Question 1

Which of the following statements is correct regarding non-audit services that are not prohibited by Sarbanes-Oxley or SEC?

Accepted Answer

A)  They must be approved by management of the client. 
B)  They must be approved by staff of the PCAOB. 
C)  They must be approved by staff of the PCAOB and the SEC. 
D)  They must be approved by the company's audit committee. 
A)  They must be approved by management of the client. 
B)  They must be approved by staff of the PCAOB. 
C)  They must be approved by staff of the PCAOB and the SEC. 
D)  They must be approved by the company's audit committee.

Question 2

A CPA's financial interests in nonclients may have an effect on independence if the nonclients are investors in or investees of the client. Which situation would not impair a CPA's independence?

Accepted Answer

A)  The client has an immaterial investment in a nonclient investee in which the CPA has an immaterial investment. 
B)  The CPA has a material indirect financial interest in a nonclient in which the client has a material investment. 
C)  The client investor has a nonmaterial investment in the nonclient investee in which the CPA has a material investment. 
D)  The CPA has a joint closely held investment with the client in a nonclient that is material to the client as well as the CPA. 
A)  The client has an immaterial investment in a nonclient investee in which the CPA has an immaterial investment. 
B)  The CPA has a material indirect financial interest in a nonclient in which the client has a material investment. 
C)  The client investor has a nonmaterial investment in the nonclient investee in which the CPA has a material investment. 
D)  The CPA has a joint closely held investment with the client in a nonclient that is material to the client as well as the CPA.

Question 3

The underlying reason for a code of professional conduct for any profession is:

Accepted Answer

A)  the need for public confidence in the quality of service of the profession. 
B)  that it provides a safeguard to keep unscrupulous people out. 
C)  that it is required by federal legislation. 
D)  that it allows licensing agencies to have a yardstick to measure deficient behavior. 
A)  the need for public confidence in the quality of service of the profession. 
B)  that it provides a safeguard to keep unscrupulous people out. 
C)  that it is required by federal legislation. 
D)  that it allows licensing agencies to have a yardstick to measure deficient behavior.

Question 4

Rule 201 - General Standards requires members to comply with certain standards and interpretations. Which of the following is not a standard specifically addressed in Rule 201?

Accepted Answer

A)  professional integrity 
B)  due professional care 
C)  planning and supervision 
D)  sufficient relevant data 
A)  professional integrity 
B)  due professional care 
C)  planning and supervision 
D)  sufficient relevant data

Question 5

Under Rule 101, Independence, independence is considered to be impaired if fees remain unpaid for professional services provided more than six months before the date of the current year's report.

Accepted Answer

A) True 
 B)False

Question 6

A member in public practice shall neither receive from, nor pay to, a client a commission when the member or member's firm also performs certain services for that client. Are commissions allowed if the CPA performs:

Accepted Answer

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

Question 7

Explain why there is a special need for ethical conduct in the auditing profession.

Accepted Answer

Since users (e.g., the general public) o

Question 8

Which of the following services is not prohibited by the SEC whenever a CPA also audits the company?

Accepted Answer

A)  actuarial services 
B)  assisting the company in preparing certain SEC registration statements (e.g., 10-Q, 10-K) 
C)  investment banker services 
D)  bookkeeping services 
A)  actuarial services 
B)  assisting the company in preparing certain SEC registration statements (e.g., 10-Q, 10-K) 
C)  investment banker services 
D)  bookkeeping services

Question 9

Interpretations of rules of conduct in the Code of Professional Conduct are not officially enforceable and practitioners need not justify departure from them.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements are true with respect to audit committees?
I. One member has to be a financial expert.
II. Audit committees are required for all companies.
III. Outside member of the board of directors should comprise the audit committee.

Accepted Answer

A)  I and II 
B)  I and III 
C)  II and III 
D)  I, II, and III 
A)  I and II 
B)  I and III 
C)  II and III 
D)  I, II, and III

Question 11

Interpretations of Independence Rule 101 prohibit covered members from owning any stock or other direct investment in audit clients. Covered members would include which of the following?

Accepted Answer

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

Question 12

An example of an "indirect ownership interest in a client" would be ownership of a client's stock by a member's:

Accepted Answer

A)  dependent child. 
B)  spouse. 
C)  non-dependent grandfather. 
D)  All of the above are examples of indirect ownership. 
A)  dependent child. 
B)  spouse. 
C)  non-dependent grandfather. 
D)  All of the above are examples of indirect ownership.

Question 13

A public company may purchase internal audit services from their financial statement auditor if they are approved by the company's audit committee.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is not defined as an act discreditable in either the Rules or the Interpretations of the AICPA's Code of Professional Conduct?

Accepted Answer

A)  The CPA firm's partner in charge failed to file his tax return for the past year. 
B)  The CPA firm discriminates in its hiring practices based on the age of the applicant. 
C)  The CPA retains the client's books and records to enforce past-due payment of the CPA's bill, even after the client has demanded they be returned. 
D)  The CPA firm's partner-in-charge was arrested recently on his way home from the firm's holiday party. He was a passenger in a car driven by his wife and she was charged with "driving while intoxicated." 
A)  The CPA firm's partner in charge failed to file his tax return for the past year. 
B)  The CPA firm discriminates in its hiring practices based on the age of the applicant. 
C)  The CPA retains the client's books and records to enforce past-due payment of the CPA's bill, even after the client has demanded they be returned. 
D)  The CPA firm's partner-in-charge was arrested recently on his way home from the firm's holiday party. He was a passenger in a car driven by his wife and she was charged with "driving while intoxicated."

Question 15

The members of a client's "audit committee" should be:

Accepted Answer

A)  members of management. 
B)  directors who are not a part of company management. 
C)  non-directors and non-managers. 
D)  directors and managers. 
A)  members of management. 
B)  directors who are not a part of company management. 
C)  non-directors and non-managers. 
D)  directors and managers.

Question 16

Identify and describe each of the four parts to the AICPA's Code of Professional Conduct. Also discuss which parts are officially enforceable and which are not.

Accepted Answer

The four parts to the Code are:
• Princi

Question 17

Rule 502, Advertising and Other Forms of Solicitation, prohibits members of the AICPA in public practice from performing comparative advertising.

Accepted Answer

A) True 
 B)False

Question 18

CPAs may provide bookkeeping services to their non-public audit clients, but there are a number of conditions that must be met if the auditor is to maintain independence. Which of the following conditions is not necessary?

Accepted Answer

A)  The CPA must not assume a management role or function. 
B)  The client must hire an external CPA to approve all of the journal entries prepared by the auditor. 
C)  The auditor must comply with GAAS when auditing work prepared by his/her firm. 
D)  The client must accept responsibility for the financial statements. 
A)  The CPA must not assume a management role or function. 
B)  The client must hire an external CPA to approve all of the journal entries prepared by the auditor. 
C)  The auditor must comply with GAAS when auditing work prepared by his/her firm. 
D)  The client must accept responsibility for the financial statements.

Question 19

"Independence" in auditing means:

Accepted Answer

A)  maintaining an indirect financial interest. 
B)  not being financially dependent on a client. 
C)  taking an unbiased and objective viewpoint. 
D)  being an advocate for a client. 
A)  maintaining an indirect financial interest. 
B)  not being financially dependent on a client. 
C)  taking an unbiased and objective viewpoint. 
D)  being an advocate for a client.

Question 20

Rule 101, Independence, applies to members of the AICPA when performing any professional service.

Accepted Answer

A) True 
 B)False

Exam 4: Professional Ethics

Which of the following statements is correct regarding non-audit services that are not prohibited by Sarbanes-Oxley or SEC?

A CPA's financial interests in nonclients may have an effect on independence if the nonclients are investors in or investees of the client. Which situation would not impair a CPA's independence?

The underlying reason for a code of professional conduct for any profession is:

Rule 201 - General Standards requires members to comply with certain standards and interpretations. Which of the following is not a standard specifically addressed in Rule 201?

Under Rule 101, Independence, independence is considered to be impaired if fees remain unpaid for professional services provided more than six months before the date of the current year's report.

A member in public practice shall neither receive from, nor pay to, a client a commission when the member or member's firm also performs certain services for that client. Are commissions allowed if the CPA performs:

Explain why there is a special need for ethical conduct in the auditing profession.

Which of the following services is not prohibited by the SEC whenever a CPA also audits the company?

Interpretations of rules of conduct in the Code of Professional Conduct are not officially enforceable and practitioners need not justify departure from them.

Which of the following statements are true with respect to audit committees? I. One member has to be a financial expert. II. Audit committees are required for all companies. III. Outside member of the board of directors should comprise the audit committee.

Interpretations of Independence Rule 101 prohibit covered members from owning any stock or other direct investment in audit clients. Covered members would include which of the following?

An example of an "indirect ownership interest in a client" would be ownership of a client's stock by a member's:

A public company may purchase internal audit services from their financial statement auditor if they are approved by the company's audit committee.

Which of the following is not defined as an act discreditable in either the Rules or the Interpretations of the AICPA's Code of Professional Conduct?

The members of a client's "audit committee" should be:

Identify and describe each of the four parts to the AICPA's Code of Professional Conduct. Also discuss which parts are officially enforceable and which are not.

Rule 502, Advertising and Other Forms of Solicitation, prohibits members of the AICPA in public practice from performing comparative advertising.

CPAs may provide bookkeeping services to their non-public audit clients, but there are a number of conditions that must be met if the auditor is to maintain independence. Which of the following conditions is not necessary?

"Independence" in auditing means:

Rule 101, Independence, applies to members of the AICPA when performing any professional service.

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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