Question 1

The Commercialism versus Professionalism case raises issues about:

Accepted Answer

A) The future of the accounting profession 
B) Pressures to compromise ethical values that exist in alternative practice structures 
C) Low-ball bidding for audit services 
D) Opinion shopping

Question 2

The most significant change in the Revised AICPA Code of Professional Conduct is:

Accepted Answer

A) A conceptual framework approach for evaluating ethics violations 
B) Two conceptual frameworks: one for members in public practice and one for CPAs in business 
C) Eliminating Code coverage for members in business 
D) Clarifying that all CPAs must follow the Independence rule regardless of professional services

Question 3

Discuss the conceptual framework for independence in the Revised AICPA Code and how it deals with risks to independence.

Accepted Answer

The answer of Discuss the conceptual framework for independence in...

Question 4

Describe the basic features of the Revised AICPA Code of Professional Conduct.

Accepted Answer

The answer of Describe the basic features of the Revised...

Question 5

During the investigations by the House Subcommittee on Oversight and Investigations,a question that was raised was:

Accepted Answer

A) Why was fraud allowed to occur at some many companies? 
B) Where was the board of directors in all these frauds? 
C) Where were the auditors? 
D) Why did the internal controls fail in so many frauds?

Question 6

Common judgment traps include:

Accepted Answer

A) Group think,judgment triggers,and reacting to pressures 
B) Group think,judgment triggers,and a rush to solve problems 
C) Reacting to pressures,a rush to solve problems,and Systems 1 thinking 
D) Systems 1 thinking,cognitive dissonance,a rush to solve problems

Question 7

The accounting issues at failed savings and loan institutions included:

Accepted Answer

A) The failure to provide adequate allowances for loan losses 
B) The failure to disclose dubious deals between the S&Ls and some of its major customers 
C) The existence of inadequate controls to prevent inadequate allowances and control for dubious deals 
D) All of the above

Question 8

Which of the following is NOT a safeguard to mitigate threats to compliance with the rules for CPAs in business or reduce them to an acceptable level?

Accepted Answer

A) Independent external audit 
B) Tone at the top 
C) Independent audit committee 
D) Whistle-blower hot line

Question 9

Safeguards implemented by the attest client include each of the following except:

Accepted Answer

A) Proper oversight by client management 
B) Management participation in the client by the attest firm 
C) Policies and procedures to address ethical conduct 
D) The tone at the top set by executive management

Question 10

Which of the following is NOT an example of a conflict situation for CPAs in business that may lead to subordination of judgment?

Accepted Answer

A) Making or permitting or directing another party to make,materially false and misleading entries in an entity's financial statements or records 
B) Failing to correct the entity's financial statements or records that are materially false and misleading when the CPA has the authority to record the entries 
C) Signing,or permitting or directing another to sign,a document containing materially false and misleading information. 
D) Preparing the financial statements and auditing the same work

Question 11

One of the differences between the ethical obligations of CPAs and lawyers is:

Accepted Answer

A) Lawyers are obligated first and foremost to the public interest while CPAs are obligated to their clients' interests 
B) Lawyers are obligated first and foremost to the client's interest while CPAs are obligated to the public interest 
C) Lawyers and CPAs both must be independent of their clients 
D) Lawyers and CPAs must exercise objective judgment

Question 12

An example of a management participation threat is:

Accepted Answer

A) Establishing and maintaining the budget for audit completion 
B) Establishing and maintaining internal controls for the client 
C) Initiating litigation against the client 
D) Preparing source documents used to generate the client's financial statements

Question 13

Circular 230 applies to CPAs who:

Accepted Answer

A) Audit the financial statements of a tax client 
B) Practice before the IRS 
C) Practice before the SEC 
D) Prepare tax services for clients

Question 14

Which of the following is NOT an example of a conflict of interest?

Accepted Answer

A) Advising two clients at the same time who are competing to acquire the same company when the advice might be relevant to the parties' competitive positions 
B) Advising a client to invest in a business in which,for example,the immediate family member of the CPA has a financial interest in the business 
C) Providing tax or personal financial planning services for several members of a family whom the CPA knows to have opposing interests 
D) Accepting commissions in a financial planning engagement for a nonaudit client

Question 15

In its investigation of ZZZZ Best,the House Subcommittee on Oversight and Investigations looked into:

Accepted Answer

A) Why the board of directors failed to uncover the fraud at ZZZZ Best 
B) How the company was able to create 80% or more fictitious revenue 
C) How the company was able to create cookie jar reserves 
D) All of the above

Question 16

Objectivity may be impaired when a CPA prepares a tax return for a client because:

Accepted Answer

A) The CPA violates the independence rule 
B) The CPA violates the integrity rule 
C) The CPA serves in a tax advocacy position for the client 
D) The CPA must prepare the tax return solely based on the information provided by the client

Question 17

The House Subcommittee on Oversight and Investigations made its recommendations after looking into failures at each of the following companies except:

Accepted Answer

A) ESM Government Securities 
B) Continental Illinois National Bank and Trust 
C) Penn Square Bank 
D) Enron

Question 18

The SEC's Advisory Committee on Improvements to Financial Reporting (CIFiR) developed a framework for accounting judgments consisting of which components?

Accepted Answer

A) A critical good faith thought process and reflective judgment 
B) A critical good faith thought process and documentation 
C) Documentation and reflective judgment 
D) Values and principles

Question 19

What is "Operation Broken Gate?"

Accepted Answer

A) An SEC initiative to identify audit firms that violate independence standards 
B) A PCAOB initiative to identify audit firms with deficiencies in audits through its inspection program 
C) An SEC initiative to identify auditors who neglect their duties and the required auditing standards 
D) An AICPA program to implement its conceptual framework standards

Question 20

Which of the following is NOT a safeguard that can help to mitigate threats to independence?

Accepted Answer

A) Safeguards created by the Sarbanes-Oxley Act 
B) Safeguards created by the corporate governance system of the attest client 
C) Quality control safeguards created by the audit firm 
D) All of the above are safeguards

Exam 4: Ethics and Professional Judgment in Accounting