Question 1

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

Accepted Answer

A) True 
 B)False  False

Question 2

A violation of the profession's ethical standards would most likely have occurred when a CPA

Accepted Answer

A)  purchased a bookkeeping firm's practice of monthly write-ups for a percentage of fees received over a three-year period. 
B)  made arrangements with a bank to collect notes issued by a client in payment of fees due. 
C)  named Smith formed a partnership with two other CPAs and used "Smith & Co." as the firm name. 
D)  issued an unqualified opinion on the 2011 financial statements when fees for the 2010 audit were unpaid. 
A)  purchased a bookkeeping firm's practice of monthly write-ups for a percentage of fees received over a three-year period. 
B)  made arrangements with a bank to collect notes issued by a client in payment of fees due. 
C)  named Smith formed a partnership with two other CPAs and used "Smith & Co." as the firm name. 
D)  issued an unqualified opinion on the 2011 financial statements when fees for the 2010 audit were unpaid. D

Question 3

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. C

Question 4

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 5

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 6

What is the primary 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 7

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

Accepted Answer

A)  reduce risk and liability. 
B)  comply with the generally accepted standards of fieldwork. 
C)  become independent in fact. 
D)  maintain public confidence in the profession. 
A)  reduce risk and liability. 
B)  comply with the generally accepted standards of fieldwork. 
C)  become independent in fact. 
D)  maintain public confidence in the profession.

Question 8

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 9

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 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

In determining estimates of fees,an auditor may take into account each of the following,except the:

Accepted Answer

A)  Value of the service to the client. 
B)  Degree of responsibility assumed by undertaking the engagement. 
C)  Skills required to perform the service. 
D)  Attainment of specific findings. 
A)  Value of the service to the client. 
B)  Degree of responsibility assumed by undertaking the engagement. 
C)  Skills required to perform the service. 
D)  Attainment of specific findings.

Question 13

An indirect financial interest is defined as a financial interest that is owned or is under the control of an individual or entity.

Accepted Answer

A) True 
 B)False

Question 14

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 15

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 16

As per the Conceptual Framework for AICPA Independence Standards made effective in 2006,a CPA is required to identify and assess the extent to which a threat to independence exists.

Accepted Answer

A) True 
 B)False

Question 17

Identify the primary purposes of the General Standards Rule,the Compliance with Standards Rule and the Accounting Principles Rule of the Rules of Conduct.

Accepted Answer

The General Standards Rule captures much

Question 18

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 19

In auditing a privately held entity,an auditor must follow the professional standards established by all of the following except:

Accepted Answer

A)  The AICPA's Auditing Standards Board. 
B)  The Professional Code of Conduct. 
C)  The Independence Standards Board. 
D)  The PCAOB. 
A)  The AICPA's Auditing Standards Board. 
B)  The Professional Code of Conduct. 
C)  The Independence Standards Board. 
D)  The PCAOB.

Question 20

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.

Exam 19: Professsional Conduct,Independence,and Quality Control

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

A violation of the profession's ethical standards would most likely have occurred when a CPA

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

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?

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.

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

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

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

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

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.

In determining estimates of fees,an auditor may take into account each of the following,except the:

An indirect financial interest is defined as a financial interest that is owned or is under the control of an individual or entity.

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

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

As per the Conceptual Framework for AICPA Independence Standards made effective in 2006,a CPA is required to identify and assess the extent to which a threat to independence exists.

Identify the primary purposes of the General Standards Rule,the Compliance with Standards Rule and the Accounting Principles Rule of the Rules of Conduct.

With respect to ethics,the utilitarian theory

In auditing a privately held entity,an auditor must follow the professional standards established by all of the following except:

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

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,amd Internal Auditing Services-professional Judgement Module

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