Question 1

As compared to the AICPA Code of Professional Conduct, IFAC's International Code of Ethics for Professional Accountants:

Accepted Answer

The IFAC's International Code of Ethics is more principles-based and conceptual, providing a framework for ethical behavior rather than detailed rules, which makes it less specific in its restrictions compared to the AICPA Code.

Question 2

The AICPA Code of Professional Conduct would be violated if a CPA accepted a fee for services and the fee was:

Accepted Answer

The AICPA Code of Professional Conduct prohibits a CPA from accepting a fee that is contingent upon the results of the services rendered or specific findings in the financial statements. This includes fees that are payable if the audit of the financial statements led to a loan. Options A, B, and C all describe circumstances where the fee is not contingent upon the results of the services rendered and would not violate the Code of Professional Conduct.

Question 3

A CPA's retention of client records as a means of enforcing payment of an overdue audit fee is an action that is:

Accepted Answer

Retaining client records as a means of enforcing payment of an overdue audit fee is considered discreditable to the profession according to the AICPA Code of Professional Conduct. This action can hinder the client's ability to conduct business or fulfill their own professional responsibilities.

Question 4

Which of the following is not a safeguard that is ordinarily considered in evaluating threats to auditor independence?

Accepted Answer

The Audit Committee Reference Group is not a commonly recognized source for creating safeguards for auditor independence. Safeguards created by the profession, legislation, or regulation, safeguards implemented by the attest client, and safeguards implemented by the CPA firm are all typical sources of safeguards for auditor independence.

Question 5

Which of the following is considered a type of threat to compliance with the Rules of the Code of Professional Conduct?

Accepted Answer

Undue influence, which involves coercion or pressure to act against professional ethics, is a type of threat to compliance with the Rules of the Code of Professional Conduct. Illegitimate skepticism, lack of management participation, and irrevocability are not considered types of threats under the Code.

Question 6

A primary purpose for establishing a code of conduct within a professional organization is to:

Accepted Answer

A code of conduct is a set of ethical principles that members of a professional organization are expected to follow. The primary purpose of such a code is to demonstrate acceptance of responsibility to the interests of those served by the profession. It sets a standard for professional behavior and helps to ensure that members of the profession act in a trustworthy and ethical manner when serving their clients or customers. While reducing the likelihood of lawsuits may be a secondary benefit of a code of conduct, it is not its primary purpose. Similarly, while ensuring a certain level of competence may be a goal of a professional organization, it is not the primary purpose of a code of conduct. Finally, requiring loyalty to the organization is not a typical goal or expectation of a code of conduct.

Question 7

The following is a list of circumstances that might be faced by a public accounting firm. Select the rule violated of the AICPA Code of Professional Conduct in the second column. If no rule is violated select 10-no violation (this may be used once, more than once, or not at all). Rules 1 through 9 may be used either once, or not at all.

Accepted Answer

The answer of The following is a list of circumstances...

Question 8

Which of the following organizations issue international ethics standards for auditors?

Accepted Answer

The International Federation of Accountants (IFAC) issues international ethics standards for auditors. The AICPA issues standards for auditors in the United States, the SEC sets regulations for public companies in the U.S., and the FASB establishes accounting standards for private companies in the U.S.

Question 9

When an accountant is not independent, the accountant is precluded from issuing a:

Accepted Answer

According to the AICPA Code of Professional Conduct, if an accountant is not independent, they cannot issue a review report. However, they may still be able to issue a compilation report, management advisory report, or tax planning report with appropriate disclosure and caveats.

Question 10

An audit independence issue might be raised by the auditor's participation in consulting services engagements. Which of the following statements is most consistent with the profession's attitude toward this issue?

Accepted Answer

The auditor's role is to provide an independent and objective opinion on the financial statements, not to make management decisions for the client. Participating in management decisions could compromise the auditor's independence and objectivity.

Question 11

A CPA sole practitioner purchased stock in a client corporation and placed it in a trust as an educational fund for the CPA's minor child. The trust securities were not material to the CPA but were material to the child's personal net worth. Would the independence of the CPA be considered to be impaired with respect to the client?

Accepted Answer

The CPA's ownership of stock in a client corporation, even when placed in a trust for the CPA's minor child, is considered a direct financial interest. Independence is impaired regardless of materiality in such cases because the CPA has a financial interest in the client.

Question 12

Competence as a certified public accountant includes all of the following except:

Accepted Answer

CPA competence includes having technical qualifications, being able to supervise and evaluate staff, and consulting others if necessary. However, warranting infallibility of work is not possible as even CPAs can make errors, and it is not a realistic expectation to be completely error-free.

Question 13

An accounting association established a code of ethics for all members. The most likely primary purpose for establishing the code of ethics was to:

Accepted Answer

The primary purpose of establishing a code of ethics for an accounting association is to outline criteria for professional behavior that promotes standards of competence, morality, honesty and dignity within the association. This helps maintain a trustworthy and reliable accounting profession. Option B refers to the establishment of standards for effective accounting practice, whereas option C talks about providing a framework for effective policy development and execution. Option D is not relevant to the primary purpose of establishing a code of ethics.

Question 14

The AICPA Code of Professional Conduct states that a CPA shall not disclose any confidential information obtained in the course of a professional engagement except with the consent of the client. This rule should be understood to preclude a CPA from responding to an inquiry made by:

Accepted Answer

The rule about not disclosing confidential information without client consent applies to all external parties, including CPA-shareholders of the client corporation, unless they are authorized to receive such information as part of their role within the company. The other options (A, B, D) are exceptions where the CPA may be required or allowed to disclose information as part of professional or regulatory obligations.

Question 15

CPAs are allowed to advertise under the Rules of the AICPA Code of Professional Conduct.
a. List the general guidelines regarding the nature of acceptable advertising.
b. Describe two specific forms of unacceptable advertising.

Accepted Answer

The answer of CPAs are allowed to advertise under the...

Question 16

The concept of materiality would be least important to an auditor when considering the:

Accepted Answer

Materiality is not relevant to the auditor's independence, which is related to conflict of interest and objectivity. Positive or negative confirmations (A), disclosure of illegal acts (B), and weaknesses in internal control (C) all involve materiality considerations.

Question 17

A client company has not paid its 20X3 audit fees. According to the AICPA Code of Professional Conduct, in order for the auditor to be considered independent with respect to the 20X4 audit, the 20X3 audit fees must be paid before the:

Accepted Answer

The AICPA Code of Professional Conduct requires that unpaid audit fees from prior years be settled before the auditor issues the report for the current year's audit to maintain independence.

Question 18

While performing an audit of a public company, the auditors discovered material illegal acts and resigned due to the client's refusal to disclose them. The auditors' reason for resignation should be disclosed through: $$\begin{array} { | l | c | c | } 
\hline \text { Item } & \begin{array} { c } 
\text { CPA Direct Communication } \
\text { With Shareholders }
\end{array} & \begin{array} { c } 
\text { The Process of Filing } \
\text { a Fom 8-K }
\end{array} \
\hline \text { A. } & \text { Yes } & \text { Yes } \
\hline \text { B. } & \text { Yes } & \text { No } \
\hline \text { C. } & \text { No } & \text { Yes } \
\hline \text { D. } & \text { No } & \text { No } \
\hline
\end{array}$$

Accepted Answer

The answer of While performing an audit of a public...

Question 19

The AICPA Code of Professional Conduct will ordinarily be considered to have been violated when the CPA represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representation that the:

Accepted Answer

According to the AICPA Code of Professional Conduct, Rule 302.2.1, a CPA must not advertise or solicit clients in a manner that is false, misleading, or deceptive. Representing that specific consulting services will be performed for a stated fee when it is apparent that the actual fee would be substantially higher would be considered false or misleading, and therefore violate the Code of Professional Conduct.

Question 20

Pickens and Perkins, CPAs, decide to incorporate their practice of accountancy. According to the AICPA Code of Professional Conduct, shares in the corporation can be issued:

Accepted Answer

According to the AICPA Code of Professional Conduct, shares in an accounting corporation can only be issued to persons qualified to practice public accounting to ensure that control and decision-making remain with those who are professionally competent and adhere to ethical standards.

Quiz 3: Professional Ethics