Question 1

Each of the following is an outright restriction on providing nonattest services for an attest client except for:

Accepted Answer

A)  Tax services
B)  Financial information systems design and implementation
C)  Appraisal or valuation services
D)  Internal audit outsourcing servicesE) A) and B)
F) None of the above

Question 2

Assume the external auditor of a client entity also served on the client's board of directors.What aspect of independence would be violated?

Accepted Answer

A)  The auditor may be exposed to an intimidation threat by the client
B)  The auditor is involved in a business relationship with the client
C)  The auditor serves in a management decision making position with the client
D)  All of the aboveE) C) and D)
F) A) and B)

Question 3

In the PeopleSoft case, the auditors violated what aspect of independence?

Accepted Answer

A)  The auditor was exposed to an intimidation threat by the client
B)  The auditor was involved in a business relationship with the client
C)  The auditor served in a management decision making position with the client
D)  All of the aboveE) A) and B)
F) None of the above

Question 4

Which rule of professional conduct in the AICPA code does not apply both to internal and external accountants who are CPAs and members of the Institute?

Accepted Answer

A)  Independence
B)  Integrity
C)  Objectivity
D)  Due careE) None of the above
F) B) and C)

Question 5

Which of the following would be an example of due care?

Accepted Answer

A)  Audit documentation all supplied by the client.
B)  Audit documentation is a copy of last year's work papers.
C)  Audit documentation with reviews by senior, manager, and partner.
D)  Audit documentation with misapplication of GAAP.E) B) and C)
F) B) and D)

Question 6

The House Subcommittee on Oversight and Investigations made its recommendations after looking into failures at:

Accepted Answer

A)  ESM Government Securities
B)  Continental Illinois National Bank and Trust
C)  Penn Square Bank
D)  All of the aboveE) None of the above
F) A) and C)

Question 7

In which of the following is a CPA independent in fact and appearance?

Accepted Answer

A)  The CPA's brother is the controller of the company being audited.
B)  The CPA serves on the board of a non-profit with the CFO of the company being audited.
C)  The CPA borrowed money for a new car from the CEO of the company being audited.
D)  The CPA owes an office building that he leases to the client.E) All of the above
F) A) and B)

Question 8

Which was the ethical concern in the PeopleSoft case?

Accepted Answer

A)  Family relationships between PeopleSoft and EY
B)  Nonattest services for PeopleSoft by EY
C)  Independence in appearance and fact
D)  Managerial services for PeopleSoft by EYE) None of the above
F) A) and B)

Question 9

An alternative practice structure can best be described as:

Accepted Answer

A)  A form of ownership where a CPA firm owns a public company and audits that company
B)  A form of structure where a public company provides nonattest services for a client that is also provided with attest services by an affiliate of the public company
C)  A form of structure where a CPA firm provides nonattest services for a client that is also provided with attest services by a public company
D)  A form of structure other than LLP and LLCE) B) and C)
F) None of the above

Question 10

The revenue recognition issue in the Family Games case is:

Accepted Answer

A)  Whether a company can record revenue before it is signed-off by the lawyers
B)  Whether a company can record revenue before it is shipped to the customer
C)  Whether a company can record revenue before the revenue recognition rules are met
D)  All of the aboveE) B) and C)
F) A) and D)

Question 11

The AOL case described in the text focused mainly on:

Accepted Answer

A)  Proper accounting for line costs
B)  Proper accounting for advertising costs
C)  Proper accounting for special purpose entities
D)  All of the aboveE) B) and C)
F) A) and D)

Question 12

Which example illustrates the danger of a CPA accepting loans from an audit client?

Accepted Answer

A)  Tyco International
B)  Enron
C)  Alphadelphia
D)  ESM Government SecuritiesE) None of the above
F) A) and B)

Question 13

The Bubba and Rufus case deals primarily with:

Accepted Answer

A)  Audit independence
B)  Tax avoidance
C)  Contingent fees in tax services
D)  Engaging in Nonattest services for an audit clientE) A) and B)
F) B) and D)

Question 14

A common requirement/effect of the commissions and contingent fees rule is:

Accepted Answer

A)  A CPA who accepts such a payment always violates independence
B)  The CPA must disclose the acceptance of such a payment to the client
C)  A CPA is prohibited from accepting such a form of payment when engaged in attest services for a client
D)  All of the aboveE) None of the above
F) All of the above

Question 15

Which of the following is a permitted loan to a CPA from an audit client financial institution?

Accepted Answer

A)  Car loan collateralized by the car
B)  Credit cards with a limit greater than $25,000
C)  Home mortgage
D)  Personal loan of less than $10,000E) B) and C)
F) All of the above

Question 16

What is the primary fiduciary responsibility of professional accountants?

Accepted Answer

A)  Stockholders
B)  Public interest
C)  Client
D)  StakeholdersE) A) and B)
F) None of the above

Question 17

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

Accepted Answer

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

Question 18

The committee that first recommended that the profession institute a voluntary program for peer review was:

Accepted Answer

A)  Metcalf committee
B)  Cohen committee
C)  The House Subcommittee on Oversight and Investigations
D)  Mintz and Morris committeeE) C) and D)
F) A) and B)

Question 19

To avoid violating independence when engaged in nonattest services for an audit client, a CPA must:

Accepted Answer

A)  Make all management decisions and perform all management decisions
B)  Evaluate the adequacy and results of the services performed
C)  Avoid being biased when providing nonattest services for the audit client
D)  Avoid being pressured by the client when providing nonattest services for the audit clientE) A) and B)
F) B) and D)

Question 20

The conceptual framework for the AICPA Independence standards can best be characterized as:

Accepted Answer

A)  A model to prevent fraud from occurring
B)  An approach to identify threats to independence
C)  An approach to identify fraud risks
D)  A model to assist controllers in dealing with differences of opinion with top management on accounting issuesE) None of the above
F) A) and B)

Exam 4: Aicpa Code of Professional Conduct

Which example illustrates the danger of a CPA accepting loans from an audit client?

Correct AnswerverifiedShow Answer

Which of the following would be an example of due care?

Correct AnswerverifiedShow Answer

To avoid violating independence when engaged in nonattest services for an audit client, a CPA must:

Correct AnswerverifiedShow Answer

The AOL case described in the text focused mainly on:

Correct AnswerverifiedShow Answer

The Bubba and Rufus case deals primarily with:

Correct AnswerverifiedShow Answer

The conceptual framework for the AICPA Independence standards can best be characterized as:

Correct AnswerverifiedShow Answer

The committee that first recommended that the profession institute a voluntary program for peer review was:

Correct AnswerverifiedShow Answer

The House Subcommittee on Oversight and Investigations made its recommendations after looking into failures at:

Correct AnswerverifiedShow Answer

In which of the following is a CPA independent in fact and appearance?

Correct AnswerverifiedShow Answer

Which of the following is a permitted loan to a CPA from an audit client financial institution?

Correct AnswerverifiedShow Answer

Each of the following is an outright restriction on providing nonattest services for an attest client except for:

Correct AnswerverifiedShow Answer

A common requirement/effect of the commissions and contingent fees rule is:

Correct AnswerverifiedShow Answer

Which was the ethical concern in the PeopleSoft case?

Correct AnswerverifiedShow Answer

Assume the external auditor of a client entity also served on the client's board of directors.What aspect of independence would be violated?

Correct AnswerverifiedShow Answer

Which rule of professional conduct in the AICPA code does not apply both to internal and external accountants who are CPAs and members of the Institute?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What is the primary fiduciary responsibility of professional accountants?

Correct AnswerverifiedShow Answer

The revenue recognition issue in the Family Games case is:

Correct AnswerverifiedShow Answer

An alternative practice structure can best be described as:

Correct AnswerverifiedShow Answer

In the PeopleSoft case, the auditors violated what aspect of independence?

Correct AnswerverifiedShow Answer

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