Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

The reason for an expectation of a high

Question 3

Interpretations to the Rules of Conduct permit a CPA firm to do both bookkeeping and auditing for the same private company client if three criteria are met.Which of the following is not one of those criteria?

Accepted Answer

A)  The client must accept full responsibility for the financial statements. 
B)  The client is required to file an annual report, including audited financial statements, with the Securities and Exchange Commission. 
C)  The CPA must not assume the role of employee or of manager. 
D)  The CPA must follow applicable auditing standards. 
A)  The client must accept full responsibility for the financial statements. 
B)  The client is required to file an annual report, including audited financial statements, with the Securities and Exchange Commission. 
C)  The CPA must not assume the role of employee or of manager. 
D)  The CPA must follow applicable auditing standards.

Question 4

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:
•Princip

Question 5

Under the AICPA independence rules,the auditor:

Accepted Answer

A)  is prohibited from performing a company's audit and installing and designing the client's new information system. 
B)  does not need to document the understanding and willingness of the client to perform all management functions associated with the nonaudit service. 
C)  is prohibited from doing any bookkeeping services for the client if performing the audit. 
D)  must follow the more restrictive SEC independence rules when dealing with a public company. 
A)  is prohibited from performing a company's audit and installing and designing the client's new information system. 
B)  does not need to document the understanding and willingness of the client to perform all management functions associated with the nonaudit service. 
C)  is prohibited from doing any bookkeeping services for the client if performing the audit. 
D)  must follow the more restrictive SEC independence rules when dealing with a public company.

Question 6

Auditors are allowed to have an indirect financial interest in an audit client,such as ownership of stock in a client's company by the auditor's brother,as long as the amount of the financial interest is immaterial to the brother.

Accepted Answer

A) True 
 B)False

Question 7

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 a passenger in a car driven by his wife. On the way home from the firm's Christmas party, 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 a passenger in a car driven by his wife. On the way home from the firm's Christmas party, she was charged with "driving while intoxicated."

Question 8

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 9

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 10

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.

Question 11

The Sarbanes-Oxley Act ________ 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 
A)  encourages 
B)  prohibits 
C)  allows 
D)  allows on a case-by-case basis

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Which of the following loans would be prohibited between a CPA firm or its members and an audit client?

Accepted Answer

A)  Automobile loans 
B)  Loans fully collateralized by cash deposits at the same financial institution 
C)  New home mortgage loans 
D)  Unpaid credit card balances not exceeding $10,000 in total 
A)  Automobile loans 
B)  Loans fully collateralized by cash deposits at the same financial institution 
C)  New home mortgage loans 
D)  Unpaid credit card balances not exceeding $10,000 in total

Question 14

Under Rule 505,Form of Organization and Name,a CPA firm may use any name as long as it is not misleading.

Accepted Answer

A) True 
 B)False

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

A CPA firm:

Accepted Answer

A)  can sell securities to a client for whom they perform an attestation service. 
B)  can receive a commission for a client that they are engaged to perform an attestation service for. 
C)  cannot receive a referral fee for recommending the services of another CPA. 
D)  can receive a commission from a nonattestation client as long as the situation is disclosed. 
A)  can sell securities to a client for whom they perform an attestation service. 
B)  can receive a commission for a client that they are engaged to perform an attestation service for. 
C)  cannot receive a referral fee for recommending the services of another CPA. 
D)  can receive a commission from a nonattestation client as long as the situation is disclosed.

Question 17

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 18

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)  it provides a safeguard to keep unscrupulous people out. 
C)  it is required by federal legislation. 
D)  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)  it provides a safeguard to keep unscrupulous people out. 
C)  it is required by federal legislation. 
D)  it allows licensing agencies to have a yardstick to measure deficient behavior.

Question 19

The CPA must not subordinate his or her professional judgment to that of others in any:

Accepted Answer

A)  engagement. 
B)  audit engagement. 
C)  engagement excluding tax services. 
D)  engagement where the opinion of a specialist is used. 
A)  engagement. 
B)  audit engagement. 
C)  engagement excluding tax services. 
D)  engagement where the opinion of a specialist is used.

Question 20

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.

Exam 5: Ethics and the Audit Profession

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

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

Interpretations to the Rules of Conduct permit a CPA firm to do both bookkeeping and auditing for the same private company client if three criteria are met.Which of the following is not one of those criteria?

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.

Under the AICPA independence rules,the auditor:

Auditors are allowed to have an indirect financial interest in an audit client,such as ownership of stock in a client's company by the auditor's brother,as long as the amount of the financial interest is immaterial to the brother.

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?

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

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

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

The Sarbanes-Oxley Act ________ a CPA firm from doing both bookkeeping and auditing services for the same public company client.

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

Which of the following loans would be prohibited between a CPA firm or its members and an audit client?

Under Rule 505,Form of Organization and Name,a CPA firm may use any name as long as it is not misleading.

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:

A CPA firm:

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:

The CPA must not subordinate his or her professional judgment to that of others in any:

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

The Assurance Services Market

The Audit Standards Setting Process

Audit Reports

Legal Liability Considerations for Auditors

Audit Responsibilities and Objectives

Nature and Type of Audit Evidence

Audit Planning

Considering Materiality and Audit Risk

Considering Internal Control

Considering the Risk of Fraud

Implications of Information Technology for the Audit Process

Developing the 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 of Balances

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

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

Audit of the Inventory and Warehousing Cycle

Audit of the Payroll and Personnel Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Audit Completion

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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