Question 1

Discuss Rule 301-Confidential Client Information, including the four exceptions to the rule.

Accepted Answer

Rule 301 prohibits a member from disclosing any confidential client information without the specific consent from the client. However, there are four conditions when client permission is not required:
• Obligations related to technical standards; i.e., when Rule 202 or Rule 203 requires the disclosure.
• In response to a valid subpoena or summons and compliance with laws and regulations.
• A peer review is being conducted under AICPA, state CPA Society, or State Board of Accountancy authorization.
• The CPA is initiating or responding to an inquiry from a recognized investigative body or the professional ethics division.

Question 2

The AICPA's Code of Professional Conduct requires independence for all:

Accepted Answer

A)  attestation engagements. 
B)  services performed by accountants in public practice. 
C)  accounting and auditing services performed. 
D)  professional work performed by CPAs. 
A)  attestation engagements. 
B)  services performed by accountants in public practice. 
C)  accounting and auditing services performed. 
D)  professional work performed by CPAs. A

Question 3

A CPA firm should decline an offer to perform consulting services engagement if:

Accepted Answer

A)  the proposed engagement is not accounting-related. 
B)  recommendations made by the CPA firm are to be subject to review by the client. 
C)  acceptance would require the CPA firm to make management decisions for an audit client. 
D)  any of the above is true. 
A)  the proposed engagement is not accounting-related. 
B)  recommendations made by the CPA firm are to be subject to review by the client. 
C)  acceptance would require the CPA firm to make management decisions for an audit client. 
D)  any of the above is true. C

Question 4

A member firm of the AICPA is not only responsible for its compliance with the Rules of Conduct, but it is also responsible for compliance by its:

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 5

Julie and Lisa are sisters. Julie is a CPA auditing the company where Lisa works. Julie's independence is impaired if:

Accepted Answer

A)  Lisa is the controller. 
B)  Lisa owns 25% of the company. 
C)  Lisa is the marketing manager. 
D)  All of the above. 
A)  Lisa is the controller. 
B)  Lisa owns 25% of the company. 
C)  Lisa is the marketing manager. 
D)  All of the above.

Question 6

Which of the following would be a violation of the rule requiring "objectivity" by the CPA?
I. The auditor accepts management's opinion regarding the collection of accounts receivable without an independent evaluation.
II. In preparing a client's tax return, the CPA encourages a client to take a deduction which the CPA believes is risky.

Accepted Answer

A)  I only 
B)  II only 
C)  I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  I and II 
D)  Neither I nor II

Question 7

Which of the following statements best describes the enforceability of the Interpretations of the Rules of Conduct?

Accepted Answer

A)  The Interpretations are not enforceable. 
B)  The Interpretations are enforceable. 
C)  The Interpretations may be enforceable if they have been reviewed and approved by the AICPA's Division of Professional Ethics. 
D)  The Interpretations are not enforceable, but a practitioner must justify departure from them. 
A)  The Interpretations are not enforceable. 
B)  The Interpretations are enforceable. 
C)  The Interpretations may be enforceable if they have been reviewed and approved by the AICPA's Division of Professional Ethics. 
D)  The Interpretations are not enforceable, but a practitioner must justify departure from them.

Question 8

Which of the following activities is allowed for a CPA firm's attestation clients?

Accepted Answer

A)  Contingent fees based on savings due to implementation of an information system. 
B)  Commissions for referring a review client to an insurance agency for insurance coverage. 
C)  Preparation of tax returns for which fees are based upon client refunds. 
D)  Each of the above is allowed. 
A)  Contingent fees based on savings due to implementation of an information system. 
B)  Commissions for referring a review client to an insurance agency for insurance coverage. 
C)  Preparation of tax returns for which fees are based upon client refunds. 
D)  Each of the above is allowed.

Question 9

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

Accepted Answer

A)  The auditor's checking account, which is fully insured by a federal agency, is held at a client financial institution. 
B)  The auditor is also an attorney who advises the client as its general counsel. 
C)  An employee of the auditor serves as treasurer of a charitable organization that is a client. 
D)  The client owes the auditor fees for two consecutive annual audits. 
A)  The auditor's checking account, which is fully insured by a federal agency, is held at a client financial institution. 
B)  The auditor is also an attorney who advises the client as its general counsel. 
C)  An employee of the auditor serves as treasurer of a charitable organization that is a client. 
D)  The client owes the auditor fees for two consecutive annual audits.

Question 10

Don Crosby, a partner in a national CPA firm, has just learned that his self sufficient daughter has accepted a position as the CFO of Sunglasses, Inc., a current client within the office with which he is employed. Explain the independence ramifications on 1) Don's independence, 2) his office, and 3) the firm's independence.

Accepted Answer

1. Don's non-dependent daughter is consi

Question 11

A direct financial interest violates independence in which of the following circumstances?

Accepted Answer

A)  When close relatives such as nondependent children, brothers, and sisters have a significant financial interest in the client. 
B)  When close relatives such as nondependent children, brothers, and sisters have any financial interest in the client. 
C)  When the CPA owns shares in a mutual fund that has an ownership interest in the client. 
D)  When close relatives such as brother, sister, or in-laws are employed by the client. 
A)  When close relatives such as nondependent children, brothers, and sisters have a significant financial interest in the client. 
B)  When close relatives such as nondependent children, brothers, and sisters have any financial interest in the client. 
C)  When the CPA owns shares in a mutual fund that has an ownership interest in the client. 
D)  When close relatives such as brother, sister, or in-laws are employed by the client.

Question 12

Oehlers, CPA, is a staff auditor participating in the engagement of Capital Trust, Inc. Which of the following circumstances impairs Oehlers independence?

Accepted Answer

A)  Oehlers sister is an internal auditor employed part-time by Capital Trust. 
B)  Oehlers friend, and employee of another local accounting firm, prepares the tax return of Capital Trust's CEO. 
C)  Oehlers and Capital Trust's 401K plan own stock with the same corporation. 
D)  During the period of professional engagement, Capital Trust gave Oehlers tickets to a football game worth $75. 
A)  Oehlers sister is an internal auditor employed part-time by Capital Trust. 
B)  Oehlers friend, and employee of another local accounting firm, prepares the tax return of Capital Trust's CEO. 
C)  Oehlers and Capital Trust's 401K plan own stock with the same corporation. 
D)  During the period of professional engagement, Capital Trust gave Oehlers tickets to a football game worth $75.

Question 13

Rule 301 of the AICPA's Code of Professional Conduct requires CPAs to maintain the confidentiality of client information. This rule would be violated if a CPA disclosed information without a client's consent as a result of a:

Accepted Answer

A)  subpoena or summons. 
B)  peer review. 
C)  complaint filed with the trial board of the Institute. 
D)  request by a client's largest stockholder. 
A)  subpoena or summons. 
B)  peer review. 
C)  complaint filed with the trial board of the Institute. 
D)  request by a client's largest stockholder.

Question 14

According to the Principles section of the Code of Professional Conduct, all members:

Accepted Answer

A)  should be independent in fact and in appearance at all times. 
B)  in public practice should be independent in fact and in appearance at all times. 
C)  in public practice should be independent in fact and in appearance when providing auditing and other attestations services. 
D)  in public practice should be independent in fact and in appearance when providing auditing, tax, and other attestation services. 
A)  should be independent in fact and in appearance at all times. 
B)  in public practice should be independent in fact and in appearance at all times. 
C)  in public practice should be independent in fact and in appearance when providing auditing and other attestations services. 
D)  in public practice should be independent in fact and in appearance when providing auditing, tax, and other attestation services.

Question 15

If the board of accountancy in the state in which a CPA firm is licensed has rules that are different than the AICPA's rules, the CPA firm must follow:

Accepted Answer

A)  whichever rules are less restrictive. 
B)  whichever rules are more restrictive. 
C)  the rules of the AICPA. 
D)  the rules of the state's board of accountancy. 
A)  whichever rules are less restrictive. 
B)  whichever rules are more restrictive. 
C)  the rules of the AICPA. 
D)  the rules of the state's board of accountancy.

Question 16

Imprisonment for a period of six months or longer will result in automatic expulsion from the AICPA.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is true when the CPA has been engaged to perform an audit of financial statements?

Accepted Answer

A)  The CPA firm is engaged and paid by the client; therefore, the firm has primary responsibility to be an advocate for the client. 
B)  The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are those who rely on the financial statements. 
C)  Should a situation arise where there is no convincing authoritative standard available, and there is a choice of actions which could impact a client's financial statements, the CPA is free to endorse the choice which is in the investors' interests. 
D)  The CPA firm has primary responsibility to the FASB. 
A)  The CPA firm is engaged and paid by the client; therefore, the firm has primary responsibility to be an advocate for the client. 
B)  The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are those who rely on the financial statements. 
C)  Should a situation arise where there is no convincing authoritative standard available, and there is a choice of actions which could impact a client's financial statements, the CPA is free to endorse the choice which is in the investors' interests. 
D)  The CPA firm has primary responsibility to the FASB.

Question 18

In the AICPA Code of Professional Conduct, the second principle of professional conduct, entitled "The Public Interest," applies only to members of the AICPA in public practice and not to members who work as accountants in business, government, or education.

Accepted Answer

A) True 
 B)False

Question 19

In the AICPA Code of Professional Conduct, the sixth principle of professional conduct, entitled "Scope and Nature of Services," applies to members of the AICPA who work in public practice, business, government, or education.

Accepted Answer

A) True 
 B)False

Question 20

Each of the following situations involves a possible violation of the rule on independence. For each situation, (1) decide whether the Code of Professional Conduct has been violated, and (2) briefly explain how the situation violates (or does not violate) the Code of Professional Conduct.
A) Harry Brown is a partner in the Topeka office of Hedley & Co., CPAs. Harry's brother is employed in an audit-sensitive position by Jensen Appliances, a publicly held company in Kansas. Jensen Appliances is one of Hedley & Co.'s audit clients. Neither Harry nor personnel from the Topeka office is involved in the audit of Jensen.
Violation? Yes No

Accepted Answer

A. NO VIOLATION. ALTHOUGH PARTNERS IN A

Exam 4: Professional Ethics

Discuss Rule 301-Confidential Client Information, including the four exceptions to the rule.

The AICPA's Code of Professional Conduct requires independence for all:

A CPA firm should decline an offer to perform consulting services engagement if:

A member firm of the AICPA is not only responsible for its compliance with the Rules of Conduct, but it is also responsible for compliance by its:

Julie and Lisa are sisters. Julie is a CPA auditing the company where Lisa works. Julie's independence is impaired if:

Which of the following statements best describes the enforceability of the Interpretations of the Rules of Conduct?

Which of the following activities is allowed for a CPA firm's attestation clients?

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

A direct financial interest violates independence in which of the following circumstances?

Oehlers, CPA, is a staff auditor participating in the engagement of Capital Trust, Inc. Which of the following circumstances impairs Oehlers independence?

Rule 301 of the AICPA's Code of Professional Conduct requires CPAs to maintain the confidentiality of client information. This rule would be violated if a CPA disclosed information without a client's consent as a result of a:

According to the Principles section of the Code of Professional Conduct, all members:

If the board of accountancy in the state in which a CPA firm is licensed has rules that are different than the AICPA's rules, the CPA firm must follow:

Imprisonment for a period of six months or longer will result in automatic expulsion from the AICPA.

Which of the following statements is true when the CPA has been engaged to perform an audit of financial statements?

In the AICPA Code of Professional Conduct, the second principle of professional conduct, entitled "The Public Interest," applies only to members of the AICPA in public practice and not to members who work as accountants in business, government, or education.

In the AICPA Code of Professional Conduct, the sixth principle of professional conduct, entitled "Scope and Nature of Services," applies to members of the AICPA who work in public practice, business, government, or education.

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Legal Liability

The CPA Profession

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Section 404 Audits of Internal Control and Control Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details and Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls and Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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