Deck 3: The Auditors Role in Society

Question 1

Holding out has a specific definition and means that the CPA is informing others of his or her professional status.

Answer 1

True

Question 2

The accounting profession has provided a universally accepted answer to what is considered moral and ethical behavior.

Answer 2

False

Question 3

A basic source of information for ethical and moral behavior comes from the field of philosophy.

Answer 3

True

Question 4

An auditor is rarely faced with a moral dilemma.

Question 5

Self-regulation is not a right granted to most professions, including accountants.

Question 6

It is necessary for society to be able to trust that auditors will behave morally and ethically and that auditors will perform services to the best of their technical ability.

Question 7

The first step in making an ethical decision is to identify the stakeholders and ethical issues.

Question 8

An engagement that requires independence, as defined by the AICPA Professional Standards, is the attest engagement.

Question 9

The PCAOB (Public Company Accounting Oversight Board) is the primary professional organization of CPAs.

Question 10

The different philosophical perspectives that are used to determine what is "right" are very simple and are easy to learn.

Question 11

The primary responsibility of the auditor is detect fraud.

Question 12

When a decision has to be made for which the maker believes there is no clear right or wrong answer describes what is meant by a moral dilemma.

Question 13

Even though personal values are shaped by culture, religion, and family, additional influence will come from firm culture and professional organizations.

Question 14

According to the AICPA Code of Conduct, an individual will be considered part of the immediate family, if they are a close relative, such as a parent or sibling.

Question 15

Going through the deliberate process of considering ethical issues, stakeholders, values and options does not ensure a moral outcome.

Question 16

The moral philosophy that states "right is whatever creates the greatest good" justifies the application of progressive income taxes in the United States.

Question 17

The AICPA Auditing Standards Board was created by the Sarbanes-Oxley Act.

Question 18

A CPA who performs an audit for an enterprise is considered an advocate of the enterprise, in the same way that a doctor is an advocate for the patient.

Question 19

All rules of the Code of Conduct do not apply to all members of the AICPA.

Question 20

An occupational group of individuals with a collective identity are referred to as a profession.

Question 21

Quality Control (QC) Standards provide guidance for public accounting firms regarding policies needed for well-functioning, well-monitored practices.

Question 22

In a corporate environment:

A) stockholders own the company and directly hire the management team.
B) board of directors delegates the responsibility to oversee shareholder interest to the management team.
C) the audit committee is part of the management team.
D) the shareholders own the company and elect the board the directors.

Question 23

The Sarbanes-Oxley Act requires that the PCAOB perform audits on all publicly traded companies.

Question 24

The AICPA Quality Control Standards include leadership responsibilities, often referred to as the "tone at the top."

Question 25

The responsibility of the audit firm is to communicate to users:

A) its opinion on whether the company's financial statements are free from error.
B) the results of the operations of the company during the period.
C) its opinion on whether the company's financial statements fairly present the company's economic events.
D) the names of all individuals involved with the audit.

Question 26

Rule 102 of AICPA Rules of Conduct states that a CPA should not subordinate judgment, which means that they should not let others make decisions that are his or her responsibility.

Question 27

Moral development theory suggest that the criteria a person uses to make decisions depends on his or her level of moral development. Which of the following is NOT one of the levels?

A) Pre-development level.
B) Pre-conventional level.
C) Post-conventional level.
D) Conventional level.

Question 28

The war in Iraq would be contrary to the:

A) right is the decision made by a single ruler with ultimate authority.
B) right is whatever preserves the life of even one person.
C) right is whatever the law requires.
D) right is whatever creates the greatest good.

Question 29

The purpose of quality control standards for firms is to insure that any case of fraud will be uncovered by the auditors.

Question 30

There are many different concepts of "what is right" presented in your textbook. The concept that supports the progressive income tax in the United States is:

A) right is whatever creates the greatest good.
B) right is the decision made by a governing entity.
C) right is the decision made by the group of people affected.
D) right is whatever the law requires.

Question 31

The ethical orientation of the decision maker, that suggest the decision maker focuses on individuals as separate entities is said to be following the:

A) ethic of laws.
B) ethic of accounting.
C) ethic of degree.
D) ethic of care.

Question 32

The PCAOB is a for-profit entity that was structured by the SEC in response to the Sarbanes-Oxley Act.

Question 33

The concept of independence is given significant attention in the AICPA Code of Conduct. It is possible for a member to appear to be independent in appearance but not independent in fact.

Question 34

The Sarbanes-Oxley Act requires that the audit committee:

A) oversees the auditor's compensation.
B) interact with the auditor as needed regarding issues of the audit.
C) select and hire the auditor.
D) All of the above.

Question 35

Individuals at this level of moral development consider impacts beyond those that will affect them personally.

A) Pre-development level.
B) Pre-conventional level.
C) Conventional level.
D) Post-conventional level.

Question 36

Rule 201 of the AICPA Rules of Conduct states that a member is to exercise due professional care. This rule means that each member is to remain up-to-date on all rules and regulations.

Question 37

Most of the independence rules relate to independence in fact.

Question 38

Individuals at this level of moral development make decisions in a self-centered way.

A) Pre-development level.
B) Pre-conventional level.
C) Conventional level.
D) Post-conventional level.

Question 39

Which of the following relates to what an auditor does?

A) Relies on all information provided by the client.
B) Performs a service and announces its opinion.
C) Prepares the financial statements for a company.
D) Advocates for the client.

Question 40

A firm is considered to be not independent if the accountant provides bookkeeping or other services related to the accounting records or financial statements of the audit client.

Question 41

The level of the AICPA Code that is intended to be the enforceable guide of conduct is:

A) Rules of Conduct.
B) Rulings by the Professional Ethics Executive Committees.
C) Interpretations of the Rules of Conduct.
D) Principles of Professional Conduct.

Question 42

Ethical orientation related to the ethic of care would include which of the following?

A) Independence as strength.
B) Individuals as separate.
C) Importance of interdependence.
D) Importance of self-sufficiency.

Question 43

Ethical orientation related to the ethic of rights would NOT include which of the following?

A) Individuals as interdependent.
B) Importance of rights of others.
C) Independence as strength.
D) Importance of autonomy.

Question 44

The first step in making an ethical decision would be to:

A) identify alternative courses of action that are available.
B) identify the values related to the situation.
C) determine the facts in the situation.
D) consider the consequences of viable courses of action.

Question 45

An entity that, as part of its normal business operations, makes loans or extends credit to the general public, is referred to as a:

A) financial institution.
B) savings and loan.
C) federal reserve bank.
D) FDIC.

Question 46

The AICPA Principles of Professional Conduct includes which of the following?

A) Contingent fees.
B) Accounting principles.
C) Due care.
D) Advertising.

Question 47

Which of the following is one of the levels of the structure of the AICPA Code of Conduct?

A) Membership in the AICPA.
B) Independence.
C) Interpretations of the Rules of Conduct.
D) Professional governance.

Question 48

An individual in a position to influence the attest engagement is one who:

A) evaluates the performance or recommends the compensation of the attest engagement partner.
B) directly supervises or manages the attest engagement partner.
C) participates in or oversees, at all successively senior levels, quality control activities including internal monitoring, with respect to the specific attest engagement.
D) All of the above.

Question 49

Which of the following is a personal characteristic associated with person who is considered a professional?

A) Specific body of knowledge.
B) Possess technical expertise and behave with integrity.
C) Self-discipline and self-regulation.
D) Recognizable individual characteristics.

Question 50

The rule of independence would relate to which of the following accounting professionals?

A) Internal auditor.
B) CPA performing an audit.
C) Controller preparing the firm's financial statements.
D) Tax accountant.

Question 51

Which of the following is NOT a characteristic of a profession?

A) Specific body of knowledge for which the group has expertise.
B) Graduate degree from a recognized university.
C) Controls standards for entry and continued membership.
D) Recognizable individual characteristics or traits.

Question 52

Situations for which, even for a single individual using their own personal beliefs, there is no clear cut right or wrong ethical answer are referred to as:

A) ethical decisions.
B) moral dilemmas.
C) moral intensity.
D) ethical standards.

Question 53

The level of the AICPA Code that is intended to be the ideal standard of conduct is:

A) Rules of Conduct.
B) Rulings by the Professional Ethics Executive Committees.
C) Interpretations of the Rules of Conduct.
D) Principles of Professional Conduct.

Question 54

Auditors, as professionals, have a contract with society. This means that the professional group, as well as the individuals within that group:

A) commit to certain behaviors and receive rewards in return.
B) commit to protecting the public interest.
C) maintain standards of excellence.
D) All of the above.

Question 55

Which of the following organizations does not have authority over auditors?

A) PCAOB
B) AICPA
C) SEC
D) All of the above have authority over auditors.

Question 56

Which of the following is NOT a professional organization that an accountant or auditor may join?

A) AICPA.
B) IIA.
C) IMA.
D) PCAOB.

Question 57

The moral intensity criteria that cause a decision maker to realize that a situation has moral components include:

A) consequences are very large or significant.
B) identify alternative courses of action.
C) ethical issues need to be identified.
D) the consequences are not likely to happen.

Question 58

A covered member, as described by the AICPA Professional Standards, would include all of the following, except:

A) an individual on the attest engagement team.
B) the client.
C) the firm, including the firm's employee benefit plans.
D) an individual in a position to influence the audit engagement.

Question 59

A key position is one in which an individual:

A) has the ability to exercise influence over the contents of the financial statements.
B) has primary responsibility for the preparation of the financial statements.
C) has a primary responsibility for significant functions that support material components of the financial statements.
D) All of the above.

Question 60

An engagement that requires independence as defined by the AICPA Professional Standards is termed:

A) Professional Engagement.
B) Lending Engagement.
C) Attest Engagement.
D) Tax Engagement.

Question 61

A covered member (i.e., the auditor) will not be independent from the client if he or she:

A) has, or is going to get, an immaterial indirect financial interest in a client.
B) has, or is going to get, a direct financial interest in a client.
C) has a joint investment with a client.
D) has a loan to or from a client, an officer of a client, or any individual owning more than 10 percent of a client.

Question 62

A covered member (i.e., the auditor) will be considered independent from the client if his or her close relative:

A) has a direct financial interest in the client.
B) is an employee of the client in a key position.
C) has a financial interest in a client that allows the relative to have an insignificant influence over the activities of the client.
D) has a material indirect financial interest in a client.

Question 63

In 2001, the SEC changed the rules defining the group of people in an audit firm to whom the independence rules apply. The independence rules apply to:

A) all partners and staff who work for the audit firm.
B) partners who are not in the audit chain of command.
C) managers and partners who provide any nonaudit services to the audit client.
D) partners who are located in the same office as the lead partner on the audit engagement.

Question 64

Which of the following is acceptable under the AICPA Rules of Conduct?

A) Using the name of a past owner in the firm name of a successor organization.
B) Receive a commission from one client for recommending the products or services of another client.
C) A firm may advertise itself as "Members of the American Institute of Certified Public Accountants", as long as at least one of its CPA owners is a member.
D) Perform any professional services for a contingent fee for a client for whom the member performs an audit or review of the financial statements.

Question 65

According to the AICPA Interpretations of Rule 101, independence: During the period of the professional engagement, auditor independence is NOT considered to be impaired if the auditor:

A) had or was committed to acquire any direct or material indirect financial interest in the client.
B) had a joint closely held investment that was immaterial to the covered member.
C) was a trustee of any trust or executor or administrator of any estate if such trust or estate had or was committed to acquire any direct or material indirect financial interest in a client.
D) except as specifically permitted, had any loan to or from the client.

Question 66

Rule 201, General Standards, of the AICPA Rules of Conduct, includes all of the following, except:

A) professional competence.
B) independence.
C) due professional care.
D) planning and supervision.

Question 67

Which of the following statements is false related to the PCAOB?

A) The PCAOB has the authority to prose and adopt rules and standards.
B) The PCAOB is a for profit entity.
C) The PCAOB rules are more overarching in that they statement the requirement to follow PCAOB standards.
D) THE PCAOB was structured by the SEC in response to the Sarbanes-Oxley Act.

Question 68

Which of the following is the not-for-profit entity structured by the SEC in response to the Sarbanes-Oxley Act to oversee the auditors and audits of public companies?

A) FASB.
B) AICPA.
C) IASB.
D) PCAOB.

Question 69

Which of the following is NOT one of the sections of the PCAOB rules approved by the SEC?

A) Inspections.
B) Professional Standards.
C) Due Diligence.
D) Registration and Reporting.

Question 70

Section 206 of the Sarbanes-Oxley Act states that:

A) an auditor who worked on a company's audit engagement and goes to work for the client will not impact the firm's independence.
B) if a person leaves the audit firm and goes to work for the client as a CEO, CFO, controller, or equivalent position, the audit firm will not be independent with respect to the client for one year.
C) an auditor with the firm, who has not worked on the company's audit engagement, and goes to work for the client will impact the firm's independence.
D) if a person leaves the audit firm and goes to work for the client as a CEO, CFO, controller, or equivalent position, the audit firm will not be independent with respect to the client for three years.