Chat with AIExam 11: Conflicts of Interest
An Oregon CPA provides management advisory services to a large public utility that provides natural gas throughout Oregon and is the only supplier of electricity to residential users in Oregon. The CPA has been asked to prepare a request for a utility rate increase that will be submitted to state regulators for their approval.
a. Does the CPA have a conflict of interest?
b. Would you expect this conflict of interest to impair the CPA's objectivity?
c. Does the CPA have a duty to disclose this conflict of interest?
(38) 
Answered by Examlex AI Copilota. Yes, the CPA does have a conflict of interest in this situation. By providing management advisory services to the public utility, the CPA has a financial interest in the success of the utility, which may be at odds with the interests of the utility's customers who would be affected by a rate increase.
b. It is possible that this conflict of interest could impair the CPA's objectivity. The CPA may be inclined to advocate for the rate increase in order to benefit the utility, even if it may not be in the best interest of the utility's customers.
c. Yes, the CPA has a duty to disclose this conflict of interest. It is important for the CPA to be transparent about any potential conflicts of interest in order to maintain trust and integrity in their professional services. Disclosing the conflict of interest allows the state regulators and the public to assess the CPA's objectivity and make informed decisions about the rate increase request.
What is an apparent conflict of interest? Provide an example.
(33) Answered by Examlex AI CopilotAn apparent conflict of interest occurs when a situation suggests that a person or organization could be influenced by a secondary interest when making a decision or performing an action, even if no actual conflict of interest exists. It is the perception or appearance that a person's ability to act impartially or in the best interest of their duty is compromised by a personal interest, such as financial gain, personal relationships, or professional advancement.
The key aspect of an apparent conflict of interest is that it is based on the perception of potential bias, rather than evidence that a conflict has influenced a decision or action. This perception can undermine trust and confidence in the person or organization involved.
Example of an apparent conflict of interest:
Imagine a government official who is responsible for awarding contracts for public works projects. This official's spouse owns a construction company that regularly bids on such contracts. Even if the official does not participate in the decision-making process for awarding contracts and there is no evidence of favoritism, the relationship between the official and their spouse's business creates an apparent conflict of interest. The public might perceive that the official's influence could be used to benefit the spouse's company, even if all procedures are followed correctly and the spouse's company does not receive any preferential treatment. To avoid the appearance of impropriety, the official should disclose this relationship and recuse themselves from any related decision-making processes.
A CPA agreed to render professional services to all three of the shareholders in a corporation. All three shareholders asked the CPA to determine the amount of corporate earnings that should be distributed as dividends and the amount that should be maintained as Retained Earnings to spur the future growth of the corporation. All three told the CPA that they want to "allocate cash flow to maximize everyone's after-tax wealth." Two weeks after the CPA began this assignment, one of the shareholders told the CPA privately that she "desperately needed immediate cash flow from dividends because her mother recently had a stroke and needs to be able to afford to give her mother proper medical care. This shareholder asked that her mother's medical condition be kept confidential, to respect her mother's wishes. The CPA:
(36) 
VerifiedA
Two CPAs are good friends as well as partners together in a CPA firm. They recently invested their money together to buy an apartment building. One of the tenants in the apartment building is an employee of their CPA firm, and another tenant is the father of one of the two CPAs. The father's lease terminates soon and the father wishes to renew the lease at the same rental amount that he currently is paying. Under the AICPA's Code of Professional Conduct:
(43) A CPA serves two clients in the same industry. One of these clients has an email address called ? HYPERLINK "mailto:steelcompany@gmail.com," ?steelcompany@gmail.com,? and the other client has an email address called ? HYPERLINK "mailto:steelco@gmail.com." ?steelco@gmail.com.
By mistake, this CPA firm just emailed the tax return prepared for one of these clients to the other client.
a. Did the CPA violate professional standards by providing professional services to two clients in the same industry?
(29) For a CPA who performs auditing services, the most significant conflict of interest that is likely to arise is between:
(38) The "Fund of Funds" court decision stands for the proposition that:
(46) The determination of whether an American CPA has, or does not have, a conflict of interest is resolved by:
(37) The materiality of a conflict of interest should be evaluated from the perspective of:
(37) An auditing firm has a standard fee policy that it maintains internally and uses in bidding on auditing projects. However, in preparing bids, it increases its audit fee by up to 20% for corporate audit clients that have December 31 fiscal year-ends and lowers its audit fees by up to 30% for government entities that have fiscal years that end during the summer months. The auditing firm justifies this pricing practice by noting that its personnel are overwhelmed with work during the end-of-year "busy season," but often are idle during the summer months. This auditor:
(35) In deciding whether a conflict of interest exists, the relevant standard to be applied is whether:
(38) The concept of "moral licensing," in the context of conflicts of interest, relates to:
(43) According to the IFAC Code of Conduct, the determination of whether a professional accountant has, or does not have, a conflict of interest is resolved by:
(46) What is "discounting," as that term is used in the context of conflicts of interest?
(44) An employee at an information systems consulting firm recently asked a partner at the firm for a 20% pay raise. The partner said that this request was excessive. To resolve this issue amicably, the employee and the partner agreed that the firm's managing partner, who is well-respected, would mediate this issue and determine the fair amount of the pay raise. All parties agreed to this arrangement. The managing partner who is deciding this issue is a CPA. She:
(28) A CPA has to focus on whether a conflict of interest exists:
(37) A CPA firm knows that clients find it difficult to change auditors after a professional relationship has been in place for several years because the termination of an auditor often makes investors concerned about the trustworthiness of a company's financial statements. To take advantage of this fact, this CPA firm routinely bids on new audit engagements at a fee that is likely to be 25 percent lower than the fees bid by its competitors. The CPA firm plans to recoup this fee differential by steadily raising its fees to above-market rates in subsequent years. The CPA firm's policy creates:
(42) An accountant recent met with the CFO of a major corporation. The accountant and this prospective client are contemplating entering into a professional relationship. The prospective corporate client has a history of violating the Foreign Corrupt Practices Act's provisions concerning bribery of foreign government officials. The accountant's job is to ensure that the company fully complies with this law. To accomplish this, the accountant will perform unannounced reviews of the company's accounting records and internal controls from time to time. The accountant's daughter told the CFO that her father is "an amazing accountant," which facilitated the professional introduction. The accountant's daughter recently was promoted to serve as this corporation's Director of International Sales-Asia Division. In all likelihood, the accountant:
(39) 
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