1. Several months after an unmodified audit report was issued, the auditor discovers the financial statements were materially misstated. The clients chief executive officer agrees that the statements are misstated, but refuses to issue a correction, and claims that confidentiality prevents the CPA from informing anyone.

a. CEO is correct. Auditor must maintain confidentiality.

b. CEO is wrong, but since auditors report is issued, it is too late to retract.

c. CEO is correct, but to be ethically correct the auditor should violate the confidentiality rule and disclose the error.

d. CEO is wrong, and auditor has an obligation to issue a revised correct audit report, even if CEO will not revise and correct the financial statements.

2. The founders of the CPA firm of Harmon and DuPepe, both of whom were CPAs, have been deceased for 15 years. The firm currently has three partners named Dusenberry, Pocorello, and Pertuit are CPAs. Braun is not. The firm makes the statement that it is a member of the AICPA in its promotional materials. Is the firm in violation of the code regarding the statement?

a. No, because a majority of the partners are CPAs.

b. No, if it makes no reference to the individual CPA who is not a partner in those materials.

c. No, because the founding partners were both CPAs.

d. Yes because when a partner dies, the partners name cannot be used in the firm name.

e. Yes because not all of the current partners are CPAs

3. Which of the following factors would be considered relevant in considering whether a gift received by a CPA from a company vendor was acceptable under AICPA rules?

a. Whether the CPA disclosed the gift.

b. Whether the CPA earned the gift

c. Whether the gift was reasonable in the circumstances.

d. Whether the gift cost more than $100.

4. Which is a true statement relative to the use of the conceptual framework approach for independence in the Code of Professional Conduct?

1. It is difficult to specifically identify all of the situations that could impair an auditors independence.
2. When a specific rule is silent or does not exist regarding an auditors particular situation, the auditor cannot be held accountable for a violation of the Code of Professional Conduct.
3. When a threat exists, the threat might be able to be mitigated through safeguards.
4. When a specific rule indicates a violation has occurred, but the actual threat is minimal, the conceptual framework approach provides the means by which the auditor could justify the violation.
5. Both a. and c. above are true statements

5. CPAs may provide bookkeeping services to their non-public audit clients, but there are a number of conditions that must be met if the auditor is to maintain his/her independence. Which of the following conditions is not necessary?

a. The CPA must not assume a management role or function.

b. The client must hire an external CPA to approve all of the journal entries prepared by the auditor.

c. The auditor must comply with GAAS when auditing work prepared by his/her firm.

d. The client must accept responsibility for the financial statements.

e. All of the above are necessary.

6. Following are three statements that could pertain to the standard of due care:

The CPA is required to

1. Discharge responsibilities with competence and diligence
2. Exercise infallible judgment
3. Serve the interests of the client ahead of competing interests.

Which of these statements is (are) true?

1. Statements 1, 2, and 3
2. Statements 1, and 2
3. Statements 1, and 3
4. Statement 1
5. Statement 3

7. In which of the following situations may you disclose confidential client information without violating the Code of Professional Conduct?

a. In response to a valid subpoena

b. At the request of an agent of the bondholders of the client.

c. As an example in a seminar you are giving for CPE credit.

d. All of the above are acceptable.

e. Both a. and b. above are acceptable.

8. Which of the following statements is (are) true when the CPA has been engaged to do an attestation engagement?

a. The CPA firm is engaged and paid by the client; therefore, the firm has primary responsibility to be an advocate for the client.

b. Should a situation arise where there is no convincing authoritative standard available, and there is a choice of actions which could impact clients financial statements either positively or negatively, the CPA is free to endorse the choice which is in the clients interests.

c. As long as CPA firms are competent, it is not required that they remain unbiased.

d. None of the above is true.

e. Both a. and b. above are true.

9. Of the following, which is probably the most correct statement as to why principles are included in the Code of Conduct?

a. They emphasize what you should do

b. They make enforcement easier.

c. Nobody can be expected to follow all of the rules all of the time. Principles help to guide CPAs back on track.

d. They provide concrete examples of unacceptable behavior that has resulted in violations in the past.

e. All of the above are equally accurate statements as to why principles are included.

10. Graham, CPA engages Cunnikin Tax Service to assist with preparing routine tax returns during the busy season. Prior to sharing client information with Cunnikin, what must Graham do?

1. Inform tax clients that the firm may be using an outside service provider when providing professional services to the client.
2. Inform all clients that the firm, at tax time, may use Cunnikin to assist with client services.
3. Obtain a written waiver from the client before sharing with Cunnikin.
4. No action is needed before sharing the information.