Question 1

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

Accepted Answer

Rule 201 captures much of what is contained in the 10 generally accepted auditing standards and codifies it as part of the Code.Rule 202 requires that members of the AICPA comply with professional standards when performing professional services,whether or not they are practicing in public accounting.Rule 203 was adopted to require compliance by CPAs with GAAP.

Question 2

The SEC has issued independence rules that differ from the AICPA's in all of the following areas except:

Accepted Answer

A)  Working paper documentation. 
B)  Provision of other professional services. 
C)  Human resource and compensation-related issues. 
D)  Required communication. 
A)  Working paper documentation. 
B)  Provision of other professional services. 
C)  Human resource and compensation-related issues. 
D)  Required communication. A

Question 3

Which of the following is not a Principle of Professional Conduct as defined by the Code of Professional Conduct?

Accepted Answer

A)  Integrity. 
B)  Due care. 
C)  Reporting. 
D)  Scope and nature of services. 
A)  Integrity. 
B)  Due care. 
C)  Reporting. 
D)  Scope and nature of services. C

Question 4

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 5

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 6

The SEC's rules with respect to services provided by auditors are predicated on three basic principles of auditor objectivity and independence.What are the three basic principles?

Accepted Answer

The three basic principles are: (1)an au

Question 7

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 8

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 9

The term "ethics" refers to a person's propensity to follow the laws of the land.

Accepted Answer

A) True 
 B)False

Question 10

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 11

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 12

Distinguish between the following theories of ethical behavior:
 utilitarianism,a rights-based approach,and a justice-based approach.

Accepted Answer

Utilitarianism focuses on the consequenc

Question 13

PCAOB rules require tax services provided by a public company auditor to be considered and approved by the company's audit committee.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following bodies ordinarily would have the authority to suspend or revoke a CPA's license to practice public accounting?

Accepted Answer

A)  The SEC. 
B)  The AICPA. 
C)  A state CPA society. 
D)  A state board of accountancy. 
A)  The SEC. 
B)  The AICPA. 
C)  A state CPA society. 
D)  A state board of accountancy.

Question 15

A CPA firm's personnel partner periodically studies the CPA firm's personnel advancement experience to ascertain whether the individuals who were assigned increased degrees of responsibility met predetermined criteria.This is evidence of the CPA firm's adherence to prescribed standards of

Accepted Answer

A)  Quality control. 
B)  Due professional care. 
C)  Supervision and review. 
D)  Fieldwork. 
A)  Quality control. 
B)  Due professional care. 
C)  Supervision and review. 
D)  Fieldwork.

Question 16

Under which of the following circumstances would the independence of a CPA be considered impaired if the CPA,who also is an attorney,serves as auditor and provides legal services to the same client?

Accepted Answer

A)  When the CPA, as legal agent, consummates a business acquisition for the client. 
B)  When the CPA's audit fees and legal fees are not billed separately. 
C)  When the CPA uses legal expertise to research a question of income tax law. 
D)  When the legal services consist of an analysis of the terms of an existing lease agreement. 
A)  When the CPA, as legal agent, consummates a business acquisition for the client. 
B)  When the CPA's audit fees and legal fees are not billed separately. 
C)  When the CPA uses legal expertise to research a question of income tax law. 
D)  When the legal services consist of an analysis of the terms of an existing lease agreement.

Question 17

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 18

The rules contained in Section 100 cover issues relating to independence,integrity,and auditing standards.

Accepted Answer

A) True 
 B)False

Question 19

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 20

When can a CPA disclose confidential information without the client's consent?

Accepted Answer

A CPA can disclose confidential informat

Exam 19: Professional Conduct,Independence,and Quality Control

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

The SEC has issued independence rules that differ from the AICPA's in all of the following areas except:

Which of the following is not a Principle of Professional Conduct as defined by the Code of Professional Conduct?

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

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

The SEC's rules with respect to services provided by auditors are predicated on three basic principles of auditor objectivity and independence.What are the three basic principles?

With respect to ethics,the justice-based approach

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

The term "ethics" refers to a person's propensity to follow the laws of the land.

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

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.

Distinguish between the following theories of ethical behavior: utilitarianism,a rights-based approach,and a justice-based approach.

PCAOB rules require tax services provided by a public company auditor to be considered and approved by the company's audit committee.

Which of the following bodies ordinarily would have the authority to suspend or revoke a CPA's license to practice public accounting?

A CPA firm's personnel partner periodically studies the CPA firm's personnel advancement experience to ascertain whether the individuals who were assigned increased degrees of responsibility met predetermined criteria.This is evidence of the CPA firm's adherence to prescribed standards of

Under which of the following circumstances would the independence of a CPA be considered impaired if the CPA,who also is an attorney,serves as auditor and provides legal services to the same client?

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

The rules contained in Section 100 cover issues relating to independence,integrity,and auditing standards.

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

When can a CPA disclose confidential information without the client's consent?

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

Assurance,Attestation,and Internal Auditing Services

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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