Question 1

Which tax service is still permitted by the PCAOB for audit clients following the KPMG tax shelter case?

Accepted Answer

A)  Aggressive tax shelter for audit clients
B)  Auditing of deferred taxes
C)  Tax services to audit client management or family members
D)  Tax services for a contingent fee B

Question 2

What was the motivating factor in passing the Sarbanes-Oxley Act and what are its major provisions with respect to the financial statements?

Accepted Answer

The motivating factor in passing the Sarbanes-Oxley Act was to address the corporate accounting scandals that occurred in the early 2000s, such as Enron and WorldCom. These scandals revealed widespread corporate fraud and accounting irregularities, which led to a loss of investor confidence and a significant impact on the financial markets.

The major provisions of the Sarbanes-Oxley Act with respect to financial statements include:
1. Establishment of the Public Company Accounting Oversight Board (PCAOB) to oversee the auditing profession and set auditing standards for public companies.
2. Requirement for CEOs and CFOs to certify the accuracy of financial statements and disclosures in quarterly and annual reports.
3. Mandate for companies to establish and maintain internal controls over financial reporting to ensure the accuracy and reliability of financial statements.
4. Prohibition on certain types of non-audit services provided by auditors to their audit clients to maintain independence and objectivity.
5. Requirement for companies to disclose off-balance sheet transactions and other relationships that may have a material effect on financial condition.

Overall, the Sarbanes-Oxley Act aimed to improve transparency, accountability, and integrity in financial reporting to protect investors and restore confidence in the financial markets.

Question 3

One of the Contributions of the Treadway Commission Report and the work of the Committee if Sponsoring Organizations (COSO) was:

Accepted Answer

A)  To establish a voluntary process for peer review
B)  To identify red flags that might lead to fraud
C)  To identify the tone at the top for management to create an ethical culture
D)  All of the above C

Question 4

In the Fund of Funds case discussed in this chapter, the external auditors violated which rule of conduct?

Accepted Answer

A)  Due care
B)  The financial statements were certified as being in conformity with GAAP when that was not the case
C)  The financial statements were certified as being in conformity with generally accepted auditing standards when that was not the case
D)  Confidentiality

Question 5

Evaluate the ethics of tax standards in the Statements on Standards for Tax Services with respect to the ethics standards discussed in chapters 1 and 2.

Accepted Answer

The answer of Evaluate the ethics of tax standards in...

Question 6

Sarah is an audit senior with Childs, Maxwell and Weaver, LLP.Sarah specializes in auditing loan loss reserve for financial institution clients.This current year she has noticed that two of her financial institutions in town have written loans off to a loan customer, Mr.T (fictional name to protect the guilty).Mr.T is well known in town as a highly successful real estate developer and businessman with many different business dealings.As Sarah is auditing on her third financial institution in town, she notices that the bank has loans of $3.5 million outstanding to Mr.T.The current loan loss reserve could not cover the losses on Mr.T's loans.Sarah has recommended a significant increase to the loan loss reserve account.The client will not discuss increasing the loan loss reserve.Ms.Childs, senior partner on the audit, wants to know how the audit firm can justify the increase loan loss reserve account.What can and should Sarah disclose about Mr.T?

Accepted Answer

The answer of Sarah is an audit senior with Childs,...

Question 7

Rosie Mintz, CPA, has just started her own tax preparation firm.Describe the ethics standards of behavior of the accounting profession that apply to Rosie's performance of professional services.

Accepted Answer

The answer of Rosie Mintz, CPA, has just started her...

Question 8

What is the role of a CPA in preparation of a tax return?

Accepted Answer

A)  Minimizing tax burden
B)  Assisting in tax fraud
C)  Taking risks when little chance of being audited
D)  Unrealistic estimates

Question 9

Sarbanes-Oxley Act (SOX) sets new standards for governance that will ultimately impact on which of the following?

Accepted Answer

A)  Foreign companies listed on US exchanges only.
B)  SEC registrant companies, including foreign companies listed on US.
C)  NYSE listing companies.
D)  NASDAQ listing companies.

Question 10

What are the similarities and differences in the application of the rules of professional conduct in the AICPA with respect to internal accountants who are CPAs and CPA-external auditors?

Accepted Answer

The answer of What are the similarities and differences in...

Question 11

Which of the following is not a core value of the accounting profession?

Accepted Answer

A)  Independence
B)  Rationality
C)  Objectivity
D)  Integrity

Question 12

CPAs should always adhere to the rules of conduct of the

Accepted Answer

A)  State board of accountancy
B)  AICPA
C)  IMA
D)  All of the above

Question 13

The CPA firm that became involved in tax shelter controversies with the IRS was:

Accepted Answer

A)  Ernst & Young
B)  Deloitte & Touche
C)  PricewaterhouseCoopers
D)  KPMG

Question 14

Which would not have to follow the independence of a CPA, according to Interpretation 101-1?

Accepted Answer

A)  CPA's spouse
B)  CPA's spousal equivalent
C)  CPA's distant cousin
D)  CPA's dependents

Question 15

Price Waterhouse Coopers was investigated by the SEC for independence violations due to:

Accepted Answer

A)  Reporting systems that relied on self-reporting of violations
B)  Ownership of client stock
C)  Investments by PwC professionals in bank accounts of audit clients
D)  All of the aboveEssay Questions

Question 16

The due care principle in the AICPA code:

Accepted Answer

A)  Addresses the quality of the individual who performs professional services
B)  Addresses the quality of services performed by the CPA
C)  Addresses whether the independence standards has been met
D)  All of the above

Question 17

Interpretation 102-4 in the AICPA Code of Professional Conduct calls for differences of opinion between the controller and CFO to be first taken up with:

Accepted Answer

A)  The CEO
B)  The board of directors
C)  The external auditors
D)  The SEC

Question 18

What are the major threats to independence addresses by the AICPA Conceptual Framework for Independence Standards?

Accepted Answer

The answer of What are the major threats to independence...

Question 19

What is the maximum amount of time an audit manager or partner may spend on nonattest services for an attest client?

Accepted Answer

A)  20 hours
B)  15 hours
C)  10 hours
D)  8 hours

Question 20

Describe the steps to be taken by a staff accountant who has been told by his/her supervisor to accelerate the recording of revenue into a period earlier than which it should be recognized under GAAP.

Accepted Answer

The answer of Describe the steps to be taken by...

Exam 4: Aicpa Code of Professional Conduct