Professional Documents
Culture Documents
Professional Ethics
False
False
False
False
False
6. Members of the AICPA are held responsible for compliance with the
Rules of Conduct by all persons associated with them in public practice,
including employees and partners.
True
False
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False
False
False
False
False
False
False
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15 Rule 503 permits commission type fees for all types of services.
.
True False
16 All CPAs are subject to the rules of conduct of the AICPA and state CPA
. societies.
True
False
False
False
20 A trial board can admonish, suspend, expel, or fine a CPA who has
. violated the Code of Conduct.
True
False
Reflective choice.
Moral principles.
Definitive conclusions.
Consequences of decisions.
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A.
B.
C.
D.
Imperative principle.
Utilitarianism principle.
Generalization principle.
Moral principle.
24 What agency has the ultimate authority for defining independence for
. public companies?
A.
B.
C.
D.
AICPA.
SEC.
Department of Justice.
Congress.
A.
To enforce SEC ethical standards.
B. To act as an investigative body of the AICPA when ethical violations
are suspected.
C. To make and enforce all rules of conduct for CPAs who are AICPA
members.
D. To establish minimal ethical standards for financial reporting.
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A.
B.
C.
D.
Responsibility.
Reliability.
Objectivity.
Due care.
27 Dara & Co. audits Hill Corporation. Ellie is the engagement partner on
. the audit with an office in Buffalo Grove. Which of the following would
not be considered a covered member?
A.
B.
C.
D.
A.
B.
C.
D.
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A.
B.
C.
D.
Independence.
Due professional care.
Planning and supervision.
Sufficient relevant data.
A. Decline the engagement because she does not have the specialized
industry knowledge.
B. Recommend another auditor and receive a fee for the referral.
C. Accept the engagement if she can obtain the required knowledge
before the end of the engagement.
D. Accept the engagement with the understanding that additional hours
will be required to learn and understand the nature of the business.
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A. The new controller sever all relations with the CPA firm, including any
retirement funds.
B. The new controller not take part in any discussions regarding the
retention of the audit form.
C.
The client find a new audit firm.
D. The client disclose the controller's relationship in the notes to the
financial statements.
37 The SEC requires companies to disclose fees paid to independent public
. accounting firms for audit and consulting services in the belief that:
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A.
B.
C.
D.
Imperative principle.
Utilitarianism principle.
Generalization principle.
Moral principle.
40 Julie and Lisa are sisters. Julie is a CPA auditing the company where Lisa
. works. Julie's independence is impaired if
A.
B.
C.
D.
Responsibilities to Clients.
Independence, Integrity, and Objectivity.
Responsibilities to Colleagues.
General and Technical Standards.
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A.
B.
C.
D.
A.
B.
C.
D.
The SEC.
The U.S. Department of Justice.
The AICPA Professional Ethics Division.
The Federal Trade Commission.
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A.
B.
C.
D.
A.
B.
C.
D.
Imperative principle.
Utilitarian principle.
Generalization principle.
Moral principle.
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A. Doing internal audit work does not impair the independence of Red
and Green.
B. The independence of Red and Green is impaired only if employees of
Red and Green act in a management capacity or make management
decisions.
C. The independence of Red and Green is impaired only if a member of
Red and Green's engagement team is hired to manage an accounting
function in Blue Corporation.
D. As a public accounting firm, Red and Green cannot be both the
internal and external auditors for publicly held companies and
maintain independence.
52 Violet, CPA, audits Big Bank, a local financial institution. Which of the
. following would most likely impair Violet's independence with regard to
Big Bank?
A. A home loan with the value of the house exceeding the mortgage
balance.
B.
A car loan collateralized by the car.
C. A personal loan collateralized by cash deposits at Big Bank.
D. A Visa credit card issued by Big Bank with a balance of $2,500.
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A.
All owners must be members.
B. The owners whose names appear in the firm name must be
members.
C. At least one of the owners must be a member.
D. The firm must be a dues-paying member.
55 In which of the following circumstances would a CPA who audits XZ
. Corporation lack independence?
A. The CPA and XZ's president are both on the board of directors of COD
Corporation.
B. Both the CPA and XZ's president own 25 percent of FOB Corporation,
a closely held company.
C. The CPA has an automobile loan from XZ, a financial institution. The
loan is collateralized by the automobile.
D. The CPA reduced XZ's usual audit fee by 40 percent prior to the audit
because XZ's financial condition was unfavorable.
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A. "Bob Bullet, CEO of A-One Corp, states that we are the best auditors
his company has ever used."
B. "We provide the best audit coverage of any firm in the state."
C. "We audit the five largest manufacturing companies in the state."
D. "We have several tax partners who work closely with judges and IRS
attorneys on high-profile legal issues."
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A.
The IRS.
B.
The FASB.
C. Another CPA firm performing a peer review.
D. Another CPA firm considering the purchase of the auditing firm.
60 Auditors are interested in having independence in appearance because
.
A.
B.
C.
D.
A.
B.
C.
D.
62 If a public accounting firm says it always follows the rule that requires
. adherence to FASB pronouncements in order to give a standard
unqualified auditors' report, it is following a philosophy characterized
by
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A.
B.
C.
D.
Rule 101Independence.
Rule 102Integrity and Objectivity.
Rule 301Confidential Client Information.
Rule 302Contingent Fees.
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A.
B.
C.
D.
Spouse.
Spousal equivalent.
Parent.
Uncle.
A. The scope of the audit must be reduced so that the auditor does not
audit the area for which the nonaudit work was performed.
B. The auditor is prohibited from providing nonaudit work in areas
directly related to the production of accounting information.
C. The senior members of the government entity must document their
review of the nonaudit service and indicate why it is appropriate for
the auditors to perform this service.
D. The scope of the audit cannot be reduced because the nonaudit work
was performed by the public accounting firm.
71 Which of the following is true?
.
A. Members of an audit engagement team cannot speak with audit
client officers about matters outside the scope of the audit while the
audit engagement is in progress.
B. Audit team members who leave the public accounting firm for
employment with audit clients can provide audit efficiencies (next
year) because they are very familiar with the firm's audit plans.
C. Audit team partners who leave the public accounting firm for
employment with audit clients can retain variable annuity retirement
accounts established in the person's former firm retirement plan.
D. The public accounting firm must discuss with the audit client's board
or its audit committee the independence implications of the client's
having hired the audit engagement team manager as its financial
vice president.
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A.
B.
C.
D.
A.
Auditing Standards Board.
B. Federal Accounting Standards Advisory Board.
C. Consulting Services Executive Committee.
D. Accounting and Review Services Committee.
74 Phil Greb has a thriving practice in which he assists attorneys in
. preparing litigation dealing with accounting and auditing matters. Phil is
"practicing public accounting" if he
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A.
Owns $1,000 worth of Ajax stock.
B. Has a husband who owns $1,000 worth of Ajax stock.
C. Has a sister who is the financial vice president of Ajax.
D. Owns $1,000 worth of the stock of Pericles Corporation, which is
controlled by Ajax as a result of Ajax's ownership of 40 percent of
Pericles' stock, and Pericles contributes 3 percent of the total assets
and income in Ajax's financial statements.
77 When a client's financial statements contain a material departure from
. an FASB Statement on Accounting Standards and the public accounting
firm believes the departure is necessary to ensure that the statements
are not misleading,
A. The public accounting firm must qualify the auditors' report for a
departure from GAAP.
B. The public accounting firm can explain why the departure is
necessary and then give an unqualified opinion paragraph in the
auditors' report.
C. The public accounting firm must give an adverse auditors' report.
D. The public accounting firm can give the standard unqualified
auditors' report with an unqualified opinion paragraph.
78 Which of the following would not be considered confidential information
. obtained in the course of an engagement for which the client's consent
would be needed for disclosure?
A. Information about whether a consulting client has paid the CPA's fees
on time.
B. The actuarial assumptions used by a tax client in calculating pension
expense.
C. Management's strategic plan for next year's labor negotiations.
D. Information about material contingent liabilities relevant for audited
financial statements.
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A.
Numerous moving traffic violations.
B. Failing to file the CPA's own tax return.
C. Filing a fraudulent tax return for a client in a severe financial
difficulty.
D. Refusing to hire Asian Americans in an accounting practice.
80 According to the AICPA Code of Conduct, which of the following acts is
. generally forbidden to CPAs in public practice?
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A.
Withholding a client's sales records.
B.
Failing to file or remit tax payments.
C. Failing to follow requirements of the PCAOB during the audit of an
SEC client.
D. Advertising that indicated the firm can reduce IRS penalties.
83 An auditor's independence would not be considered impaired if she or
. he had
A. Owned common stock of the audit client but sold it before the
company became a client.
B. Sold short the common stock of an audit client while working on the
audit engagement.
C. Served as the company's treasurer for six months during the year
covered by the audit but resigned before the company became a
client.
D. Performed the bookkeeping and financial statement preparation for
the company, which had no accounting personnel and for which the
president had no understanding of accounting principles.
84 When a CPA knows that a tax client has skimmed cash receipts and not
. reported the income in the federal income tax return but signs the
return as a CPA who prepared the return, the CPA has violated which of
the following AICPA Rules of Conduct?
A.
B.
C.
D.
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A.
B.
C.
D.
Commission.
Contingent fee.
Referral fee.
Nonaudit fee.
A.
B.
C.
D.
Imperative principle.
Utilitarianism principle.
Generalization principle.
Moral principle.
A.
B.
C.
D.
Public interest.
Due care.
Self-regulation.
Responsibilities.
A.
B.
C.
D.
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A.
B.
C.
D.
Independence.
Due professional care.
Planning and supervision.
Professional competence.
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93 If a CPA has violated a rule of Conduct, the AICPA trial board panel does
. not have the power to
A.
Revoke the person's CPA certificate.
B. Suspend the person's membership in AICPA and state society.
C.
Admonish the CPA.
D.
Acquit the CPA.
94 A member in public practice can receive a contingent fee for
.
A. An audit or review of a financial statement.
B. A compilation of a financial statement.
C. An examination of prospective financial statements.
D. Representing a client in an IRS tax audit.
95 Most state boards of accountancy do not
.
A.
B.
C.
D.
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113 For each situation (1-5), identify the most applicable AICPA rule of
.
conduct and indicate whether there is a violation or no violation of the
rule (A-F). One or more letters may not be used.
A. Rule 101: Independence; no violation
B. Rule 101: Independence; violation
C. Rule 102: Integrity and Objectivity; no violation
D. Rule 102: Integrity and Objectivity; violation
E. Rule 203: Accounting Principles; no violation
F. Rule 203: Accounting Principles; violation
____ 1. Sterling Stevens, CPA, was auditing Global Services Company.
Global Services used an accounting principle that was not in
conformity with GAAP. Nevertheless, Stevens rendered a standard
unqualified audit report.
____ 2. Christina Hall, CPA, provided expert testimony for a plaintiff.
The defendant in the case was a client of Hall's.
____ 3. Sam Miller, CPA, owned 100 shares of Johnson Drilling, Inc., his
audit client.
____ 4. Dewey Wise, CPA, obtained a loan from an insurance company
using the cash value of the insurance policy as collateral. The loan is
for less money than the cash value of the policy.
____ 5. Stella Steinbeck, CPA, was auditing Good Services Company,
which used an accounting principle that was not in conformity with
GAAP. Good Services believed and Steinbeck concurred that using a
generally accepted method would cause the financial statements to be
misleading. Therefore, Steinbeck rendered a standard unqualified audit
report.
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114 For each situation (1-5), identify the most applicable AICPA rule of
.
conduct and indicate whether there is a violation or no violation of the
rule (A-F). One or more letters may not be used, and you may use any
letter more than once.
A. Rule 101: Independence; no violation
B. Rule 101: Independence; violation
C. Rule 301: Confidential Client Information; no violation
D. Rule 301: Confidential Client Information; violation
E. Rule 302: Contingent Fees; no violation
F. Rule 302: Contingent Fees; violation
____ 1. Jackson, CPA, and one of his audit clients are considering
investing in a business together. Jackson would own 25 percent of the
business and the client would own 50 percent. Jackson's investment in
the business is material to his net worth.
____ 2. Feller, CPA, is the corporate controller for Robert Corporation.
Feller believes his employer may have committed an illegal act. After
discussing the matter with his attorney, Feller decides to disclose the
matter to the appropriate authorities.
____ 3. Brock, CPA, is an owner in the firm Louis and Brock, CPAs.
Brock's husband is on the board of directors of Midland Corporation, an
audit client of Louis and Brock. Brock does not participate on the audit
engagement.
____ 4. Ruth, CPA, owns a building and leases a portion of the space to
an audit client. The income from the lease is not material to Ruth.
____ 5. Maris, CPA, performs investment advisory services for an audit
client and receives an annual fee based on a percentage of the value
of the client's investment portfolio at the end of each year.
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115 For each situation (1-5), identify the most applicable AICPA rule of
.
conduct and indicate whether there is a violation or no violation of the
rule (A-F). One or more letters may not be used.
A. Rule 101: Independence; no violation
B. Rule 101: Independence; violation
C. Rule 301: Confidential Client Information; no violation
D. Rule 301: Confidential Client Information; violation
E. Rule 503: Commissions and Referrals; no violation
F. Rule 503: Commissions and Referrals; violation
____ 1. Brandon Frisby, CPA, found out that his client, Uptonogood, Inc.,
had failed to properly account for several leases. Frisby informed
Uptonogood's management that he must issue a qualified audit report
and disclose the lease problem in the report. Uptonogood's
management indicated that such a disclosure would constitute a
disclosure of confidential information. Nevertheless, Frisby rendered
the qualified audit report, including an explanatory paragraph about
the inadequate lease accounting.
____ 2. Priscilla Hudson, CPA, a partner in Hudson and Danhoffer, CPAs,
holds the position of honorary director for the Friends of the Symphony
Orchestra, a firm audit client.
____ 3. The wife of Gerald Skoch, CPA, is the controller of Fine
Corporation. Skoch is an audit partner for the Long Island office of
Barnes and Bucknell, CPAs. The Long Island office of Barnes and
Bucknell audits Fine Corporation, but Skoch is not part of the audit
team and provides no other services to Fine Corporation.
____ 4. Johnny Beacon, CPA, is the auditor of Novak Wholesale, Inc.
Beacon received a 10 percent commission from Computer Systems,
Inc. for hardware sold to Novak Wholesale, Inc. The sale was made
based on Beacon's recommendation to Novak Wholesale that the
company needed a new accounting information system. Beacon
disclosed the commission to Novak's management. Beacon also
performs an annual audit for Novak.
____ 5. Cecilia Hart, CPA, provides tax services to Myers Company. Hart
received a 10 percent commission from Computer Systems, Inc. for
hardware sold to Myers Company. The sale was made based on Hart's
recommendation to Myers Company that the company needed a new
accounting information system. Hart disclosed the commission to
Myers' management.
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116 For each of the following cases, indicate where the action or situation
.
is a violation of the AICPA Code of Professional Conduct and cite the
relevant rule or interpretation that would apply to it.
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Essay Questions
117 For each of the following cases indicate if the action by a member CPA
.
is a violation of the AICPA Code of Professional Conduct and cite the
relevant rule.
A. Disclosed client information to another CPA firm during the
discussion of a merger of the two firms
B. Allowed a company to change the way it values inventory to a
method that is not GAAP because following GAAP would be misleading
C. Had a new car loan from a bank that is a client when the bank holds
the title to the car
D. Based a fee on approval of a bank loan dependent on audited
financial statements
E. Did not comply with Government Auditing Standards on a
government audit
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118 For each of the following cases, indicate whether the action by a
.
member CPA is a violation of the AICPA Code of Professional Conduct
and cite the relevant rule.
A. Was a trustee of client's profit-sharing trust.
B. Accepted referral fees from local attorneys for nonattest clients with
the clients' knowledge.
C. Performed an audit in accordance with GASB standards.
D. Advises a client to have an insurance review from a local insurance
company in which the CPA has a material financial interest.
E. Promoted the CPA's tax service on local TV station.
119 What are (a) the AICPA Principles of Professional Conduct, (b) Rules of
.
Conduct, and (c) Interpretation of Rules of Conduct?
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120 What are the powers of the AICPA trial board in ethics violations?
.
121 Susan Small, CPA, has Medium Corporation as an audit client. Medium
.
has asked Small to create and install a new computerized payroll
system. Because Small does not have the appropriate level of
expertise, she referred Medium to Compusystems, Inc., a local
software consulting company. Small has an arrangement by which
Compusystems pays her 10 percent of any fee received from her
referrals. Small has disclosed this to her client.
Required:
This situation involves a possible violation of the AICPA's Code of
Professional Conduct. State the rule in question and explain why or
why not there is a violation of the code. You need not refer to the rule
number but should clearly describe the rule in question.
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122 Wally Wide is the partner on the audit engagement for First National
.
Bank for its fiscal year-end of January 31, 2013. Wally was recently
promoted to partner. Based on his increase in income, Wally and his
family bought a large home and a new car. First National Bank had the
most competitive mortgage rate and auto loan rates, so Wally
obtained both his mortgage loan and car loan from First National. Wally
paid 20 percent down on the house, received no special rate of
interest, and the First National Bank holds the title to the house. Wally
traded in his old car and made an additional down payment on the car
and financed 60 percent of the price of the car with the bank. Again,
Wally paid the prevailing interest rate and the bank holds the title to
the car.
Required:
This situation involves possible violations of the AICPA's Code of
Professional Conduct. State the rule in question and explain why or
why not there is a violation of the code. You need not refer to the rule
number but should clearly describe the rule in question.
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123 Ben Big is a partner in the Cleveland office of the national accounting
.
firm of Price Brickhouse. He owns 1,000 shares of common stock in
Public, Inc., an audit client of the firm. This amount is not material to
his personal investments. The Public, Inc. audit is done out of the New
York office. Ben Big has not informed the firm that he owns the shares
because he is not on the audit, which the Cleveland office doesn't
perform.
Required:
This situation involves a possible violation of the AICPA's Code of
Professional Conduct. State the rule in question and explain why or
why not there is a violation of the code. You need not refer to the rule
number but should clearly describe the rule in question.
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124 The Code of Professional Conduct is very important for the auditing
.
profession. The AICPA, state CPA boards, and other professional
organizations spend a great deal of time and effort implementing and
reinforcing the ethical standards as well as penalizing those who
violate the ethical standards.
Required:
A. Why is the Code of Professional Conduct important to the
profession?
B. Many professionals believe that in today's business environment it
is more difficult to adhere to the Code of Professional Conduct than
ever before. Why might this be true?
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2.
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3.
4.
AACSB: Analytic
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Topic: An Emphasis on Independence
5.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Topic: An Emphasis on Independence
6.
Members of the AICPA are held responsible for compliance with the
Rules of Conduct by all persons associated with them in public
practice, including employees and partners.
TRUE
Reference: Question also found in study guide
AACSB: Analytic
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Topic: An Emphasis on Independence
7.
AACSB: Analytic
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Topic: An Emphasis on Independence
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
8.
AACSB: Analytic
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Topic: An Emphasis on Independence
9.
AACSB: Analytic
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Topic: AICPA Rules of Conduct: Integrity and Objectivity, Responsibilities to Clients, and Other Responsibilities
10.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Topic: AICPA Rules of Conduct: Integrity and Objectivity, Responsibilities to Clients, and Other Responsibilities
11.
AACSB: Analytic
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Topic: AICPA Rules of Conduct: Integrity and Objectivity, Responsibilities to Clients, and Other Responsibilities
12.
AACSB: Analytic
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Topic: AICPA Rules of Conduct: Integrity and Objectivity, Responsibilities to Clients, and Other Responsibilities
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
13.
AACSB: Analytic
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Topic: AICPA Rules of Conduct: Integrity and Objectivity, Responsibilities to Clients, and Other Responsibilities
14.
AACSB: Analytic
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Topic: An Emphasis on Independence
15.
Rule 503 permits commission type fees for all types of services.
FALSE
Reference: Question also found in study guide
AACSB: Analytic
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Decision Making
Blooms: Understand
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Difficulty: 2 Medium
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Topic: AICPA Rules of Conduct: Integrity and Objectivity, Responsibilities to Clients, and Other Responsibilities
16.
All CPAs are subject to the rules of conduct of the AICPA and state
CPA societies.
FALSE
Reference: Question also found in study guide
AACSB: Analytic
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Topic: An Emphasis on Independence
17.
AACSB: Ethics
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: B-03 Identify the different entities that make ethics rules for CPAs and public accounting
firms.
Topic: Ethical Codes of Conduct
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
18.
AACSB: Ethics
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: B-03 Identify the different entities that make ethics rules for CPAs and public accounting
firms.
Topic: Ethical Codes of Conduct
19.
20.
A trial board can admonish, suspend, expel, or fine a CPA who has
violated the Code of Conduct.
FALSE
Reference: Question also found in study guide
AACSB: Analytic
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Learning Objective: B-06 Explain the types of penalties that can be imposed on accountants.
Topic: Consequences to Violating the Code of Professional Conduct
A.
B.
C.
D.
Reflective choice.
Moral principles.
Definitive conclusions.
Consequences of decisions.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: B-01 Understand general ethics and a series of steps for making ethical decisions.
Source: Original
Topic: Ethics
22.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
23.
A.
B.
C.
D.
Imperative principle.
Utilitarianism principle.
Generalization principle.
Moral principle.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: B-02 Reason through an ethical decision problem using the imperative; utilitarian; and
generalization principles of moral philosophy.
Source: Original
Topic: Philosophical Principles
24.
A.
B.
C.
D.
AICPA.
SEC.
Department of Justice.
Congress.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: B-03 Identify the different entities that make ethics rules for CPAs and public accounting
firms.
Source: Original
Topic: Governing Bodies
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
25.
A.
To enforce SEC ethical standards.
B. To act as an investigative body of the AICPA when ethical violations
are suspected.
C. To make and enforce all rules of conduct for CPAs who are AICPA
members.
D. To establish minimal ethical standards for financial reporting.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: B-03 Identify the different entities that make ethics rules for CPAs and public accounting
firms.
Source: Original
Topic: Governing Bodies
26.
A.
B.
C.
D.
Responsibility.
Reliability.
Objectivity.
Due care.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Rules of Conduct
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
27.
Dara & Co. audits Hill Corporation. Ellie is the engagement partner on
the audit with an office in Buffalo Grove. Which of the following would
not be considered a covered member?
28.
A.
B.
C.
D.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Rules of Conduct
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
29.
A.
B.
C.
D.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Source: Original
Topic: Independence
30.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
31.
32.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Source: Original
Topic: Independence
33.
34.
A.
B.
C.
D.
Independence.
Due professional care.
Planning and supervision.
Sufficient relevant data.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Rules of Conduct
35.
36.
A. The new controller sever all relations with the CPA firm, including
any retirement funds.
B. The new controller not take part in any discussions regarding the
retention of the audit form.
C.
The client find a new audit firm.
D. The client disclose the controller's relationship in the notes to the
financial statements.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Source: Original
Topic: Independence
37.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
38.
39.
A.
B.
C.
D.
Imperative principle.
Utilitarianism principle.
Generalization principle.
Moral principle.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: B-02 Reason through an ethical decision problem using the imperative; utilitarian; and
generalization principles of moral philosophy.
Source: Original
Topic: Philosophical Principles
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
40.
Julie and Lisa are sisters. Julie is a CPA auditing the company where
Lisa works. Julie's independence is impaired if
41.
A.
B.
C.
D.
Responsibilities to Clients.
Independence, Integrity, and Objectivity.
Responsibilities to Colleagues.
General and Technical Standards.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Rules of Conduct
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
42.
43.
A.
B.
C.
D.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Rules of Conduct
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
44.
45.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
46.
A.
B.
C.
D.
The SEC.
The U.S. Department of Justice.
The AICPA Professional Ethics Division.
The Federal Trade Commission.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Rules of Conduct
47.
A.
B.
C.
D.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Source: Original
Topic: Independence
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
48.
49.
A.
B.
C.
D.
Imperative principle.
Utilitarian principle.
Generalization principle.
Moral principle.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: B-02 Reason through an ethical decision problem using the imperative; utilitarian; and
generalization principles of moral philosophy.
Source: Original
Topic: Philosophical Principles
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
50.
A.
B.
C.
D.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Rules of Conduct
51.
Red and Green, CPAs are the external auditors for Blue Corporation, a
publicly held company. Blue Corporation has outsourced its internal
audit function to Red and Green. Which of the following statements is
true?
A. Doing internal audit work does not impair the independence of Red
and Green.
B. The independence of Red and Green is impaired only if employees
of Red and Green act in a management capacity or make
management decisions.
C. The independence of Red and Green is impaired only if a member
of Red and Green's engagement team is hired to manage an
accounting function in Blue Corporation.
D. As a public accounting firm, Red and Green cannot be both the
internal and external auditors for publicly held companies and
maintain independence.
AACSB: Ethics
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Source: Original
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Topic: Independence
52.
Violet, CPA, audits Big Bank, a local financial institution. Which of the
following would most likely impair Violet's independence with regard
to Big Bank?
A. A home loan with the value of the house exceeding the mortgage
balance.
B.
A car loan collateralized by the car.
C. A personal loan collateralized by cash deposits at Big Bank.
D. A Visa credit card issued by Big Bank with a balance of $2,500.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Source: Original
Topic: Independence
53.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
54.
A.
All owners must be members.
B. The owners whose names appear in the firm name must be
members.
C. At least one of the owners must be a member.
D. The firm must be a dues-paying member.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: AICPA
Topic: Rules of Conduct
55.
A. The CPA and XZ's president are both on the board of directors of
COD Corporation.
B. Both the CPA and XZ's president own 25 percent of FOB
Corporation, a closely held company.
C. The CPA has an automobile loan from XZ, a financial institution.
The loan is collateralized by the automobile.
D. The CPA reduced XZ's usual audit fee by 40 percent prior to the
audit because XZ's financial condition was unfavorable.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Source: AICPA
Topic: Independence
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
56.
57.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
58.
A. "Bob Bullet, CEO of A-One Corp, states that we are the best
auditors his company has ever used."
B. "We provide the best audit coverage of any firm in the state."
C. "We audit the five largest manufacturing companies in the state."
D. "We have several tax partners who work closely with judges and
IRS attorneys on high-profile legal issues."
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Rules of Conduct
59.
A.
The IRS.
B.
The FASB.
C. Another CPA firm performing a peer review.
D. Another CPA firm considering the purchase of the auditing firm.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Rules of Conduct
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
60.
A.
B.
C.
D.
61.
A.
B.
C.
D.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
62.
If a public accounting firm says it always follows the rule that requires
adherence to FASB pronouncements in order to give a standard
unqualified auditors' report, it is following a philosophy characterized
by
63.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
64.
65.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
66.
A.
B.
C.
D.
Rule 101Independence.
Rule 102Integrity and Objectivity.
Rule 301Confidential Client Information.
Rule 302Contingent Fees.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
67.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
68.
69.
A.
B.
C.
D.
Spouse.
Spousal equivalent.
Parent.
Uncle.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Difficulty: 1 Easy
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Source: Original
Topic: Independence
70.
A. The scope of the audit must be reduced so that the auditor does
not audit the area for which the nonaudit work was performed.
B. The auditor is prohibited from providing nonaudit work in areas
directly related to the production of accounting information.
C. The senior members of the government entity must document
their review of the nonaudit service and indicate why it is
appropriate for the auditors to perform this service.
D. The scope of the audit cannot be reduced because the nonaudit
work was performed by the public accounting firm.
Reference: Question also found in textbook
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Rules of Conduct
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71.
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
72.
73.
A.
Auditing Standards Board.
B. Federal Accounting Standards Advisory Board.
C. Consulting Services Executive Committee.
D. Accounting and Review Services Committee.
Reference: Question also found in textbook
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Rules of Conduct
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
74.
75.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
76.
A.
Owns $1,000 worth of Ajax stock.
B. Has a husband who owns $1,000 worth of Ajax stock.
C. Has a sister who is the financial vice president of Ajax.
D. Owns $1,000 worth of the stock of Pericles Corporation, which is
controlled by Ajax as a result of Ajax's ownership of 40 percent of
Pericles' stock, and Pericles contributes 3 percent of the total
assets and income in Ajax's financial statements.
Reference: Question also found in textbook
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Source: Original
Topic: Independence
77.
A. The public accounting firm must qualify the auditors' report for a
departure from GAAP.
B. The public accounting firm can explain why the departure is
necessary and then give an unqualified opinion paragraph in the
auditors' report.
C. The public accounting firm must give an adverse auditors' report.
D. The public accounting firm can give the standard unqualified
auditors' report with an unqualified opinion paragraph.
Reference: Question also found in textbook
AACSB: Ethics
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
78.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
79.
A.
Numerous moving traffic violations.
B. Failing to file the CPA's own tax return.
C. Filing a fraudulent tax return for a client in a severe financial
difficulty.
D. Refusing to hire Asian Americans in an accounting practice.
Reference: Question also found in textbook
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Rules of Conduct
80.
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Source: Original
Topic: Rules of Conduct
81.
82.
A.
Withholding a client's sales records.
B.
Failing to file or remit tax payments.
C. Failing to follow requirements of the PCAOB during the audit of an
SEC client.
D. Advertising that indicated the firm can reduce IRS penalties.
Reference: Question also found in textbook
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Rules of Conduct
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
83.
A. Owned common stock of the audit client but sold it before the
company became a client.
B. Sold short the common stock of an audit client while working on
the audit engagement.
C. Served as the company's treasurer for six months during the year
covered by the audit but resigned before the company became a
client.
D. Performed the bookkeeping and financial statement preparation
for the company, which had no accounting personnel and for which
the president had no understanding of accounting principles.
Reference: Question also found in textbook
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Source: Original
Topic: Independence
84.
When a CPA knows that a tax client has skimmed cash receipts and
not reported the income in the federal income tax return but signs
the return as a CPA who prepared the return, the CPA has violated
which of the following AICPA Rules of Conduct?
A.
B.
C.
D.
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85.
A.
B.
C.
D.
Commission.
Contingent fee.
Referral fee.
Nonaudit fee.
86.
A.
B.
C.
D.
Imperative principle.
Utilitarianism principle.
Generalization principle.
Moral principle.
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Difficulty: 2 Medium
Learning Objective: B-02 Reason through an ethical decision problem using the imperative; utilitarian; and
generalization principles of moral philosophy.
Source: Original
Topic: Philosophical Principles
87.
A.
B.
C.
D.
Public interest.
Due care.
Self-regulation.
Responsibilities.
88.
A.
B.
C.
D.
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Topic: Independence
89.
A.
B.
C.
D.
Independence.
Due professional care.
Planning and supervision.
Professional competence.
90.
A. John Smith, CPA owns 50 percent of the firm and Joan Jones, nonCPA, owns 50 percent.
B. Non-CPAs own 25 percent of the firm. The non-CPAs do not have a
college degree.
C. Non-CPAs own 40 percent of the firm and follow all AICPA
requirements.
D. Fred Smith, a non-CPA, owns 10 percent of the firm and has a fulltime job separate from the firm and views the ownership purely as
an investment.
Reference: Question also found in study guide
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Source: Original
Topic: Independence
91.
92.
Which of the following is not one of the guidelines for advertising for
CPAs practicing public accounting?
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Source: Original
Topic: Rules of Conduct
93.
If a CPA has violated a rule of Conduct, the AICPA trial board panel
does not have the power to
94.
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95.
A.
B.
C.
D.
97.
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98.
99.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
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1. F; 2. C; 3. B; 4. B; 5. E
AACSB: Ethics
AICPA BB: Legal
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
114. For each situation (1-5), identify the most applicable AICPA rule of
conduct and indicate whether there is a violation or no violation of
the rule (A-F). One or more letters may not be used, and you may use
any letter more than once.
A. Rule 101: Independence; no violation
B. Rule 101: Independence; violation
C. Rule 301: Confidential Client Information; no violation
D. Rule 301: Confidential Client Information; violation
E. Rule 302: Contingent Fees; no violation
F. Rule 302: Contingent Fees; violation
____ 1. Jackson, CPA, and one of his audit clients are considering
investing in a business together. Jackson would own 25 percent of the
business and the client would own 50 percent. Jackson's investment
in the business is material to his net worth.
____ 2. Feller, CPA, is the corporate controller for Robert Corporation.
Feller believes his employer may have committed an illegal act. After
discussing the matter with his attorney, Feller decides to disclose the
matter to the appropriate authorities.
____ 3. Brock, CPA, is an owner in the firm Louis and Brock, CPAs.
Brock's husband is on the board of directors of Midland Corporation,
an audit client of Louis and Brock. Brock does not participate on the
audit engagement.
____ 4. Ruth, CPA, owns a building and leases a portion of the space
to an audit client. The income from the lease is not material to Ruth.
____ 5. Maris, CPA, performs investment advisory services for an audit
client and receives an annual fee based on a percentage of the value
of the client's investment portfolio at the end of each year.
1. B; 2. C; 3. B; 4. A; 5. F
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
115. For each situation (1-5), identify the most applicable AICPA rule of
conduct and indicate whether there is a violation or no violation of
the rule (A-F). One or more letters may not be used.
A. Rule 101: Independence; no violation
B. Rule 101: Independence; violation
C. Rule 301: Confidential Client Information; no violation
D. Rule 301: Confidential Client Information; violation
E. Rule 503: Commissions and Referrals; no violation
F. Rule 503: Commissions and Referrals; violation
____ 1. Brandon Frisby, CPA, found out that his client, Uptonogood,
Inc., had failed to properly account for several leases. Frisby informed
Uptonogood's management that he must issue a qualified audit
report and disclose the lease problem in the report. Uptonogood's
management indicated that such a disclosure would constitute a
disclosure of confidential information. Nevertheless, Frisby rendered
the qualified audit report, including an explanatory paragraph about
the inadequate lease accounting.
____ 2. Priscilla Hudson, CPA, a partner in Hudson and Danhoffer,
CPAs, holds the position of honorary director for the Friends of the
Symphony Orchestra, a firm audit client.
____ 3. The wife of Gerald Skoch, CPA, is the controller of Fine
Corporation. Skoch is an audit partner for the Long Island office of
Barnes and Bucknell, CPAs. The Long Island office of Barnes and
Bucknell audits Fine Corporation, but Skoch is not part of the audit
team and provides no other services to Fine Corporation.
____ 4. Johnny Beacon, CPA, is the auditor of Novak Wholesale, Inc.
Beacon received a 10 percent commission from Computer Systems,
Inc. for hardware sold to Novak Wholesale, Inc. The sale was made
based on Beacon's recommendation to Novak Wholesale that the
company needed a new accounting information system. Beacon
disclosed the commission to Novak's management. Beacon also
performs an annual audit for Novak.
____ 5. Cecilia Hart, CPA, provides tax services to Myers Company.
Hart received a 10 percent commission from Computer Systems, Inc.
for hardware sold to Myers Company. The sale was made based on
Hart's recommendation to Myers Company that the company needed
a new accounting information system. Hart disclosed the commission
to Myers' management.
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1. C; 2. A; 3. B; 4. F; 5. E
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Independence
Topic: Rules of Conduct
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
116. For each of the following cases, indicate where the action or situation
is a violation of the AICPA Code of Professional Conduct and cite the
relevant rule or interpretation that would apply to it.
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Essay Questions
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117. For each of the following cases indicate if the action by a member
CPA is a violation of the AICPA Code of Professional Conduct and cite
the relevant rule.
A. Disclosed client information to another CPA firm during the
discussion of a merger of the two firms
B. Allowed a company to change the way it values inventory to a
method that is not GAAP because following GAAP would be
misleading
C. Had a new car loan from a bank that is a client when the bank
holds the title to the car
D. Based a fee on approval of a bank loan dependent on audited
financial statements
E. Did not comply with Government Auditing Standards on a
government audit
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Independence
Topic: Rules of Conduct
118. For each of the following cases, indicate whether the action by a
member CPA is a violation of the AICPA Code of Professional Conduct
and cite the relevant rule.
A. Was a trustee of client's profit-sharing trust.
B. Accepted referral fees from local attorneys for nonattest clients
with the clients' knowledge.
C. Performed an audit in accordance with GASB standards.
D. Advises a client to have an insurance review from a local insurance
company in which the CPA has a material financial interest.
E. Promoted the CPA's tax service on local TV station.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Independence
Topic: Rules of Conduct
119. What are (a) the AICPA Principles of Professional Conduct, (b) Rules of
Conduct, and (c) Interpretation of Rules of Conduct?
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
120. What are the powers of the AICPA trial board in ethics violations?
The trial board has the power to (a) acquit the CPA, (b) admonish the
CPA, (c) suspend the CPA's membership in the state society and the
AICPA for up to two years, or (d) expel the CPA from the state society
and the AICPA.
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: B-06 Explain the types of penalties that can be imposed on accountants.
Source: Original
Topic: Ethics Violation Penalties
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Difficulty: 2 Medium
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Rules of Conduct
122. Wally Wide is the partner on the audit engagement for First National
Bank for its fiscal year-end of January 31, 2013. Wally was recently
promoted to partner. Based on his increase in income, Wally and his
family bought a large home and a new car. First National Bank had
the most competitive mortgage rate and auto loan rates, so Wally
obtained both his mortgage loan and car loan from First National.
Wally paid 20 percent down on the house, received no special rate of
interest, and the First National Bank holds the title to the house.
Wally traded in his old car and made an additional down payment on
the car and financed 60 percent of the price of the car with the bank.
Again, Wally paid the prevailing interest rate and the bank holds the
title to the car.
Required:
This situation involves possible violations of the AICPA's Code of
Professional Conduct. State the rule in question and explain why or
why not there is a violation of the code. You need not refer to the rule
number but should clearly describe the rule in question.
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Topic: Independence
123. Ben Big is a partner in the Cleveland office of the national accounting
firm of Price Brickhouse. He owns 1,000 shares of common stock in
Public, Inc., an audit client of the firm. This amount is not material to
his personal investments. The Public, Inc. audit is done out of the
New York office. Ben Big has not informed the firm that he owns the
shares because he is not on the audit, which the Cleveland office
doesn't perform.
Required:
This situation involves a possible violation of the AICPA's Code of
Professional Conduct. State the rule in question and explain why or
why not there is a violation of the code. You need not refer to the rule
number but should clearly describe the rule in question.
The rule in question is Rule 101: Independence. Ben Big has not
violated this rule because he is not considered a covered member.
Partners are covered members only if they are in the office in which
the lead attest engagement partner primarily practices in connection
with the attest engagement. Only covered members and their
immediate families are prohibited from having a direct financial
interest in the client
AACSB: Ethics
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: B-04 With reference to American Institute of Certified Public Accounting (AICPA);
Government Accountability Office (GAO); Public Company Accounting Oversight Board (PCAOB); and Securities
and Exchange Commission (SEC) rules; analyze factual situations and decide whether an accountant's conduct
does or does not impair independence.
Source: Original
Topic: Independence
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
124. The Code of Professional Conduct is very important for the auditing
profession. The AICPA, state CPA boards, and other professional
organizations spend a great deal of time and effort implementing and
reinforcing the ethical standards as well as penalizing those who
violate the ethical standards.
Required:
A. Why is the Code of Professional Conduct important to the
profession?
B. Many professionals believe that in today's business environment it
is more difficult to adhere to the Code of Professional Conduct than
ever before. Why might this be true?
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Learning Objective: B-05 With reference to AICPA rules on topics other than independence; analyze factual
situations and decide whether an accountant's conduct does or does not conform to the AICPA Rules of Conduct.
Source: Original
Topic: Rules of Conduct
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.