practice inspection of the public accountant's practice. 
D) An inquiry by a disciplinary body of a provincial institute requests confidential client information. 
A) The public accountant is issued a subpoena that orders the public accountant to present confidential information. 
B) A major shareholder of a client company seeks accounting information from the public accountant after management declined to disclose the requested information. 
C) Confidential client information is made available as part of a practice inspection of the public accountant's practice. 
D) An inquiry by a disciplinary body of a provincial institute requests confidential client information.

Question 5

What should a PA do if approached by a client where he and his firm lack or do not have access to the technical knowledge required to complete the audit?

Accepted Answer

A) subcontract the audit to another firm 
B) indicate that they can do a review engagement,not an audit 
C) decline the new audit engagement 
D) conduct the engagement,but prepare a qualified audit report 
A) subcontract the audit to another firm 
B) indicate that they can do a review engagement,not an audit 
C) decline the new audit engagement 
D) conduct the engagement,but prepare a qualified audit report

Question 6

While performing services for their clients,professionals have always had a duty to provide a level of care that is

Accepted Answer

A) reasonable. 
B) greater than average. 
C) superior. 
D) guaranteed to be free from error. 
A) reasonable. 
B) greater than average. 
C) superior. 
D) guaranteed to be free from error.

Question 7

The Ultramares doctrine is that ordinary negligence is insufficient for liability of auditors to third parties because of the lack of privity of contract between the third party and the auditor.What type of behavior on the part of an auditor would result in liability to more general third parties according to this doctrine?

Accepted Answer

A) conducting an audit engagement when a review engagement had been contracted. 
B) completing work in accordance with a contract that was signed with the client. 
C) deliberate misstatement of the financial statements by management remaining undetected. 
D) fraud or constructive fraud with respect to the working papers. 
A) conducting an audit engagement when a review engagement had been contracted. 
B) completing work in accordance with a contract that was signed with the client. 
C) deliberate misstatement of the financial statements by management remaining undetected. 
D) fraud or constructive fraud with respect to the working papers.

Question 8

You are having lunch with a former employee of your firm,a friend of yours.Gino had been laid off last year when he had failed to pass his professional examinations for the third year in a row.Gino told you that he managed to obtain a CPA designation in the past year,and has started his public practice.
He has been circulating flyers and electronic email announcements with fixed rates: $400 for a compilation engagement,$1000 for a review,and $5000 for an audit where revenues are less than $1 million,$15 000 for an audit for a client with revenues up to $5 million.He already has clients to keep him busy for the next three months.He even has some feelers for clients that he personally handled while he was working for your firm - there were a lot of contacts developed during the five years that he was working there! To help attract some of the larger clients,he is considering not charging any fee for the first ten hours spent on tax-related services.
Gino ended the conversation by asking you if you would like to join him in his new firm,because at this rate he'll need a second person really soon!
Required:
Identify the violations in the professional rules of conduct and explain why they are violations.

Accepted Answer

Gino is actively soliciting clients of o

Question 9

When public accountants are able to maintain an independent attitude in fulfilling their responsibility,it is referred to as independence in

Accepted Answer

A) fact. 
B) appearance. 
C) conduct. 
D) total. 
A) fact. 
B) appearance. 
C) conduct. 
D) total.

Question 10

A legal duty that arises when there is a contractual agreement with the client is known as

Accepted Answer

A) objectivity. 
B) standard of care. 
C) privity. 
D) independence. 
A) objectivity. 
B) standard of care. 
C) privity. 
D) independence.

Question 11

An auditor would be found negligent if he/she

Accepted Answer

A) relied on a report from management without considering management integrity. 
B) relied on a report that contained errors that had been concealed by management. 
C) did not consider the expenses from a division due to management intentionally withholding that information. 
D) failed to discover a payroll fraud by testing a statistical sample of transactions in the salary expense account. 
A) relied on a report from management without considering management integrity. 
B) relied on a report that contained errors that had been concealed by management. 
C) did not consider the expenses from a division due to management intentionally withholding that information. 
D) failed to discover a payroll fraud by testing a statistical sample of transactions in the salary expense account.

Question 12

List the components of the auditor's ethical decision making framework.

Accepted Answer

Following are the five components of aud

Question 13

PA has been recently appointed auditor of Foible Ltd. ,a company that exports high-cost knickknacks.To facilitate the rapid preparation of the financial statements,management had the physical inventory counted in October,rather than at the December year-end.During the inventory count,PA noticed that several of the boxes were labelled with receiving documents from a competitor.PA was told that the new warehouse supervisor worked part-time at the competitor and must have picked up the wrong boxes.
Several employees have sued Foible Ltd.for wrongful dismissal,claiming that they were promised a job that would last at least one year and would be provided with low cost accommodations.They are suing for the balance of the year's wages and are claiming that they were brought into the country under false pretenses.These employees are all from an Eastern-European country.The law firm has responded in a legal letter that this suit is without merit.
During the year,Foible obtained legal services from a firm in which Foible's Chairman of the Board is a partner.Fees and disbursements for these services for the year were $125 000,a material amount.
During the audit,employees often spoke in a foreign language among themselves before responding to PA.Then one employee would respond after some (often heated)discussion.
Subsequent to the year end,the warehouse supervisor was arrested on criminal charges of theft,and Foible was charged with selling stolen goods.PA was charged as an accomplice to money laundering,as all of the management for Foible were members of a criminal group found to be laundering money from Eastern Europe.
Required:
Discuss the actions that PA could have taken during the engagement to prevent these charges.

Accepted Answer

Prior to accepting an engagement,an audi

Question 14

Enron and WorldCom are companies that suffered from large frauds by corporate management.One important lesson with respect to such cases is that

Accepted Answer

A) when a company does really well financially,it is important to suspect that such results are always inflated. 
B) an investigation of the integrity of management is an important part of deciding upon the extent of audit work. 
C) securities and exchange commissions expect auditors to be perfect in their assessment of management. 
D) partners and staff should cooperate in preparing working papers that prove the accuracy of the financial statements. 
A) when a company does really well financially,it is important to suspect that such results are always inflated. 
B) an investigation of the integrity of management is an important part of deciding upon the extent of audit work. 
C) securities and exchange commissions expect auditors to be perfect in their assessment of management. 
D) partners and staff should cooperate in preparing working papers that prove the accuracy of the financial statements.

Question 15

Discuss the ways the accounting profession and society encourage public accountants to conduct themselves in a professional manner (i.e. ,the factors that influence the ethical conduct of audit practitioners).

Accepted Answer

There are many factors that encourage pu

Question 16

Individuals who accept fees (or property)and know or are willfully blind to the fact that the property was obtained illegally can be charged with money laundering,a criminal offence.Which of the following techniques will help a PA prevent such charges?

Accepted Answer

A) Ensure that the financial statements are in accordance with an acceptable reporting framework. 
B) Require that clients carefully document the sources of their funds. 
C) Carefully assess management integrity. 
D) Obtain a detailed letter of representation from management confirming the sources of their funds. 
A) Ensure that the financial statements are in accordance with an acceptable reporting framework. 
B) Require that clients carefully document the sources of their funds. 
C) Carefully assess management integrity. 
D) Obtain a detailed letter of representation from management confirming the sources of their funds.

Question 17

Sandra is a new partner at a PA firm.Sandra recently signed a new contract with Gretchen Fabrics to become its auditor.In the process of accepting the client and planning the first year's audit,Sandra did the following:
- Sandra contacted the previous auditor to enquire if there were any reasons not to accept the audit of this client.Unfortunately,the previous auditor was on vacation and did not respond to Sandra before she accepted the client.
- Upon his return,the previous auditor did communicate with Sandra and indicated that the client had aggressive expense deferral policies that they disagreed on.Sandra asked to review the working papers of the previous auditor with regards to these expenses and found them to be right below the materiality threshold.
- Gretchen Fabrics imports most of its fabrics and has two production facilities in Asia.The company therefore has a complex tax structure and many import duties.Since this is not the area of expertise of Sandra,she asked another auditing firm to provide the required audit procedures for the international taxes and duties expense.When selecting the other audit firm,Sandra researched the firm online.She also ensured that they had their professional designation and enquired with the CPA and provincial association if the firm had any complaints or litigation outstanding for malpractice.
- Since the bidding process took time,Sandra had to start the audit almost right after learning she had the winning bid.She did not prepare an engagement letter before starting the work.She does not see this as being a problem since waiting until the audit has begun will provide her with a better idea of what work has to be done and what the engagement letter should include.
Required:
Identify the good and bad steps that Sandra has undertaken in reducing her exposure to legal liability.

Accepted Answer

-Contacting the previous auditor is a go

Question 18

According to the CPA Code of Professional Conduct,ethical principles are aimed at

Accepted Answer

A) the emphasis on serving the public interest and at achieving orderly and courteous conduct within the profession. 
B) the ability to enforce the ideals. 
C) the enforceability of minimum behaviour and performance standards. 
D) the tendency to define the rules as maximum rather than minimum standards. 
A) the emphasis on serving the public interest and at achieving orderly and courteous conduct within the profession. 
B) the ability to enforce the ideals. 
C) the enforceability of minimum behaviour and performance standards. 
D) the tendency to define the rules as maximum rather than minimum standards.

Question 19

Which of the following situations would be an example of a self-interest threat that would prevent a PA from auditing the client?

Accepted Answer

A) The PA's uncle owns the business that the PA is auditing. 
B) For the last two years,the client could not pay their fees,so the PA created a loan agreement covering the fees,with the client paying 10% interest on the fees. 
C) The PA has a small bank loan at normal business interest rates with the bank that his firm is auditing. 
D) The PA has purchased a used car from one of the employees of the client. 
A) The PA's uncle owns the business that the PA is auditing. 
B) For the last two years,the client could not pay their fees,so the PA created a loan agreement covering the fees,with the client paying 10% interest on the fees. 
C) The PA has a small bank loan at normal business interest rates with the bank that his firm is auditing. 
D) The PA has purchased a used car from one of the employees of the client.

Question 20

In rare cases,auditors have been held liable for criminal acts.A criminal conviction against an auditor can result only when it is demonstrated that the auditor

Accepted Answer

A) was negligent. 
B) was grossly negligent. 
C) knowingly issued an incorrect auditor's report. 
D) caused a financial loss to an innocent third party. 
A) was negligent. 
B) was grossly negligent. 
C) knowingly issued an incorrect auditor's report. 
D) caused a financial loss to an innocent third party.

A public accountant would be facing an ethical dilemma when deciding whether or not to

Why does a self-review threat pose a problem when conducting an audit engagement?

The failure to perform a duty with the requisite standard of care is known as

In which of the following circumstances would a public accountant be bound by ethics to refrain from disclosing any confidential information obtained during the course of a professional engagement?

What should a PA do if approached by a client where he and his firm lack or do not have access to the technical knowledge required to complete the audit?

While performing services for their clients,professionals have always had a duty to provide a level of care that is

When public accountants are able to maintain an independent attitude in fulfilling their responsibility,it is referred to as independence in

A legal duty that arises when there is a contractual agreement with the client is known as

An auditor would be found negligent if he/she

List the components of the auditor's ethical decision making framework.

Enron and WorldCom are companies that suffered from large frauds by corporate management.One important lesson with respect to such cases is that

Discuss the ways the accounting profession and society encourage public accountants to conduct themselves in a professional manner (i.e. ,the factors that influence the ethical conduct of audit practitioners).

Individuals who accept fees (or property)and know or are willfully blind to the fact that the property was obtained illegally can be charged with money laundering,a criminal offence.Which of the following techniques will help a PA prevent such charges?

According to the CPA Code of Professional Conduct,ethical principles are aimed at

Which of the following situations would be an example of a self-interest threat that would prevent a PA from auditing the client?

In rare cases,auditors have been held liable for criminal acts.A criminal conviction against an auditor can result only when it is demonstrated that the auditor

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Audit Responsibilities and Objectives

Audit Evidence

Client Acceptance,Planning,and Materiality

Assessing the Risk of Material Misstatement

Internal Control and COSO Framework

Assessing Control Risk and Designing Test of Controls

Develop Risk Response: Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters

Exam 3: Professional Ethics and Legal Liability

A public accountant would be facing an ethical dilemma when deciding whether or not to

Why does a self-review threat pose a problem when conducting an audit engagement?

The failure to perform a duty with the requisite standard of care is known as

In which of the following circumstances would a public accountant be bound by ethics to refrain from disclosing any confidential information obtained during the course of a professional engagement?

What should a PA do if approached by a client where he and his firm lack or do not have access to the technical knowledge required to complete the audit?

While performing services for their clients,professionals have always had a duty to provide a level of care that is

When public accountants are able to maintain an independent attitude in fulfilling their responsibility,it is referred to as independence in

A legal duty that arises when there is a contractual agreement with the client is known as

An auditor would be found negligent if he/she

List the components of the auditor's ethical decision making framework.

Enron and WorldCom are companies that suffered from large frauds by corporate management.One important lesson with respect to such cases is that

Discuss the ways the accounting profession and society encourage public accountants to conduct themselves in a professional manner (i.e. ,the factors that influence the ethical conduct of audit practitioners).

Individuals who accept fees (or property)and know or are willfully blind to the fact that the property was obtained illegally can be charged with money laundering,a criminal offence.Which of the following techniques will help a PA prevent such charges?

According to the CPA Code of Professional Conduct,ethical principles are aimed at

Which of the following situations would be an example of a self-interest threat that would prevent a PA from auditing the client?

In rare cases,auditors have been held liable for criminal acts.A criminal conviction against an auditor can result only when it is demonstrated that the auditor

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Audit Responsibilities and Objectives

Audit Evidence

Client Acceptance,Planning,and Materiality

Assessing the Risk of Material Misstatement

Internal Control and COSO Framework

Assessing Control Risk and Designing Test of Controls

Develop Risk Response: Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters