A- True or False: (20 pts.) 1-The AICPA is the only organization that a CPA must answer to involving ethical conduct. 2-Professional Ethics extend beyond moral principles but not above the letter of the law. 3-Under rule 203, Accounting Principles, the FASB and GASB have been designated as the promulgating bodies for accounting Principles 4-An auditor may not divulge confidential information concerning a client, even if Subpoenaed (citado) to do so in court. 5- Under Rule 101 - Independence, an auditor may not have any direct or indirect financial Interest in a client. 6- The AICPA Code of Professional Conduct consists of two sections: principles and rules. 7- Under common law, auditors may be held liable to clients for breach of contract but not for torts (agravios). 8- Under common law, the auditor is liable for fraud to all third parties who have been damage and who relied on the audited statements. 9- Ordinary negligence is the failure to use even a slight care in the circumstances. 10- The SEC defines "material" to be anything more than 5% of net income. B- List and describe (briefly) the AICPA 6 Ethical Principles : (25 pts) Principle Description - Multiple Choice: (30pts) _ 1-The profession's ethical standards would most likely be considered to have been violated when a CPA: a- Continued an audit engagement after the commencement of litigation against the CPA alleging excessive fees filed in a stockholder's derivative action b- Represented to a potential client that the CPA's fees were substantially lower than the fees charged by another CPA's for comparable services. C- Issued a report on a financial forecast that omitted a caution regarding achievability. d- Accepted a consultation engagement concerning data processing services for which the auditor lacked independence 2- The concept of materiality would be the least important to an auditor when considering the a- Adequacy of disclosure of a client's illegal act b- Discovery of weaknesses in a client's internal control structure C- Effects of direct financial interest in the client on the CPA's independence d- Decision whether to use positive or negative confirmations of receivables 3- A CPA's license to practice will ordinarily be suspended or revoked automatically for a- Committing an act discreditable to the profession b- Conviction of willful failure to file personal income tax returns - Refusing to respond to an inquiry by the AICPA practice review committee d- Accepting compensation while honoring a subpoena to appear as an expert witness. 4- Which of the following is not an acceptable form of organization for a CPA's practice a- Proprietorship b- LLP or LLC C- Professional Corporation d- General Corporation e- Partnership 5- Which of these would be an Act Discreditable to the profession by you under the Code of Professional Conduct? a- Withholding audit work papers which contain data , to which the client has no other access, from a successor auditor where you have not been paid for the prior year's audit b- Being sued for ordinary negligence by your audit client and losing C- Making a clerical error on your tax client's tax return and not informing the corresponding government agency d- Calling the President a "limelight - seeking coward" e- None of these 6-Which two of the following elements are member-adopted sections of the Code: a- Principles b- Ethical Rulings C- Interpretations d- Rules of Conduct 7- Which ethical principle states that members should honor the public trust and Integrity Demonstrate a commitment to professionalism? a- Integrity b- Public Interest C- Due Care d- Responsibilities 8. Which of the following is subject to enforcement under the Rules of Conduct? a- Independence in fact b- Independence in Appearance 9. Under the joint trial board procedures, which of the following is not a possible disciplinary action that could be taken: - Admonishment - Suspension for five years - Expulsion - Suspension for two years or less 10- Failure to exercise even slight care is considered to be: - Ordinary Negligence - Gross Negligence -- Fraud - Deception 11- The ethical standards of the profession would most likely be considered to be violated if a CPA a- Jointly owns a building with an audit client's President and the investment is material to the CPA b- Has an insured account with a brokerage firm that is an audit client and the account is used for occasional cash transactions. C- Is asked by an audit client to act as a "finder" in the acquisition of another company on a per diem basis d- Searches for and initially screens candidates for the vacant controllership of an audit client 12- Under common law, all of the following would be included as a foreseeable party except: a-The audit client b-The client's creditors C-The client's present investors d-The client's future investors 13 - Which common law defense centers on the inherent limitations of the audit process? a. Due care defense b- Contributory negligence 14- Under which Securities Act is the auditor liable for ordinary negligence? a- Securities Act of 1933 b- Securities Act of 1934 15- In minimizing the risk of litigation, which precaution can help minimize the risk of misunderstanding about contractual obligations? a- Thoroughly investigate clients b- Comply with professional pronouncements C- Use engagement letters d- Emphasize quality rather than growth D- The following is a list of common accounting acronyms. Identify the term for which each acronym stands: E- (10 points) a) AICPA - b) APB - c) FAF - d) GAAP - e) CPA - f) FASB - g) SEC - h) IASB