Question 1

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 2

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

Accepted Answer

A)  At least one of the partners must be a member. 
B)  The partners whose names appear in the firm name must be members. 
C)  All partners must be members. 
D)  The firm must be a dues-paying member. 
A)  At least one of the partners must be a member. 
B)  The partners whose names appear in the firm name must be members. 
C)  All partners must be members. 
D)  The firm must be a dues-paying member.

Question 3

In which of the following circumstances would a CPA who audits XM Corporation lack independence?

Accepted Answer

A)  The CPA and XM's president are both on the board of directors of COD Corporation. 
B)  The CPA and XM's president each owns 25 percent of FOB Corporation, a closely-held company. 
C)  The CPA has an automobile loan from XM, which is a savings and loan organization and the loan is collateralized by the automobile. 
D)  The CPA reduced XM's usual audit fee by 40 percent because XM's financial condition was unfavorable. 
A)  The CPA and XM's president are both on the board of directors of COD Corporation. 
B)  The CPA and XM's president each owns 25 percent of FOB Corporation, a closely-held company. 
C)  The CPA has an automobile loan from XM, which is a savings and loan organization and the loan is collateralized by the automobile. 
D)  The CPA reduced XM's usual audit fee by 40 percent because XM's financial condition was unfavorable.

Question 4

Following the issuance of a PCAOB draft report, how many days does the CPA firm have to respond to accusations?

Accepted Answer

A)  10 days. 
B)  30 days. 
C)  50 days. 
D)  90 days. 
A)  10 days. 
B)  30 days. 
C)  50 days. 
D)  90 days.

Question 5

A financial interest is "beneficially owned" when an individual or entity is NOT the recorded owner of the interest but has a right to some or all of the underlying benefits of ownership.

Accepted Answer

A) True 
 B)False

Question 6

If an auditor is not independent of the client, it is unlikely that a user of financial statements will place much reliance on the CPA's work.

Accepted Answer

A) True 
 B)False

Question 7

In which of the following circumstances would a CPA be bound by ethics to refrain from disclosing any confidential information obtained during the course of a professional engagement?

Accepted Answer

A)  The CPA is issued a summons enforceable by a court order that orders the CPA to present confidential information. 
B)  A major stockholder of a client company seeks accounting information from the CPA after management declined to disclose the requested information. 
C)  Confidential client information is requested as part of a quality review of the CPA's practice by a review team authorized by the AICPA. 
D)  An inquiry by a disciplinary body of a state CPA society requests confidential client information. 
A)  The CPA is issued a summons enforceable by a court order that orders the CPA to present confidential information. 
B)  A major stockholder of a client company seeks accounting information from the CPA after management declined to disclose the requested information. 
C)  Confidential client information is requested as part of a quality review of the CPA's practice by a review team authorized by the AICPA. 
D)  An inquiry by a disciplinary body of a state CPA society requests confidential client information.

Question 8

A CPA's license to practice will ordinarily be suspended or revoked automatically for

Accepted Answer

A)  Controlling the bookkeeping for a compilation client. 
B)  Conviction of willful failure to file personal income tax return. 
C)  Refusing to respond to an inquiry by the AICPA practice review committee. 
D)  Accepting compensation while honoring a subpoena to appear as an expert witness. 
A)  Controlling the bookkeeping for a compilation client. 
B)  Conviction of willful failure to file personal income tax return. 
C)  Refusing to respond to an inquiry by the AICPA practice review committee. 
D)  Accepting compensation while honoring a subpoena to appear as an expert witness.

Question 9

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 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 serves on the client's audit committee.

Question 10

With respect to ethics, the utilitarian theory

Accepted Answer

A)  Suggests that auditors should always verify ownership of a client's material tangible assets. 
B)  Is primarily concerned with equity and impartiality. 
C)  Suggests that an individual's actions should not violate the rights of any individual. 
D)  Recognizes that decisions involve trade-offs between costs and benefits. 
A)  Suggests that auditors should always verify ownership of a client's material tangible assets. 
B)  Is primarily concerned with equity and impartiality. 
C)  Suggests that an individual's actions should not violate the rights of any individual. 
D)  Recognizes that decisions involve trade-offs between costs and benefits.

Question 11

The quality control standards are concerned primarily with

Accepted Answer

A)  Actions of individual auditors. 
B)  A firm's monitoring of its practice. 
C)  Disciplinary actions against individual auditors. 
D)  Preventing legal action. 
A)  Actions of individual auditors. 
B)  A firm's monitoring of its practice. 
C)  Disciplinary actions against individual auditors. 
D)  Preventing legal action.

Question 12

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 13

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)  The CPA belongs to a country club client in which membership requires an annual fee. 
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)  The CPA belongs to a country club client in which membership requires an annual fee.

Question 14

What is meant by the Code of Professional Conduct's definition of "holding out"?

Accepted Answer

A)  Informing a client about one's status as a CPA. 
B)  Withholding an audit report until the fee is paid. 
C)  Not sharing audit documentation with a successor auditor. 
D)  Not suggesting that management make an adjusting entry that is deemed immaterial. 
A)  Informing a client about one's status as a CPA. 
B)  Withholding an audit report until the fee is paid. 
C)  Not sharing audit documentation with a successor auditor. 
D)  Not suggesting that management make an adjusting entry that is deemed immaterial.

Question 15

Principles are stated at a conceptual level, not a detailed level.

Accepted Answer

A) True 
 B)False

Question 16

With respect to ethics, the justice-based approach

Accepted Answer

A)  Suggests that auditors should always verify ownership of a client's material tangible assets. 
B)  Is primarily concerned with equity and impartiality. 
C)  Suggests that an individual's actions should not violate the rights of any individual. 
D)  Recognizes that decisions involve trade-offs between costs and benefits. 
A)  Suggests that auditors should always verify ownership of a client's material tangible assets. 
B)  Is primarily concerned with equity and impartiality. 
C)  Suggests that an individual's actions should not violate the rights of any individual. 
D)  Recognizes that decisions involve trade-offs between costs and benefits.

Question 17

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 brokerage firm

Accepted Answer

A)  Which owes the CPA audit fees for more than one year. 
B)  In which the CPA has a large active margin account. 
C)  In which the CPA's brother is the controller. 
D)  Which owes the CPA audit fees for current year services and has just filed a petition for bankruptcy. 
A)  Which owes the CPA audit fees for more than one year. 
B)  In which the CPA has a large active margin account. 
C)  In which the CPA's brother is the controller. 
D)  Which owes the CPA audit fees for current year services and has just filed a petition for bankruptcy.

Question 18

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 19

Identify the primary purposes of Rules 201-203 of the Rules of Conduct.

Accepted Answer

Rule 201 captures much of what is contai

Question 20

Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide personnel within the firm with

Accepted Answer

A)  Technical training that ensures proficiency as an auditor. 
B)  Opportunities for career advancement outside the accounting firm. 
C)  Knowledge required to fulfill assigned responsibilities. 
D)  Knowledge required to perform a peer review. 
A)  Technical training that ensures proficiency as an auditor. 
B)  Opportunities for career advancement outside the accounting firm. 
C)  Knowledge required to fulfill assigned responsibilities. 
D)  Knowledge required to perform a peer review.

Exam 19: Professional Conduct, Independence, and Quality Control

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

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

In which of the following circumstances would a CPA who audits XM Corporation lack independence?

Following the issuance of a PCAOB draft report, how many days does the CPA firm have to respond to accusations?

A financial interest is "beneficially owned" when an individual or entity is NOT the recorded owner of the interest but has a right to some or all of the underlying benefits of ownership.

If an auditor is not independent of the client, it is unlikely that a user of financial statements will place much reliance on the CPA's work.

In which of the following circumstances would a CPA be bound by ethics to refrain from disclosing any confidential information obtained during the course of a professional engagement?

A CPA's license to practice will ordinarily be suspended or revoked automatically for

Which of the following is allowable for a CPA?

With respect to ethics, the utilitarian theory

The quality control standards are concerned primarily with

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

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

What is meant by the Code of Professional Conduct's definition of "holding out"?

Principles are stated at a conceptual level, not a detailed level.

With respect to ethics, the justice-based approach

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 brokerage firm

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

Identify the primary purposes of Rules 201-203 of the Rules of Conduct.

Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide personnel within the firm with

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 Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing 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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