Question 1

A covered member may not have a loan to or from the client,except for permitted and grandfathered loans.When would nonpayment of tax fees due to the auditor by the client be converted to a loan classification?

Accepted Answer

A) After 90 days. 
B) After six months. 
C) After one year. 
D) After two years.

Question 2

The Sarbanes Oxley Act requires management to pre-approve any non-audit service by the auditor,including tax services not specifically prohibited.

Accepted Answer

A) True 
 B)False

Question 3

Professional skepticism is important because without it auditors are susceptible to accepting weak or inaccurate audit evidence.

Accepted Answer

A) True 
 B)False

Question 4

Under the AICPA Code of Professional Conduct,rules take precedent over principals.The principals need to only be considered when a rule is apparent.

Accepted Answer

A) True 
 B)False

Question 5

Julie Webb,CPA takes out an automobile loan with First national Bank of Wellville (FNBW)while attending the University of Wellville.Julie graduates one year later and is hired as an auditor by Best and Driftwood,LLP.Her first assigned audit engagement is with First national Bank of Wellville,a client of Best and Driftwood.As a new audit assistant,Julie continues to pay her automobile loan payments each month.According to the AICPA,Julie is considered a covered member for FNBW independence purposes because of which of the following conditions?

Accepted Answer

A) she will be working on the engagement. 
B) she has a direct financial interest in FNBW. 
C) she graduated in the same area as the client is operating. 
D) she has an immaterial direct financial interest in FNBW.

Question 6

There is a hierarchy of rights to consider when applying rights theory.

Accepted Answer

A) True 
 B)False

Question 7

Public confidence is mostly maintained by the public accounting profession through integrity based on personal moral standards and it is reinforced by codes of conduct.

Accepted Answer

A) True 
 B)False

Question 8

The Code of Professional Conduct was adopted by the AICPA membership to provide guidance and rules to only its members in public practice.

Accepted Answer

A) True 
 B)False

Question 9

Mark Pulley is an auditor at Pulley and Hurst,LLC.If Pulley's five-year-old daughter owns shares of stock in McBurgers Corporation,then Pulley is considered to have what type of interest in McBurgers Corporation?

Accepted Answer

A) immaterial indirect interest in McBurgers Corporation. 
B) material indirect interest in the McBurgers Corporation. 
C) a loophole for claiming independence from McBurgers Corporation. 
D) direct interest in McBurgers Corporation.

Question 10

An auditor who is professionally skeptical will do which of the following?

Accepted Answer

A) Critically question contradictory audit evidence. 
B) Carefully evaluate the reliability of audit evidence,especially in situations in which fraud risk is high. 
C) Reasonably question the authenticity of documentation. 
D) All of the above.

Question 11

Julie Webb,CPA takes out an automobile loan with First National Bank of Wellville (FNBW)while attending the University of Wellville.Julie graduates one year later and is hired as an auditor by Best and Driftwood,LLP.Her first assigned audit engagement is with First National Bank of Wellville,a client of Best and Driftwood.As a new audit assistant,Julie continues to pay her automobile loan payments each month.According to the AICPA,Julie's independence would be considered

Accepted Answer

A) impaired because Julie has a direct financial interest in FNBW. 
B) impaired because Julie has a material indirect financial interest in FNBW. 
C) not impaired because Julie has an immaterial indirect financial interest in FNBW. 
D) not impaired because Julie is permitted to take normal loans from FNBW.

Question 12

An auditor of a public client may assist a client in designing and implementing its enterprise resource planning system in order to ensure that controls over the system exist prior to the audit.

Accepted Answer

A) True 
 B)False

Question 13

In which of the following situations would a CPA not be considered independent?

Accepted Answer

A) where a CPA has obtained an auto loan from a banking client in the current year. 
B) where a CPA has obtained an automobile lease term from a client in the current year. 
C) where a CPA has obtained a $4,000 retainer for services from a banking client in the current year. 
D) where a CPA has obtained a home mortgage loan from a client in the current year.

Question 14

One issue that may threaten independence is that of the time pressure placed on the auditor when an audit is under bid.

Accepted Answer

A) True 
 B)False

Question 15

The AICPA Rules of Conduct govern the performance of CPAs in carrying out their public responsibilities.

Accepted Answer

A) True 
 B)False

Question 16

The ethical framework derived from utilitarianism and rights theories indicates all of the following steps except

Accepted Answer

A) identification of the legal issues. 
B) determination of affected parties and their rights. 
C) determination of the most important rights. 
D) development of alternative courses of action.

Question 17

Members of the AICPA are required to act with integrity and objectivity for which of the following engagements?

Accepted Answer

A) tax preparation 
B) financial statement review services 
C) financial statement audits 
D) all engagements

Question 18

An ethical dilemma occurs when there are conflicting moral duties or obligations.

Accepted Answer

A) True 
 B)False

Question 19

A CPA firm is considered independent when it performs which of the following services for a publicly traded audit client?

Accepted Answer

A) Serving as a member of the client's board of directors. 
B) Determining which accounting policies will be adopted by the client as approved by the board of directors. 
C) Accounting information system design and implementation as approved by the board of directors. 
D) Tax return preparation as approved by the board of directors.

Question 20

In which of the following situations would a CPA not be considered independent?

Accepted Answer

A) where a CPA has obtained an auto loan from a banking client in a prior year. 
B) where a CPA has obtained a home mortgage loan in 1988 from a client. 
C) where a CPA has obtained an auto lease from a banking client in the current year. 
D) where the spouse of a CPA has obtained a home mortgage loan in the current year.

Exam 3: Judgmental and Ethical Decision-Making Frameworks and Associated Professional Standards

A covered member may not have a loan to or from the client,except for permitted and grandfathered loans.When would nonpayment of tax fees due to the auditor by the client be converted to a loan classification?

The Sarbanes Oxley Act requires management to pre-approve any non-audit service by the auditor,including tax services not specifically prohibited.

Professional skepticism is important because without it auditors are susceptible to accepting weak or inaccurate audit evidence.

Under the AICPA Code of Professional Conduct,rules take precedent over principals.The principals need to only be considered when a rule is apparent.

There is a hierarchy of rights to consider when applying rights theory.

Public confidence is mostly maintained by the public accounting profession through integrity based on personal moral standards and it is reinforced by codes of conduct.

The Code of Professional Conduct was adopted by the AICPA membership to provide guidance and rules to only its members in public practice.

Mark Pulley is an auditor at Pulley and Hurst,LLC.If Pulley's five-year-old daughter owns shares of stock in McBurgers Corporation,then Pulley is considered to have what type of interest in McBurgers Corporation?

An auditor who is professionally skeptical will do which of the following?

An auditor of a public client may assist a client in designing and implementing its enterprise resource planning system in order to ensure that controls over the system exist prior to the audit.

In which of the following situations would a CPA not be considered independent?

One issue that may threaten independence is that of the time pressure placed on the auditor when an audit is under bid.

The AICPA Rules of Conduct govern the performance of CPAs in carrying out their public responsibilities.

The ethical framework derived from utilitarianism and rights theories indicates all of the following steps except

Members of the AICPA are required to act with integrity and objectivity for which of the following engagements?

An ethical dilemma occurs when there are conflicting moral duties or obligations.

A CPA firm is considered independent when it performs which of the following services for a publicly traded audit client?

In which of the following situations would a CPA not be considered independent?