Deck 18: Professional Rules of Conduct Details and Auditor Responsibilities

Question 1

Client permission is not required to disclose confidential information under all of following situations,EXCEPT:

A)When the audit firm is undergoing a CPA mandated practice inspection.
B)When the audit firm is subpoenaed by a court order.
C)When the information is shared amongst members of the same firm.
D)When the audit firm is contacted by the successor auditor.

Answer 1

D

Question 2

Which of the following statements regarding advertising is FALSE?

A)Advertising may not create false or unjustified expectations of favorable results.
B)Advertising may not imply the ability to influence any court,tribunal,regulatory agency,or similar body or official.
C)Advertising may contain a fee estimate even if the public accountant (PA)knows it is likely to be substantially increased.
D)Advertising may not contain any representation that is likely to cause a reasonable person to misunderstand or be deceived,or that contravenes professional good taste.

Answer 2

C

Question 3

Which of the following statements concerning rules of conduct and ethical principles is FALSE?

A)No one ethical principle can provide guidance for developing all professional rules of conduct.
B)Since ethical behaviour is a personal choice,imposing rules of conduct places too great a restraint on the ability of the professional accountant to make good decisions.
C)Strict reliance on rules in all situations can produce undesirable effects;ethical principles are needed to guide behaviour in such instances.
D)Rules of conduct provide specific duties or imperatives,but ethical principles provide overall guidance on proper behaviour.

Answer 3

B

Question 4

Which of the following examples demonstrates a likely violation of the Code of Professional Conduct rules on advertising and solicitation?

A)Sponsorship of a local music festival,with banners containing the public accounting firm's name posted in visible locations.
B)Mailing pamphlets to a desired client each day for two weeks,without being asked to do so.
C)Hosting a free tax seminar for local seniors and providing participants with business cards.
D)Mailing an existing tax client a pamphlet explaining what additional management advisory and consulting services the firm can provide.

Question 5

The duty of confidentiality requires a public accountant (PA)to do which of the following?

A)Not disclose client information under any circumstances.
B)Not disclose client information if it is deemed to be confidential.
C)Not disclose client information unless required to do so by a validly issued subpoena or summons.
D)Not disclose evidence of illegal acts to the relevant authorities.

Question 6

Under which of the following situations is the payment or receipt of a commission by a public accountant (PA)permissible?

A)A PA has a lawyer for an audit client;each time the lawyer helps the PA by referring a new client,the PA pays the lawyer a $1,000 referral fee.
B)A PA performs a review of the financial statements of a client.The PA also works as a commissioned salesperson for that client.
C)A PA has a dry-cleaning business as a client.The PA is given a 10% discount on cleaning services each time a new customer comes to the dry cleaner on the recommendation of the PA.The PA only prepares tax returns for the dry-cleaning business.
D)An audit client that sells automobiles pays the PA $500 each time a customer that was referred to the audit client by the PA buys a car.

Question 7

CPA Ontario Rule 214 regarding fee quotation is ultimately concerned with ________.

A)auditor independence
B)confidentiality
C)audit quality
D)contingency fees

Question 8

Which of the following statements regarding confidentiality principles is FALSE?

A)The general principle of confidentiality is that a public accountant (PA)must not disclose any confidential information without the specific consent of the client.
B)These principles allow a PA to ignore the obligation to comply with a validly issued subpoena or summons.
C)Members of any professional association involved with professional practice reviews may not disclose any confidential client information that comes to their attention in carrying out those reviews,but neither should it restrict any exchange of information that is necessary for the review.
D)Confidential information is information that should not be disclosed to outside parties unless demanded by a court or an administrative body with the power to do so.

Question 9

If a discipline committee requires a member to take continuing professional education,and the member fails to complete it in the required time,what is the likely further penalty?

A)More continuing education courses will be assigned.
B)The member will be fined or suspended from the institute.
C)The member will be expelled from the institute as a second offender.
D)The member will have to complete a period of supervised practice.

Question 10

Which of the following statements regarding communications between predecessor and successor auditors is FALSE?

A)Successor auditors are required to make certain inquiries of predecessor auditors when a new client is obtained.
B)The successor auditor should ask the new client to notify the predecessor auditor of the proposed change.
C)The successor auditor should then ask the predecessor "whether there are any circumstances that should be taken in account which might influence the potential successors' decision whether to accept the appointment."
D)When enquiries are made,the predecessor auditor does not need the client's permission to provide the successor auditor with confidential information.

Question 11

Withholding a client's books and records when the client has requested their return is an example of ________.

A)a contingency
B)a discreditable act
C)fraud
D)self-regulation

Question 12

Which of the following conditions is consistent with a contingency fee?

A)the amount paid for the performance must be directly affected by the results obtained.
B)Its terms must be contracted for after any services are performed.
C)The fees are fixed by a court.
D)The amount paid for the performance is not affected by the results obtained.

Question 13

Which of the following statement regarding advertising is FALSE?

A)Advertising consists of messages designed to attract business and are broadcast widely (e.g. ,through print,radio,television,billboards,and pop-up ads on various websites)to an undifferentiated audience.
B)The advertising guidelines basically prohibit false,misleading,and deceptive messages.
C)Firms commonly obtain new clients through advertising.
D)Overall,except for some isolated examples of creative advertising by some firms,the profession has not pursued advertising aggressively.

Question 14

Auditors' moral responsibilities can be summarized as

A)Formal ethical responsibilities of auditors.
B)Rules that must be followed by auditors.
C)The idea that public accountants (PAs)should be upright,not kept upright
D)A formal set of rules for the proper conduct of the auditor.

Question 15

How are competence and due care best described?

A)Competence and due care both refer to public accountants (PAs)doing their best for their clients.
B)Competence refers to technical ability;due care refers to strictly following official pronouncements of accounting principles.
C)Competence is knowing what do;due care is doing it to the best of one's abilities.
D)Competence and due care both refer to ongoing technical training.

Question 16

Canada Revenue Agency (CRA)has requested the taxes payable working papers of ABC Co.from CPA.CPA should ________.

A)request client permission,and then provide the working papers
B)not provide the working papers nor discuss the matter with the client
C)inform the client that the working papers should not be provided
D)provide the working papers immediately to avoid tax problems

Question 17

In which of the following circumstances would a CPA be in violation of the "Rules of Professional Conduct" in quoting a fee to a client?

A)A fee fixed by a court.
B)A fee based on the approval of a bank loan.
C)A fee based on the time estimated to complete the engagement plus out-of-pocket expenses.
D)A fee based on the complexity of the engagement.

Question 18

The interpretation of the phrase "acts discreditable to the profession" would NOT include ________.

A)membership in an activist political party
B)withholding a client's books until a professional fee is paid
C)being convicted of a criminal offence
D)permitting others to make misleading entries in records

Question 19

In the interest of independence,CPAB and SOX require the rotation of the lead audit partner and/or concurring review partner every ________.

A)year
B)two years
C)five years
D)ten years

Question 20

Based on an analysis published in CA Magazine,the most common problems in professional audit practice include all EXCEPT which of the following items?

A)Failure to consult partners on complex issues.
B)Failure to budget sufficient time for audit fieldwork.
C)Failure to support the audit opinion with sufficiently documented audit evidence.
D)Failure of the public accounting firm to internally monitor the quality of their audits.

Question 21

If a CPA is expelled from his or her provincial institute,what does that mean in practical terms?

A)The member can no longer use the initials CPA behind his or her name on any cards or correspondence.
B)The member can no longer practice as an accountant.
C)The member will no longer be permitted to practice as a public accountant in Canada.
D)The member will no longer be permitted to receive copies of the CPA magazine.

Question 22

Jack,a CPA,meets up with Diane,an old girlfriend from high school,tells Jack her company,which manufactures specialty aviation equipment,needs a new auditor right away.Although Jack has no experience auditing companies in the aviation industry,he agrees to do the audit after quickly quoting a $25,000 fee.Furthermore,Jack agrees to promote the sale of Diane's company's stock to his other clients,in exchange for a commission of 10%.
Outline any violations of the rules of professional conduct perpetrated by Jack.

Question 23

Discuss communications between predecessor and successor auditors.

Question 24

Successor auditors are required to make certain enquiries of predecessor auditors when a new client is obtained.

Question 25

It is permissible for a public accountant to pay another public accountant a fee to purchase the second public accountant's practice.

Question 26

Confidentiality principles allow a PA to ignore the obligation to comply with a validly issued subpoena or summons.

Question 27

Summarize the professional competence and due care rules of the codes of conduct.

Question 28

Specific items in the rules of conduct may not necessarily be based on one of the ethics principles,but,instead,they may involve various elements of different ethical theories.

Question 29

Any complaint against a member must be submitted in writing.

Question 30

As self-regulating bodies,professional institutes have a duty to investigate all written complaints received about their members and students accepted into their programs.

Question 31

The CPA Ontario Rules of Professional Conduct prohibit CAs from accepting contingency fees under any and all circumstances.

Question 32

Firms commonly obtain new clients through advertising.

Question 33

Independence is not impaired if a public accountant (PA)serves on an organization's board of directors.

Question 34

Discuss the deficiencies in professional codes of conduct for public accountants (PAs).

Question 35

Under the limited liability partnership (LLP)form of organization,the only partners with personal assets at risk are those involved in the litigated engagement,while the others risk only their investment in the partnership.

Question 36

The onus is on the successor auditor to contact the predecessor auditor when deciding on accepting a new client.

Question 37

Discuss the rules allowing members to practice in any form of organization.

Question 38

Expulsion of a member by CPA Ontario prevents the CPA from continuing to practise accounting anywhere in Canada.

Question 39

It is considered best practice to charge clients on a fee-only basis for providing personal financial planning services.

Question 40

A public accountant (PA)in a large firm has been asked to take over the audit of a client in the pharmaceutical industry from another PA who quit abruptly.The PA is unfamiliar with the pharmaceutical industry.The PA should trust that the work was properly planned by the previous PA and should follow that plan carefully.

Question 41

What are the sanctions that can be imposed by CPA Ontario if a member is found guilty of violating one of the rules of professional conduct?

Question 42

Briefly describe the process followed by CPA Ontario when investigating and charging a member with violating one of the rules of professional conduct.