Deck 8: Discreditable Acts: Discrimination,deceit,and Disclosure

Question 1

A CPA observed another CPA engaging in an act that was undeniably discreditable to the profession.The Acts Discreditable Rule of the AICPA:

A) Requires the observing CPA to report this violation to a designated officer of the AICPA
B) Requires the observing CPA to report this violation to a designated officer of the applicable state's accountancy licensing board
C) Expressly states that a CPA has no duty to report the observed misconduct
D) Does not express an opinion on whether the observing CPA does, or does not, have a reporting duty

Answer 1

D

Question 2

Preparing financial statements for an unincorporated business on a basis that does not comply with GAAP usually will result in:

A) A CPA being suspended from membership in the AICPA
B) A professional accountant suffering adverse professional consequences if the accountant practices in a country that has adopted IFRS
C) A CPA being permanently disqualified from continuing membership in the AICPA
D) No professional discipline as long as the noncompliance with GAAP is adequately disclosed

Answer 2

D

Question 3

If financial statements contain a departure from GAAP,a CPA is:

A) Not allowed to issue an audit report concerning the statements
B) Required to disclose an estimate of the approximate financial impact that the departure from GAAP had on the financial statements
C) Allowed to complete the current-year engagement only if the financial statements are utilized by company management for internal decision-making
D) Required to withdraw from future-year engagements, but may complete the current-year assignment as long as the departure from GAAP is adequately disclosed

Answer 3

B

Question 4

The "moral character" requirement,as expressed in the Uniform Accountancy Act's Model Rules:

A) Is limited to acts of dishonesty or deceit that evidence unfitness to carry out the duties of the accounting profession
B) Is limited to acts of misconduct that constitute misdemeanors
C) Is limited to acts of misconduct that constitute felonies
D) Includes all acts of dishonesty or deceit that evidence unfitness to practice accounting and any felony, whether or not it relates to the practice of accounting

Question 5

A CPA has been hired to audit a bank that is regulated by the federal banking authorities.This audit will be submitted by the bank to numerous readers,including federal regulators.The CPA's audit agreement with the bank provides that the bank will "reimburse and indemnify it for all losses it incurs if the bank's financial statements were prepared by the bank in a manner that was misleading or fraudulent." This provision:

A) Definitely is a violation of the Acts Discreditable Rule
B) Definitely is not a violation of the Acts Discreditable Rule because it provides for a limitation on the CPA's liability only in cases where the client solely is at fault
C) Definitely is not a violation of the Acts Discreditable Rule because the CPA firm's agreement is reasonable and appropriate
D) Potentially is a violation of the Acts Discreditable Rule

Question 6

A CPA is in partnership with three non-CPAs.The CPA wants to sign a report.Her signature will appear at the bottom of the report and the signature block will mention that she is a CPA and is affiliated with this partnership.This CPA:

A) May do so as long as the non-CPAs comply with the standards set forth in the AICPA's Code of Professional Conduct
B) May do so as long as the report would not lead a reasonable reader to believe that the entire partnership is comprised solely of CPAs
C) May not do so because the use of the entire firm's name would imply to a reasonable reader that all partners in the firm participated in the submission and preparation of the report
D) May not do so because a CPA who is in partnership with non-CPAs may not use the entire partnership's name in connection with reports submitted to clients or third parties

Question 7

The name of a CPA firm may:

A) Include the name of a founder who is retired, as long as he or she remains an active member of the AICPA
B) Include the name of a founder who is deceased
C) Not include the name of a CPA unless that CPA is a member in good standing of the AICPA
D) May include the name of a non-CPA without needing to identify the non-CPA as being, in fact, a non-CPA

Question 8

Financial statements prepared on the cash basis:

A) Comply with GAAP but are complex to prepare
B) Comply with GAAP and are relatively easy to prepare
C) Do not comply with GAAP and are relatively easy to prepare
D) Do not comply with GAAP and, therefore, are not subject to being audited

Question 9

A CPA prepared financial statements that reflect a company's expected financial position,operating results,and cash flows and were based on one or more hypothetical assumptions: This CPA has:

A) Violated the ethical standards of the accounting profession, as reflected in the IFAC Code of Conduct
B) Violated the ethical standards of the accounting profession, as reflected in both the AICPA's and IFAC's standards of conduct
C) Prepared financial projections, which is not an ethical violation
D) Prepared financial forecasts, which is not an ethical violation

Question 10

Winkelberg,a CPA,has been retained to prepare unaudited financial statements for a company,on an income tax reporting basis,for a privately-held company owned by her best friend,Stinkelberg.WInkelberg has a professional obligation to:

A) Withdraw from this engagement because of her friendship with Stinkelberg
B) Withdraw from this engagement because of the basis on which these financial statements are presented
C) Use due care in preparing these statements
D) Inform her client that this basis of reporting violates SEC filing requirements, but she does not necessarily have a duty to withdraw from this engagement

Question 11

The "Continental Vending Machine" court decision was a landmark ruling because:

A) It authorized CPA firms to both prepare a client's financial statements and then audit these same financial statements
B) It held that, for consistency, all financial statements must comply with GAAP, regardless of the industry in which a company operates
C) Auditors can be held liable for misconduct, even if financial statements comply with GAAP
D) Auditors may recoup from an audit client all of the litigation losses that the auditor sustains from certifying misleading financial statements if the audit client solely was responsible for the statement presentation being misleading

Question 12

In some jurisdictions,laborers,including accountants,are given a lien over client records.(A lien is a priority legal and economic right that is created when a client fails to pay agreed-upon fees.)This lien customarily entitles an accountant to retain possession of client records until outstanding fees are paid in full.When such a lien right arises,the AICPA Code of Professional Conduct states that:

A) State law is given priority over the CPA profession's rules of ethical conduct
B) The CPA profession's rules of ethical conduct are given priority over state law
C) The CPA is allowed to select the set of rules that are most favorable to the CPA
D) The CPA is obligated to abide by the set of rules that is most favorable to the client

Question 13

The Accounting Principles Rule states that financial statements:

A) Always must comply with GAAP
B) Never should contain a departure from GAAP
C) May contain a departure from GAAP for administrative reasons, as long as the departure is clearly disclosed
D) May contain a departure from GAAP if adherence to GAAP would result in the statements being misleading

Question 14

The judge's decision in the "Continental Vending" court case:

A) Made GAAP mandatory for all financial statements
B) Held that compliance with international accounting standards, rather than American accounting standards, was acceptable in the presentation of audited financial statements if the statements would predominantly be distributed to readers outside the United States
C) Held that compliance with international accounting standards, rather than American accounting standards, was acceptable in the presentation of audited financial statements if the statements would exclusively be distributed to readers outside the United States
D) Made deviation from GAAP-based presentations mandatory if the application of GAAP would be misleading

Question 15

Which of the following is most likely to be considered "material," even if the amounts involved are small?

A) Amounts that cause an upward earnings trend to become even larger
B) Amounts that cause an earnings trend to swing from slightly positive to slightly negative
C) Amounts that cause reported Gross Profit to be larger than Net Income
D) Amounts that mask a retailer's inability to control its Cost of Goods Sold

Question 16

An accountant generally has an obligation to prepare statements for a publicly-traded corporation in "accordance with GAAP." What does this mean?

A) An accountant must always follow the mandates of rules established by the FASB and not apply international accounting standards
B) An accountant may follow either the rules of the FASB or the rules of IFRS, depending on the jurisdiction in which the intended readers of the financial statements are located
C) An American accountant must follow both the rules of the FASB and the rules of the AICPA's Code of Professional Conduct
D) Any well-recognized, systematic framework of accounting may be applied, as long as the framework is prominently disclosed

Question 17

Which of the following acts is clearly discreditable?

A) Creating and posting a youtube video in which a CPA berates the IRS for incompetence
B) Refusing to return client records, even if a CPA is owed unpaid fees, if these records are needed by the client to prepare its tax return
C) Commenting on "how graceful" an administrative assistant is when she wears high-heeled shoes
D) Mentioning on your CPA firm's website that you formerly worked for the IRS, if a reader might conclude from this statement that you are better able to negotiate favorable settlements with the IRS for clients

Question 18

Under the Advertising and Other Forms of Solicitation Rule of the AICPA's Code of Professional Conduct,a CPA may not engage in advertising that is:

A) Undignified
B) Unprofessional
C) Deceptive
D) All of the above

Question 19

When unaudited financial statements prepared on a basis that does not conform to GAAP are disseminated by a CPA,the CPA should:

A) Directly contact intended recipients of these statements to inform them about the nonconformity with GAAP
B) Mark the statements as "Unaudited" and state that they are "Not prepared in accordance with GAAP"
C) Not be involved in the physical or digital transmission of these statements
D) Not sign any reports or statements indicating her status as a CPA

Question 20

The Acts Discreditable Rule states that the following acts are discreditable:

A) An accountant's failure to file her own tax return by April 15, even if the accountant obtains a permitted extension of time from the taxing authority
B) The late filing of a tax return for a partnership client that results in at least one of the client's partners incurring late filing penalties
C) A CPA's nonpayment of taxes due and owed to a taxing authority
D) A CPA firm's failure to file its partnership tax return, even if all of its partners individually have filed their tax returns on time

Question 21

Outside the United States,what constitutes GAAP?

Question 22

When can a minor dollar amount nonetheless be considered to be "material" in financial accounting reporting?

Question 23

What are the advantages of preparing financial statements in accordance with GAAP? What are the disadvantages?

Question 24

What acts,if any,are expressly identified as discreditable by the IFAC Code of Conduct?

Question 25

An accountant provides bookkeeping services for a small Limited Liability Partnership client.The client provided the accountant with its general ledger on a password-protected site and the accountant changed the password to one of its own selection for security reasons.From information contained in the general ledger,the accountant developed various tax planning strategies that it created in a password-protected Word document.The CPA has not been paid by the client for its services,but the client nonetheless has demanded that the CPA "turn over control" of the password-protected documents.What are the CPA's obligations?

Question 26

Is there a difference between an act being "discreditable to the profession" of accounting and an act that is merely "discreditable?" Explain.

Question 27

A CPA was convicted of a crime and sentenced to jail for intentionally harming an animal.In most states,does this CPA satisfy the "moral character" standard for continuing to practice as a CPA? Should this CPA be allowed to continue to practice accounting?

Question 28

Under what circumstances are business enterprises allowed to present financial statements that do not conform to GAAP?

Question 29

Under what circumstances are departures from GAAP permitted?