Question 1

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

Accepted Answer

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

Question 2

Which of the following is true according to Government Independence Standards?

Accepted Answer

A) Nonaudit services cannot be provided to a government entity that is an attest client. 
B) Nonaudit services are allowed providing the audit organization does not perform management functions,make management decisions,or audit its own work. 
C) Nonaudit services are allowed as long as the nature of the service is publicly disclosed including a statement that independence has not been compromised. 
D) Nonaudit services are allowed if they have been approved by the executive body of the governing organization. 
A) Nonaudit services cannot be provided to a government entity that is an attest client. 
B) Nonaudit services are allowed providing the audit organization does not perform management functions,make management decisions,or audit its own work. 
C) Nonaudit services are allowed as long as the nature of the service is publicly disclosed including a statement that independence has not been compromised. 
D) Nonaudit services are allowed if they have been approved by the executive body of the governing organization.

Question 3

Based on Sarbanes-Oxley,who is ultimately responsible for the independence of the external auditor?

Accepted Answer

A) The CPA firm's engagement partner. 
B) The CPA firm's quality control partner. 
C) The client's senior management. 
D) The audit committee. 
A) The CPA firm's engagement partner. 
B) The CPA firm's quality control partner. 
C) The client's senior management. 
D) The audit committee.

Question 4

The AICPA Council has designated the following bodies to pronounce accounting principles under the Accounting Principles Rule except the

Accepted Answer

A) Financial Accounting Standards Board. 
B) Auditing Procedures Board. 
C) Opinions of the Accounting Principles Board. 
D) Governmental Accounting Standards Board. 
A) Financial Accounting Standards Board. 
B) Auditing Procedures Board. 
C) Opinions of the Accounting Principles Board. 
D) Governmental Accounting Standards Board.

Question 5

What is the role of the PCAOB's Division of Enforcement and Investigation in dealing with independence violations involving accountants engaged to audit public companies?

Accepted Answer

The PCAOB's Division of Enforcement and

Question 6

A client has omitted a significant disclosure from the financial statements.The auditor has asked the client to include the information,but the client refuses and claims the information is confidential.The position of the CPA should be that the information

Accepted Answer

A) Cannot be considered confidential if it is necessary to the completeness of the financial statements 
B) Cannot be considered confidential unless it can be covered by the attorney-client privilege. 
C) Is confidential and will only be disclosed under subpoena or for a regulatory investigation. 
D) Should be discussed with the audit committee to determine if the information should be disclosed. 
A) Cannot be considered confidential if it is necessary to the completeness of the financial statements 
B) Cannot be considered confidential unless it can be covered by the attorney-client privilege. 
C) Is confidential and will only be disclosed under subpoena or for a regulatory investigation. 
D) Should be discussed with the audit committee to determine if the information should be disclosed.

Question 7

Wally Wide is the partner on the audit engagement for First National Bank.Wally was recently promoted to partner.Based on his increase in income,Wally and his family bought a larger home and a new car.First National Bank had the most competitive mortgage rate and auto loan rates so Wally obtained both his mortgage loan and car loan from First National.Wally paid 20% down on the house,received no special rate of interest,and the First National Bank holds the title to the house.Wally traded in his old car and made and additional down payment on the car and financed 60% of the price of the car with the bank.Again,Wally paid the prevailing interest rate and the bank holds the title to the car.
Required: The situations above involve possible violations of the AICPA's Code of Professional Conduct.State the rule in question and explain why or why not there is a violation of the code.You need not refer to the rule number,but should clearly describe the rule in question.

Accepted Answer

The rule in question is the Independence

Question 8

The SEC requires companies to disclose fees paid to independent public accounting firms for audit and consulting services in the belief that:

Accepted Answer

A) Such disclosures will end the practice of auditors performing nonaudit services for audit clients. 
B) Financial analysts will attribute far less credibility to financial statements audited by public accounting firms that earn substantial nonaudit fees from audit clients. 
C) Audit firm consulting on client's accounting information processing systems essentially impairs audit independence. 
D) Client directors and financial statement users should consider all aspects related to auditors' independence,and information about fees is important. 
A) Such disclosures will end the practice of auditors performing nonaudit services for audit clients. 
B) Financial analysts will attribute far less credibility to financial statements audited by public accounting firms that earn substantial nonaudit fees from audit clients. 
C) Audit firm consulting on client's accounting information processing systems essentially impairs audit independence. 
D) Client directors and financial statement users should consider all aspects related to auditors' independence,and information about fees is important.

Question 9

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

Accepted Answer

A) The CPA and XZ's president are both on the Board of Directors of COD Corporation. 
B) The CPA and XZ's president each own 25% of FOB Corporation,a closely held company. 
C) The CPA has an automobile loan from XZ,a financial institution.The loan is collateralized by the automobile. 
D) The CPA reduced XZ's usual audit fee by 40% prior to the audit because XZ's financial condition was unfavorable. 
A) The CPA and XZ's president are both on the Board of Directors of COD Corporation. 
B) The CPA and XZ's president each own 25% of FOB Corporation,a closely held company. 
C) The CPA has an automobile loan from XZ,a financial institution.The loan is collateralized by the automobile. 
D) The CPA reduced XZ's usual audit fee by 40% prior to the audit because XZ's financial condition was unfavorable.

Question 10

Which of the following philosophical principles in ethics places emphasis on the consequences of action,rather than on following the rules?

Accepted Answer

A) Imperative principle. 
B) Utilitarianism principle. 
C) Generalization principle. 
D) Moral principle. 
A) Imperative principle. 
B) Utilitarianism principle. 
C) Generalization principle. 
D) Moral principle.

Question 11

Which of the following is NOT a key element of the definition of ethics?

Accepted Answer

A) Reflective choice 
B) Moral principles 
C) Definitive conclusions 
D) Consequences of decisions 
A) Reflective choice 
B) Moral principles 
C) Definitive conclusions 
D) Consequences of decisions

Question 12

Which of the following is allowed under the Government Independence Standards?

Accepted Answer

A) Personnel who provide nonaudit services are prohibited from planning,conducting or reviewing audit work related to the nonaudit service. 
B) The audit organization must never reduce the scope of the audit because of nonaudit services performed. 
C) The government entity must have established policies to assure the nonaudit services will not affect the audit firm's ability to perform the audit. 
D) CPAs that perform nonaudit services are prohibited from being a member of the audit team. 
A) Personnel who provide nonaudit services are prohibited from planning,conducting or reviewing audit work related to the nonaudit service. 
B) The audit organization must never reduce the scope of the audit because of nonaudit services performed. 
C) The government entity must have established policies to assure the nonaudit services will not affect the audit firm's ability to perform the audit. 
D) CPAs that perform nonaudit services are prohibited from being a member of the audit team.

Question 13

CPA Krogstad is the executive in charge of the Omaha office of the audit firm.He is responsible for the practice in all areas of audit,tax,and consulting,but he does not serve as a field audit partner or a reviewer.CPA Ward is the partner in charge of the Dodger,Inc.audit (an SEC filing).The audit firm's independence is impaired if:

Accepted Answer

A) Krogstad owns Dodger common stock. 
B) Krogstad's brother owns 10 shares of Dodger common stock. 
C) Ward's sister-in-law is a sales representative with a territory in California. 
D) Ward's fellow partner CPA Felix in the Omaha office has a wife who owns Dodger stock through a mutual fund held in her own employer's employee benefit plan. 
A) Krogstad owns Dodger common stock. 
B) Krogstad's brother owns 10 shares of Dodger common stock. 
C) Ward's sister-in-law is a sales representative with a territory in California. 
D) Ward's fellow partner CPA Felix in the Omaha office has a wife who owns Dodger stock through a mutual fund held in her own employer's employee benefit plan.

Question 14

Red and Green,CPAs are the external auditors for Blue Corporation,a publicly-held company.Blue Corporation has outsourced its internal audit function to Red and Green.Which of the following statements is true?

Accepted Answer

A) Doing internal audit work does not impair the independence of Red and Green. 
B) The independence of Red and Green is impaired only if employees of Red and Green act in a management capacity or make management decisions. 
C) The independence of Red and Green is impaired only if a member of Red and Green's engagement team is hired to manage an accounting function in Blue Corporation. 
D) Public accounting firms cannot be both the internal and external auditors for publicly-held companies and maintain independence. 
A) Doing internal audit work does not impair the independence of Red and Green. 
B) The independence of Red and Green is impaired only if employees of Red and Green act in a management capacity or make management decisions. 
C) The independence of Red and Green is impaired only if a member of Red and Green's engagement team is hired to manage an accounting function in Blue Corporation. 
D) Public accounting firms cannot be both the internal and external auditors for publicly-held companies and maintain independence.

Question 15

Susan Small,CPA has Medium Corporation as an audit client.Medium has asked Small to create and install a new computerized payroll system.Because Small does not have the appropriate level of expertise,she referred Medium to Compusystems,Inc.,a local software consulting company.Small has an arrangement where she is paid ten percent of any fee received by Compusystems from her referrals.Small has disclosed this to her client.
Required: The situation above involves a possible violation of the AICPA's Code of Professional Conduct.State the rule in question and explain why or why not there is a violation of the code.You need not refer to the rule number,but should clearly describe the rule in question.

Accepted Answer

The rule in question is the Fe

Question 16

According to the Accounting Principles Rule requires the auditor to adhere to official pronouncements except when

Accepted Answer

A) Complying would violate client confidentiality. 
B) Pending legislation may change the reporting requirements of the client. 
C) Adherence to a pronouncement would be misleading. 
D) It has been established that financial statement users prefer an alternative presentation of information. 
A) Complying would violate client confidentiality. 
B) Pending legislation may change the reporting requirements of the client. 
C) Adherence to a pronouncement would be misleading. 
D) It has been established that financial statement users prefer an alternative presentation of information.

Question 17

Which of the following statements included in the advertising of a CPA firm is permissible according to the Advertising and Other Forms of Solicitation Rule.

Accepted Answer

A) "Bob Bullet,CEO of A-One Corp,states that we are the best auditors his company has ever used." 
B) "We provide the best audit coverage of any firm in the state." 
C) "We audit the five largest manufacturing companies in the state." 
D) "We have several tax partners that work closely with Judges and IRS attorneys on high-profile legal issues." 
A) "Bob Bullet,CEO of A-One Corp,states that we are the best auditors his company has ever used." 
B) "We provide the best audit coverage of any firm in the state." 
C) "We audit the five largest manufacturing companies in the state." 
D) "We have several tax partners that work closely with Judges and IRS attorneys on high-profile legal issues."

Question 18

Perry Pinkney,CPA,is one of the general partners in a partnership,which in turn invested 70% of its assets in the common stock of Pinkney's audit client (Darby Corporation).According to the AICPA Code of Professional Conduct,Pinkney is considered to have

Accepted Answer

A) An indirect financial interest in Darby. 
B) A direct financial interest in Darby. 
C) No financial interest in Darby. 
D) A partial financial interest in Darby. 
A) An indirect financial interest in Darby. 
B) A direct financial interest in Darby. 
C) No financial interest in Darby. 
D) A partial financial interest in Darby.

Question 19

Which of the following philosophical theories places emphasis on following rules,rather than on the consequences of the decision?

Accepted Answer

A) Imperative principle. 
B) Utilitarianism. 
C) Generalization principle. 
D) Virtue ethics. 
A) Imperative principle. 
B) Utilitarianism. 
C) Generalization principle. 
D) Virtue ethics.

Question 20

The Code of Professional Conduct is very important for the auditing profession.The AICPA,State Boards,and other professional organizations spend a great deal of time and effort implementing,and reinforcing the ethical standards,and penalizing those who violate the ethical standards.
Required:A.Why is the Code of Conduct important to the profession?
B.Many professionals believe that in today's business environment it is more difficult to adhere to the Code of Professional Conduct.Why might this be true?

Accepted Answer

A.If the profession is to maintain the p

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

Which of the following is true according to Government Independence Standards?

Based on Sarbanes-Oxley,who is ultimately responsible for the independence of the external auditor?

The AICPA Council has designated the following bodies to pronounce accounting principles under the Accounting Principles Rule except the

What is the role of the PCAOB's Division of Enforcement and Investigation in dealing with independence violations involving accountants engaged to audit public companies?

A client has omitted a significant disclosure from the financial statements.The auditor has asked the client to include the information,but the client refuses and claims the information is confidential.The position of the CPA should be that the information

The SEC requires companies to disclose fees paid to independent public accounting firms for audit and consulting services in the belief that:

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

Which of the following philosophical principles in ethics places emphasis on the consequences of action,rather than on following the rules?

Which of the following is NOT a key element of the definition of ethics?

Which of the following is allowed under the Government Independence Standards?

Red and Green,CPAs are the external auditors for Blue Corporation,a publicly-held company.Blue Corporation has outsourced its internal audit function to Red and Green.Which of the following statements is true?

According to the Accounting Principles Rule requires the auditor to adhere to official pronouncements except when

Which of the following statements included in the advertising of a CPA firm is permissible according to the Advertising and Other Forms of Solicitation Rule.

Perry Pinkney,CPA,is one of the general partners in a partnership,which in turn invested 70% of its assets in the common stock of Pinkney's audit client (Darby Corporation).According to the AICPA Code of Professional Conduct,Pinkney is considered to have

Which of the following philosophical theories places emphasis on following rules,rather than on the consequences of the decision?

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Legal Liability

Internal Audits, Governmental Audits, and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters

Exam 14: Professional Ethics

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

Which of the following is true according to Government Independence Standards?

Based on Sarbanes-Oxley,who is ultimately responsible for the independence of the external auditor?

The AICPA Council has designated the following bodies to pronounce accounting principles under the Accounting Principles Rule except the

What is the role of the PCAOB's Division of Enforcement and Investigation in dealing with independence violations involving accountants engaged to audit public companies?

A client has omitted a significant disclosure from the financial statements.The auditor has asked the client to include the information,but the client refuses and claims the information is confidential.The position of the CPA should be that the information

The SEC requires companies to disclose fees paid to independent public accounting firms for audit and consulting services in the belief that:

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

Which of the following philosophical principles in ethics places emphasis on the consequences of action,rather than on following the rules?

Which of the following is NOT a key element of the definition of ethics?

Which of the following is allowed under the Government Independence Standards?

Red and Green,CPAs are the external auditors for Blue Corporation,a publicly-held company.Blue Corporation has outsourced its internal audit function to Red and Green.Which of the following statements is true?

According to the Accounting Principles Rule requires the auditor to adhere to official pronouncements except when

Which of the following statements included in the advertising of a CPA firm is permissible according to the Advertising and Other Forms of Solicitation Rule.

Perry Pinkney,CPA,is one of the general partners in a partnership,which in turn invested 70% of its assets in the common stock of Pinkney's audit client (Darby Corporation).According to the AICPA Code of Professional Conduct,Pinkney is considered to have

Which of the following philosophical theories places emphasis on following rules,rather than on the consequences of the decision?

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Legal Liability

Internal Audits, Governmental Audits, and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters