Question 1

All owners of a CPA firm must be CPAs who are qualified to practice.

Accepted Answer

A) True 
 B)False

Question 2

Describe an ethical dilemma that an auditor or an accountant might face in his or her business career, then illustrate how the auditor or accountant might use the six-step approach presented in the text to resolve that dilemma. Be specific.

Accepted Answer

The answer of Describe an ethical dilemma that an auditor...

Question 3

Rule 101, Independence, applies to covered members in a position to influence an attest engagement.

Accepted Answer

A) True 
 B)False

Question 4

A CPA firm may practice public accounting only in a form of organization permitted by federal law or regulation.

Accepted Answer

A) True 
 B)False

Question 5

Generally, loans between a CPA firm or its members and an audit client are prohibited because they create a financial relationship. However, there are exceptions. Which of the following loans is not an exception to this rule?

Accepted Answer

A)  automobile loans 
B)  loans fully collateralized by cash deposits at the same financial institution 
C)  home mortgages 
D)  unpaid credit card balances not exceeding $15,000

Question 6

Under Rule 301, Confidential Client Information, permission is not required from the client to use the audit documentation relating to that client during an AICPA-authorized peer review program with another CPA firm.

Accepted Answer

A) True 
 B)False

Question 7

Under the AICPA's Code of Professional Conduct, CPAs are prohibited from offering audit clients a discount for referring a prospective client even if they are disclosed.

Accepted Answer

A) True 
 B)False

Question 8

In the AICPA Code of Professional Conduct, interpretations of rules are more specific than ethical rulings.

Accepted Answer

A) True 
 B)False

Question 9

Rule 505, Form of Organization and Name, prohibits CPA firms from practicing as limited liability partnerships.

Accepted Answer

A) True 
 B)False

Question 10

Several months after an unqualified audit report was issued, the auditor discovers the financial statements were materially misstated. The client's CEO agrees that there are misstatements, but refuses to correct them. She claims that "confidentiality" prevents the CPA from informing anyone.

Accepted Answer

A)  The CEO is correct and the auditor must maintain confidentiality. 
B)  The CEO is incorrect, but because the audit report has been issued it is too late. 
C)  The CEO is correct, but to be ethically correct the auditor should violate the confidentiality rule and disclose the error. 
D)  The CEO is incorrect, and the auditor has an obligation to issue a revised audit report, even if the CEO will not correct the financial statements.

Question 11

In determining independence with respect to any audit engagement, the ultimate decision as to whether or not the auditor is independent must be made by the:

Accepted Answer

A)  auditor. 
B)  client. 
C)  audit committee. 
D)  public.

Question 12

Under Rule 505, Form of Organization and Name, a CPA firm may not designate itself as "Members of the American Institute of Certified Public Accountants" unless a majority of its owners are members of the Institute.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following fee arrangements is not a violation of the AICPA's Code of Professional Conduct?

Accepted Answer

A)  Basing fees as an expert witness on the amount awarded to the plaintiff, even though the CPA performs a compilation for client use. 
B)  Basing consulting fees on a percentage of a bond issue, even though the CPA performs a review of the client's financial statements. 
C)  Basing fees for a tax service on the amount of the refund that the client will receive. 
D)  Basing consulting fees on a percentage of a bond issue, even though the CPA performs an audit of the client's financial statements.

Question 14

Interpretations of the AICPA Code of Professional Conduct are dominated by the concept of:

Accepted Answer

A)  independence. 
B)  compliance with standards. 
C)  accounting. 
D)  acts discreditable to the profession.

Question 15

The Sarbanes-Oxley Act does not require audit committee approval of all non-audit services prior to their performance by the company's external auditor.

Accepted Answer

A) True 
 B)False

Question 16

The AICPA's Code of Professional Conduct ________ a CPA firm from doing both bookkeeping and auditing services for the same public company client?

Accepted Answer

A)  encourages 
B)  prohibits 
C)  allows 
D)  allows on a case-by-case basis

Question 17

A CPA sole practitioner purchased stock in a client corporation and placed it in a trust as an educational fund for the CPA's minor child. The trust securities were not material to the CPA but were material to the child's personal net worth. Would the independence of the CPA be considered to be impaired with respect to the client?

Accepted Answer

A)  Yes, because the stock is a direct financial interest. 
B)  Yes, because the stock is an indirect financial interest that is material to the CPA's child. 
C)  No, because the CPA does not have a direct financial interest in the client. 
D)  No, because the CPA does not have a material indirect financial interest in the client.

Question 18

The Sarbanes-Oxley Act permits the auditor to perform a wide variety of non-audit services for audit clients.

Accepted Answer

A) True 
 B)False

Question 19

In the AICPA Code of Professional Conduct, ethical rulings are less specific than rules of conduct.

Accepted Answer

A) True 
 B)False

Question 20

Financial interests family members of a CPA can affect the CPA's independence. Which of the following parties would not be included as a "direct financial interest" of the CPA?

Accepted Answer

A)  Spouse 
B)  Dependent child 
C)  Relative supported by the CPA 
D)  Sibling living in the same city as the CPA

Exam 4: Professional Ethics

All owners of a CPA firm must be CPAs who are qualified to practice.

Describe an ethical dilemma that an auditor or an accountant might face in his or her business career, then illustrate how the auditor or accountant might use the six-step approach presented in the text to resolve that dilemma. Be specific.

Rule 101, Independence, applies to covered members in a position to influence an attest engagement.

A CPA firm may practice public accounting only in a form of organization permitted by federal law or regulation.

Generally, loans between a CPA firm or its members and an audit client are prohibited because they create a financial relationship. However, there are exceptions. Which of the following loans is not an exception to this rule?

Under Rule 301, Confidential Client Information, permission is not required from the client to use the audit documentation relating to that client during an AICPA-authorized peer review program with another CPA firm.

Under the AICPA's Code of Professional Conduct, CPAs are prohibited from offering audit clients a discount for referring a prospective client even if they are disclosed.

In the AICPA Code of Professional Conduct, interpretations of rules are more specific than ethical rulings.

Rule 505, Form of Organization and Name, prohibits CPA firms from practicing as limited liability partnerships.

Several months after an unqualified audit report was issued, the auditor discovers the financial statements were materially misstated. The client's CEO agrees that there are misstatements, but refuses to correct them. She claims that "confidentiality" prevents the CPA from informing anyone.

In determining independence with respect to any audit engagement, the ultimate decision as to whether or not the auditor is independent must be made by the:

Under Rule 505, Form of Organization and Name, a CPA firm may not designate itself as "Members of the American Institute of Certified Public Accountants" unless a majority of its owners are members of the Institute.

Which of the following fee arrangements is not a violation of the AICPA's Code of Professional Conduct?

Interpretations of the AICPA Code of Professional Conduct are dominated by the concept of:

The Sarbanes-Oxley Act does not require audit committee approval of all non-audit services prior to their performance by the company's external auditor.

The AICPA's Code of Professional Conduct ________ a CPA firm from doing both bookkeeping and auditing services for the same public company client?

The Sarbanes-Oxley Act permits the auditor to perform a wide variety of non-audit services for audit clients.

In the AICPA Code of Professional Conduct, ethical rulings are less specific than rules of conduct.

Financial interests family members of a CPA can affect the CPA's independence. Which of the following parties would not be included as a "direct financial interest" of the CPA?