Exam 14: Professional Ethics

The Wheelwright definition of ethics has three key elements: (1)question requiring ____________________ choice,(2)guides of ______________________,and (3)concerns with the ____________________ of decisions.

Which of the following philosophical principles in ethics emphasizes the consequences of action rather than on following the rules?

Red and Green,CPAs are the external auditors for Blue Corporation,a publicly held company.Blue Corporation has outsourced its internal audit function to Red and Green.Which of the following statements is true?

The AICPA Code of Professional Conduct derives its authority from specific federal legislation.

For each situation (1-5),identify the most applicable AICPA rule of conduct and indicate whether there is a violation or no violation of the rule (A-F).One or more letters may not be used,and you may use any letter more than once. A.Rule 101: Independence; no violation B.Rule 101: Independence; violation C.Rule 301: Confidential Client Information; no violation D.Rule 301: Confidential Client Information; violation E.Rule 302: Contingent Fees; no violation F.Rule 302: Contingent Fees; violation ____ 1.Jackson,CPA,and one of his audit clients are considering investing in a business together.Jackson would own 25 percent of the business and the client would own 50 percent.Jackson's investment in the business is material to his net worth. ____ 2.Feller,CPA,is the corporate controller for Robert Corporation.Feller believes his employer may have committed an illegal act.After discussing the matter with his attorney,Feller decides to disclose the matter to the appropriate authorities. ____ 3.Brock,CPA,is an owner in the firm Louis and Brock,CPAs.Brock's husband is on the board of directors of Midland Corporation,an audit client of Louis and Brock.Brock does not participate on the audit engagement. ____ 4.Ruth,CPA,owns a building and leases a portion of the space to an audit client.The income from the lease is not material to Ruth. ____ 5.Maris,CPA,performs investment advisory services for an audit client and receives an annual fee based on a percentage of the value of the client's investment portfolio at the end of each year.

For each situation (1-5),identify the most applicable AICPA rule of conduct and indicate 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 301: Confidential Client Information; no violation D.Rule 301: Confidential Client Information; violation E.Rule 503: Commissions and Referrals; no violation F.Rule 503: Commissions and Referrals; violation ____ 1.Brandon Frisby,CPA,found out that his client,Uptonogood,Inc.,had failed to properly account for several leases.Frisby informed Uptonogood's management that he must issue a qualified audit report and disclose the lease problem in the report.Uptonogood's management indicated that such a disclosure would constitute a disclosure of confidential information.Nevertheless,Frisby rendered the qualified audit report,including an explanatory paragraph about the inadequate lease accounting. ____ 2.Priscilla Hudson,CPA,a partner in Hudson and Danhoffer,CPAs,holds the position of honorary director for the Friends of the Symphony Orchestra,a firm audit client. ____ 3.The wife of Gerald Skoch,CPA,is the controller of Fine Corporation.Skoch is an audit partner for the Long Island office of Barnes and Bucknell,CPAs.The Long Island office of Barnes and Bucknell audits Fine Corporation,but Skoch is not part of the audit team and provides no other services to Fine Corporation. ____ 4.Johnny Beacon,CPA,is the auditor of Novak Wholesale,Inc.Beacon received a 10 percent commission from Computer Systems,Inc.for hardware sold to Novak Wholesale,Inc.The sale was made based on Beacon's recommendation to Novak Wholesale that the company needed a new accounting information system.Beacon disclosed the commission to Novak's management.Beacon also performs an annual audit for Novak. ____ 5.Cecilia Hart,CPA,provides tax services to Myers Company.Hart received a 10 percent commission from Computer Systems,Inc.for hardware sold to Myers Company.The sale was made based on Hart's recommendation to Myers Company that the company needed a new accounting information system.Hart disclosed the commission to Myers' management.

Which of the following is not one of the guidelines for advertising for CPAs practicing public accounting?

Two aspects of ethics operate in the professional environment: ____________________ ethics and ____________________ ethics.

The detailed explanations of specific rules to help members understand particular applications are referred to as ________________________________________.

Individual persons,not public accounting firms,are subject to the rules of conduct of state CPA societies and the AICPA only if they choose to join these organizations.

What are (a)the AICPA Principles of Professional Conduct,(b)Rules of Conduct,and (c)Interpretation of Rules of Conduct?

Integrity and objectivity are required in connection with all professional services.

Which of the following is considered a close relative (but not an immediate family member)as defined by the AICPA?

___________________________ refers to quality control reviews and disciplinary actions by fellow CPAs.

Which of the following philosophical principles in ethics emphasizes the consideration of projecting the consequences of a choice in terms of this question: "What may be the consequences of similar persons making this choice in similar circumstances?"

Ben Big is a partner in the Cleveland office of the national accounting firm of Price Brickhouse.He owns 1,000 shares of common stock in Public,Inc.,an audit client of the firm.This amount is not material to his personal investments.The Public,Inc.audit is done out of the New York office.Ben Big has not informed the firm that he owns the shares because he is not on the audit,which the Cleveland office doesn't perform. Required: This situation involves a possible violation 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.

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

The audit committee's responsibility for auditor independence concerns

What are the powers of the AICPA trial board in ethics violations?

The cornerstone of the public accounting profession is the concept of _____________________________.