Question 1

An example of an "indirect financial interest in a client" would be

Accepted Answer

A)  ownership of less than 10% of the client's stock by the covered members spouse. 
B)  an ownership of less than 10% of the client's stock by a staff member who is not involved in the audit. 
C)  the covered member's ownership of a mutual fund that has an investment in the client. 
D)  All of the above are examples of an indirect financial interest in a client. 
A)  ownership of less than 10% of the client's stock by the covered members spouse. 
B)  an ownership of less than 10% of the client's stock by a staff member who is not involved in the audit. 
C)  the covered member's ownership of a mutual fund that has an investment in the client. 
D)  All of the above are examples of an indirect financial interest in a client.

Question 2

Interpretations of the rules regarding independence allow an auditor to serve as

Accepted Answer

A)  a director or officer of an audit client. 
B)  an underwriter for the sale of a client's securities. 
C)  a trustee of a client's pension fund. 
D)  an honorary director for a not-for-profit charitable or religious organization. 
A)  a director or officer of an audit client. 
B)  an underwriter for the sale of a client's securities. 
C)  a trustee of a client's pension fund. 
D)  an honorary director for a not-for-profit charitable or religious organization.

Question 3

It becomes obvious that a member of a CPA firm has developed a close relationship with an attest client. 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)  familiarity 
C)  self-review 
D)  undue influence 
A)  management participation 
B)  familiarity 
C)  self-review 
D)  undue influence

Question 4

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 5

Several months after an unqualified audit report was issued, the auditor discovers the financial statements were materially misstated. The client's CEO agrees that there are misstatements, but refuses to correct them. The CEO claims that "confidentiality" prevents the CPA from informing anyone. Which of the following statements is correct?

Accepted Answer

A)  The CEO is correct and the auditor must maintain confidentiality. 
B)  The CEO is incorrect, but since the audit report has been issued, it is too late to correct the report. 
C)  The CEO is correct, but to be ethically correct, the auditor should violate the confidentiality rule and disclose the error. 
D)  The CEO is incorrect, and the auditor has an obligation to issue a revised audit report, even if the CEO will not correct the financial statements. 
A)  The CEO is correct and the auditor must maintain confidentiality. 
B)  The CEO is incorrect, but since the audit report has been issued, it is too late to correct the report. 
C)  The CEO is correct, but to be ethically correct, the auditor should violate the confidentiality rule and disclose the error. 
D)  The CEO is incorrect, and the auditor has an obligation to issue a revised audit report, even if the CEO will not correct the financial statements.

Question 6

In the AICPA's Code of Professional Conduct, the second principle of professional conduct, entitled "The Public Interest," applies only to members of the AICPA in public practice and not to members who work as accountants in business, government, or education.

Accepted Answer

A) True 
 B)False

Question 7

Freedom from ________ means the absence of relationships that might interfere with objectivity or integrity.

Accepted Answer

A)  independence 
B)  acts discreditable 
C)  impartiality 
D)  conflicts of interest 
A)  independence 
B)  acts discreditable 
C)  impartiality 
D)  conflicts of interest

Question 8

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

Question 9

Some CPA firms do not permit any ownership by staff of a client's stock regardless of which office serves that particular client.

Accepted Answer

A) True 
 B)False

Question 10

The AICPA's Code of Professional Conduct requires independence for all

Accepted Answer

A)  attestation engagements. 
B)  services performed by accountants in public practice. 
C)  accounting and auditing services performed. 
D)  professional work performed by CPAs. 
A)  attestation engagements. 
B)  services performed by accountants in public practice. 
C)  accounting and auditing services performed. 
D)  professional work performed by CPAs.

Question 11

The Sarbanes-Oxley Act requires which employees of an accounting firm to rotate off the engagement every five years?

Accepted Answer

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

Question 12

Expulsion from the AICPA for failing to follow the rules of conduct is, by itself, sufficient to prevent a CPA from practicing public accounting.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is not an example of an audit-related fee required to be included in the audit-related fees category related to fees disclosed in the annual proxy statement?

Accepted Answer

A)  comfort letters 
B)  reviews of SEC filings 
C)  reviews of SEC inquiry letters 
D)  tax avoidance planning services 
A)  comfort letters 
B)  reviews of SEC filings 
C)  reviews of SEC inquiry letters 
D)  tax avoidance planning services

Question 14

Due to a shortage of personnel, the client asks a member firm to assist with the authorization of accounting transactions. 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)  self-review 
D)  undue influence 
A)  management participation 
B)  self-interest 
C)  self-review 
D)  undue influence

Question 15

A CPA performs bookkeeping services for a client and then performs an audit of those financial statements. This is an example of a ________ threat.

Accepted Answer

A)  familiarity 
B)  self-interest 
C)  self-review 
D)  management participation 
A)  familiarity 
B)  self-interest 
C)  self-review 
D)  management participation

Question 16

For which of the following professional services must CPAs be independent?

Accepted Answer

A)  management advisory services 
B)  audits of financial statements 
C)  preparation of tax returns 
D)  all of the above 
A)  management advisory services 
B)  audits of financial statements 
C)  preparation of tax returns 
D)  all of the above

Question 17

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 for a material amount 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 18

Under the Form of Organization and Name rule, a CPA firm is prohibited from practicing as a limited liability partnership.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Oehlers, CPA, is a staff auditor participating in the engagement of Capital Trust, Inc. Which of the following circumstances impairs Oehlers' independence?

Accepted Answer

A)  Oehlers' sister is an internal auditor employed by Capital Trust. 
B)  Oehlers' friend, an employee of another local accounting firm, prepares the tax return of Capital Trust's CEO. 
C)  Oehlers' and Capital Trust's 401K plans own stock with the same corporation. 
D)  During the period of professional engagement, Capital Trust and Oehlers discussed business over lunch at a first-class restaurant. 
A)  Oehlers' sister is an internal auditor employed by Capital Trust. 
B)  Oehlers' friend, an employee of another local accounting firm, prepares the tax return of Capital Trust's CEO. 
C)  Oehlers' and Capital Trust's 401K plans own stock with the same corporation. 
D)  During the period of professional engagement, Capital Trust and Oehlers discussed business over lunch at a first-class restaurant.

Exam 4: Professional Ethics

An example of an "indirect financial interest in a client" would be

Interpretations of the rules regarding independence allow an auditor to serve as

It becomes obvious that a member of a CPA firm has developed a close relationship with an attest client. This is an example of which type of threat to compliance with which of the rules under the AICPA's Code of Professional Conduct?

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

In the AICPA's Code of Professional Conduct, the second principle of professional conduct, entitled "The Public Interest," applies only to members of the AICPA in public practice and not to members who work as accountants in business, government, or education.

Freedom from ________ means the absence of relationships that might interfere with objectivity or integrity.

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

Some CPA firms do not permit any ownership by staff of a client's stock regardless of which office serves that particular client.

The AICPA's Code of Professional Conduct requires independence for all

The Sarbanes-Oxley Act requires which employees of an accounting firm to rotate off the engagement every five years?

Expulsion from the AICPA for failing to follow the rules of conduct is, by itself, sufficient to prevent a CPA from practicing public accounting.

Which of the following is not an example of an audit-related fee required to be included in the audit-related fees category related to fees disclosed in the annual proxy statement?

Due to a shortage of personnel, the client asks a member firm to assist with the authorization of accounting transactions. This is an example of which type of threat to compliance with which of the rules under the AICPA's Code of Professional Conduct?

A CPA performs bookkeeping services for a client and then performs an audit of those financial statements. This is an example of a ________ threat.

For which of the following professional services must CPAs be independent?

Under the Form of Organization and Name rule, a CPA firm is prohibited from practicing as a limited liability partnership.

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,

Oehlers, CPA, is a staff auditor participating in the engagement of Capital Trust, Inc. Which of the following circumstances impairs Oehlers' independence?

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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