Question 1

Which of the following activities is allowed for a CPA firm's attestation clients?

Accepted Answer

A) contingent fees fixed by a court 
B) commissions for referring a review client to an insurance agency for insurance coverage 
C) preparation of tax returns for which fees are based upon client refunds 
D) each of the above is allowed 
A) contingent fees fixed by a court 
B) commissions for referring a review client to an insurance agency for insurance coverage 
C) preparation of tax returns for which fees are based upon client refunds 
D) each of the above is allowed A

Question 2

Imprisonment for a period of six months or longer will result in automatic expulsion from the AICPA.

Accepted Answer

A) True 
 B)False  False

Question 3

An advantage of specific rules in the Code of Professional Conduct is the enforceability of minimum behavior and performance standards.

Accepted Answer

A) True 
 B)False  True

Question 4

For a public company,the Sarbanes-Oxley Act requires audit committee approval of all nonaudit services prior to their performance by the company's external auditor.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following circumstances impairs an auditor's independence?
I. Litigation by a client against an audit firm claiming a deficiency in the previous audit
II. Litigation by a client against an audit firm related to tax services
III. Litigation by an audit firm against a client claiming management fraud or deceit

Accepted Answer

A) I and II 
B) I and III 
C) II and III 
D) I,II,and III 
A) I and II 
B) I and III 
C) II and III 
D) I,II,and III

Question 6

Interpretations of rules of conduct in the Code of Professional Conduct are not officially enforceable and practitioners need not justify departure from them.

Accepted Answer

A) True 
 B)False

Question 7

Auditors are allowed to have an indirect financial interest in an audit client,such as ownership of stock in a client's company by the auditor's brother,as long as the amount of the financial interest is immaterial to the brother.

Accepted Answer

A) True 
 B)False

Question 8

A direct financial interest violates independence in which of the following circumstances?

Accepted Answer

A) when close relatives such as nondependent children,brothers,and sisters have a significant financial interest in the client 
B) when close relatives such as nondependent children,brothers,and sisters have any financial interest in the client 
C) when the CPA owns shares in a mutual fund that has an ownership interest in the client 
D) when close relatives such as a brother,sister,or in-laws are employed by the client in their engineering department 
A) when close relatives such as nondependent children,brothers,and sisters have a significant financial interest in the client 
B) when close relatives such as nondependent children,brothers,and sisters have any financial interest in the client 
C) when the CPA owns shares in a mutual fund that has an ownership interest in the client 
D) when close relatives such as a brother,sister,or in-laws are employed by the client in their engineering department

Question 9

The scenarios below all involve a possible violation of the AICPA's Code of Professional Conduct.
1.Using the list below,indicate which of the Code of Conduct Rules applies to the scenario.
a.Independence
b.Integrity and Objectivity
c.Contingent Fees
d.Acts Discreditable
e.Commissions and Referral Fees
f.Form of Organization and Name
2. State if the scenario is a violation of the Code.
Scenario:
1.Margaret Henry is a partner in the Tupelo office of Jenkins & Thorn,CPAs.Margaret's father is the controller at Markrich Sporting Supplies,Inc.,a publicly held company in Tupelo.Markrich is one of Jenkins & Thorn's audit clients.Margaret is not involved in the audit of Markrich.
2.Jason Alexander is an audit manager with Reese & Co.,CPAs.Jason owns 100 share of common stock in one of the firm's audit clients,but he does not provide any audit or non-audit services to the company.
3.The accounting firm of Fine & Herman,CPAs,provides bookkeeping and tax services for Henderson Corporation,a privately held company.Mr.Herman also performs the annual audit of Henderson Corporation.
4.Elaine Cooper,CPA,is the auditor of Paula's Pizza.Toward the end of the audit,Paula gave Elaine her estimate of receivable collectability and Elaine accepted it without any testing.
5.Charley Ray,CPA,is a member of the engagement team that performs the audit of Desiree Corporation.Charley's five-year-old daughter,Becky,received ten shares of Desiree common stock for her fifth birthday in a trust fund established by Becky's grandmother.
6.Freeman and Johnson formed a successful CPA practice ten years ago.In the current year,they approached Adam Sawtooth,a surgeon and medical expert,and asked him to assist them with their growing medical consulting practice.Sawtooth agreed,but only after he was given an ownership interest in the firm.Sawtooth does intend to reduce his private practice hours and spend 40% of his working hours devoted to the Freeman & Johnson practice.
7.Sally Preen has a successful computer network consulting business.Sally has recommended one of her clients to Sam Walton,CPA.To show gratitude for the referral,Sam has agreed to pay Sally a token gift of $50.Sam has not disclosed the payment arrangement to his ne clients.
8.The accounting firm of Smith & Black,CPAs,is negotiating a fee with a new audit client where the client will pay $50,000 if the client obtains the line of credit needed for working capital purposes.Otherwise,the fee will be $40,000.
9.Brad Barns,CPA,was traveling from Las Vegas to the Grand Canyon when he was pulled over by a police officer for suspicion of driving under the influence.He was convicted in court of driving under the influence of alcohol and received six months' probation.
10.Manuel Lopez,CPA,is a senior in a small,local,CPA firm that audits Childress,Inc.,a closely held corporation.Manuel's sister was recently appointed as the controller for Childress,Inc.

Accepted Answer

Part 1: 1. a 6. f
2. a 7. e
3.

Question 10

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

A) Yes,because the stock is a direct financial interest. 
B) Yes,because the stock is an indirect financial interest that is material to the CPA's child. 
C) No,because the CPA does not have a direct financial interest in the client. 
D) No,because the CPA does not have a material indirect financial interest in the client. 
A) Yes,because the stock is a direct financial interest. 
B) Yes,because the stock is an indirect financial interest that is material to the CPA's child. 
C) No,because the CPA does not have a direct financial interest in the client. 
D) No,because the CPA does not have a material indirect financial interest in the client.

Question 11

Safeguards can always reduce the threat to an acceptable level.

Accepted Answer

A) True 
 B)False

Question 12

The Code of Conduct rule on independence indicates that materiality must be considered when

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 13

Which of the following is an accurate statement?

Accepted Answer

A) Auditing standards detail the requirements that a CPA firm must follow when it is requested to provide an opinion on the application of accounting principles for a client of another CPA firm. 
B) SEC rules prohibit ownership in audit clients by those persons who can influence the audit. 
C) PCAOB rules require a CPA firm,before its selection as the company's auditor to document all relationships between the firm and the company. 
D) All of the above are accurate statements. 
A) Auditing standards detail the requirements that a CPA firm must follow when it is requested to provide an opinion on the application of accounting principles for a client of another CPA firm. 
B) SEC rules prohibit ownership in audit clients by those persons who can influence the audit. 
C) PCAOB rules require a CPA firm,before its selection as the company's auditor to document all relationships between the firm and the company. 
D) All of the above are accurate statements.

Question 14

Professionals are expected to conduct themselves at a higher level than most other members of society.

Accepted Answer

A) True 
 B)False

Question 15

Since the rules cannot address all circumstances,the Code includes a conceptual framework approach for members to use to evaluate threats to compliance.Using this framework,

Accepted Answer

A) the first step is to discuss the threat with the client's management team. 
B) all threats must be completely eliminated. 
C) safeguards can be used to eliminate any threat. 
D) more than one safeguard may be necessary. 
A) the first step is to discuss the threat with the client's management team. 
B) all threats must be completely eliminated. 
C) safeguards can be used to eliminate any threat. 
D) more than one safeguard may be necessary.

Question 16

One of the AICPA's Ethical Principles deals with the public interest.It states that members should accept the obligation to act in a way that will

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 17

Which of the following is required for a firm to designate itself "Member of the American Institute of Certified Public Accountants" on its letterhead?

Accepted Answer

A) At least one of the owners must be a member of the AICPA. 
B) All CPA owners must be members of the AICPA. 
C) The CPA owners whose names appear in the firm name must be members of the AICPA. 
D) A majority of the owners must be members of the AICPA. 
A) At least one of the owners must be a member of the AICPA. 
B) All CPA owners must be members of the AICPA. 
C) The CPA owners whose names appear in the firm name must be members of the AICPA. 
D) A majority of the owners must be members of the AICPA.

Question 18

Under the rules and interpretations of the AICPA Code,

Accepted Answer

A) a CPA can be a client advocate during an audit,but not while performing tax or management services. 
B) staff auditors should always defer to the judgment of their immediate supervisor. 
C) a conflict of interest is a relationship that might interfere with objectivity or integrity. 
D) even if a conflict of interest is disclosed to the member's client or employer,it is still considered a violation of the rules of conduct. 
A) a CPA can be a client advocate during an audit,but not while performing tax or management services. 
B) staff auditors should always defer to the judgment of their immediate supervisor. 
C) a conflict of interest is a relationship that might interfere with objectivity or integrity. 
D) even if a conflict of interest is disclosed to the member's client or employer,it is still considered a violation of the rules of conduct.

Question 19

A six-step approach is often used to resolve an ethical dilemma.The first step in this process is to

Accepted Answer

A) identify the alternative actions available. 
B) identify the ethical issues from the facts. 
C) determine who will be affected by the outcome of the dilemma. 
D) obtain the relevant facts. 
A) identify the alternative actions available. 
B) identify the ethical issues from the facts. 
C) determine who will be affected by the outcome of the dilemma. 
D) obtain the relevant facts.

Question 20

The ________ is a standard of conduct for all members of the AICPA.

Accepted Answer

A) IESBA Code of Conduct 
B) SEC Code of Conduct 
C) PCAOB Code of Professional Conduct 
D) AICPA Code of Professional Conduct 
A) IESBA Code of Conduct 
B) SEC Code of Conduct 
C) PCAOB Code of Professional Conduct 
D) AICPA Code of Professional Conduct

Exam 4: Professional Ethics

Which of the following activities is allowed for a CPA firm's attestation clients?

Imprisonment for a period of six months or longer will result in automatic expulsion from the AICPA.

An advantage of specific rules in the Code of Professional Conduct is the enforceability of minimum behavior and performance standards.

For a public company,the Sarbanes-Oxley Act requires audit committee approval of all nonaudit services prior to their performance by the company's external auditor.

Interpretations of rules of conduct in the Code of Professional Conduct are not officially enforceable and practitioners need not justify departure from them.

Auditors are allowed to have an indirect financial interest in an audit client,such as ownership of stock in a client's company by the auditor's brother,as long as the amount of the financial interest is immaterial to the brother.

A direct financial interest violates independence in which of the following circumstances?

Safeguards can always reduce the threat to an acceptable level.

The Code of Conduct rule on independence indicates that materiality must be considered when

Which of the following is an accurate statement?

Professionals are expected to conduct themselves at a higher level than most other members of society.

Since the rules cannot address all circumstances,the Code includes a conceptual framework approach for members to use to evaluate threats to compliance.Using this framework,

One of the AICPA's Ethical Principles deals with the public interest.It states that members should accept the obligation to act in a way that will

Which of the following is required for a firm to designate itself "Member of the American Institute of Certified Public Accountants" on its letterhead?

Under the rules and interpretations of the AICPA Code,

A six-step approach is often used to resolve an ethical dilemma.The first step in this process is to

The ________ is a standard of conduct for all members of the AICPA.

The Demand for Audit and Other Assurance Services

The Cpa Profession

Audit Reports

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Fraud Auditing

Internal Control and Coso Framework

Assessing Control Risk and Reporting on Internal Controls

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls,

Completing the Tests in the Acquisition and Payment Cycle:

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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