25. Terry Industries engages Rose & Co., CPAs, to prepare its annual financial statements and tax returns. As soon as Rose completes the services, Terry pays for the services and terminates the relationship and asks the firm to provide all records and work product. What records or other information should Rose provide to Terry under the Records Requests interpretation?

Whatever records it wishes to provide.

Any and all records, working papers, and work product.

All working papers and work product.

Records that were provided to Rose and any work product.

26. Which statement best describes the AICPA interpretation relating to preparation of financial statements?

The member is required to prepare and file a client or employer's financial statements in a timely manner.

The member is not in violation of this interpretation if failure to file a client or employer's financial statements timely was due to a heavy workload.

The interpretation states that involvement with materially false and misleading financial statements may be an act discreditable to the profession.

The interpretation applies solely to members who are grossly negligent when preparing a client or employer's financial statements.

27. Under Part 363 of the Federal Deposit Insurance Corporation (FDIC) requirements, a firm auditing an insured depository institution must apply which independence rules?

AICPA and SEC rules only.

AICPA rules only.

SEC and PCAOB rules only.

AICPA, SEC, and PCAOB rules.

28. Your firm wishes to assist Company X (a tax client) with plans to acquire your audit client. When evaluating a potential conflict of interest, which factor is not a relevant consideration?

Whether your firm's policies consider this scenario to create a conflict of interest.

Whether threats to your firm's compliance with the code would be at an acceptable level.

Whether the appropriate people consent to your firm performing the acquisition-related services.

Whether violation of the AICPA code would subject your firm to substantial penalties.

29. A tax client asks Elena to perform additional tax-related services. Her experience in this area of tax law is limited. Which statement best describes what Elena should do under the AICPA Code of Professional Conduct before she agrees to perform the additional service?

Elena should seek sources of assistance to perform the service.

Elena should structure the fee for the service as a contingent fee.

Elena should include an indemnification clause in the updated engagement letter.

Elena should consider whether the service will impair her independence.

30. Gail (an audit manager) has been assigned to the audit of Tandem Electric, Inc. Gail is concerned that Frank, a friend from her local tennis club, is in the management group of Tandem Electric. She believes she should apply the AICPA conceptual framework but is uncertain how to do so. What should Gail do first in this situation?

She should not provide services to Tandem Electric.

She should identify threats to her independence.

She should obtain a written waiver from her firm's general counsel.

She should obtain a sworn statement from Frank.

31. Which statement best describes a broad similarity between the International Code of Ethics for Professional Accountants, including International Independence Standards, (international code) and the AICPA Code of Professional Conduct (the AICPA code)?

In all cases, a breach of independence would require a firm to withdraw any audit reports.

In some cases, applying either code to a set of circumstances will produce similar results.

In some cases, a professional may apply the conceptual framework instead of a rule.

In all cases, personal financial interests create threats to compliance with the code.

32. Becker & Smith, CPAs, performs a financial statement review for BAM Markets (BAM). Caroline, the manager on the job, learns that Don, a member of the review team, violated the independence rules because his sister works in a key position at BAM. Under the Breach of an Independence interpretation, what is the first thing Caroline should do?

Disclose the violation to the appropriate person in her firm in accordance with policy.

Speak to the client's review partner about reperforming all of Don's audit work.

Determine whether Don's participation on the review impaired the team's objectivity.

Ask human resources to immediately investigate Don's professional conduct.

33. Which statement best describes a provision in the Department of Labor (DOL) independence rules?

The DOL will consider all relevant circumstances when evaluating independence.

The auditor may not perform nonaudit services for the client.

The DOL will not comment on auditor independence matters.

The auditor may not have an indemnification agreement with the client.

34. In which instance would the AICPA Code of Professional Conduct permit a company's audit firm to accept an otherwise prohibited contingent fee?

When the contingent fee is clearly insignificant to the audit firm.

When the audit firm avoids performing management responsibilities.

When a court or other public authority sets the fee.

When the contingent fee relates to a nonattest service.

35. Which is not a primary source of the PCAOB independence rules?

AICPA Frequently Asked Questions: Nonattest Services.

SEC Rule 2-01.

AICPA independence rules as of April 16, 2003.

Certain standards and interpretations adopted by the Independence Standards Board.

36. Once you have considered the alternative approaches to the ethical issue, which step should you perform next?

Gather the critical information involved with the ethical issue.

Make a decision about the ethical issue.

Consider the impact of the ethical issue on the relevant stakeholders.

Identify the people or organizations that will benefit or be harmed by the ethical issue.

37. Josie is an accounting supervisor at Monk & Sons Realty. She instructs her subordinate, Maria, to make certain accounting entries in the company's books that will increase revenue by a material amount. Maria researches the matter and tells Josie that recognizing revenue in this way would be premature and not consistent with GAAP. She discusses her concerns with Josie and later, Monk's CFO, both of whom insist she make the entries. She also has a confidential discussion with Monk's internal audit chief, who shares her concerns. To comply with the AICPA Code of Professional Conduct, what other option should Maria consider?

Make the entries as her bosses instructed.

Take out a professional liability policy.

Discuss the matter with the board of directors.

Report the matter to the board of accountancy.

38. Which statement best describes the SEC independence rules on bookkeeping services?

Bookkeeping services are not permitted in most circumstances under the SEC's independence rules.

Bookkeeping services may be permitted if the individuals performing these services do not also perform the audit.

Bookkeeping services are not permitted unless the client agrees in writing to accept responsibility for the services.

Bookkeeping services may be permitted if the fees from these services do not exceed the audit fees.

39. Which body develops ethics rules related to U.S. federal tax practice?

U.S. Department of the Treasury/Internal Revenue Service.

U.S. Tax Department.

U.S. Federal Taxation Corporation.

U.S. Government Accountability Office.

40. John is the controller of a small electronics retailer. His boss, Rosalie, instructs him to increase the company's accounts receivable balance for an amount that is material to the financial statements by decreasing the allowance for doubtful accounts. Politely discussing the matter with her, John tells Rosalie he is concerned that making this entry would make the financial statements misleading under generally accepted accounting principles (GAAP). Which statement best describes this situation?

John failed to consider the rules of other regulators.

John has recognized a potential ethical issue.

John has established himself as a problem employee.

John overstepped his authority by questioning his boss.

41. Which statement best describes the conceptual framework (framework) in the GAO's independence rules?

The framework helps an audit firm identify and evaluate threats to independence.

The framework is materially different from the framework in the AICPA Code of Professional Conduct.

The framework is an optional tool audit that firms may use if it makes sense.

The framework applies when the audit firm is unable to comply with the rules.

42. You have received a summons to appear in court. Your client is being sued by another party and that party's attorney wishes to depose you. You notify your client, which refuses to grant permission for you to discuss any client-related matters. Which statement best describes your obligations under the Confidential Client Information Rule?

If the summons is valid and enforceable, you should provide any requested information when you are deposed.

Unless your firm provides a legal waiver, you should not provide any information during the deposition.

Unless you receive your client's permission to speak, you should not provide any information during the deposition.

If complying with the summons will benefit your firm, you should provide any requested information when you are deposed.

43. Before a member performs nonattest services for an attest client, the client's management should agree to designate an individual to oversee those services. Which statement best describes the qualities required of that individual under AICPA rules?

The individual should have suitable skill, knowledge, or experience.

The individual should supervise the member closely as services are performed.

The individual should possess the same level of education as the member.

The individual should possess the same level of expertise as the member.

44. Which statement best explains why the SEC has concerns about the independence of an audit firm partner who is compensated when she sells nonaudit services to her audit client?

The partner may have a conflicting interest with her client.

The partner may have a familiarity threat to her independence.

The partner may lose her objectivity when performing the audit for her client.

The partner may have a self-review threat to her independence.

45. June, a tax preparer, encounters an ethical issue related to an individual client. Which source of rules would be least likely to lead June to understand her professional responsibilities?

SEC Rule 2-01.

Statements on Standards for Tax Practice.

IRS Circular No. 230.

AICPA code.