Question 1

Which of the following statements is true when the CPA has been engaged to perform an audit of financial statements?

Accepted Answer

A)  The CPA firm is engaged and paid by the client; therefore, the firm has primary responsibility to be an advocate for the client. 
B)  The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are those who rely on the financial statements. 
C)  Should a situation arise where there is no convincing authoritative standard available, and there is a choice of actions which could impact a client's financial statements, the CPA is free to endorse the choice which is in the investors' interests. 
D)  The CPA firm has primary responsibility to the FASB. 
A)  The CPA firm is engaged and paid by the client; therefore, the firm has primary responsibility to be an advocate for the client. 
B)  The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are those who rely on the financial statements. 
C)  Should a situation arise where there is no convincing authoritative standard available, and there is a choice of actions which could impact a client's financial statements, the CPA is free to endorse the choice which is in the investors' interests. 
D)  The CPA firm has primary responsibility to the FASB.

Question 2

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

Accepted Answer

A)  The auditor's checking account, which is fully insured by a federal agency, is held at a client financial institution. 
B)  The auditor is also an attorney who advises the client as its general counsel. 
C)  An employee of the auditor serves as treasurer of a charitable organization that is a client. 
D)  The client owes the auditor fees for two consecutive annual audits. 
A)  The auditor's checking account, which is fully insured by a federal agency, is held at a client financial institution. 
B)  The auditor is also an attorney who advises the client as its general counsel. 
C)  An employee of the auditor serves as treasurer of a charitable organization that is a client. 
D)  The client owes the auditor fees for two consecutive annual audits.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

For a public company,the Sarbanes-Oxley Act requires 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 5

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 6

The Code of Professional Conduct is established by the membership of the AICPA,and the Interpretations of the Rules of Conduct are prepared by the:

Accepted Answer

A)  Financial Accounting Standards Board. 
B)  Securities and Exchange Commission. 
C)  CPA licensing agencies within each state. 
D)  Professional Ethics Executive Committee of the AICPA. 
A)  Financial Accounting Standards Board. 
B)  Securities and Exchange Commission. 
C)  CPA licensing agencies within each state. 
D)  Professional Ethics Executive Committee of the AICPA.

Question 7

Which of the following services are allowed by the SEC whenever a CPA also audits the company?

Accepted Answer

A)  Internal audit outsourcing 
B)  Legal services unrelated to the audit 
C)  Appraisal or valuation services 
D)  Services related to assessing the effectiveness of internal control over financial reporting 
A)  Internal audit outsourcing 
B)  Legal services unrelated to the audit 
C)  Appraisal or valuation services 
D)  Services related to assessing the effectiveness of internal control over financial reporting

Question 8

The Conceptual Framework for AICPA Independence Standards can be used when making decisions on ethical matters not explicitly addressed in the Code.

Accepted Answer

A) True 
 B)False

Question 9

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 10

Which of the following is not one of the four parts of the AICPA's Code of Professional Conduct?

Accepted Answer

A)  Principles 
B)  Rules of Conduct 
C)  Interpretations 
D)  Definitions 
A)  Principles 
B)  Rules of Conduct 
C)  Interpretations 
D)  Definitions

Question 11

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 12

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

Question 13

Which of the following statements is true with respect to audit committees?

Accepted Answer

A)  Audit committee members should consist of members of the company's management. 
B)  All members of the audit committee must be financial experts. 
C)  The audit committee of a public company is responsible for hiring the auditor. 
D)  Audit committees must have a minimum of ten members. 
A)  Audit committee members should consist of members of the company's management. 
B)  All members of the audit committee must be financial experts. 
C)  The audit committee of a public company is responsible for hiring the auditor. 
D)  Audit committees must have a minimum of ten members.

Question 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

When CPAs are able to maintain their actual independence,it is referred to as independence in:

Accepted Answer

A)  conduct. 
B)  appearance. 
C)  fact. 
D)  total. 
A)  conduct. 
B)  appearance. 
C)  fact. 
D)  total.

Question 17

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 18

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 
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 19

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

Accepted Answer

A) True 
 B)False

Question 20

What are the six Ethical Principles stated in the Code of Professional Conduct?
 Briefly discuss each principle.Are these principles enforceable?

Accepted Answer

The six Ethical Principles of the Code o

Exam 5: Ethics and the Audit Profession

Which of the following statements is true when the CPA has been engaged to perform an audit of financial statements?

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

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

For a public company,the Sarbanes-Oxley Act requires audit committee approval of all non-audit services prior to their performance by the company's external auditor.

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

The Code of Professional Conduct is established by the membership of the AICPA,and the Interpretations of the Rules of Conduct are prepared by the:

Which of the following services are allowed by the SEC whenever a CPA also audits the company?

The Conceptual Framework for AICPA Independence Standards can be used when making decisions on ethical matters not explicitly addressed in the Code.

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.

Which of the following is not one of the four parts of the AICPA's Code of Professional Conduct?

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

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

Which of the following statements is true with respect to audit committees?

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?

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

When CPAs are able to maintain their actual independence,it is referred to as independence in:

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

What are the six Ethical Principles stated in the Code of Professional Conduct? Briefly discuss each principle.Are these principles enforceable?

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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