13) Which of the following represents all of the ways a CPA firm can be organized? Show
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A) proprietorships and partnerships 13) Which of the following represents all of the ways a CPA firm can be organized? Sets with similar termsWhat response would you send regarding, "If we hire her as manager, would the investment impair independence?" a. Not necessarily. Threats to independence will be at an acceptable level as long as the manager does not participate in the engagement and is unable to influence the engagement. b. Yes. As a manager who will provide greater than 10 hours of nonattest services to the client, she is a covered member and her financial interests in the client must be immediately disposed of. c. No. The mangager is a covered member, but clearly the 10 shares of stock are inconsequential and will, therefore, not impair independence Jane, a partner in a CPA firm, borrows $100,000 on a secured note from one of the firm's bank audit clients to build a new dormer on her house. The amount of the loan is material to Jane. Jane practices in the same office as the lead partner on the bank's audit. Jane will not provide any services to the bank and she is unable to influence the engagement. Is Jane's independence impaired under the AICPA code? A.) No, because Jane is not on the attest team or able to influence the engagement. B.) Yes, because Jane borrowed the money from an audit client while she was a covered member. C.) No, because the note is secured and is related to Jane's primary residence. E.) Yes, because the loan is material to Jane's net worth B.) Yes, because Jane borrowed the money from an audit client while she was a covered member. Cartwright & Cheyenne, CPAs (C&C), and its client, Lott Lighting, are discussing a possible advisory engagement in which C&C would review Lott's accounts receivable system and recommend changes that would streamline the company's collection process. Lott will pay C&C a fee based on improved performance in accounts receivable collections. Would this contingent fee arrangement raise any ethical concerns under the profession's rules? A.) No, provided C&C documents the arrangement in the engagement letter. B.) Yes, but only if C&C was performing other services for Lott. C.) No, but only if Lott is a publicly-traded company subject to SEC and PCAOB rules. D.) Yes, if C&C also performed a review engagement for Lott. D.) Yes, if C&C also performed a review engagement for Lott. Under SEC rules, which relationships between a covered person and an SEC client are NOT prohibited? A.) Immaterial landlord-tenant relationships B.) Joint business ventures C.) Agreements to share costs or profits D.) Limited partnership agreements A.) Immaterial landlord-tenant relationships Duncan & Co., CPAs, has provided annual audit and tax advisory services to Victoria Corp. for several years. Last year, Victoria experienced severe cash flow problems and was unable to pay Duncan in full, leaving a significant balance unpaid. Duncan is ready to begin fieldwork for the upcoming audit. What options are available to Duncan and Victoria under the AICPA code? A.) Duncan may perform the audit as long as the unpaid fees relating to the prior year are paid in full before the current-year report is issued. B.) Duncan may set up a payment plan with Victoria to settle the unpaid fees over the next two years. C.) Victoria may give Duncan a note with a maturity date not later than one year after the date of the current-year report. D.) Victoria may have another firm perform the fieldwork and Duncan will review the other firm's work papers and issue the report. A.) Duncan may perform the audit as long as the unpaid fees relating to the prior year are paid in full before the current-year report is issued. Suppose a statute exists in your state that allows you to place a lien on client records in the event of unpaid fees. Given these facts, are you obligated to return records to a client who has not paid his fees? A.) No, not until he pays the fees. B.) Yes B.) Yes Leeann Raasch, CPA, runs a small CPA firm in Podunk, Oklahoma. Leeann was asked to conduct an audit of an oil-drilling company with complex operations. Leeann went to school in Illinois and has only recently moved her business to Oklahoma. All of her past audit work has been involved with banks and insurance companies—none of which maintain any significant amount of inventory. Leeann agrees to conduct the audit. Since she's just getting started in Oklahoma and had a lot of expenses associated with her move, she's not willing to spend the money to bring in someone with more oil and gas experience. Which of the following fundamental principles has Leeann violated? A.) Leeann has not violated any of the fundamental principles. B.) Professional competence and due care C.) Confidentiality D.) Integrity E.) Professional behavior F.) Objectivity B.) Professional competence and due care Matthew Davasiachen, CPA, is conducting an audit for Trent & Taylor Co. Trent & Taylor's financial statements include a complicated footnote that deals with revenue from trading of corn and soybean futures. Matthew sits down with the CEO and CFO to gain a better understanding of the footnote. Their charming CFO, Kaytlin Reynolds, says, "Why, Matthew, please don't concern yourself with that. It's a very complex process and somewhat of a black box to anyone who doesn't have years of experience in futures trading. You only have an accounting degree and you're a little wet behind the ears. It would take years of experience to get you enough up to speed that you could understand this business." What type of threat is present? A.) No threat B.) Adverse interest threat C.) Undue influence threat D.) Self-review threat E.) Self interest threat C.) Undue influence threat Jodie prepared Form 1040, including a Schedule C, for her client, Richard, a sole proprietor. Which statement best describes her obligations under SSTS No. 7, Form and Content of Advice to Taxpayers? A.) Her advice should always comply with the standards in SSTS No. 1, Tax Return Positions. B.) She should communicate with Richard about subsequent developments affecting her previous advice, even if she is not contractually obligated to do so. C.) Her advice to Richard should always be in writing and consented to by him. D.) She should employ judgment in determining the form and content of her advice to Richard, even if the IRS or other regulators have specific requirements. A.) Her advice should always comply with the standards in SSTS No. 1, Tax Return Positions. You are a manager in the quality control group of the firm Merrill & Clement. The firm's primary office is in Oklahoma City, and it has four other offices in Oklahoma and Texas. Recently, the firm acquired a new
client—NAL Co. NAL is a private toy manufacturing company. Personnel in your firm's Oklahoma City office will audit NAL's financial statements. A.) Yes, because the Oklahoma City office is within 100 miles of the Tulsa office. B.) No, because Olivia is a manager in the Tulsa office. C.) No, because Olivia provides no services to NAL. D.) Yes, because Olivia is a manager in the firm. C.) No, because Olivia provides no services to NAL. On September 30, 2016, Hilger & Sandoval Accounting (H&S) signed an engagement letter to audit Carvajal Corporation for the 12-month period ending December 31, 2016. What is the earliest data on which H&S would be required to be independent of Carvajal? A.) October 11, 2016. B.) December 31, 2016. C.) November 4, 2016. D.) January 1, 2016. D.) January 1, 2016. A practitioner is engaged to prepare a client's federal income tax return for 2013 and 2014. The practitioner files the 2013 return on the client's behalf. After the 2014 return is prepared, the client disputes the fees for the 2014 tax engagement, terminates the relationship, and requests all tax returns and related records. The client has not yet paid for preparation of the 2014 return. Under IRS Circular No. 230, which records must the practitioner return to the client? A.) Schedules the practitioner prepared, which the client needs to file in its 2014 federal income tax return. B.) The engagement letter executed by the client for preparation of the 2014 federal income tax return. C.) An appraisal the practitioner prepared in connection with the 2013 federal income tax return. D.) Notes the practitioner took when meeting with the client about the 2013 and 2014 tax returns. C.) An appraisal the practitioner prepared in connection with the 2013 federal income tax return. Examples of misinterpreting facts or subordinating judgment would not include: A.) Violet certifies financial statements that she believes are incorrect. B.) Helen works hard to ensure the financial statements are correct; but despite her efforts, they contain an error. C.) Zeke allows Trudy to record revenues in 2016 when accounting standards would suggest that they are not earned until 2017. D.) Quinn makes an error in recording a significant sale. Koen is his boss, but he's very busy and does not correct the error. B.) Helen works hard to ensure the financial statements are correct; but despite her efforts, they contain an error. Timothy Industries engages Thompson & Delozier, CPAs, to prepare its annual financial statements and tax returns. Before either of these engagements is completed, Timothy terminates the relationship and asks the firm to provide all records that they provided to the firm, the firm's working papers, and its partially-completed work product. Timothy has not paid Thompson & Delozier for either service. Under the AICPA rule on client records requests, which records, if any, may Thompson & Delozier withhold from the client? A.) No records may be withheld from the client. B.) Any records the firm chooses to withhold. C.) Thompson & Delozier's working papers and its partially-completed work product. D.) Records that Timothy provided to Thompson & Delozier. C.) Thompson & Delozier's working papers and its partially-completed work product. Violating an AICPA or IRS rule may result in which consequence? A.) Any or all of these. B.) Publication of an admonishment by the AICPA. C.) Imposition of a monetary penalty by the IRS. D.) Suspension of AICPA membership or the ability to practice before the IRS. A.) Any or all of these. Sophie, the CFO of Slolum Ski Supplies, received a watch from one of her company's largest vendors, Colorado Ski Shoppe. She received the gift with a card congratulating her on Slolum's recent merger with another company. In determining whether accepting the gift would create a significant threat to her compliance with the AICPA code, which factor should Sophie consider? A.) Whether she disclosed receipt of the gift to the board of directors. B.) Whether the gift cost more than $100. C.) Whether she truly earned the gift. D.) Whether the gift was reasonable in the circumstances. D.) Whether the gift was reasonable in the circumstances. Which statement best describes a significant similarity between the AICPA and IESBA codes? A.) Both codes contain specific ethics and independence provisions related to public interest entities. B.) The codes contain the exact same provisions for corporate accountants. C.) The codes combine the rules for members in business and public practice in one section. D.) Both codes incorporate the conceptual framework approach for evaluating threats when specific rules on a matter do not exist. D.) Both codes incorporate the conceptual framework approach for evaluating threats when specific rules on a matter do not exist. One of the GAO's ethical principles described in the Yellow Book stresses that: Auditors may use government resources if the proper requisition forms are completed beforehand. Auditors should not use personal email accounts for government-related communications. Government employees may not accept gifts under any circumstances. Government information, resources, and positions should not be used for the auditor's personal gain. Government information, resources, and positions should not be used for the auditor's personal gain. Jon provides Robin, a tax manager at SemperBarnes, his tax documentation, which substantiates several large tax deductions he plans to take for the current tax year. Because of work Robin performs on one of Jon's companies, she suspects that one of the deductions he is claiming may be significantly overstated. What are Robin's ethical responsibilities in this instance? A.) Both the IRS and the AICPA rules indicate that a preparer may accept information provided by the client without verification, so she should prepare the return based on Jon's information. B.) Robin should discuss the matter with Jon, first obtaining consent from any other applicable parties regarding possible confidentiality of the information. C.) Robin should ignore the information that Jon provided her and instead prepare the tax return on the basis of other information known to her. D.) Because Jon is ultimately responsible for all of the deductions claimed in the return, Robin should request indemnification from him against possible future penalties. B.) Robin should discuss the matter with Jon, first obtaining consent from any other applicable parties regarding possible confidentiality of the information. In 2012-16, Michal Long worked as a consultant in an actuarial firm. One of her clients was Reininger Properties. In her consulting role, Michal helped Reininger calculate their lease and pension liabilities. In 2017, Michal went to work for Fessler and Alobaid, CPAs (F&A). Reininger Properties is one of F&A's attest clients, and Michal has been asked to assist in the evaluation of F&A's long-term liabilities. What type of threat is present? A.) Adverse interest threat B.) Self-interest threat C) No threat D.) Undue influence threat E.) Self-review threat E.) Self-review threat An example of a spousal equivalent as defined in AICPA independence rules is A.) A cousin who lives with and is supported by the covered member. B.) A person in a domestic partnership with a covered member. C.) A roommate and long-time platonic friend of a covered member. D.) A former spouse of a covered member who is financially independent of the covered member. B.) A person in a domestic partnership with a covered member. A practitioner is engaged to prepare a client's federal income tax return for 2013 and 2014. The practitioner files the 2013 return on the client's behalf. After the 2014 return is prepared, the client disputes the fees for the 2014 tax engagement, terminates the relationship, and requests all tax returns and related records. The client has not yet paid for preparation of the 2014 return. Under IRS Circular No. 230, which records must the practitioner return to the client? A.) Notes the practitioner took when meeting with the client about the 2013 and 2014 tax returns. B.) The engagement letter executed by the client for preparation of the 2014 federal income tax return. C.) An appraisal the practitioner prepared in connection with the 2013 federal income tax return. D.) Schedules the practitioner prepared, which the client needs to file in its 2014 federal income tax return. C.) An appraisal the practitioner prepared in connection with the 2013 federal income tax return. Which statement best describes the SEC rules relating to bookkeeping services? A.) Bookkeeping services are permitted, as long as the individual performing these services are not the same individuals performing the audit. B.) An accountant generally cannot provide bookkeeping services to an SEC audit client. C.) Bookkeeping services are permitted if the fees from these services are insignificant relative to the audit fees. D.) Bookkeeping services are permitted if the client agrees in writing to accept responsibility for the adequacy of these services. B.) An accountant generally cannot provide bookkeeping services to an SEC audit client. You are a manager in the quality control group of the firm Merrill &
Clement. The firm's primary office is in Oklahoma City, and it has four other offices in Oklahoma and Texas. Recently, the firm acquired a new client—NAL Co. NAL is a private toy manufacturing company. Personnel in your firm's Oklahoma City office will audit NAL's financial statements. A.) Yes, because the Oklahoma City office is within 100 miles of the Tulsa office. B.) No, because Olivia is a manager in the Tulsa office. C.) Yes, because Olivia is a manager in the firm. D.) No, because Olivia provides no services to NAL. D.) No, because Olivia provides no services to NAL. Which of these is NOT one of the five ethical principles the GAO's Yellow Book stresses? A.) Professional behavior. B.) The proper safeguarding of client information. C.) The public interest. D.) The proper use of government information, resources, and position. B.) The proper safeguarding of client information. Renee Baugh, CPA, has been working on an engagement for the Connecticut Department of Transportation. In this capacity, she has been party to some discussions about the department's plans to propose an interstate exit near the intersection of Dairy and Scroggins Roads. To date, these plans have not been made public. Renee's husband, Dakota, is looking to expand his area convenience stores. Renee doesn't tell Dakota about these conversations, but she strongly encourages him to open a store on the northeast corner of Dairy and Scroggins. Which of the following fundamental principles has Renee violated? A.) Integrity B.) Confidentiality C.) Renee has not violated any of the fundamental principles D.) Professional behavior E.) Professional competence and due care F.) Objectivity B.) Confidentiality Suppose a statute exists in your state that allows you to place a lien on client records in the event of unpaid fees. Given these facts, are you obligated to return records to a client who has not paid his fees? A.) No, not until he pays the fees. B.) Yes B.) Yes You are a manager in the quality control group of the firm Merrill
& Clement. The firm's primary office is in Oklahoma City, and it has four other offices in Oklahoma and Texas. Recently, the firm acquired a new client—NAL Co. NAL is a private toy manufacturing company. Personnel in your firm's Oklahoma City office will audit NAL's financial statements. A.) Yes, because he provides services to NAL. B.) Yes, because he is located in the Oklahoma City office. C.) No, because he performs no attest services for NAL. D.) No, because he is only providing assistance on these engagements. A.) Yes, because he provides services to NAL. Karani Krafts wants to engage Kody & William, CPA's (K&W) as their auditors for the year ended December 31, 2017. What must happen under PCAOB Rule 3526? A.) K&W must describe in writing all the relationships with Karani Krafts that may reasonably be expected to affect their independence. B.) K&W must explicitly state that all covered persons in the firm have complied with all relevant ethical requirements. C.) K&W must provide the results of independence investigations for all persons who may work on the engagement. D.) K&W must provide a list of all firm members who must be independent of the client. A.) K&W must describe in writing all the relationships with Karani Krafts that may reasonably be expected to affect their independence. Jane, a partner in a CPA firm, borrows $100,000 on a secured note from one of the firm's bank audit clients to build a new dormer on her house. The amount of the loan is material to Jane. Jane practices in the same office as the lead partner on the bank's audit. Jane will not provide any services to the bank and she is unable to influence the engagement. Is Jane's independence impaired under the AICPA code? A.) Yes, because Jane borrowed the money from an audit client while she was a covered member. B.) No, because the note is secured and is related to Jane's primary residence. C.) No, because Jane is not on the attest team or able to influence the engagement. D.) Yes, because the loan is material to Jane's net worth. A.) Yes, because Jane borrowed the money from an audit client while she was a covered member. McManus Co. engages Allyson & Saige CPAs (A&S) to help improve the operating effectiveness of certain internal controls. Allyson & Saige also audits McManus' financial statements. Which of these creates an unacceptable management participation threat to A&S' independence? A.) All of these B.) Setting policy for McManus. C.) Making recommendations to McManus. D.) Providing research materials to McManus' management. B.) Setting policy for McManus. Which statement best describes the AICPA ethics rules relating to a member's failure to file his personal tax return in a timely manner? A.) The member is strongly encouraged to file his/her personal tax returns in a timely manner. B.) The member is not in violation of any ethics rules as long as the failure to file a personal tax return in a timely manner was due to a heavy workload. C.) The failure to file a personal tax return in a timely manner must be disclosed to all clients and potential clients. D.) The failure to file a personal tax return in a timely manner is usually considered an act discreditable to the profession. D.) The failure to file a personal tax return in a timely manner is usually considered an act discreditable to the profession. The AICPA Ethics Codification includes which sections? (Check all that apply.) A.) Rules and interpretations applicable to members in business B.) Preface C.) Rules and interpretations applicable to others D.) Rules and interpretations applicable to members in public practice E.) Rules and interpretations applicable to members in tax practice F.) Rules and interpretations applicable to members in audit practice G.) Rules and interpretations applicable to members in nonprofits A, B, C, D In which situation may you disclose confidential client information without violating the AICPA Code of Professional Conduct? A.) As an example in a seminar given for CPE credit. B.) At the request of another client that needs the information to file its tax return. C.) In response to a validly issued and enforceable subpoena. D.) In a proposal to a potential client. C.) In response to a validly issued and enforceable subpoena. You are a manager in the quality control group of the firm Merrill & Clement. The firm's primary office is in Oklahoma City, and it has four other offices in Oklahoma and Texas. Recently, the firm acquired a new client—NAL Co. NAL is a private toy manufacturing company. Personnel in your firm's Oklahoma City office will audit NAL's financial statements. Thomas Lindsey is the managing partner of your firm's Oklahoma City office. He will have no client responsibilities of any kind relating to the NAL engagement. Is Thomas a covered member who must be independent of NAL? A.) Yes, because he is a partner in the firm. B.) No, because he is a member of management. C.) Yes, because he is a partner in the Oklahoma City office. D.) No, because he provides no services to NAL. C.) Yes, because he is a partner in the Oklahoma City office. Rocky Point Brewery (RPB) filed an initial public offering in January 2016. RPB engaged Olsen & Alain, CPAs, (O&A) in 2013 to keep the books and prepare monthly and annual financial statements (while the company was privately held), and terminated those services in December 2015. Under SEC and PCAOB rules, could RPB engage O&A to be their auditors now that it is a public company? A.) Yes, but only if O&a rescinds any indemnification language existing in their non-audit engagement letters. B.) No, but only if the fees O&A received from these engagements exceeded five percent of the firm's annual revenues. C.) Yes, because the prohibited non-audit services were performed before the period of professional engagement. D.) No, because the prohibited non-audit services were performed during the period covered by the financial statements. D.) No, because the prohibited non-audit services were performed during the period covered by the financial statements. In the AICPA Code of Professional Conduct, having integrity means that a member must do all of the following except: A.) Be objective. B.) Subordinate his/judgment to his superiors. C.) Not knowingly misinterpret facts. D.) Be free of conflicts of interest. B.) Subordinate his/judgment to his superiors. Under the SEC rules, a one-year "cooling off" period applies to which scenario? A.) A tax manager working on a client's tax engagement is offered a managerial position at the client. B.) A technology consulting senior manager in the firm is seeking an executive role with the client. C.) A client wants to hire its firm's lead audit partner to take over as CFO. D.) A professional staff person on an audit applies for a position as senior accountant at the client. C.) A client wants to hire its firm's lead audit partner to take over as CFO. Which is not considered an attest engagement under the AICPA independence rules? A.) Reviews of financial statements. B.) Audits of financial statements. C.) Services rendered under the attestation standards. D.) Financial planning. D.) Financial planning. Jodie prepared Form 1040, including a Schedule C, for her client Richard, a sole proprietor. Which statement best describes her obligations under SSTS No.. 7, Form and Content of advice to LTaxpayers? A.) Her advice should always comply wit the standards in SSTS No. 1, Tax Return Positions. B.) Her advice to Richard should always be in writing, and consented to by him. C.) She should communicate with Richard about subsequent developments affecting her previous advice, even if she is not contractually obligated to do so. D.) She should employ judgment in determining the form and content of her advice to Richard, even if the IRS or other regulators have specific requirements. A.) Her advice should always comply wit the standards in SSTS No. 1, Tax Return Positions. Meghan has three young children and is a covered member with respect to Mozon Co. When will her children no longer be considered immediate family who are subject to the same rules as Meghan? A.) When they get married. B.) When they turn 18. C.) When they are no longer students. D.) When they are no longer her dependents. D.) When they are no longer her dependents. Which choice is one of the fundamental principles that the SEC may look to in evaluating independence in a particular situation? A.) Whether the firm acts as an advocate of the client. B.) Whether the firm has a recent history of independence violations. C.) Whether the firm has adequate independence training for its personnel. D.) Whether the firm is competent to complete the work A.) Whether the firm acts as an advocate of the client. The clientele of Black & Company's audit practice consists primarily of privately-owned, small- and middle-market companies. Recently, the firm won two audits of public companies, including one issuer. From an independence perspective, what impact will these new client engagements have on Black & Company? A.) Black & Company will have to apply the IESBA's conceptual framework approach. B.) Black & Company will have to comply with DOL and GAO independence rules. C.) Black & Company will need an annual peer review and PCAOB inspection. D.) Black & Company will have to comply with SEC and PCAOB independence rules. D.) Black & Company will have to comply with SEC and PCAOB independence rules. Under SEC rules, which relationships between a covered person and an SEC client are NOT prohibited? A.) Immaterial landlord-tenant relationships B.) Agreements to share costs or profits C.) Joint business ventures D.) Limited partnership agreements A.) Immaterial landlord-tenant relationships Jason (an audit manager) has been assigned to the audit of Syon Plumbing Supplies. Jason is concerned that Vijay, a fraternity brother from his college days, is on the internal audit staff of Syon. Jason believes he could provide services to this client in an objective manner. Which statement best describes how Jason should apply apply the AICPA conceptual framework approach in this situation? A.) Jason should document his assessment of independence, which should include a sworn statement from Vijay. B.) Jason should consider the threats to his independence and whether safeguards may be applied that reduce the threat(s) to an acceptable level. C.) Jason should refuse to provide services to Syon because no safeguards would be effective in mitigating the threat(s) to his independence. D.) Jason should not participate in the audit of Syon before obtaining a written waiver from his firm's general counsel. B.) Jason should consider the threats to his independence and whether safeguards may be applied that reduce the threat(s) to an acceptable level. Brian Bailey is on his firm's attest engagement team for client Thayer Corp. The CEO of Thayer calls Brian and asks whether he would consider taking a position as CFO of Thayer Corp. Brian tells the Thayer CEO that they can discuss this possibility after the engagement is complete. Has Brian handled this situation appropriately? A.) No B.) Yes A.) No Zelada and Smith, CPAs, and their client, Harris Electrical, are discussing a possible advisory engagement in which the firm would review Harris' accounts receivable system and recommend changes that would streamline the company's collection process. Harris will pay Zelada and Smith a fee based on improved performance in accounts receivable collections. Would this contingent fee arrangement raise any ethical concerns under the profession's rules? Yes, but only if Zelada and Smith was performing other services for Harris. Yes, if Zelada and Smith also performed a review engagement for Harris. No, but only if Harris is a publicly-traded company subject to SEC and PCAOB rules. No, provided Zelada and Smith documents the arrangement in the engagement letter. Yes, if Zelada and Smith also performed a review engagement for Harris. Weinbrecht & Company, CPAs, has provided annual audit and tax advisory services to Posey Corporation for several years. Last year, Posey experienced severe cash flow problems and was unable to pay Weinbrecht in full, leaving a significant balance unpaid. Weinbrecht is ready to begin fieldwork for the upcoming audit. What options are available to Weinbrecht & Co. and Posey under the AICPA code? A.) Weinbrecht may perform the audit as long as the unpaid fees relating to theprior year are paid in full before the current year report is issued. B.) Posey may have another firm perform the fieldwork and Weinbrecht will review the other firm's work papers and issue the report. C.) Weinbrecht may set up a payment plan with Posey to settle the unpaid fees over the next two years. D.) Posey may give Weinbrecht a note with a maturity date no later than one year after the date of the current year report. A.) Weinbrecht may perform the audit as long as the unpaid fees relating to theprior year are paid in full before the current year report is issued. Yanjun, a consulting member of Golay & Co., is considering membership on an audit client's board of directors. Yanjun does not provide any services to this client. Which statement describing this situation is correct under AICPA rules? A.) Yanjun may join the board because he is not a partner. B.) Yanjun may join the board because he is not an auditor. C.) Yanjun may not join the board because only non-managerial employees of the firm may serve as client management. D.) Yanjun may not join the board because the rules prohibit all firm professionals from serving as a director of a client. D.) Yanjun may not join the board because the rules prohibit all firm professionals from serving as a director of a client. Yanjun, a consulting member of Golay & Co., is considering membership on an audit client's board of directors. Yanjun does not provide any services to this client. Which statement describing this situation is correct under AICPA rules? A.) Yanjun may not join the board because the rules prohibit all firm professionals from serving as a director of a client. B.) Yanjun may not join the board because only non-managerial employees of the firm may serve as client management. C.) Yanjun may join the board because he is not a partner. D.) Yanjun may join the board because he is not an auditor. A.) Yanjun may not join the board because the rules prohibit all firm professionals from serving as a director of a client. Newville CPA is engaged to perform bookkeeping services for a client. Which activity will impair Newville's independence? A.) Supervising the client's employees as they perform their normal recurring activities. B.) Posting client-approved entries to the client's trial balance. C.) Advising the client on current accounting issues. A.) Supervising the client's employees as they perform their normal recurring activities. A professional accountant is auditing client A and providing consulting services to client B. Both clients are in the same industry. If the professional accountant uses specific information from client A's audit to prepare a business plan for client B, he will be violating the following fundamental principle: A.) Integrity B.) Confidentiality C.) Objectivity D.) Professional due care B.) Confidentiality Spencer Jones, CPA, attended his firm's Christmas party, where a lot of liquor was consumed and a lot of fun was had. On his way home from the party, Spencer was arrested and charged with driving under the influence. Which of the following fundamental principles has Spencer violated? A.) Confidentiality B.) Integrity C.) Professional competence and due care D.) Spencer has not violated any of the fundamental principles, since the arrest was a personal rather than a professional matter. E.) Professional behavior F.) Objectivity E.) Professional behavior You
are a manager in the quality control group of the firm Merrill & Clement. The firm's primary office is in Oklahoma City, and it has four other offices in Oklahoma and Texas. Recently, the firm acquired a new client—NAL Co. NAL is a private toy manufacturing company. Personnel in your firm's Oklahoma City office will audit NAL's financial statements. A.) Yes, because he provides services to NAL. B.) Yes, because he is located in the Oklahoma City office. C.) No, because he performs no attest services for NAL. D.) No, because he is only providing assistance on these engagements. A.) Yes, because he provides services to NAL. Jeff West, a SemperBarnes tax partner, has provided tax services to two general partners in a real estate partnership for several years. Recently, the partnership was dissolved and both parties have asked Jeff to continue to provide services to them individually. Which statement best describes the application of Circular No. 230 to this situation? A.) Jeff must draft and retain a memo indicating that both clients verbally consented to his continuing his services to each partner individually. B.) Jeff must seek permission directly from the IRS to continue to perform services to these individuals. C.) Jeff has no particular ethical obligations under Circular No. 230 in these circumstances. D.) Jeff must obtain written consent from both parties to continue his services to each partner individually. D.) Jeff must obtain written consent from both parties to continue his services to each partner individually. In 2012-16, Michal Long worked as a consultant in an actuarial firm. One of her clients was Reininger Properties. In her consulting role, Michal helped Reininger calculate their lease and pension liabilities. In 2017, Michal went to work for Fessler and Alobaid, CPAs (F&A). Reininger Properties is one of F&A's attest clients, and Michal has been asked to assist in the evaluation of F&A's long-term liabilities. What type of threat is present? A.) No threat B.) Self-review threat C.) Undue influence threat D.) Self-interest threat E.) Adverse interest threat B.) Self-review threat Which of the following would be an unacceptable reason for omitting information on a tax return? A.) The information is not available. The accountant estimates that it could impact the tax liability by anywhere from 0% to 25%. B.) There is genuine uncertainty about the meaning of the question in the context of this return. C.) The answer would not cause the return to be incomplete. D.) The answer is complex and voluminous. D.) The answer is complex and voluminous. Timothy Industries engages Thompson & Delozier, CPAs, to prepare its annual financial statements and tax returns. Before either of these engagements is completed, Timothy terminates the relationship and asks the firm to provide all records that they provided to the firm, the firm's working papers, and its partially-completed work product. Timothy has not paid Thompson & Delozier for either service. Under the AICPA rule on client records requests, which records, if any, may Thompson & Delozier withhold from the client? A.) Thompson & Delozier's working papers and its partially-completed work product. B.) Any records the firm chooses to withhold. C.) No records may be withheld from the client. D.) Records that Timothy provided to Thompson & Delozier. A.) Thompson & Delozier's working papers and its partially-completed work product. Which phrase is used by the Code of Professional Conduct to describe integrity? A.) Candid, within the constraints of client confidentiality. B.) Forceful advocate of the client's position. C.) Valued business adviser to the client. D.) Willing to subordinate judgment to achieve a proper outcome. A.) Candid, within the constraints of client confidentiality. Violating an AICPA or IRS rule may result in which consequence? A.) Suspension of AICPA membership or the ability to practice before the IRS. B.) Any or all of these. C.) Imposition of a monetary penalty by the IRS. D.) Publication of an admonishment by the AICPA. B.) Any or all of these. Jane, a partner in a CPA firm, borrows $100,000 on a secured note from one of the firm's bank audit clients to build a new dormer on her house. The amount of the loan is material to Jane. Jane practices in the same office as the lead partner on the bank's audit. Jane will not provide any services to the bank and she is unable to influence the engagement. Is Jane's independence impaired under the AICPA code? A.) No, because the note is secured and is related to Jane's primary residence. B.) Yes, because the loan is material to Jane's net worth. C.) No, because Jane is not on the attest team or able to influence the engagement. D.) Yes, because Jane borrowed the money from an audit client while she was a covered member. D.) Yes, because Jane borrowed the money from an audit client while she was a covered member. In which way do DOL independence rules differ from the AICPA rules? A.) The DOL rules on non-attest services are more comprehensive than the AICPA independence rules. B.) The DOL rules ban auditors from providing actuarial services to benefit plans that they audit. C.) The DOL permits auditors to perform recordkeeping whereas the AICPA rules would not. D.) The DOL defines a member much more broadly than the AICPA's covered member. D.) The DOL defines a member much more broadly than the AICPA's covered member. Which activity would be least likely to create unacceptable threats to a member's independence? A.) Consummating a transaction on behalf of the client with potential investors. B.) Preparing financial statements based on the client's trial balance. C.) Preparing source documents for the client. B.) Preparing financial statements based on the client's trial balance. Cartwright & Cheyenne, CPAs (C&C), and its client, Lott Lighting, are discussing a possible advisory engagement in which C&C would review Lott's accounts receivable system and recommend changes that would streamline the company's collection process. Lott will pay C&C a fee based on improved performance in accounts receivable collections. Would this contingent fee arrangement raise any ethical concerns under the profession's rules? A.) No, but only if Lott is a publicly-traded company subject to SEC and PCAOB rules. B.) Yes, but only if C&C was performing other services for Lott. C.) Yes, if C&C also performed a review engagement for Lott. D.) No, provided C&C documents the arrangement in the engagement letter. C.) Yes, if C&C also performed a review engagement for Lott. Which of these is NOT one of the five ethical principles the GAO's Yellow Book stresses? A.) The proper safeguarding of client information. B.) Professional behavior. C.) The public interest. D.) The proper use of government information, resources, and position. A.) The proper safeguarding of client information. Nolan & Groover, CPAs, are conducting an audit of Westmoreland Properties and are notified that Westmoreland has just filed a suit against Nolan & Groover over the previous year's audit. What type of threat is present? A.) Familiarity threat B.) Management participation threat C.) Self-review threat D.) No threat E.) Adverse interest threat E.) Adverse interest threat Benoit & Cunningham, CPAs, perform the annual audit for Harris Technology. B&C's managing partner for the audit, Jessica Harris, also owns 40% of Cunningham Savings and Loan, which has made millions of dollars in loans to Harris Technology. What type of threat is present? A.) Self-review threat B.) Management participation threat C.) No threat D.) Self-interest threat E.) Undue influence threat D.) Self-interest threat Tax return preparers may generally rely on a client's representations without verification unless: A.) the information seems incorrect, inconsistent, or incomplete. B.) the client is new to the preparer. C.) the client is incompetent. D.) the tax matter is complex. A.) the information seems incorrect, inconsistent, or incomplete. Renee Baugh, CPA, has been working on an engagement for the Connecticut Department of Transportation. In this capacity, she has been party to some discussions about the department's plans to propose an interstate exit near the intersection of Dairy and Scroggins Roads. To date, these plans have not been made public. Renee's husband, Dakota, is looking to expand his area convenience stores. Renee doesn't tell Dakota about these conversations, but she strongly encourages him to open a store on the northeast corner of Dairy and Scroggins. Which of the following fundamental principles has Renee violated? A.) Renee has not violated any of the fundamental principles B.) Confidentiality C.) Professional behavior D.) Objectivity E.) Integrity F.) Professional competence and due care B.) Confidentiality Which statement best describes the AICPA ethics rules relating to a member's failure to file his personal tax return in a timely manner? A.) The failure to file a personal tax return in a timely manner is usually considered an act discreditable to the profession. B.) The failure to file a personal tax return in a timely manner must be disclosed to all clients and potential clients. C.) The member is strongly encouraged to file his/her personal tax returns in a timely manner. D.) The member is not in violation of any ethics rules as long as the failure to file a personal tax return in a timely manner was due to a heavy workload. A.) The failure to file a personal tax return in a timely manner is usually considered an act discreditable to the profession. Which phrase is used by the Code of Professional Conduct to describe integrity? A.) Candid, within the constraints of client confidentiality. B.) Willing to subordinate judgment to achieve a proper outcome. C.) Forceful advocate of the client's position. D.) Valued business adviser to the client. A.) Candid, within the constraints of client confidentiality. Sarah, the controller of a large beverage supplier, supervises two employees. Her boss, Vladimir, instructs her to increase the company's inventory balance for an amount that is material to the financial statements by crediting several small "miscellaneous" expense accounts. She does not understand why he wants her to make these entries but immediately directs one of her staff to make them because she has been instructed to do so. Which statement best describes Sarah's actions? A.) Sarah failed to consider the rules of other regulators. B.) Sarah failed to evaluate a potential ethical issue. C.) Sarah failed to refer the matter to the AICPA ethics hotline. D.) Sarah failed to ensure that her staff was competent to make the entries. B.) Sarah failed to evaluate a potential ethical issue. Anthony is a member of the engagement team performing an audit of XYZ. During the engagement, the president of XYZ approaches Anthony and offers him the position of CFO at the company. Anthony is considering the offer. What safeguards do the independence rules require Anthony to apply? A.) Decline the offer. B.) Remove himself from the engagement team until the offer is rejected or he is no longer seeking employment with XYZ. C.) Resign from the firm. D.) Obtain the permission of the XYZ audit committee to remain on the engagement team. B.) Remove himself from the engagement team until the offer is rejected or he is no longer seeking employment with XYZ. Weinbrecht & Company, CPAs, has provided annual audit and tax advisory services to Posey Corporation for several years. Last year, Posey experienced severe cash flow problems and was unable to pay Weinbrecht in full, leaving a significant balance unpaid. Weinbrecht is ready to begin fieldwork for the upcoming audit. What options are available to Weinbrecht & Co. and Posey under the AICPA code? A.) Weinbrecht may perform the audit as long as the unpaid fees relating to theprior year are paid in full before the current year report is issued. B.) Weinbrecht may set up a payment plan with Posey to settle the unpaid fees over the next two years. C.) Posey may give Weinbrecht a note with a maturity date no later than one year after the date of the current year report. D.) Posey may have another firm perform the fieldwork and Weinbrecht will review the other firm's work papers and issue the report. A.) Weinbrecht may perform the audit as long as the unpaid fees relating to theprior year are paid in full before the current year report is issued. Lackey, CPAs, accepts a commission from Xue Corp., a financial statement review client, for referring Xue to an insurer. Which statement is accurate regarding commissions? A.) The commission is prohibited if the fee structure is material to Lackey and will be paid to Lackey over a period of time. B.) The commission is permitted because Lackey does not perform an audit of Xue's financial statement. C.) The commission is prohibited because a review client paid the fee for Lackey's referral of business to a third party. D.) The commission is prohibited if Lackey discloses to Xue that it will be receiving the fee. C.) The commission is prohibited because a review client paid the fee for Lackey's referral of business to a third party. Yanjun, a consulting member of Golay & Co., is considering membership on an audit client's board of directors. Yanjun does not provide any services to this client. Which statement describing this situation is correct under AICPA rules? A.) Yanjun may join the board because he is not a partner. B.) Yanjun may not join the board because only non-managerial employees of the firm may serve as client management. C.) Yanjun may join the board because he is not an auditor. D.) Yanjun may not join the board because the rules prohibit all firm professionals from serving as a director of a client. D.) Yanjun may not join the board because the rules prohibit all firm professionals from serving as a director of a client. A member has been asked to co-sign checks with a client employee while the company president is on vacation. Which statement about the application of the AICPA independence rules to this situation is correct? A.) Because the member will only be co-signing checks, independence is not threatened. B.) Because the member has entered into a joint venture with the client, independence is impaired. C.) Because check-signing is a management function, independence is impaired. D.) Because the member is a co-signer for a short time, independence is not threatened. C.) Because check-signing is a management function, independence is impaired. elada and Smith, CPAs, and their client, Harris Electrical, are discussing a possible advisory engagement in which the firm would review Harris' accounts receivable system and recommend changes that would streamline the company's collection process. Harris will pay Zelada and Smith a fee based on improved performance in accounts receivable collections. Would this contingent fee arrangement raise any ethical concerns under the profession's rules? A.) Yes, but only if Zelada and Smith was performing other services for Harris. B.) No, provided Zelada and Smith documents the arrangement in the engagement letter. C.) No, but only if Harris is a publicly-traded company subject to SEC and PCAOB rules. D.) Yes, if Zelada and Smith also performed a review engagement for Harris. D.) Yes, if Zelada and Smith also performed a review engagement for Harris. Under AICPA rules, which statement best describes the period of the professional engagement as it applies ot a three-year engagement to audit a client's financial statements? A.) It begins each year when fieldwork commences and ceases when fieldwork ends. B.) It begins when the engagement letter is signed and ceases each year when the report is issued. C.) It begins when fieldwork commences and ceases when the report is issued, recommencing when fieldwork begins again for the next period. D.) It begins when the engagement letter is signed and continues until the report for the third year is issued unless the relationship is terminated sooner. D.) It begins when the engagement letter is signed and continues until the report for the third year is issued unless the relationship is terminated sooner. The clientele of Black & Company's audit practice consists primarily of privately-owned, small- and middle-market companies. Recently, the firm won two audits of public companies, including one issuer. From an independence perspective, what impact will these new client engagements have on Black & Company? A.) Black & Company will have to apply the IESBA's conceptual framework approach. B.) Black & Company will have to comply with DOL and GAO independence rules. C.) Black & Company will need an annual peer review and PCAOB inspection. D.) Black & Company will have to comply with SEC and PCAOB independence rules. D.) Black & Company will have to comply with SEC and PCAOB independence rules. Which statement best describes the AICPA ethics rules relating to advertising? A.) Advertising through the use of banner ads over the Internet is considered overreaching and is prohibited. B.) Mass email advertising is not allowed because it is considered a form of harassment. C.) Advertising over any form of mass media is prohibited. D.) Advertising is permitted as long as it is not false or misleading. D.) Advertising is permitted as long as it is not false or misleading. In which situation may you disclose confidential client information without violating the AICPA Code of Professional Conduct? A.) In response to a validly issued and enforceable subpoena. B.) At the request of another client that needs the information to file its tax return. C.) In a proposal to a potential client. D.) As an example in a seminar given for CPE credit. A.) In response to a validly issued and enforceable subpoena. he AICPA Ethics Codification includes which sections? (Check all that apply.) A.) Preface B.) Rules and interpretations applicable to members in public practice C.) Rules and interpretations applicable to members in nonprofits D.) Rules and interpretations applicable to others E.) Rules and interpretations applicable to members in tax practice F.) Rules and interpretations applicable to members in business G.) Rules and interpretations applicable to members in audit practice A, B, D, F Department of Labor (DOL) independence rules apply to: A.) All services provided to employee benefit plans. B.) Accounting services provided to employee benefit plans' sponsors. C.) Audit services provided to employee benefit plans. D.) All governmental audit and accounting engagements C.) Audit services provided to employee benefit plans. Sympatico Accountants engages ABC Tax Preparers to prepare routine tax returns during the busy season. Under the AICPA code, which action should Sympatico take prior to sharing its clients' information with ABC? A.) Inform its tax clients that the firm may be using an outside service when providing professional services. B.) List a notice in the local newspaper that the firm may be using an outside service when providing professional services. C.) Sympatico would not be required to take any particular action in this situation. D.) Ask clients to sign a waiver limiting Sympatico's liability in the event ABC makes errors in Sympatico's tax returns. A.) Inform its tax clients that the firm may be using an outside service when providing professional services. Lackey, CPAs, accepts a commission from Xue Corp., a financial statement review client, for referring Xue to an insurer. Which statement is accurate regarding commissions? A.) The commission is permitted because Lackey does not perform an audit of Xue's financial statement. B.) The commission is prohibited because a review client paid the fee for Lackey's referral of business to a third party. C.) The commission is prohibited if the fee structure is material to Lackey and will be paid to Lackey over a period of time. D.) The commission is prohibited if Lackey discloses to Xue that it will be receiving the fee. B.) The commission is prohibited because a review client paid the fee for Lackey's referral of business to a third party. Hossain and Nunes Company, CPAs, decides to subcontract a portion of its tax return preparation work to Morsman Tax Preparation Services, an unaffiliated income
tax service provider. What does Hossain and Nunes Company need to do to outsource tax work to the service provider? A.) Items 3 and 4 are required. B.) Items 1, 2, and 3 are required. C.) Items 2, 3, and 4 are required. D.) All four items are required. C.) Items 2, 3, and 4 are required. George Lem works for the San Antonio Buildings Department as an internal government auditor. He and his boss, Theresa Rose, report to the department's governing body. A statute gives Theresa sole authority over the selection, retention, advancement, and dismissal of her department's staff. Would George and Theresa be considered organizationally independent of the Buildings Department? A.) Yes, if the internal audit function also follows guidelines put forth by the Institute of Internal Auditors. B.) Yes, if the internal audit function meets all of the safeguards outlined in the Yellow Book. C.) No, because internal government auditors can never be considered independent of their employers. D.) No, because the internal audit function is so poorly staffed. B.) Yes, if the internal audit function meets all of the safeguards outlined in the Yellow Book. In which way do DOL independence rules differ from the AICPA rules? A.) The DOL defines a member much more broadly than the AICPA's covered member. B.) The DOL permits auditors to perform recordkeeping, whereas the AICPA rules would not. C.) The DOL rules ban auditors from providing actuarial services to benefit plans that they audit. D.) The DOL rules on non-attest services are more comprehensive than the AICPA independence rules. A.) The DOL defines a member much more broadly than the AICPA's covered member. Burke & Bagnell, CPAs, perform the annual audit for Switzer Foods. Switzer had been having a number of time-consuming personnel issues, so last year, Elizabeth Sterba, B&B's managing partner, drafted a human resources policy for them, which was subsequently edited and adopted. What type of threat is present? A.) No threat B.) Familiarity threat C.) Undue influence threat D.) Adverse interest threat E.) Management participation threat E.) Management Participation Threat When performing non-attest services for clients, which of these is the member's responsibility? A.) Design and implement the company's internal controls. B.) Evaluate the adequacy of the services performed. C.) Establish an understanding with the client as to the services to be performed. C.) Establish an understanding with the client as to the services to be performed. If a professional accountant is auditing a public company and she receives company shares as payment for her audit services, she will be violating the following fundamental principle: A.) Professional due care B.) Objectivity C.) Confidentiality D.) Integrity A.) Professional due care Department of Labor (DOL) independence rules apply to: A.) All governmental audit and accounting engagements. B.) All services provided to employee benefit plans. C.) Audit services provided to employee benefit plans. D.) Accounting services provided to employee benefit plans' sponsors. C.) Audit services provided to employee benefit plans. Under the SEC rules, which non-audit service would a public accounting firm most likely be permitted to provide to an SEC audit client? A.) Bookkeeping services while the entity searches for a new accounting manager. B.) Valuation services provided solely as part of a tax-planning engagement. C.) Business valuation services used to measure the impairment of goodwill. D.) Actuarial services used to determine pension costs and related liability. B.) Valuation services provided solely as part of a tax-planning engagement. Kayla Bradley is a covered member with respect to Joseph Co. Who must also comply with the independence rules? A.) Kayla's friend, whom she supports financially. B.) Kayla's son, who is married. C.) Kayla's first cousin, Saige. D.) Kayla's former spouse, Ryan. A.) Kayla's friend, whom she supports financially. Maria Wood obtained an MBA prior to joining the Ryan & Pick accounting firm in 2015. While going to school, Maria obtained student loans from Tyler Savings & Loan under Tyler's normal terms and conditions. The loans are not material to Maria's net worth; but Maria now finds herself a covered member with respect to Tyler Savings & Loan. Do Maria's student loans impair her independence with respect to Tyler S&L? A.) Yes, because Maria is a covered member. B.) Yes, if Maria obtained the loan within five years of joining the accounting firm. C.) No, because the loan is not material to her net worth, and it was obtained before she joined the accounting firm. D.) No, because the money was used to obtain a student loan. C.) No, because the loan is not material to her net worth, and it was obtained before she joined the accounting firm. Which statement best describes competence as defined in the AICPA Code of Professional Conduct? A.) Rendering services with acceptable promptness and caution. B.) Possessing an advanced college degree in the relevant subject matter. C.) Attaining and maintaining a level of understanding and knowledge to render services with facility and acumen. D.) Infallible judgment that cannot subsequently be called into question. C.) Attaining and maintaining a level of understanding and knowledge to render services with facility and acumen. Let's go back to that case involving Heather Dowell, CPA. Heather ran across some transactions that made her think perhaps the client was channel stuffing. The partner on the job said she'd known the owner of the company they were auditing for a long time and felt certain he wouldn't allow his company to be involved in anything like that. What type of threat to non-compliance was present here? A.) Self interest threat B.) Intimidation threat C.) Familiarity threat D.) Management participation threat E.) No threat C.) Familiarity threat __________________ governs federal tax practice before the IRS by actuaries, attorneys, CPAs, and others. A.) Treasury Department Circular 230 B.) The House of Representatives C.) The U.S. attorney journal D.) AICPA code of conduct Sect. 666 A.) Treasury Department Circular 230 Cartwright & Cheyenne, CPAs (C&C), and its client, Lott Lighting, are discussing a possible advisory engagement in which C&C would review Lott's accounts receivable system and recommend changes that would streamline the company's collection process. Lott will pay C&C a fee based on improved performance in accounts receivable collections. Would this contingent fee arrangement raise any ethical concerns under the profession's rules? A.) No, but only if Lott is a publicly-traded company subject to SEC and PCAOB rules. B.) Yes, if C&C also performed a review engagement for Lott. C.) No, provided C&C documents the arrangement in the engagement letter. D.) Yes, but only if C&C was performing other services for Lott. B.) Yes, if C&C also performed a review engagement for Lott. Under AICPA rules, which statement best describes the period of the professional engagement as it applies ot a three-year engagement to audit a client's financial statements? A.) It begins when fieldwork commences and ceases when the report is issued, recommencing when fieldwork begins again for the next period. B.) It begins when the engagement letter is signed and ceases each year when the report is issued. C.) It begins when the engagement letter is signed and continues until the report for the third year is issued unless the relationship is terminated sooner. D.) It begins each year when fieldwork commences and ceases when fieldwork ends. C.) It begins when the engagement letter is signed and continues until the report for the third year is issued unless the relationship is terminated sooner. Duncan & Co., CPAs, has provided annual audit and tax advisory services to Victoria Corp. for several years. Last year, Victoria experienced severe cash flow problems and was unable to pay Duncan in full, leaving a significant balance unpaid. Duncan is ready to begin fieldwork for the upcoming audit. What options are available to Duncan and Victoria under the AICPA code? A.) Victoria may have another firm perform the fieldwork and Duncan will review the other firm's work papers and issue the report. B.) Duncan may perform the audit as long as the unpaid fees relating to the prior year are paid in full before the current-year report is issued. C.) Victoria may give Duncan a note with a maturity date not later than one year after the date of the current-year report. D.) Duncan may set up a payment plan with Victoria to settle the unpaid fees over the next two years. B.) Duncan may perform the audit as long as the unpaid fees relating to the prior year are paid in full before the current-year report is issued. Which statement best describes the SEC rules relating to bookkeeping services? A.) Bookkeeping services are permitted if the fees from these services are insignificant relative to the audit fees. B.) An accountant generally cannot provide bookkeeping services to an SEC audit client. C.) Bookkeeping services are permitted, as long as the individual performing these services are not the same individuals performing the audit. D.) Bookkeeping services are permitted if the client agrees in writing to accept responsibility for the adequacy of these services. B.) An accountant generally cannot provide bookkeeping services to an SEC audit client. Sophie, the CFO of Slolum Ski Supplies, received a watch from one of her company's largest vendors, Colorado Ski Shoppe. She received the gift with a card congratulating her on Slolum's recent merger with another company. In determining whether accepting the gift would create a significant threat to her compliance with the AICPA code, which factor should Sophie consider? A.) Whether the gift cost more than $100. B.) Whether she truly earned the gift. C.) Whether she disclosed receipt of the gift to the board of directors. D.) Whether the gift was reasonable in the circumstances. D.) Whether the gift was reasonable in the circumstances. Sarah, the controller of a large beverage supplier, supervises two employees. Her boss, Vladimir, instructs her to increase the company's inventory balance for an amount that is material to the financial statements by crediting several small "miscellaneous" expense accounts. She does not understand why he wants her to make these entries but immediately directs one of her staff to make them because she has been instructed to do so. Which statement best describes Sarah's actions? A.) Sarah failed to consider the rules of other regulators. B.) Sarah failed to ensure that her staff was competent to make the entries. C.) Sarah failed to evaluate a potential ethical issue. D.) Sarah failed to refer the matter to the AICPA ethics hotline. C.) Sarah failed to evaluate a potential ethical issue. The AICPA Ethics Codification includes which sections? (Check all that apply.) A.) Rules and interpretations applicable to others B.) Rules and interpretations applicable to members in nonprofits C.) Rules and interpretations applicable to members in public practice D.) Rules and interpretations applicable to members in tax practice E.) Preface F.) Rules and interpretations applicable to members in business G.) Rules and interpretations applicable to members in audit practice A, C, E, F Ferrara Co., an SEC registrant, requests the assistance of Lowrie & Strapason, CPAs, (L&S) in performing human resource services. Which services may L&S perform for Ferrara without violating the independence rules? A.) Negotiating an appropriate salary for an incoming manager. B.) Searching for qualified financial executives. C.) Advising Ferrara on whether a particular candidate has the proper qualifications for a specific position. D.) Conducting interviews of the applicants and recommending who should have a second interview. C.) Advising Ferrara on whether a particular candidate has the proper qualifications for a specific position. Matthew Wood, CPA, has been reviewing the internal controls of Shreyas Shades Co. November Godrey, the proprietor, is clearly very proud of her operations. After just a quick overview of the operations, Matthew quickly determines that her internal controls are a hot mess; but this is a new client, and he doesn't want to discourage her, so before he gets started, he congratulates her on her "world class" internal controls. Which of the following fundamental principles has Matthew violated? A.) Matthew has not violated any of the fundamental principles B.) Professional competence and due care C.) Objectivity D.) Confidentiality E.) Integrity F.) Professional behavior E.) Integrity The integrity principle requires that you be straightforward and honest in all professional and business relationships. Sam Burke, CPA, finds a material error in his client's previously filed tax return and advises the client on how to correct it. Under AICPA rules, what should Sam do if the client does not agree to correct the error? A.) Offer a reduced fee to the client to correct the return. B.) Disclose the matter to the Internal Revenue Service. C.) Consider his continued association with the client. D.) Amend and file the return without the client's knowledge. C.) Consider his continued association with the client. Which of the following promulgates standards for tax preparers: A.) All of these B.) State accountancy boards C.) The AICPA D.) The Internal Revenue Service A.) All of these A ______ threat is a threat that you won't act with objectivity because your interests are opposed to the client's interests. A.) Self-interest threat. B.) Undue influence threat. C.) Familiarity threat. D.) Adverse interest threat. D.) Adverse interest threat. McManus Co. engages Allyson & Saige CPAs (A&S) to help improve the operating effectiveness of certain internal controls. Allyson & Saige also audits McManus' financial statements. Which of these creates an unacceptable management participation threat to A&S' independence? A.) Making recommendations to McManus. B.) Providing research materials to McManus' management. C.) Setting policy for McManus. D.) All of these C.) Setting policy for McManus. One of the steps required by the Code of Professional Conduct is to consider your comfort level. This question means that you should: A.) Consider how your decision will impact the financial comfort of the client. B.) Consider how much additional work the decision will create for you. C.) Consider how you would feel if your decision were made public. D.) Consider how your decision will impact your own financial comfort. C.) Consider how you would feel if your decision were made public. Karani Krafts wants to engage Kody & William, CPA's (K&W) as their auditors for the year ended December 31, 2017. What must happen under PCAOB Rule 3526? A.) K&W must provide a list of all firm members who must be independent of the client. B.) K&W must provide the results of independence investigations for all persons who may work on the engagement. C.) K&W must explicitly state that all covered persons in the firm have complied with all relevant ethical requirements. D.) K&W must describe in writing all the relationships with Karani Krafts that may reasonably be expected to affect their independence. D.) K&W must describe in writing all the relationships with Karani Krafts that may reasonably be expected to affect their independence. Jason (an audit manager) has been assigned to the audit of Syon Plumbing Supplies. Jason is concerned that Vijay, a fraternity brother from his college days, is on the internal audit staff of Syon. Jason believes he could provide services to this client in an objective manner. Which statement best describes how Jason should apply apply the AICPA conceptual framework approach in this situation? A.) Jason should document his assessment of independence, which should include a sworn statement from Vijay. B.) Jason should refuse to provide services to Syon because no safeguards would be effective in mitigating the threat(s) to his independence. C.) Jason should not participate in the audit of Syon before obtaining a written waiver from his firm's general counsel. D.) Jason should consider the threats to his independence and whether safeguards may be applied that reduce the threat(s) to an acceptable level. D.) Jason should consider the threats to his independence and whether safeguards may be applied that reduce the threat(s) to an acceptable level. Brian Bailey is on his firm's attest engagement team for client Thayer Corp. The CEO of Thayer calls Brian and asks whether he would consider taking a position as CFO of Thayer Corp. Brian tells the Thayer CEO that they can discuss this possibility after the engagement is complete. Has Brian handled this situation appropriately? A.) No B.) Yes A.) No A member has been asked to co-sign checks with a client employee while the company president is on vacation. Which statement about the application of the AICPA independence rules to this situation is correct? A.) Because check-signing is a management function, independence is impaired. B.) Because the member is a co-signer for a short time, independence is not threatened. C.) Because the member will only be co-signing checks, independence is not threatened. D.) Because the member has entered into a joint venture with the client, independence is impaired. A.) Because check-signing is a management function, independence is impaired. An example of a spousal equivalent as defined in AICPA independence rules is A.) A cousin who lives with and is supported by the covered member. B.) A roommate and long-time platonic friend of a covered member. C.) A person in a domestic partnership with a covered member. D.) A former spouse of a covered member who is financially independent of the covered member. C.) A person in a domestic partnership with a covered member. Which statement best describes the AICPA ethics rules relating to advertising? A.) Mass email advertising is not allowed because it is considered a form of harassment. B.) Advertising is permitted as long as it is not false or misleading. C.) Advertising through the use of banner ads over the Internet is considered overreaching and is prohibited. D.) Advertising over any form of mass media is prohibited. B.) Advertising is permitted as long as it is not false or misleading. In which situation may you disclose confidential client information without violating the AICPA Code of Professional Conduct? A.) At the request of another client that needs the information to file its tax return. B.) In response to a validly issued and enforceable subpoena. C.) As an example in a seminar given for CPE credit. D.) In a proposal to a potential client. B.) In response to a validly issued and enforceable subpoena. Which statement best describes the AICPA ethics rules relating to a member's failure to file his personal tax return in a timely manner? A.) The failure to file a personal tax return in a timely manner must be disclosed to all clients and potential clients. B.) The member is strongly encouraged to file his/her personal tax returns in a timely manner. C.) The member is not in violation of any ethics rules as long as the failure to file a personal tax return in a timely manner was due to a heavy workload. D.) The failure to file a personal tax return in a timely manner is usually considered an act discreditable to the profession. D.) The failure to file a personal tax return in a timely manner is usually considered an act discreditable to the profession. What does the integrity principle of the aicpa Code of Professional Conduct address?Integrity- Integrity means being honest and candid while also maintaining client confidentiality. This principle notes members should perform all professional responsibilities with the highest sense of integrity, which is the best course of action to maintain the public trust. What are the 6 principles of the aicpa code of professional conduct?The principles are: Responsibilities Principle, The Public Interest Principle, The Integrity Principle, Objectivity and Independence Principle, Due Care Principle, and the Scope and Nature of Services Principle. Which of the following is prohibited by the aicpa code of professional conduct?The AICPA Code of Professional Conduct prohibits direct solicitation of clients by CPAs. Which statement best describes the AICPA ethics rules relating to a members failure to file his or her?Answer and Explanation: Correct answer: Option C) The failure to file a personal tax return in a timely manner is usually considered an act discreditable to the profession. Which statement best describes how the International Ethics Standards Board for Accountants IESBA code affects the US accounting profession chegg?Answer and Explanation: *The correct answer is B. The AICPA agrees to adopt ethical standards that are as stringent as rules in the IESBA Code.
Which statement best describes how the International Ethics Standards Board for Accountants Code affects the?Which statement best describes how the International Ethics Standards Board for Accountants' (IESBA) Code impacts the U.S. accounting profession? The AICPA is required to adopt ethics standards that are at least as restrictive as the IESBA rules.
What is the IESBA code of ethics and why is this important in accounting?In June 2005, the IESBA (formerly the Ethics Committee) issued a revised Code of Ethics for Professional Accountants. The revised Code establishes a conceptual framework for all professional accountants to ensure compliance with the five fundamental principles of ethics: Integrity. Objectivity.
Which statement best describes a significant similarity between the AICPA and IESBA?Answer and Explanation: The correct answer is 1) Both codes incorporate the conceptual framework approach for evaluating threats when specific rules on a matter do not exist.
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Which statement best describes how the International Ethics Standards Board for Accountants Iesba code affects the US accounting profession quizlet?
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