Deck 9: Confidentiality

Question 1

A CPA wishes to mention the names of her most prominent clients on her website.The mere existence of a professional relationship between a CPA and a small business client:

A) Never may be disclosed due to the duty of confidentiality
B) Never may be disclosed unless the client gives it specific consent
C) Generally may be disclosed by a CPA as long as the substance of the communications between them is not disclosed
D) Always may be disclosed, but it is advisable to first request the client's permission to avoid jeopardizing the client's goodwill

Answer 1

C

Question 2

CPAs who are full-time employees of a corporation and focus on the preparation of earnings forecasts and projections invariably learn confidential information about their employer's future prospects.Is such an employee subject to the duty of confidentiality?

A) Yes, if the employment agreement between the employer and employee establish the duty of confidentiality
B) Yes, but they would not be subject to this duty if they performed their services as part-time employees
C) No, because employees in key financial oversight roles are not subject to the duty of confidentiality
D) Yes, because all CPAs are subject to the duty of confidentiality

Answer 2

D

Question 3

Upon returning home after a long workday,a CPA told her husband that she "had a lunch meeting earlier that day with the Controller of her new client,Abnomacious,Inc.,and that the Controller ate a really expensive seafood platter." Disclosure of this information to her husband:

A) Likely violated the duty of confidentiality
B) Likely did not violate the duty of confidentiality
C) Could not have violated the duty of confidentiality because communications between spouses are protected by the marital exemption
D) Could not have violated the duty of confidentiality because this duty applies only to individuals, not to corporations

Answer 3

B

Question 4

A CPA's client base includes both publicly traded corporations and smaller privately-owned clients.Some of these clients require audits,and others only require bookkeeping and tax compliance services.If the CPA wishes to sell her professional practice to another CPA firm,she may disclose to the prospective buyer information concerning:

A) only the publicly traded clients
B) only the clients for whom she issues an audit opinion
C) all information requested, as long as she takes reasonable precautions to ensure that the prospective buyer does not disclose sensitive client information shown to it
D) none of these clients, due to the duty of confidentiality

Question 5

A CPA specializes in helping businesses evaluate their future prospects and create successful budgets.As part of this process,the CPA invariably learns confidential information about a company's future.To avoid potential liability,the CPA's engagement letter states upfront that "all information learned after the commencement of services shall not be subject to the duty of confidentiality." This CPA:

A) May utilize for its own benefit information learned from this budgeting engagement because of this express waiver provision
B) May utilize for its own benefit information learned from this budgeting engagement because the duty of confidentiality does not apply to management consulting engagements
C) May not utilize information learned from this client relationship because the client did not give its specific consent
D) May not utilize information learned from this client relationship because the duty of confidentiality can never be waived

Question 6

The federal tax law grants CPAs acting as tax advisors:

A) A comprehensive privilege against having to disclose the identities of clients who file late tax returns or do not file tax returns at all
B) A limited privilege against having to disclose certain client information
C) An absolute privilege against having to disclose client information and makes it a crime for a tax advisor to make such a disclosure
D) A comprehensive privilege against having to disclose all tax-related client information

Question 7

A CPA wants to understand the difference between the duty of confidentiality and the accountant-client privilege.She lives in a state in which an accountant-client privilege has been enacted.A key difference between the duty of confidentiality and the accountant-client privilege is that:

A) The accountant-client privilege ceases to exist once an accountant-client relationship is terminated by the client
B) The accountant client privilege ceases to exist once an accountant-client relationship is terminated by either the client or the accountant
C) The accountant-client privilege only protects communications from disclosure, but the duty of confidentiality applies more broadly to protect observations, documents, and communications
D) The duty of confidentiality only protects communications from disclosure, but the accountant-client privilege is a legal enactment that applies more broadly to protect observations, documents, and communications

Question 8

The duty of confidentiality applies to:

A) All communications between a CPA and a client
B) All communications between a CPA working in industry and his employer or designated employer representative
C) Only information exchanged between tax return preparers and their clients
D) All CPAs and their clients until the time that a CPA retires from the active practice of accounting

Question 9

A client wants to discuss with its CPA some of the valuation and accounting issues associated with maintaining a proprietary business process as a trade secret rather than obtaining a patent for it.Patents are granted by the United States Patent Office.As a result:

A) The federal accountant-client privilege applies to protect these discussions from being revealed to the general public
B) The duty of confidentiality, as articulated in the Code of Professional Conduct, applies to these discussions
C) The federal accountant-client privilege does not fully apply because discussions of non-accounting issues, such as the preservation of a patent, are exempted from the scope of this privilege
D) Both the duty of confidentiality and the federal accountant-client privilege govern this situation

Question 10

If a paid tax return preparer mistakenly discloses qualitative information,such as a client's address,but does not disclose any financial information appearing on the client's tax return,the tax return preparer:

A) Nonetheless is potentially subject to monetary penalties and possible imprisonment
B) Is potentially subject to monetary penalties but not criminal punishment
C) Is subject to a statutory fine of $1,000 per violation unless the preparer can demonstrate good cause
D) Not subject to monetary penalties or possible imprisonment because her misconduct was accidental

Question 11

The FBI is trying to locate a suspected terrorist.Law enforcement authorities believe that this terrorist currently holds a job and,therefore,has had payroll taxes withheld from his paycheck.Also,this suspected terrorist would have received a W-2 payroll statement form from his employer that references his last-known address.The FBI has asked the IRS to cooperate by disclosing the name of the employer and the last known address of this suspected terrorist.Can the IRS disclose this information?

A) No, due to the duty of confidentiality
B) No, due to the federal taxpayer privilege
C) Yes, because the law permits it
D) Yes, because an employer does not have any privacy duties to its employees regarding qualitative tax information

Question 12

if a paid tax return preparer discloses a client's Social Security Number,the preparer is subject to monetary penalties:

A) Only if the disclosure was intentional
B) Only if the disclosure was intentional or reckless
C) If the disclosure was intentional, reckless, or inadvertent
D) Only if the client can demonstrate that he or she suffered monetary damages

Question 13

If a paid tax return preparer intentionally discloses qualitative information,such as a client's address,but does not disclose any financial information appearing on the client's tax return,the tax return preparer:

A) Is potentially subject to monetary penalties and possible imprisonment
B) Is potentially subject to monetary penalties but not criminal punishment
C) Is subject to a statutory fine of $1,000 per violation unless the preparer can demonstrate good cause
D) Not subject to monetary penalties and possible imprisonment because her misconduct involved an accidental mistake

Question 14

A car tire manufacturer guarantees that its tires will last for 50,000 miles and,if they do not,it will replace the tires at no cost.A CPA working for this manufacturer of car tires is in charge of determining the liability account entitled "Liability for Warranty Repairs." Historically,this warranty account has had a balance equal to 2% of sales.However,due to a drastically high level of defects at the company's offshore manufacturing facility,this liability account needs to be increased by millions of dollars to roughly equal 9% of sales. To avoid negative publicity,this CPA's employer does not want this revised amount to be disclosed in its financial statements.The employer:

A) Can keep this fact confidential because the CPA knows, or reasonably should know, that it will cause harm to the employer
B) Cannot keep this fact confidential because the duty of confidentiality does not apply to the relationship between an employer and an employee
C) Cannot keep this fact confidential because the CPA has a primary duty to ensure that a company's financial statements are accurate
D) Can keep this fact confidential because the duty of confidentiality does apply to the relationship between an employer and a CPA-employee

Question 15

During the course of working on a complex project,a client shared confidential information with its CPA.The CPA did a superb job,but the client,however,has never paid the CPA for her services.The CPA anticipates that,if she initiates a lawsuit to collect the amount due,the client will claim that the task was simple and the CPA's performance was below standard.If the CPA wants to introduce the nature of the work done as evidence in her court action to collect unpaid fees:

A) She may not do so because she has a duty to not reveal confidential information
B) She may do so because the complexity of the tasks performed by her is a critical fact in her lawsuit
C) She may not reveal confidential information unless the court issues a protective order
D) She may discuss confidential information only if her client reveals it first or if she obtains the consent of her client, the opposing party

Question 16

During the course of working as an external auditor,you discovered that your audit client is going to build a new luxury ski resort in rural Utah.As a result,you purchased a vacation home near that resort in the expectation that housing prices will benefit from the announcement of a luxury resort being built nearby.Your action:

A) Was unethical only if it precluded your client from pursuing this opportunity to earn a profit on nearby real estate
B) Was unethical even though it caused no harm to your client
C) Was ethical because the insider trading laws only concern purchases of securities
D) Was ethical because your action was expressly allowed by the IFAC code of conduct

Question 17

The duty of confidentiality arises when:

A) A professional accountant and client agree to it in their contract for services
B) A professional accountant expressly agrees to abide by the AICPA's Code of Professional Conduct
C) Automatically for a professional accountant under the IFAC Code of Conduct, but not under the AICPA's Code of Professional Conduct
D) Automatically for a professional accountant, under both the IFAC and AICPA Codes of Conduct

Question 18

Due to its international expansion,a privately-held company ended its relationship with its local CPA firm and retained a larger,multi-office CPA firm.The newly-retained CPA firm has asked the former CPA firm to "forward all client records,financial statements,and workpapers still in its possession." The former CPA firm,however,has refused to do so.The former CPA firm:

A) Definitely is not in violation of the AICPA's Code of Professional Conduct
B) Is in violation of professional standards if all outstanding fees owed to it have been paid by its client
C) Is in violation of professional standards if the newly-retained CPA firm has offered to pay all reasonable costs associated with the transmission of documents
D) Is in violation of professional standards if the newly-retained CPA firm has, in good faith, communicated that receipt of these records is urgent due to a time-sensitive governmental filing that is overdue

Question 19

During the cold winter months,a Nebraska corn farmer discussed hiring a CPA to maintain his books and records.During the course of their discussions,the farmer told the CPA about various proprietary techniques that he uses to maximize the yield from growing corn and maximize the revenue his business generates.Thereafter,the farmer got busy operating his business and never contacted the CPA again. For what period of time,if any,does this CPA owe a duty of confidentiality to this farmer?

A) No duty at all because the duty of confidentiality only continued until the time at which it became reasonably certain that the farmer would not become the CPA's client
B) Expired after the end of the farmer's busy growing and harvesting season, if not sooner
C) One year
D) Forever

Question 20

The duty of confidentiality applies to:

A) Spoken communications only
B) Written documents only, whether or not they are in digital or physical form
C) Only written documents that are marked with the word "Confidential" or an equivalent phrase
D) All documents, communications, and observed facts

Question 21

The federal accountant-client privilege:

A) Applies only to the provisions of tax advice
B) Applies only to the provision of tax advice relating to matters that do not involve fraud or other serious criminal activity
C) Applies to all accountants who give advice regarding the preparation or presentation of financial statements, regardless of whether they are CPAs
D) Does not exist

Question 22

A CPA cannot be held liable for violating the duty of confidentiality if:

A) He receives an urgent phone call from a client and responds to that message while standing in a crowded elevator
B) He places a phone call to a client from his home office and a family member accidentally overhears the conversation
C) The client did not have a reasonable expectation of confidentiality for the type of information being communicated
D) Information was disclosed after an ongoing client relationship had terminated

Question 23

Is there a federal accountant-client privilege? What does it cover?

Question 24

In accordance with the duty of confidentiality,when is client information considered to be confidential?

Question 25

A CPA violates the duty of confidentiality if,without obtaining client consent,she discloses potentially embarrassing client information to:

A) Her CPA firm partner
B) A third party service provider who prepares depreciation schedules reflected and incorporated into the client's tax return
C) A document delivery company
D) A moving company that helps pack and relocate the CPA firm from its former office location to a new location

Question 26

If a CPA violates the duty of confidentiality,who may hold it accountable?

Question 27

A key difference between the attorney-client privilege and the accountant- client privilege is that:

A) The accountant-client privilege has been enacted in every state
B) The attorney-client privilege is more extensive because it encompasses all documents, observations, and thought processes
C) The attorney-client privilege precludes the attorney from releasing information, even in court, but a CPA asserting the accountant-client privilege must release information if requested by a court
D) The attorney-client privilege precludes an attorney from releasing information in an administrative hearing or to an administrative authority, but the accountant-client privilege does not

Question 28

A CPA may utilize information obtained during the course of a professional accountant-client relationship for personal gain:

A) Only if the CPA does not disclose this information to others
B) Only if the source of this information cannot reasonably be discovered by others
C) Only if the use of this information does not preclude the client from pursuing any opportunities that it otherwise would have desired to pursue
D) Never

Question 29

A CPA' duty of confidentiality ends when:

A) A professional relationship with a client ends
B) A client dies
C) A client's is acquired by another company in a merger or purchase
D) Never

Question 30

When should a tax advisor encourage a client to seek legal advice?

Question 31

When does a CPA's duty of confidentiality begin? When does it terminate?

Question 32

The AICPA Code of Professional Conduct has established for professional accountants:

A) A duty of confidentiality only if this duty has been adopted or ratified by a particular state's accountancy licensing board
B) A duty of confidentiality , but not an accountant-client privilege
C) An accountant-client privilege, but not a duty of confidentiality
D) Both a duty of confidentiality and an accountant-client privilege

Question 33

Before disclosing confidential information,a CPA generally must obtain client consent.This consent must be:

A) Included in the original engagement agreement signed at the outset of an accountant-client relationship
B) Included in the original engagement agreement or in a subsequent amendment to that document
C) Specific to a particular fact or set of facts
D) In writing, but the parties have substantial flexibility in deciding on the form and content of such a consent document

Question 34

If a CPA provides professional services to a large corporation,it should discuss confidential client information:

A) Only with the corporation's Audit Committee and General Counsel
B) Only with the corporation's Audit Committee and Board of Directors
C) Only with the corporation's General Counsel to preserve the attorney-client privilege concerning such communications
D) With any corporate employee who, in the CPA's professional judgment, is an appropriate recipient of such information

Question 35

What is the difference between the duty of confidentiality and the accountant- client privilege?

Question 36

The IRS will:

A) Never release a person's tax return or information contained within it
B) Only release a person's tax return in response to a proper request submitted in accordance with the Freedom of Information Act
C) Generally not release a person's tax returns except for limited purposes, such as the determination of the employer of a person who has failed to pay child support
D) Release a person's tax return, or information contained within it, to a federally chartered bank to whom a taxpayer has applied for a commercial loan

Question 37

What types of information are protected by a professional accountant's duty of confidentiality?

Question 38

Can the duty of confidentiality be waived or overridden by:
a. Government authorities?
b. The client itself?

Question 39

The AICPA's Code of Professional Conduct recognizes that the duty of confidentiality is:

A) Absolute
B) Subject to various exceptions, even without client consent
C) Cannot be waived by a client
D) Cannot be waived by a client if the public interest is best served by a particular client's information remaining confidential

Question 40

A client called a CPA at her home one evening to discuss an urgent matter.The client called at a time when the CPA was eating dinner with her family.Due to the unexpected and potentially urgent nature of the call,the CPA answered the phone call while sitting at the dinner table.As a consequence,some of the CPA's family members overheard key aspects of the phone call.Did the CPA violate the duty of confidentiality?

A) No, because the client reasonably should have known that the CPA was not conducting business from her office
B) No, because the client had a reasonable expectation that a call to a CPA's house after business hours might be overheard
C) Yes, because CPAs are specifically warned to guard against inadvertent disclosures in social settings
D) Yes, even though a CPA's immediate family members are subject to the same duty of confidentiality that applies to the CPA herself