Deck 15: Duties of Fiduciaries: Financial Planners,trustees,and Executors

Question 1

An accountant is most likely to be held to a fiduciary standard when:

A) The accountant is involved in preparing corporate filings for submission to the SEC
B) A client is in an especially vulnerable financial position
C) A contingent fee arrangement exists between an accountant and a client
D) Accountant-client conflicts of interest do not exist or are fully disclosed

Answer 1

B

Question 2

The duty of impartiality is most likely to arise when an accountant serves as the trustee of:

A) A blind trust
B) A living trust
C) A split-interest trust
D) A spendthrift trust

Answer 2

C

Question 3

When an accountant serves as a trustee of a blind trust and prepares annual state and federal tax returns for the trust,the accountant:

A) Is entitled to compensation both for serving as a trustee and for preparing the tax returns
B) Is entitled to compensation for serving as the trustee, but is not entitled to separate and independent compensation for preparing the tax returns
C) Is not entitled to compensation for serving as the trustee, but is entitled to compensation for preparing the tax returns because a trustee is not expected as part of her customary duties to have sufficient skill or training to prepare accurate tax returns
D) Is not entitled to compensation whatsoever, and is allowed to delegate the task of preparing tax returns to a competent, paid tax return preparer

Answer 3

A

Question 4

An inter vivos trust is created:

A) While the grantor is no long living
B) Upon the death or disability of a grantor
C) By the creation of an irrevocable will document
D) To take effect while the grantor is still alive

Question 5

A CPA acting as an executor of an estate:

A) Owes a duty of loyalty to the deceased
B) Owes a duty of loyalty to the deceased's heirs
C) Owes a duty of loyalty to the deceased's closest living relative
D) Owes a duty of prudent management, but does not owe a duty of loyalty

Question 6

A CPA audits Amberset Corporation.This CPA has been named to serve as the trustee of a trust fund that a client set up for the benefit of her grandchildren.The client is the majority shareholder of Amberset Corporation,and Amberset stock is one of the trust's assets.The CPA potentially retains the independence to continue to audit Amberset Corporation only if:

A) The CPA is a co-trustee and there are at least three co-trustees
B) Amberset is a publicly-traded corporation
C) The CPA does not directly own any Amberset stock
D) The CPA refuses to serve as this client's trustee

Question 7

Stock in Avonictech,Inc.is a major asset of a split-interest trust.The trust is comprised of a single income beneficiary,who is the grantor's husband,and three grandchildren,who collectively constitute the principal beneficiaries (remaindermen)of the split-interest trust.The stock was worth $5 million at the time the trust was created,and the stock recently was sold for $17 million.The trust does not recite how gains on the sale of assets should be allocated.The $12 million gain on sale should be allocated:

A) $3 million to each of the four beneficiaries
B) $12 million to the grantor's husband
C) $12 million to the grandchildren, collectively
D) $6 million to the grantor's husband and $6 million to the grandchildren, collectively

Question 8

According to the IFAC Code of Conduct,if a professional accountant acting as a money manager discovers that client funds are derived from illegal weapons sales to terrorists,the accountant has:

A) A duty to inform appropriate governmental authorities
B) A duty to return all fees received to date that were derived from the illegal proceeds of such sales
C) A duty to hold the illegal proceeds in trust for potential examination or appropriation by government investigators
D) Potentially committed a discreditable act that subjects the professional accountant to discipline under the IFAC Code of Conduct

Question 9

A CPA is most likely to be held to the standards of a fiduciary when she:

A) Performs tax accounting services
B) Serves as investment fund manager
C) Performs attest services other than audits
D) Performs audits

Question 10

Sherry Hartwog is the managing partner of Hartwog and Associates,CPAs.This CPA firm operates out of a single office in Greenwich,Connecticut.Bantam Boxers,Inc.is an audit client of Hartwog and Associates,CPAs.The CEO of Bantam Boxers,Inc.recently told Hartwog that he had named Hartwog to serve as an executor of his estate after his death.The CEO owns 40% of the stock outstanding in Bantam Boxers,Inc.Does Hartwog and Associates,CPAs retain the independence to complete its current-year audit Bantam Boxers,Inc.?

A) Yes, because the CEO is still alive
B) Yes, as long as Hartwog is only a co-executor
C) Yes, as long as none of the CEO's estate beneficiaries own stock in Bantam Boxers
D) No

Question 11

The duty of impartiality is owed by a trustee to:

A) The co-grantors of a trust, such as a married couple that establish a trust for their offspring
B) The income beneficiary and remainderman of a split-interest trust
C) The trustee and beneficiary of a spendthrift trust
D) An individual who is both the grantor and the beneficiary of a blind trust established for his benefit

Question 12

A CPA recently inherited $400,000 of stock outstanding in one of her audit clients.In an attempt to maintain her independence,she placed her holdings of this audit client's stock into a trust.The trust is managed by a well-known independent trustee,JP Bankers Trust Services.The CPA's two young children are the sole beneficiaries of this trust.The CPA:

A) Successfully has maintained her independence because none of the trust's assets directly benefit her
B) Successfully has maintained her independence because she does not have control of these assets
C) Has not maintained her independence because of the serious self-review threat presented
D) Has not maintained her independence because she still is considered to have an interest in her audit client

Question 13

"Disgorgement," in the context of fiduciaries,means that:

A) An injured client is entitled to recover triple the amount of his provable damages
B) An injured client is entitled to recover his actual damages, plus interest, and attorney's fees
C) A client is entitled to recover the amount of the profits earned by the fiduciary as a result of its misconduct, even if the client did not suffer any actual damages
D) A client is presumed to be entitled to recover the amount of the profits earned by the fiduciary, unless the fiduciary can prove that the client suffered no actual harm

Question 14

The Dodd-Frank Act:

A) Subjects CPAs to fiduciary duties in their roles as auditors of publicly-traded companies
B) Subjects CPAs to fiduciary duties in their roles as executors of estates due to the extreme vulnerability of estate assets and the lack of checks and balances on CPAs' conduct
C) Subjects CPAs to fiduciary duties when their clients are financially unsophisticated or otherwise vulnerable
D) Did not affect CPAs' potential duties as fiduciaries

Question 15

Tyus Jackson recently established two trusts.Meryl,a CPA,is the trustee of Trust Number 1.Daryl,is a skilled,non-CPA accountant who is the trustee of Trust Number 2.Meryl is subject to:

A) The identical fiduciary duties that apply to Meryl
B) Stricter fiduciary duties than apply to Meryl, if the trusts are inter vivos trusts
C) Stricter fiduciary duties than apply to Meryl, if the trusts are testamentary trusts and Tyus no longer is alive
D) Stricter fiduciary duties than apply to Meryl, regardless of the type of trust that was created, because of the AICPA's Statement on Conduct in Fiduciary Services

Question 16

An auditor that properly satisfies the Independence Rule will,with regard to an audit client:

A) Never be a fiduciary
B) Always be a fiduciary
C) Be a fiduciary if the audit client is a bank or other so-called public-interest client
D) Be a fiduciary if the audit client poses an undue influence threat

Question 17

An accountant who is not a CPA:

A) Will never be considered a fiduciary
B) Always is considered a fiduciary during the course of providing professional services
C) Will likely be considered to be a fiduciary during the course of preparing monthly adjusting entries for small, unsophisticated business owners
D) Will likely be considered to be a fiduciary if the accountant provides financial planning services to clients and sells them sophisticated tax-sheltered insurance policies

Question 18

Refer to the question above.If the CEO of Bantam Boxers dies and Hartwog fulfills her duties as the executor of the CEO's estate,will Hartwog and Associates,CPAs retain the independence to continue to serve as Bantam Boxers' auditor?

A) Yes, as long as Hartwog does not make investment decisions for the estate concerning Bantam Boxers
B) Yes, as long as Hartwog does not participate as the primary or concurring partner on the audit
C) Yes, as long as the will clearly identifies the parties who will receive Bantam Boxer stock as inheritances and Hartwog does not have the authority to alter this will provision
D) No

Question 19

A CPA audits Waltonvillemart,Inc.This CPA also serves as the trustee of a trust for the CEO of Waltonvillemart,Inc.The sole asset of this trust is a $1 million life insurance policy that is payable upon the CEO's death to his seven grandchildren.In equal amounts.This CPA:

A) Is not independent to continue to audit Waltonvillemart, Inc. because of the material amounts involved
B) Is not independent to continue to audit Waltonvillemart, Inc. because of the appearance, if not actuality, of a dual-client conflict of interest
C) Definitely is independent to continue to audit Waltonvillemart, Inc. because there are no material threats to independence
D) Is independent to continue to audit Waltonvillemart, Inc., as long as the company and the CEO both waive their right to object to this trustee service

Question 20

When an accountant acts as a trustee of a split-interest trust,which of the following fiduciary duties applies to the accountant?

A) Only the duty of impartiality
B) Only the duty of care
C) Only the duty of loyalty
D) All of the above

Question 21

What types of ethical dilemmas might an executor encounter in fulfilling its duty of loyalty?

Question 22

Why types of ethical dilemmas concerning independence do CPAs who specialize in auditing face when serving as a trustee of a trust?

Question 23

Why would a person want to create a living trust?

Question 24

Can a split-interest trust also be a testamentary trust?

Question 25

What types of ethical dilemmas might a trustee encounter in fulfilling its duty of loyalty?

Question 26

Why would a person create a spendthrift trust?

Question 27

Can a spendthrift trust also be a testamentary trust?

Question 28

Why would a person create a blind trust?

Question 29

Why would a person create a split-interest trust?

Question 30

What are the key characteristics that tend to create a fiduciary relationship?