Question 1

Which of the following is least likely to impair a CPA firm's independence with respect to an audit client in the Oklahoma City office of a national CPA firm?

Accepted Answer

A)  A partner in the Oklahoma City office owns an immaterial amount of stock in the client. 
B)  A partner in the Jersey City office owns 25% of the client's stock. 
C)  A partner in the Oklahoma City office, who does not work on the audit engagement, previously served as controller for the audit client. 
D)  A partner in the Chicago office previously served as vice president of finance for the audit client. 
A)  A partner in the Oklahoma City office owns an immaterial amount of stock in the client. 
B)  A partner in the Jersey City office owns 25% of the client's stock. 
C)  A partner in the Oklahoma City office, who does not work on the audit engagement, previously served as controller for the audit client. 
D)  A partner in the Chicago office previously served as vice president of finance for the audit client.

Question 2

Audit firms frequently merge with other audit firms or form professional associations to enhance their capabilities to provide professional services. In these situations, it is not required for the network firm to be independent of audit and review clients of the other network firms for a period of 5 years.

Accepted Answer

A) True 
 B)False

Question 3

Under the Sarbanes-Oxley Act, the audit committee of a public company

Accepted Answer

A)  must meet on a monthly basis. 
B)  must be comprised entirely of financial experts. 
C)  is responsible for the oversight of the work of the independent auditor. 
D)  should have at least one independent member. 
A)  must meet on a monthly basis. 
B)  must be comprised entirely of financial experts. 
C)  is responsible for the oversight of the work of the independent auditor. 
D)  should have at least one independent member.

Question 4

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 5

CPA firms have a similar relationship with the users of financial statements which they audit compared to the relationship other professionals have with their customers.

Accepted Answer

A) True 
 B)False

Question 6

Ethics are

Accepted Answer

A)  needed in the professions, but is not needed for society in general. 
B)  a set of moral principles or values. 
C)  not formed by life experiences. 
D)  always incorporated in laws. 
A)  needed in the professions, but is not needed for society in general. 
B)  a set of moral principles or values. 
C)  not formed by life experiences. 
D)  always incorporated in laws.

Question 7

Interpretations to the Rules of Conduct permit a CPA firm to do both bookkeeping and auditing for the same private company client if three criteria are met. Which of the following is not one of those criteria?

Accepted Answer

A)  The client must accept full responsibility for the financial statements. 
B)  The client is required to file an annual report, including audited financial statements, with the Securities and Exchange Commission. 
C)  The CPA must not assume the role of employee or of manager. 
D)  The CPA must follow applicable auditing standards. 
A)  The client must accept full responsibility for the financial statements. 
B)  The client is required to file an annual report, including audited financial statements, with the Securities and Exchange Commission. 
C)  The CPA must not assume the role of employee or of manager. 
D)  The CPA must follow applicable auditing standards.

Question 8

When a member observes the profession's technical and ethical standards and strives to continually improve her competence and quality of services, she is exercising

Accepted Answer

A)  due care. 
B)  integrity. 
C)  independence. 
D)  objectivity. 
A)  due care. 
B)  integrity. 
C)  independence. 
D)  objectivity.

Question 9

Auditors and accountants do not face many ethical dilemmas during their respective business careers.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following represents all of the ways a CPA firm can be organized?

Accepted Answer

A)  proprietorships and partnerships 
B)  proprietorships, partnerships, and professional corporations 
C)  proprietorships, general partnerships, general corporations, professional corporations, limited liability companies, and limited liability partnerships if permitted by state law 
D)  single proprietorships, partnerships, professional corporations if permitted by state law, or regular corporations 
A)  proprietorships and partnerships 
B)  proprietorships, partnerships, and professional corporations 
C)  proprietorships, general partnerships, general corporations, professional corporations, limited liability companies, and limited liability partnerships if permitted by state law 
D)  single proprietorships, partnerships, professional corporations if permitted by state law, or regular corporations

Question 11

A member actively endorses an attest client's products or services. This is an example of which type of threat to compliance with which of the rules under the AICPA's Code of Professional Conduct?

Accepted Answer

A)  management participation 
B)  self-interest 
C)  advocacy 
D)  undue influence 
A)  management participation 
B)  self-interest 
C)  advocacy 
D)  undue influence

Question 12

Which of the following is a true statement regarding the enforcement mechanism for CPA conduct?

Accepted Answer

A)  The PCAOB has the authority to investigate and discipline registered public accounting firms. 
B)  All disciplinary action by the AICPA must go through the Joint Trial Board. 
C)  Disciplinary actions taken by the AICPA are not disclosed to the public. 
D)  Only a few states have adopted the AICPA rules of conduct. 
A)  The PCAOB has the authority to investigate and discipline registered public accounting firms. 
B)  All disciplinary action by the AICPA must go through the Joint Trial Board. 
C)  Disciplinary actions taken by the AICPA are not disclosed to the public. 
D)  Only a few states have adopted the AICPA rules of conduct.

Question 13

Under the AICPA independence rules, independence can be considered impaired when

Accepted Answer

A)  billed fees remain unpaid for professional services for more than ninety days. 
B)  a client in bankruptcy has unpaid fees for more than one year. 
C)  there is litigation by the client related to the auditor's tax or other nonaudit services for an immaterial amount. 
D)  there is a lawsuit by the client claiming deficiencies in the previous year's audit. 
A)  billed fees remain unpaid for professional services for more than ninety days. 
B)  a client in bankruptcy has unpaid fees for more than one year. 
C)  there is litigation by the client related to the auditor's tax or other nonaudit services for an immaterial amount. 
D)  there is a lawsuit by the client claiming deficiencies in the previous year's audit.

Question 14

PCAOB inspections, especially information related to future inspections which will be made by the PCAOB staff and personnel of public company audits, is publicly available information.

Accepted Answer

A) True 
 B)False

Question 15

Members of the AICPA in public practice are prohibited from performing comparative advertising.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is true when the CPA has been engaged to perform an audit of financial statements?

Accepted Answer

A)  The CPA firm is engaged and paid by the client; therefore, the firm has primary responsibility to be an advocate for the client. 
B)  The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are those who rely on the financial statements. 
C)  Should a situation arise where there is no convincing authoritative standard available, and there is a choice of actions which could impact a client's financial statements, the CPA is free to endorse the choice which is in the investors' interests. 
D)  The CPA firm has primary responsibility to the FASB. 
A)  The CPA firm is engaged and paid by the client; therefore, the firm has primary responsibility to be an advocate for the client. 
B)  The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are those who rely on the financial statements. 
C)  Should a situation arise where there is no convincing authoritative standard available, and there is a choice of actions which could impact a client's financial statements, the CPA is free to endorse the choice which is in the investors' interests. 
D)  The CPA firm has primary responsibility to the FASB.

Question 17

Which of the following loans would be prohibited between a CPA firm or its members and an audit client?

Accepted Answer

A)  automobile loans 
B)  loans fully collateralized by cash deposits at the same financial institution 
C)  new home mortgage loans 
D)  unpaid credit card balances not exceeding $10,000 in total 
A)  automobile loans 
B)  loans fully collateralized by cash deposits at the same financial institution 
C)  new home mortgage loans 
D)  unpaid credit card balances not exceeding $10,000 in total

Question 18

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 19

Which of the following is(are) true concerning the Ethical Principles of the Code of Professional Conduct?
I. They identify ideal conduct.
II. They are general ideals and are not enforceable.

Accepted Answer

A)  I only 
B)  II only 
C)  I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  I and II 
D)  Neither I nor II

Question 20

CPA firms are required to be independent when performing any professional service.

Accepted Answer

A) True 
 B)False

Exam 4: Professional Ethics

Which of the following is least likely to impair a CPA firm's independence with respect to an audit client in the Oklahoma City office of a national CPA firm?

Under the Sarbanes-Oxley Act, the audit committee of a public company

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

CPA firms have a similar relationship with the users of financial statements which they audit compared to the relationship other professionals have with their customers.

Ethics are

Interpretations to the Rules of Conduct permit a CPA firm to do both bookkeeping and auditing for the same private company client if three criteria are met. Which of the following is not one of those criteria?

When a member observes the profession's technical and ethical standards and strives to continually improve her competence and quality of services, she is exercising

Auditors and accountants do not face many ethical dilemmas during their respective business careers.

Which of the following represents all of the ways a CPA firm can be organized?

A member actively endorses an attest client's products or services. This is an example of which type of threat to compliance with which of the rules under the AICPA's Code of Professional Conduct?

Which of the following is a true statement regarding the enforcement mechanism for CPA conduct?

Under the AICPA independence rules, independence can be considered impaired when

PCAOB inspections, especially information related to future inspections which will be made by the PCAOB staff and personnel of public company audits, is publicly available information.

Members of the AICPA in public practice are prohibited from performing comparative advertising.

Which of the following statements is true when the CPA has been engaged to perform an audit of financial statements?

Which of the following loans would be prohibited between a CPA firm or its members and an audit client?

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

Which of the following is(are) true concerning the Ethical Principles of the Code of Professional Conduct? I. They identify ideal conduct. II. They are general ideals and are not enforceable.

CPA firms are required to be independent when performing any professional service.

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Materiality

Assessing the Risk of Material Misstatement

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, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

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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