Question 1

The provisions of the Sarbanes-Oxley Act of 2002 are most likely to allow which of the following non-audit services for audit clients?

Accepted Answer

A)  appraisal or valuation services (e.g., pension, post-employment benefit liabilities). 
B)  financial information systems design and implementation 
C)  internal audit outsourcing. 
D)  tax consulting. 
A)  appraisal or valuation services (e.g., pension, post-employment benefit liabilities). 
B)  financial information systems design and implementation 
C)  internal audit outsourcing. 
D)  tax consulting.

Question 2

CPAs are prohibited from which of the following forms of advertising?

Accepted Answer

A)  Self-laudatory advertising. 
B)  Celebrity endorsement advertising. 
C)  Use of trade names, such as "Awesome Auditors." 
D)  Use of phrases, such as "Guaranteed largest tax refunds in town!" 
A)  Self-laudatory advertising. 
B)  Celebrity endorsement advertising. 
C)  Use of trade names, such as "Awesome Auditors." 
D)  Use of phrases, such as "Guaranteed largest tax refunds in town!"

Question 3

Which of the following circumstances impairs an auditor's independence?
I. Litigation by a client against an audit firm claiming a deficiency in the previous audit.
II. Litigation by a client against an audit firm related to tax services.
III. Litigation by an audit firm against a client claiming management fraud or deceit.

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 4

A member in public practice may perform for a contingent fee any professional services for a client for whom the member or member's firm performs:

Accepted Answer

A)  an audit. 
B)  consulting services. 
C)  preparation of an original tax return. 
D)  preparation of an amended tax return. 
A)  an audit. 
B)  consulting services. 
C)  preparation of an original tax return. 
D)  preparation of an amended tax return.

Question 5

An advantage of the principles of professional conduct in the Code of Professional Conduct is that they are more easily enforced than are the specific rules of conduct.

Accepted Answer

A) True 
 B)False

Question 6

The following situations involve a possible violation of the AICPA's Code of Professional Conduct. For each situation, (1) determine the applicable rule from the Code, (2) decide whether or not the Code has been violated, and (3) briefly explain how the situation violates (or does not violate) the Code.
A) In 20x4, Freeman and Johnson, both CPAs, decided to form a CPA practice. In 20x7, Freeman and Johnson approached Bill Delaney, a physician and medical expert, and asked him to assist them with their growing medical consulting practice. Delaney agreed, but only after he was given an ownership interest in the firm. Delaney does not intend to quit his private medical practice.
Rule: ________ Violation? Yes No

Accepted Answer

A. VIOLATION OF THE RULE ON FORM OF ORGA

Question 7

The scenarios below all involve a possible violation of the AICPA's Code of Professional Conduct. For each scenario select:
1. Which rule of the Code the scenario falls under and
2. If the scenario is a violation of the Code for the CPA Firm.
   
Scenario
1. Margaret Henry is a partner in the Tupelo office of Jenkins & Thorn, CPAs. Margaret's father is the controller at Markrich Sporting Supplies, Inc., a publicly held company in Tupelo. Markrich is one of Jenkins & Thorn's audit clients. Margaret is not involved in the audit of Markrich.
2. Jason Alexander is an audit manager with Reese & Co., CPAs. Jason owns 100 shares of common stock in one of the firm's audit clients, but he does not provide any audit or non-audit services to the company.
3. The accounting firm of Fine & Herman, CPAs, provides bookkeeping and tax services for Henderson Corporation, a privately held company. Mr. Herman also performs the annual audit of Henderson Corporation.
4. Elaine Cooper CPA, is the auditor of Paula's Pizza. Towards the end of the audit, Paula gave Elaine her estimate of receivable collectability and Elaine accepted it without further cooperation.
5. Charley Ray, CPA, is a member of the engagement team that performs the audit of Desiree Corporation. Charley's five-year-old daughter, Becky, received ten shares of Desiree common stock for her fifth birthday in a trust fund established by Becky's grandmother.
6. Freeman and Johnson formed a successful CPA practice ten years ago. In 20x4, they approached Adam Sawtooth, a surgeon and medical expert, and asked him to assist them with their growing medical consulting practice. Sawtooth agreed, but only after he was given an ownership interest in the firm. Sawtooth does intend to reduce his private practice hours and spend 40% of his working hours devoted to the Freeman & Johnson practice.
7. Salley Preen has a successful computer network consulting business. Sally has recommended one of her clients to Sam Walton, CPA. To show gratitude for the referral, Sam has agreed to pay Sally a token gift of $50. Sam has not disclosed the payment arrangement to his new clients.
8. The accounting firm of Swift & Taylor, CPAs, is negotiating a fee with a new audit client where the client will pay $50,000 if the client obtains the line of credit needed for working capital purposes otherwise, the fee will be $40,000.
9. Brad Long, CPA, was traveling from Orlando to Miami, Florida when he was pulled over by a police officer on suspicion of driving under the influence. He was convicted in court of driving while under the influence of alcohol and received six months probation.
10. Sammy Bryant, CPA, is a senior in a one-office CPA firm that audits Childress, Inc., a closely held corporation. Sammy's sister was recently appointed as the assistant controller for Childress, Inc.

Accepted Answer

1. c, a
2. c, b
3. c

Question 8

Which of the following is least likely to impair a CPA firm's independence with respect to an audit client in the Oklahoma City office of a national CPA firm?

Accepted Answer

A)  A partner in the Oklahoma City office owns an immaterial amount of stock in the client. 
B)  A partner in the Jersey City office owns 25% of the client's stock. 
C)  A partner in the Oklahoma City office, who does not work on the audit engagement, previously served as controller for the audit client. 
D)  A partner in the Chicago office previously served as vice president of finance for the audit client. 
A)  A partner in the Oklahoma City office owns an immaterial amount of stock in the client. 
B)  A partner in the Jersey City office owns 25% of the client's stock. 
C)  A partner in the Oklahoma City office, who does not work on the audit engagement, previously served as controller for the audit client. 
D)  A partner in the Chicago office previously served as vice president of finance for the audit client.

Question 9

Non-CPA members of a firm with AICPA membership are not eligible for membership within the AICPA and therefore do not have to follow the AIPCA Code of Professional Conduct.

Accepted Answer

A) True 
 B)False

Question 10

In which of the following instances would impair a CPA's independence when they have been retained as the auditor?
I. A charitable organization where the CPA serves as treasurer.
II. A municipality where the CPA owns $250,000 of the $25 million outstanding bonds of the municipality.
III. A company that the CPA's investment club has a one-tenth investment interest.

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

There are a number of offenses that may expel a CPA from membership in the AICPA. Which of the following is not one of these offenses?

Accepted Answer

A)  The willful failure to file any income tax return that the CPA, as an individual taxpayer, is required by law to file. 
B)  The willful filing of a fraudulent income tax return on a client's behalf. 
C)  Conviction of a crime punishable resulting in 6 months in incarceration. 
D)  The willful aiding in the preparation of a false and fraudulent income tax return. 
A)  The willful failure to file any income tax return that the CPA, as an individual taxpayer, is required by law to file. 
B)  The willful filing of a fraudulent income tax return on a client's behalf. 
C)  Conviction of a crime punishable resulting in 6 months in incarceration. 
D)  The willful aiding in the preparation of a false and fraudulent income tax return.

Question 12

One of the AICPA's Ethical Principles deals with the public interest. It states that members should accept the obligation to act in a way that will:

Accepted Answer

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

Question 13

The following situations involve a possible violation of the AICPA's Code of Professional Conduct. For each situation, (1) determine the applicable rule from the Code, (2) decide whether or not the Code has been violated, and (3) briefly explain how the situation violates (or does not violate) the Code.
A) Howard Cunningham & Co., CPAs, designates its firm as "Members of the American Institute of Certified Public Accountants." All of the partners of the firm are CPAs. However, one of the partners has recently chosen to allow her membership to lapse because of personal reasons.
Rule: ________ Violation? Yes No

Accepted Answer

A. VIOLATION OF THE FORM OF ORGANIZATION

Question 14

Interpretations of the rules regarding independence allow an auditor to serve as:

Accepted Answer

A)  a director or officer of an audit client. 
B)  an underwriter for the sale of a client's securities. 
C)  a trustee of a client's pension fund. 
D)  an honorary director for a not-for-profit charitable or religious organization. 
A)  a director or officer of an audit client. 
B)  an underwriter for the sale of a client's securities. 
C)  a trustee of a client's pension fund. 
D)  an honorary director for a not-for-profit charitable or religious organization.

Question 15

In which of the following circumstances would a CPA be ethically bound to refrain from disclosing any confidential client information?

Accepted Answer

A)  The CPA is issued a summons enforceable by a court order which orders the CPA to present confidential information. 
B)  A major stockholder of a client company seeks accounting information from the CPA after management declined to disclose the requested information. 
C)  Confidential client information is made available as part of a quality review of the CPA's practice by a peer review team authorized by the AICPA. 
D)  An inquiry by a disciplinary body of a state CPA society requests confidential client information. 
A)  The CPA is issued a summons enforceable by a court order which orders the CPA to present confidential information. 
B)  A major stockholder of a client company seeks accounting information from the CPA after management declined to disclose the requested information. 
C)  Confidential client information is made available as part of a quality review of the CPA's practice by a peer review team authorized by the AICPA. 
D)  An inquiry by a disciplinary body of a state CPA society requests confidential client information.

Question 16

The Sarbanes-Oxley Act requires which employees of an accounting firm to rotate off the engagement every five years?

Accepted Answer

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

Question 17

The Sarbanes-Oxley Act requires a cooling off period of ________ before a member of an audit team can work for a client in a key management position?

Accepted Answer

A)  one year 
B)  eighteen months 
C)  three years 
D)  five years 
A)  one year 
B)  eighteen months 
C)  three years 
D)  five years

Question 18

When determining whether independence is impaired because of an ownership interest in a client company, materiality will affect ownership:

Accepted Answer

A)  in all circumstances. 
B)  only for direct ownership. 
C)  only for indirect ownership. 
D)  under no circumstances. 
A)  in all circumstances. 
B)  only for direct ownership. 
C)  only for indirect ownership. 
D)  under no circumstances.

Question 19

A CPA is allowed to accept a referral fee for recommending a client to another CPA if:

Accepted Answer

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

Question 20

Expulsion from the AICPA for failing to follow the rules of conduct is, by itself, sufficient to prevent a CPA from practicing public accounting.

Accepted Answer

A) True 
 B)False

Exam 4: Professional Ethics

The provisions of the Sarbanes-Oxley Act of 2002 are most likely to allow which of the following non-audit services for audit clients?

CPAs are prohibited from which of the following forms of advertising?

A member in public practice may perform for a contingent fee any professional services for a client for whom the member or member's firm performs:

An advantage of the principles of professional conduct in the Code of Professional Conduct is that they are more easily enforced than are the specific rules of conduct.

Which of the following is least likely to impair a CPA firm's independence with respect to an audit client in the Oklahoma City office of a national CPA firm?

Non-CPA members of a firm with AICPA membership are not eligible for membership within the AICPA and therefore do not have to follow the AIPCA Code of Professional Conduct.

There are a number of offenses that may expel a CPA from membership in the AICPA. Which of the following is not one of these offenses?

One of the AICPA's Ethical Principles deals with the public interest. It states that members should accept the obligation to act in a way that will:

Interpretations of the rules regarding independence allow an auditor to serve as:

In which of the following circumstances would a CPA be ethically bound to refrain from disclosing any confidential client information?

The Sarbanes-Oxley Act requires which employees of an accounting firm to rotate off the engagement every five years?

The Sarbanes-Oxley Act requires a cooling off period of ________ before a member of an audit team can work for a client in a key management position?

When determining whether independence is impaired because of an ownership interest in a client company, materiality will affect ownership:

A CPA is allowed to accept a referral fee for recommending a client to another CPA if:

Expulsion from the AICPA for failing to follow the rules of conduct is, by itself, sufficient to prevent a CPA from practicing public accounting.

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

Filters