Question 1

Which of the following is not an element of quality control as defined by Statement of Quality Control Standards No. 8?

Accepted Answer

A) Monitoring. 
B) Independence. 
C) Human resources. 
D) Relevant ethical requirements. 
A) Monitoring. 
B) Independence. 
C) Human resources. 
D) Relevant ethical requirements.

Question 2

In performing an audit, Jackson, CPA, discovers that the professional competence necessary for the engagement is lacking. Jackson informs management of the situation and recommends another local CPA firm and management engages this other firm. Under these circumstances,

Accepted Answer

A) Jackson may request compensation from the other CPA firm for any professional services rendered to it in connection with the engagement. 
B) Jackson may accept a referral fee from the other CPA firm. 
C) Jackson has violated the AICPA Code of Professional Conduct because of non-fulfillment of the duty of performance. 
D) Jackson's lack of competence should be construed to be a violation of generally accepted auditing standards. 
A) Jackson may request compensation from the other CPA firm for any professional services rendered to it in connection with the engagement. 
B) Jackson may accept a referral fee from the other CPA firm. 
C) Jackson has violated the AICPA Code of Professional Conduct because of non-fulfillment of the duty of performance. 
D) Jackson's lack of competence should be construed to be a violation of generally accepted auditing standards.

Question 3

In which of the following instances would the independence of the CPA not be considered to be impaired? The CPA has been retained as the auditor of a:

Accepted Answer

A) charitable organization in which an employee of the CPA serves as treasurer. 
B) municipality in which the CPA owns $25,000 of the $2,500,000 indebtedness of the municipality. 
C) restaurant where the CPA dines frequently. 
D) company in which the CPA's private investment club owns a one-tenth interest. 
A) charitable organization in which an employee of the CPA serves as treasurer. 
B) municipality in which the CPA owns $25,000 of the $2,500,000 indebtedness of the municipality. 
C) restaurant where the CPA dines frequently. 
D) company in which the CPA's private investment club owns a one-tenth interest.

Question 4

A major purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to:

Accepted Answer

A) enable the CPA firm to attest to the reliability of the client. 
B) satisfy the CPA firm's duty to the public concerning the acceptance of new clients. 
C) minimize the likelihood of association with clients whose management lacks integrity. 
D) anticipate before performing any fieldwork whether an unqualified opinion can be expressed. 
A) enable the CPA firm to attest to the reliability of the client. 
B) satisfy the CPA firm's duty to the public concerning the acceptance of new clients. 
C) minimize the likelihood of association with clients whose management lacks integrity. 
D) anticipate before performing any fieldwork whether an unqualified opinion can be expressed.

Question 5

A violation of the profession's ethical standards would most likely occur when a CPA who:

Accepted Answer

A) is also admitted to the Bar represents on letterhead to be both an attorney and a CPA. 
B) writes a newsletter on financial management also permits a publishing company to solicit subscriptions by direct mail. 
C) is controller of a bank permits the bank to use the controller's CPA title in the listing of officers in its publications. 
D) refused to hire a new employee does so because the CPA deemed the candidate to be "too old." 
A) is also admitted to the Bar represents on letterhead to be both an attorney and a CPA. 
B) writes a newsletter on financial management also permits a publishing company to solicit subscriptions by direct mail. 
C) is controller of a bank permits the bank to use the controller's CPA title in the listing of officers in its publications. 
D) refused to hire a new employee does so because the CPA deemed the candidate to be "too old."

Question 6

The independence standards issued by the PCAOB do not prohibit the provision of tax services to an attest client.

Accepted Answer

A) True 
 B)False

Question 7

Which professional and regulatory bodies establish the ethical and professional rules for auditors of: (1)public companies and (2)private companies?

Accepted Answer

(1)The principles, rules, and regulation

Question 8

A CPA, while performing an audit, strives to achieve independence in appearance in order to:

Accepted Answer

A) reduce risk and liability. 
B) meet the minimum requirements of the code of professional conduct. 
C) become independent in fact. 
D) maintain public confidence in and reliance on the profession. 
A) reduce risk and liability. 
B) meet the minimum requirements of the code of professional conduct. 
C) become independent in fact. 
D) maintain public confidence in and reliance on the profession.

Question 9

If a CPA owns an insurance policy issued by an attest client, independence would be considered impaired, even if the policy was purchased under the insurance company's normal terms and procedures and does not offer an investment option.

Accepted Answer

A) True 
 B)False

Question 10

According to the profession's ethical standards, a CPA would be considered independent in which of the following instances?

Accepted Answer

A) A client leases part of an office building from the CPA, resulting in a material indirect financial interest to the CPA. 
B) The CPA has a material direct financial interest in a client, but transfers the interest into a blind trust. 
C) The CPA owns an office building and the mortgage on the building is guaranteed by a client. 
D) A client has not paid CPA fees from a 3ʳᵈ Quarter review just prior to the annual audit. 
A) A client leases part of an office building from the CPA, resulting in a material indirect financial interest to the CPA. 
B) The CPA has a material direct financial interest in a client, but transfers the interest into a blind trust. 
C) The CPA owns an office building and the mortgage on the building is guaranteed by a client. 
D) A client has not paid CPA fees from a 3ʳᵈ Quarter review just prior to the annual audit.

Question 11

The rules contained in Section 1.100 cover issues relating to independence, integrity, and auditing standards.

Accepted Answer

A) True 
 B)False

Question 12

Interpretations of Rules of Conduct are enforceable.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is allowable for a CPA?

Accepted Answer

A) A used car loan from a banking client where the client has a lien on the car. 
B) An uncollateralized signature loan from a client. 
C) Owning more than five percent of the outstanding shares of client stock in a retirement account. 
D) The audit engagement partner (or partner equivalent)serves on the client's audit committee. 
A) A used car loan from a banking client where the client has a lien on the car. 
B) An uncollateralized signature loan from a client. 
C) Owning more than five percent of the outstanding shares of client stock in a retirement account. 
D) The audit engagement partner (or partner equivalent)serves on the client's audit committee.

Question 14

For private companies, accounting firms are prohibited from providing:

Accepted Answer

A) outsourced internal audit services. 
B) audit services. 
C) review services. 
D) none of these. 
A) outsourced internal audit services. 
B) audit services. 
C) review services. 
D) none of these.

Question 15

Which of the following is an element of a CPA firm's quality control system that should be considered in establishing its quality control policies and procedures?

Accepted Answer

A) Using the audit risk model. 
B) Using statistical sampling techniques. 
C) Assigning personnel to engagements. 
D) Considering audit risk and materiality. 
A) Using the audit risk model. 
B) Using statistical sampling techniques. 
C) Assigning personnel to engagements. 
D) Considering audit risk and materiality.

Question 16

A CPA firm evaluates its personnel advancement experience to ascertain whether individuals assigned to increased degrees of responsibility meet predetermined criteria. This policy is evidence of the firm's adherence to which of the following prescribed standards?

Accepted Answer

A) Professional ethics. 
B) Supervision and review. 
C) Accounting and review services. 
D) Quality control. 
A) Professional ethics. 
B) Supervision and review. 
C) Accounting and review services. 
D) Quality control.

Question 17

What is a purpose of the acceptance and continuance of client relationships and specific engagements element of quality control?

Accepted Answer

A) Guarantee that firms do not associate with clients whose management lacks integrity. 
B) Provide reasonable assurance that firms do not associate with clients whose management lacks integrity. 
C) Guarantee that firms will not be sued as a result of association with a client. 
D) Provide reasonable assurance that firms will not be sued as a result of association with a client. 
A) Guarantee that firms do not associate with clients whose management lacks integrity. 
B) Provide reasonable assurance that firms do not associate with clients whose management lacks integrity. 
C) Guarantee that firms will not be sued as a result of association with a client. 
D) Provide reasonable assurance that firms will not be sued as a result of association with a client.

Question 18

As per the Conceptual Framework for AICPA Independence Standards, a CPA is required to identify and assess the extent to which a threat to independence exists.

Accepted Answer

A) True 
 B)False

Question 19

In order to achieve effective quality control, a firm of independent auditors should establish policies and procedures for:

Accepted Answer

A) determining the minimum procedures necessary for unaudited financial statements. 
B) setting the scope of audit work. 
C) deciding whether to accept or continue a client. 
D) setting the scope of internal control study and evaluation. 
A) determining the minimum procedures necessary for unaudited financial statements. 
B) setting the scope of audit work. 
C) deciding whether to accept or continue a client. 
D) setting the scope of internal control study and evaluation.

Question 20

Professionalism refers to the conduct, aims, or qualities that characterize a given profession.

Accepted Answer

A) True 
 B)False

Exam 19: Professional Conduct, Independence, and Quality Control

Which of the following is not an element of quality control as defined by Statement of Quality Control Standards No. 8?

In performing an audit, Jackson, CPA, discovers that the professional competence necessary for the engagement is lacking. Jackson informs management of the situation and recommends another local CPA firm and management engages this other firm. Under these circumstances,

In which of the following instances would the independence of the CPA not be considered to be impaired? The CPA has been retained as the auditor of a:

A major purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to:

A violation of the profession's ethical standards would most likely occur when a CPA who:

The independence standards issued by the PCAOB do not prohibit the provision of tax services to an attest client.

Which professional and regulatory bodies establish the ethical and professional rules for auditors of: (1)public companies and (2)private companies?

A CPA, while performing an audit, strives to achieve independence in appearance in order to:

If a CPA owns an insurance policy issued by an attest client, independence would be considered impaired, even if the policy was purchased under the insurance company's normal terms and procedures and does not offer an investment option.

According to the profession's ethical standards, a CPA would be considered independent in which of the following instances?

The rules contained in Section 1.100 cover issues relating to independence, integrity, and auditing standards.

Interpretations of Rules of Conduct are enforceable.

Which of the following is allowable for a CPA?

For private companies, accounting firms are prohibited from providing:

Which of the following is an element of a CPA firm's quality control system that should be considered in establishing its quality control policies and procedures?

A CPA firm evaluates its personnel advancement experience to ascertain whether individuals assigned to increased degrees of responsibility meet predetermined criteria. This policy is evidence of the firm's adherence to which of the following prescribed standards?

What is a purpose of the acceptance and continuance of client relationships and specific engagements element of quality control?

As per the Conceptual Framework for AICPA Independence Standards, a CPA is required to identify and assess the extent to which a threat to independence exists.

In order to achieve effective quality control, a firm of independent auditors should establish policies and procedures for:

Professionalism refers to the conduct, aims, or qualities that characterize a given profession.

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Legal Liability

Assurance, Attestation, and Internal Auditing Services

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