21.For which of the following situations would the threats associated with employment of the auditors spouse generally be considered to be at an unacceptable level?

a. a warehouse supervisor

b. a cashier

c. a controller

d. the auditors independence would be impaired if the spouse served in any of the positions described above.

e. the auditors independence would be impaired if the spouse served in positions b. or c. above.

22. One of the primary uses of the Conceptual Framework for AICPA Independence Standards is that members should use the Framework to:

a. Come to different conclusions than the interpretations and rulings in the Code of Professional Conduct requires.

b. Evaluate independence matters not addressed in the Code of Professional Conduct.

c. Understand the rules on Confidential client information and acts discreditable to the profession.

d. More easily interpret conflicts of interest and subordination of audit judgment.

23. A two-office firm in Baton Rouge and New Orleans has an audit client based in Baton Rouge. Which of the following would violate rule 101?

a. A senior in New Orleans who does not work on the client owns a material amount of stock in the client.

b. The managing partner of the firm is based in New Orleans. The managing partner owns an immaterial amount of stock in the client.

c. The wife of a staff member who works on the engagement owns an immaterial amount of stock in the client.

d. All of the above would violate rule 101.

e. Both b. and c. above would violate rule 101.

24. Which one of the following statements is not true?

a. The auditor could communicate information about the clients expected cash flows to an agent representing bondholders without first obtaining client permission so long as the agent is duly appointed by a majority of the bondholders.

b. Information that a CPA obtains from a client is generally not privileged.

c. When a CPA firm conducts an AICPA-authorized peer review of the quality controls of another CPA firm, permission of the client is not needed in order to examine the working papers.

d. A CPA firm which observes substandard working papers of another firm can initiate a complaint of substandard performance with the AICPA Ethics Division trial board notwithstanding the confidentiality of the working papers.

25. A CPA is allowed to accept a referral fee for recommending a client to another CPA if

a. the client approves of the transaction either before or after the event.

b. the client pre-approves the transaction.

c. payment of the referral fee is disclosed to the client.

d. None of the above are true. Referrals are never acceptable.

26. Rule 505 of the AICPAs Code of Professional Conduct permits CPA firms to organize as

a. proprietorships or partnerships only.

b. proprietorships, partnerships, or professional corporations.

c. proprietorships, general partnerships, general corporations, professional corporations, limited liability partnerships and limited liability companies if permitted by state law.

d. single proprietorships, partnerships, professional corporations if permitted by state law, or regular corporations.

27. According to the professions ethical standards, an auditor would be considered independent in which of the following instances?

a. The auditors checking account, which is fully insured by a federal agency, is held at a client financial institution.

b. The auditor is also an attorney who advises the client as its general counsel.

c. An employee of the auditor donates service as treasurer of a charitable organization that is a client.

d. The client owes the auditor fees for two consecutive annual audits.

28. If a nonpublic company asks an accountant to perform a review engagement, and the accountant has an immaterial direct financial interest in the company, the accountant is

a. independent because the financial interest is immaterial.

b. not independent and, therefore, may not issue a review report.

c. not independent and, therefore, may not issue an audit opinion but may issue review report.

d. able to conduct the review as long as the financial interest in the client is disposed of prior to the issuance of the review report.

29. Mun is a CPA, but not a partner at Reliford and Ricks, CPAs. Mun owns 50 shares of stock in a company audited by her firm. Mun does not take part in the audit. The 50 shares are not material to her net worth. Is this a violation of independence rules?

1. Yes
2. No

30. Riggins is a CPA, but not a partner at Scholes and Pertuit, CPAs. Riggins owns 50 shares of stock in a company audited by her firm. Riggins takes part in the audit. The 50 shares are not material to her net worth. Is this a violation of independence rules?

a. Yes

b. No

31. Shrestha is a CPA, but not a partner at Silva and Smith, CPAs. Shrestha owns 5000 shares of stock in a company audited by his firm. Shrestha does not take part in the audit. The 5000 shares are material to his net worth. Is this a violation of independence rules?

a. Yes

b. No

32. Guidry is a CPA, but not a partner at Perkins and Koehl, CPAs. Guidrys spouse owns 50 shares of stock in a company audited by her firm. Guidry takes part in the audit. The 50 shares are not material to her net worth. Is this a violation of independence rules?

a. Yes

b. No

33.. Jackson is a CPA, but not a partner at Gurung and Hakenjos, CPAs. Jacksons non-dependent grandfather owns 5000 shares of stock in a company audited by his firm. Jackson does take part in the audit. The 5000 shares are material to his net worth. Is this a violation of independence rules?

a. Yes

b. No