Exam 14: Professional Ethics

Wally Wide is the partner on the audit engagement for First National Bank for their fiscal year-end of January 31,2011.Wally was recently promoted to partner.Based on his increase in income,Wally and his family bought a larger home and a new car.First National Bank had the most competitive mortgage rate and auto loan rates so Wally obtained both his mortgage loan and car loan from First National.Wally paid 20% down on the house,received no special rate of interest,and the First National Bank holds the title to the house.Wally traded in his old car and made and additional down payment on the car and financed 60% of the price of the car with the bank.Again,Wally paid the prevailing interest rate and the bank holds the title to the car. Required: The situations above involve possible violations of the AICPA's Code of Professional Conduct.State the rule in question and explain why or why not there is a violation of the code.You need not refer to the rule number,but should clearly describe the rule in question.

Which of the following is required for a CPA firm to designate itself as "Members of the American Institute of Certified Public Accountants" on its letterhead?

The Code of Professional Conduct is very important for the auditing profession.The AICPA,State Boards,and other professional organizations spend a great deal of time and effort implementing,and reinforcing the ethical standards,and penalizing those who violate the ethical standards. Required: A.Why is the Code of Conduct important to the profession? B.Many professionals believe that in today's business environment it is more difficult to adhere to the Code of Professional Conduct.Why might this be true?

Which of the following statements include in the advertising of a CPA firm is permissible according to Rule 502,Advertising and Other Forms of Solicitation.

For each of the following cases indicate if the action by a member CPA is a violation of the AICPA Code of Professional Conduct and cite the relevant rule. A. Disclosed client information to another CPA firm during the discussion of a merger of the two firms. B. Allow a company to change the way it values inventory to a method that is not GAAP because following GAAP would be misleading. C. Had a new car loan from a bank that is a client when the bank holds the title to the car. D. Based fee on approval of a bank loan dependent upon audited financial statements. E. Did not comply with "Government Auditing Standards on a government audit."

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

For each situation (1-5),identify the most applicable AICPA rule of conduct and whether there is a violation or no violation of the rule (A-F).One or more letters may not be used. A. Rule 101: Independence; no violation B. Rule 101: Independence; violation C. Rule 102: Integrity and Objectivity; no violation D. Rule 102: Integrity and Objectivity; violation E. Rule 203: Accounting Principles; no violation . Rule 203: Accounting Principles; violation ___ 1. Sterling Stevens, CPA, was auditing Global Services Company. Global Services used an accounting principle that was not in conformity with GAAP. Nevertheless, Stevens rendered a standard unqualified audit report. ___ 2. Christina Hall, CPA, provided expert testimony for a plaintiff. The defendant in the case was a client of Hall's. ___ 3. Sam Miller, CPA, owned 100 shares of Johnson Drilling, Inc., his audit client. ___ 4. Dewey Wise, CPA, obtained a loan from an insurance company using the cash value of the insurance policy as collateral. The loan is for less money than the cash value of the policy. ___ 5. Stella Steinbeck, CPA, was auditing Good Services Company. Good Services used an accounting principle that was not in conformity with GAAP. Good Services believed, and Steinbeck concurred, that using a generally accepted method would cause the financial statements to be misleading. Therefore, Steinbeck rendered a standard unqualified audit report.

Which of the following sections is no longer included in the AICPA Rules of Conduct?

The SEC requires companies to disclose fees paid to independent public accounting firms for audit and consulting services in the belief that

A client has omitted a significant disclosure from the financial statements.The auditor has asked the client to include the information,but the client refuses and claims the information is confidential.The position of the CPA should be that the information