Question 1

An auditor's independence is considered impaired if the auditor has

Accepted Answer

A)  an immaterial, indirect financial interest in a client. 
B)  an outstanding $8,000 balance on a credit card issued by a client. 
C)  an automobile loan from a client bank, collateralized by the automobile. 
D)  a joint, closely held business investment with the client that is material to the auditor's net worth. 
A)  an immaterial, indirect financial interest in a client. 
B)  an outstanding $8,000 balance on a credit card issued by a client. 
C)  an automobile loan from a client bank, collateralized by the automobile. 
D)  a joint, closely held business investment with the client that is material to the auditor's net worth.

Question 2

The financial interests of a CPA's family members can affect the CPA's independence. Which of the following parties would not be included as a "direct financial interest" of the CPA?

Accepted Answer

A)  spouse 
B)  dependent child 
C)  relative supported by the CPA 
D)  sibling living in the same city as the CPA 
A)  spouse 
B)  dependent child 
C)  relative supported by the CPA 
D)  sibling living in the same city as the CPA

Question 3

All litigation by a client related to tax or other nonaudit services will impair independence.

Accepted Answer

A) True 
 B)False

Question 4

Which part of the AICPA's Code of Professional Conduct is enforceable?

Accepted Answer

A)  ethical rulings 
B)  rules of conduct 
C)  principles 
D)  interpretations 
A)  ethical rulings 
B)  rules of conduct 
C)  principles 
D)  interpretations

Question 5

Which of the following statements is true with respect to audit committees?

Accepted Answer

A)  Audit committee members should consist of members of the company's management. 
B)  All members of the audit committee must be financial experts. 
C)  The audit committee of a public company is responsible for hiring the auditor. 
D)  Audit committees must have a minimum of ten members. 
A)  Audit committee members should consist of members of the company's management. 
B)  All members of the audit committee must be financial experts. 
C)  The audit committee of a public company is responsible for hiring the auditor. 
D)  Audit committees must have a minimum of ten members.

Question 6

A member in public practice shall neither receive from, nor pay to, a client a commission when the member or member's firm also performs certain services for that client. Commissions are allowed if the CPA performs

Accepted Answer

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

Question 7

Which of the following services are allowed by the SEC whenever a CPA also audits the company?

Accepted Answer

A)  internal audit outsourcing 
B)  legal services unrelated to the audit 
C)  appraisal or valuation services 
D)  services related to assessing the effectiveness of internal control over financial reporting 
A)  internal audit outsourcing 
B)  legal services unrelated to the audit 
C)  appraisal or valuation services 
D)  services related to assessing the effectiveness of internal control over financial reporting

Question 8

The prohibition on direct financial interests applies to covered members in a position to influence an engagement.

Accepted Answer

A) True 
 B)False

Question 9

If an action is considered legal, it must also be considered ethical.

Accepted Answer

A) True 
 B)False

Question 10

A CPA firm should decline an offer to perform consulting services engagement if

Accepted Answer

A)  the proposed engagement is not accounting related. 
B)  recommendations made by the CPA firm are to be subject to review by the client. 
C)  acceptance would require the CPA firm to make management decisions for an audit client. 
D)  any of the above is true. 
A)  the proposed engagement is not accounting related. 
B)  recommendations made by the CPA firm are to be subject to review by the client. 
C)  acceptance would require the CPA firm to make management decisions for an audit client. 
D)  any of the above is true.

Question 11

Users of financial statements have the time and the ability to evaluate the audit performance of a CPA firm.

Accepted Answer

A) True 
 B)False

Question 12

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

Question 13

An attest client threatens the member with not awarding future additional engagements to the firm if the firm does not agree with the client on a particular accounting matter. 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 14

Discuss the Confidential Client Information Rule, including the four exceptions to the rule.

Accepted Answer

The Confidential Client Information Rule

Question 15

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 16

The likelihood of discovery and the consequences of unethical conduct can easily result in unethical conduct.

Accepted Answer

A) True 
 B)False

Question 17

A CPA firm

Accepted Answer

A)  can sell securities to a client for whom they perform an attestation service. 
B)  can receive a commission for a client that they are engaged to perform an attestation service for. 
C)  cannot receive a referral fee for recommending the services of another CPA. 
D)  can receive a commission from a nonattestation client as long as the situation is disclosed. 
A)  can sell securities to a client for whom they perform an attestation service. 
B)  can receive a commission for a client that they are engaged to perform an attestation service for. 
C)  cannot receive a referral fee for recommending the services of another CPA. 
D)  can receive a commission from a nonattestation client as long as the situation is disclosed.

Question 18

One of the main reasons people act unethically is that they choose to act selfishly.

Accepted Answer

A) True 
 B)False

Question 19

Users of financial statements believe that CPA firms reduce the information risk associated with financial statements.

Accepted Answer

A) True 
 B)False

Question 20

A public company may obtain internal audit services from their financial statement auditor if it is approved by the company's audit committee.

Accepted Answer

A) True 
 B)False

Exam 4: Professional Ethics

An auditor's independence is considered impaired if the auditor has

The financial interests of a CPA's family members can affect the CPA's independence. Which of the following parties would not be included as a "direct financial interest" of the CPA?

All litigation by a client related to tax or other nonaudit services will impair independence.

Which part of the AICPA's Code of Professional Conduct is enforceable?

Which of the following statements is true with respect to audit committees?

A member in public practice shall neither receive from, nor pay to, a client a commission when the member or member's firm also performs certain services for that client. Commissions are allowed if the CPA performs

Which of the following services are allowed by the SEC whenever a CPA also audits the company?

The prohibition on direct financial interests applies to covered members in a position to influence an engagement.

If an action is considered legal, it must also be considered ethical.

A CPA firm should decline an offer to perform consulting services engagement if

Users of financial statements have the time and the ability to evaluate the audit performance of a CPA firm.

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

Discuss the Confidential Client Information Rule, including the four exceptions to the rule.

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.

The likelihood of discovery and the consequences of unethical conduct can easily result in unethical conduct.

A CPA firm

One of the main reasons people act unethically is that they choose to act selfishly.

Users of financial statements believe that CPA firms reduce the information risk associated with financial statements.

A public company may obtain internal audit services from their financial statement auditor if it is approved by the company's audit committee.

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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