Question 1

The Sarbanes-Oxley Act requires a cooling off period of ________ before a member of an audit team can work for a client in a key management position.

Accepted Answer

A)  one year 
B)  eighteen months 
C)  three years 
D)  five years 
A)  one year 
B)  eighteen months 
C)  three years 
D)  five years

Question 2

The AICPA's Code of Professional Conduct states that a CPA should maintain integrity and objectivity. The term "objectivity" in the Code refers to a CPA's ability to

Accepted Answer

A)  choose independently between alternate accounting principles and auditing standards. 
B)  distinguish between accounting practices that are acceptable and those that are not. 
C)  be unyielding in all matters dealing with auditing procedures. 
D)  maintain an impartial attitude on matters that come under the CPA's review. 
A)  choose independently between alternate accounting principles and auditing standards. 
B)  distinguish between accounting practices that are acceptable and those that are not. 
C)  be unyielding in all matters dealing with auditing procedures. 
D)  maintain an impartial attitude on matters that come under the CPA's review.

Question 3

The CPA must not subordinate his or her professional judgment to that of others in any

Accepted Answer

A)  engagement. 
B)  audit engagement. 
C)  engagement excluding tax services. 
D)  engagement where the opinion of a specialist is used. 
A)  engagement. 
B)  audit engagement. 
C)  engagement excluding tax services. 
D)  engagement where the opinion of a specialist is used.

Question 4

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 5

Explain why there is a special need for ethical conduct in the auditing profession.

Accepted Answer

The reason for an expectation of a high

Question 6

A CPA firm may use any name as long as it is not misleading.

Accepted Answer

A) True 
 B)False

Question 7

When CPAs are able to maintain their actual independence, it is referred to as independence in

Accepted Answer

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

Question 8

A rationalization method that can easily result in unethical behavior is the argument that "everybody does it."

Accepted Answer

A) True 
 B)False

Question 9

Which of the following fee arrangements is not a violation of the AICPA's Code of Professional Conduct?

Accepted Answer

A)  basing fees as an expert witness on the amount awarded to the plaintiff, even though the CPA performs a compilation for client use 
B)  basing consulting fees on a percentage of a bond issue, even though the CPA performs a review of the client's financial statements 
C)  basing fees for a tax service on the amount of the refund that the client will receive 
D)  basing consulting fees on a percentage of a bond issue, even though the CPA performs an audit of the client's financial statements 
A)  basing fees as an expert witness on the amount awarded to the plaintiff, even though the CPA performs a compilation for client use 
B)  basing consulting fees on a percentage of a bond issue, even though the CPA performs a review of the client's financial statements 
C)  basing fees for a tax service on the amount of the refund that the client will receive 
D)  basing consulting fees on a percentage of a bond issue, even though the CPA performs an audit of the client's financial statements

Question 10

Describe an ethical dilemma that an auditor or an accountant might face in his or her business career, then illustrate how the auditor or accountant might use the six-step approach presented in the text to resolve that dilemma. Be specific.

Accepted Answer

An ethical dilemma is a situation a pers

Question 11

Audit assistants should be allowed to document situations during the audit where they disagreed with a conclusion made by their superior(s) involving a significant audit matter.

Accepted Answer

A) True 
 B)False

Question 12

The following situations involve a possible violation of the AICPA's Code of Professional Conduct. For each situation, (1) determine the applicable rule from the Code, (2) decide whether or not the Code has been violated, and (3) briefly explain how the situation violates (or does not violate) the Code.
a. In 2014, Freeman and Johnson, both CPAs, decided to form a CPA practice. In 2016, Freeman and Johnson approached Bill Delaney, a physician and medical expert, and asked him to assist them with their growing medical consulting practice. Delaney agreed, but only after he was given an ownership interest in the firm. Delaney does not intend to quit his private medical practice.
Rule: ________ Violation?
 Yes No

Accepted Answer

a. Violation of the rule on Form of Orga

Question 13

Independence is required of a CPA when performing

Accepted Answer

A)  management advisory services. 
B)  all attestation services. 
C)  all attestation and tax services. 
D)  all professional services. 
A)  management advisory services. 
B)  all attestation services. 
C)  all attestation and tax services. 
D)  all professional services.

Question 14

Under the AICPA independence rules, the auditor

Accepted Answer

A)  is prohibited from performing a company's audit and installing and designing the client's new information system. 
B)  does not need to document the understanding and willingness of the client to perform all management functions associated with the nonaudit service. 
C)  is prohibited from doing any bookkeeping services for the client if performing the audit. 
D)  must follow the more restrictive SEC independence rules when dealing with a public company. 
A)  is prohibited from performing a company's audit and installing and designing the client's new information system. 
B)  does not need to document the understanding and willingness of the client to perform all management functions associated with the nonaudit service. 
C)  is prohibited from doing any bookkeeping services for the client if performing the audit. 
D)  must follow the more restrictive SEC independence rules when dealing with a public company.

Question 15

Four of the six Ethical Principles in the AICPA's Code of Professional Conduct are equally applicable to all members of the AICPA. Which of the following principles applies only to members in public practice?

Accepted Answer

A)  Scope and Nature of Services 
B)  Integrity 
C)  Due Care 
D)  The Public Interest 
A)  Scope and Nature of Services 
B)  Integrity 
C)  Due Care 
D)  The Public Interest

Question 16

It is allowable for an auditor who is also an attorney to represent a client in legal matters.

Accepted Answer

A) True 
 B)False

Question 17

The European Commission has a rule that generally requires, with some exceptions, audit firm rotation after how many years?

Accepted Answer

A)  5 
B)  10 
C)  12 
D)  15 
A)  5 
B)  10 
C)  12 
D)  15

Question 18

Interpretations of the independence rule of the AICPA Code prohibit covered members from owning any stock or other direct investment in audit clients. Covered members would include which of the following?

Accepted Answer

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

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Describe the methods used by the AICPA and State Boards of Accountancy to enforce the rules of conduct.

Accepted Answer

The AICPA uses two levels of disciplinar

Exam 4: Professional Ethics

The Sarbanes-Oxley Act requires a cooling off period of ________ before a member of an audit team can work for a client in a key management position.

The AICPA's Code of Professional Conduct states that a CPA should maintain integrity and objectivity. The term "objectivity" in the Code refers to a CPA's ability to

The CPA must not subordinate his or her professional judgment to that of others in any

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

Explain why there is a special need for ethical conduct in the auditing profession.

A CPA firm may use any name as long as it is not misleading.

When CPAs are able to maintain their actual independence, it is referred to as independence in

A rationalization method that can easily result in unethical behavior is the argument that "everybody does it."

Which of the following fee arrangements is not a violation of the AICPA's Code of Professional Conduct?

Describe an ethical dilemma that an auditor or an accountant might face in his or her business career, then illustrate how the auditor or accountant might use the six-step approach presented in the text to resolve that dilemma. Be specific.

Audit assistants should be allowed to document situations during the audit where they disagreed with a conclusion made by their superior(s) involving a significant audit matter.

Independence is required of a CPA when performing

Under the AICPA independence rules, the auditor

Four of the six Ethical Principles in the AICPA's Code of Professional Conduct are equally applicable to all members of the AICPA. Which of the following principles applies only to members in public practice?

It is allowable for an auditor who is also an attorney to represent a client in legal matters.

The European Commission has a rule that generally requires, with some exceptions, audit firm rotation after how many years?

Interpretations of the independence rule of the AICPA Code prohibit covered members from owning any stock or other direct investment in audit clients. Covered members would include which of the following?

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

Describe the methods used by the AICPA and State Boards of Accountancy to enforce the rules of conduct.

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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