I need help with answering these review questions regarding ethics.

1. Sarah, the controller of a large beverage supplier, supervises two employees. Her boss, Vladimir, instructs her to increase the company's inventory balance for an amount that is material to the financial statements by crediting several small \"miscellaneous\" expense accounts. She does not understand why he wants her to make these entries but immediately directs one of her staff to make them because she has been instructed to do so. Which of the following statements best describes Sarah's actions? 1. Sarah failed to evaluate a potential ethical issue. 2. SarahfailedtoreferthemattertotheAICPAethicshotline. 3. Sarah failed to ensure that her staff was competent to make the entries. 4. Sarahfailedtoconsidertherulesofotherregulators. 2. Josie, an accounting supervisor in Monk & Sons Realty, instructs Maria, her employee, to make certain accounting entries in the company's books that will increase revenue. Maria researches the matter, confirming her concern that these entries would overstate revenue, and informs Josie that recognizing revenue in this manner would be premature and not consistent with generally accepted accounting principles (GAAP) but Josie disagrees and insists that Maria record the entries. The amount of revenue is material to Monk's financial statements. According to the AICPA rules, what should Maria do first? 1. Resign her position quietly. 2. Reportthemattertotheseniorpartnerinthefirm. 3. Take out a professional liability policy. 4. Discuss her concerns with Josie's boss. 3. The AICPA Code of Professional Conduct includes the following sections: 1. Preface, rules, and interpretations applicable to members in tax practice and members in business. 2. Preface,rules,andinterpretationsapplicabletomembersinpublicpractice andmembersin business. 3. Preface, rules, and interpretations applicable to members in tax practice and members in audit practice. 4. Preface,rules,andinterpretationsapplicabletomembersinauditpracticea ndmembersin business. 4. Which of the following statements best describes how the International Federation of Accountants' (IFAC's) rules and standards impact the U.S. accounting profession? 1. Individual CPAs practicing in the United States are required to stay aware of IFAC rules and standards and adopt them immediately. 2. StateboardsofaccountancyarerequiredtoadopttheIFAC'sruleswithin90 daysoftheIFAC rule change. 3. As a member body of IFAC, the AICPA is required to change its bylaws whenever the IFAC changes its rules. 4. TheAICPAisrequiredtoadoptethicsandotherprofessionalstandardsthata reatleastas restrictive as IFAC's. 5. Which of the following phrases is used by the Code of Professional Conduct to describe integrity? 1. Candid, within the constraints of client confidentiality. 2. Forcefuladvocateoftheclient'sposition. 3. Valued business advisor to the client. 4. Willing to subordinate judgment to achieve a proper outcome. 6. Sophie, the CFO of Slolum Ski Supplies, received a watch from one of her company's largest vendors, Colorado Ski Shoppe. She received the gift with a card congratulating her on Slolum's recent merger with another company. In determining whether accepting the gift would create a significant threat to her compliance with the AICPA code, which of the following factors should Sophie consider? 1. Whether she disclosed receipt of the gift to the board of directors. 2. Whethershetrulyearnedthegift. 3. Whether the gift was reasonable in the circumstances. 4. Whetherthegiftcostmorethan$100. 7. Which of the following best describes competence as defined in the AICPA Code of Professional Conduct? a. Infallible judgment that cannot subsequently be called into question. B.Theapplicationofskillandknowledgewithreasonablecareanddiligence. c. Possessing an advanced college degree in the relevant subject matter. D. Rigidadherencetotheprofessionalstandardsofengagementperformance. 8. A former client of Charlie Hayes, CPA, filed a lawsuit in state court alleging that Charlie failed to exercise due care in the performance of tax and compilation services performed in 2011. Charlie firmly believes that he performed his services with competence and diligence. In his defense, he plans to admit to making one minor error which he says was inadvertent and did not have a material effect on the client's taxes or financial position. In light of his admission, has Charlie complied with the AICPA code's standard of due care and why? 1. No. He obviously did not discharge his professional responsibilities with competence and diligence. 2. No.Hedidnotperformprofessionalservicestothebestofhisabilities. 3. Yes. He has chosen to be honest in reporting that he made an error. 4. Yes.TheAICPAstandardforduecaredoesnotrequireCPAstobeinfallible. 9. In which of the following situations may you disclose confidential client information without violating the AICPA Code of Professional Conduct? 1. In response to a validly issued and enforceable subpoena. 2. Attherequestofanotherclientthatneedstheinformationtofileitstaxreturn. 3. As an example in a seminar given for CPE credit. 4. In a proposal to a potential client. 10.Terry Industries engages Rose & Co., CPAs, to prepare its annual financial statements and tax returns. Before either of these engagements is completed, Terry terminates the relationship and asks the firm to provide all records that they provided to the firm, the firm's working papers, and its partially completed work product. Terry has not paid Rose & Co. for either service. Under the AICPA rule on client records requests, which records, if any, may Rose & Co. withhold from the client? 1. Records Terry provided Rose & Co. 2. Rose's working papers and its partially completed work product. 3. Any records the firm chooses to withhold. 4. Norecordsmaybewithheldfromtheclient. 11.Which of the following statements best describes the AICPA ethics rules relating to a member's failure to file his or her personal tax return in a timely manner? 1. The member is strongly encouraged to file his or her personal tax returns in a timely manner. 2. Thefailuretofileapersonaltaxreturninatimelymannermustbedisclosedto allclientsand potential clients. 3. The failure to file a personal tax return in a timely manner is usually considered an act discreditable to the profession. 4. Thememberisnotinviolationofanyethicsrulesaslongasthefailuretofileap ersonaltax return in a timely manner was due to a heavy workload. 12.Sympatico Accountants engages ABC Tax Preparers to prepare routine tax returns during the busy season. Under the AICPA code, which of the following should Sympatico do prior to sharing its clients' information with ABC? 1. Inform its tax clients that the firm may be using an outside service when providing professional services. 2. Listanoticeinthelocalnewspaperthatthefirmmaybeusinganoutsideservi cewhenproviding professional services. 3. Ask clients to sign a waiver limiting Sympatico's liability in the event ABC makes errors in Sympatico's tax returns. 4. Sympatico would not be required to take any particular action in this situation. 13.Which of the following statements best describes the AICPA ethics rules relating to advertising? 1. Advertising through the use of banner ads over the Internet is considered over-reaching and is prohibited. 2. Mass e-mail advertising is not allowed because it is considered a form of harassment. 3. Advertising is permitted as long as it is not false or misleading. 4. Advertisingoveranyformofmassmediaisprohibited. 14.Bob Martino is sanctioned by his state board of accountancy for his association with false and misleading financial statements of his employer, Jones Consulting, LLC, a private company. Which of the following situations is the least likely result of the state board's action? 1. The state board could suspend or revoke Bob's CPA license. 2. Bob could lose his membership in the AICPA or a state CPA society. 3. Bob could become subject to significant legal liabilities. 4. TheSECcouldfineBob. 15. Members should use the AICPA Conceptual Framework for Independence to 1. Come to different conclusions than the interpretations of the Code of Professional Conduct. 2. EvaluateindependencemattersnotaddressedintheCodeofProfessionalConduct . 3. Understand the rules on confidential client information and acts discreditable to the profession. 4. Moreeasilyinterpretconflictsofinterestandsubordinationofjudgmentbyamemb er. 16. Dorothy (an audit manager) has been assigned to the audit of Tandem Electric, Inc. Dorothy is concerned that Joanne, a friend from her college days, is on the internal audit staff of Tandem Electric. Dorothy believes she could provide services to this client in an objective manner. Which of the following statements best describes how Dorothy should apply the AICPA conceptual framework approach in this situation? a.Dorothy should refuse to provide services to Tandem Electric because no safeguards would be effective in mitigating the threat(s) to her independence. b.Dorothy should not participate in the audit of Tandem Electric before obtaining a written waiver from her firm's general counsel. c.Dorothy should consider the threats to her independence and whether safeguards may be applied that reduce the threat(s) to an acceptable level. d.Dorothyshoulddocumentherassessmentofindependence,whichshouldincludeaswor n statement from Joanne. 17. A two-office firm, one in Chippewa Falls and another in Fargo, has an audit client that sells medical equipment. The lead audit partner for this client conducts the engagement in the Fargo office. Stockholdings in the client by which of the following persons would not impair the firm's independence under the AICPA code? 1. A manager in Chippewa Falls who will provide 26 hours of non-attest services to the client this year. 2. AChippewaFallsstaffpersonwhoprovidesnoservicestotheclient. 3. A tax partner in the Fargo office who provides no services to the client. 4. AFargostaffpersonworkingontheauditengagement. 18. An example of a spousal equivalent as defined in AICPA independence rules is 1. A person in a domestic partnership with a covered member. 2. Aroommateandlong-timeplatonicfriendofacoveredmember. 3. A cousin who lives with and is supported by the covered member. 4. Aformerspouseofacoveredmemberwhoisfinanciallyindependentofthecovered member. 19.Under AICPA rules, the employment of your spousal equivalent at a clothing retailer that is an audit client would generally impair your independence if he or she was employed as a 1. Controller. 2. Cashier. 3. Warehouse supervisor. 4. Buyer. 20.Under AICPA rules, which of the following statements best describes the period of the professional engagement as it applies to a three-year engagement to audit a client's financial statements? 1. It begins each year when fieldwork commences and ceases when fieldwork ends. 2. Itbeginswhenfieldworkcommencesandceaseswhenthereportisissued,re commencingwhen fieldwork begins again for the next period. 3. It begins when the engagement letter is signed and ceases each year when the report is issued. 4. Itbeginswhentheengagementletterissignedandcontinuesuntilthereport forthethirdyearis issued unless the relationship is terminated sooner. 21.Jane, a partner in a CPA firm, borrows $100,000 on a secured note from one of the firm's bank audit clients to build a new dormer on her house. The amount of the loan is material to Jane. Jane will not provide any services to the bank and she is unable to influence the engagement. Jane practices in the same office as the lead partner on the bank's audit. Is Jane's independence impaired under the AICPA code? 1. Yes, because Jane obtained a loan from an audit client when she was a covered member. 2. Yes, because the loan is material to Jane's net worth. 3. No, because the note is secured and is related to Jane's primary residence. 4. No,becauseJaneisnotontheattestteamorabletoinfluencetheengagement . 22.When a member performs non-attest services for an attest client, management is required to designate an individual to oversee those services. Which of the following best describes the qualities that are required of that person under AICPA rules? 1. He or she must possess the same level of expertise as the CPA. 2. Heorshemustbeabletoperformtheserviceshimselforherself. 3. He or she must have suitable skill, knowledge, and/or experience. 4. HeorshemustbeabletosupervisetheCPAintheday-todayrenderingoftheservices. 23.A member has been asked to co-sign checks with a client employee while the company president is on vacation. Which of the following statements about the application of the AICPA independence rules to this situation is true? 1. Because the member will only be cosigning checks, independence is not threatened. 2. Becausethememberisacosignerforashorttime,independenceisnotthreat ened. 3. Because the member has entered into a joint venture with the client, independence is impaired. 4. Becausechecksigningisamanagementfunction,independenceisimpaired. 24.Jones, a consulting manager of Miller & Co., is considering membership on an audit client's board of directors. Jones does not provide any services to this client. Which of the following statements describing this situation is true under AICPA rules? 1. Jones may join the board because he is not an auditor. 2. Jones may join the board because he is not a partner. 3. Jones may not join the board because the rules prohibit all firm professionals from serving as a director of a client. 4. Jonesmaynotjointheboardbecauseonlynonmanagerialemployeesofthefir mmayserveas client management. 25.Anthony is a member of the engagement team performing an audit of XYZ. During the engagement, the president of XYZ approaches Anthony and offers him the position of CFO at the company. Anthony is considering the offer. What safeguards do the independence rules require Anthony to apply? 1. Remove himself from the engagement team until the offer is rejected or he is no longer seeking employment with XYZ. 2. ObtainthepermissionoftheXYZauditcommitteetoremainontheengageme ntteam. 3. Resign from the firm. 4. Declinetheoffer. 26.Becker & Smith, CPAs, and its client, Troper Lighting, are discussing a possible advisory engagement in which the firm would review Troper's account receivable (A/R) system and recommend changes that would expedite the company's collection process. Troper will pay Becker & Smith a fee based on improved performance in A/R collections. Would such an arrangement raise any ethical concerns under the profession's rules? a.No, but only if Troper is a publicly traded company subject to SEC and PCAOB rules. b.No, provided Becker & Smith documents the arrangement clearly in the engagement letter. c.Yes, but only if Becker & Smith was performing other services for Troper. d.Yes, if Becker & Smith also performed a review engagement for Troper. 27.Feld & Company, CPAs, has provided annual audit and tax advisory services to Maris Corporation for several years. Last year, Maris experienced severe cash flow problems and was unable to pay Feld in full, leaving a significant balance unpaid. Feld is ready to begin fieldwork for the upcoming audit. What options are available to Feld and Maris under the AICPA code? 1. Feld may set up a payment plan with Maris to settle the unpaid fees over the next two years. 2. Feldmayperformtheauditaslongastheunpaidfeesrelatingtotheprioryear arepaidinfull before the current year report is issued. 3. Maris may give Feld a note with a maturity date no later than one year after the date of the current year report. 4. MarismayhaveanotherfirmperformthefieldworkandFeldwillreviewtheot herfirm'swork papers and issue the report. 28.Under SEC rules, all of the following are prohibited relationships between a covered person and an SEC audit client except: 1. Joint business ventures. 2. Agreementstosharecostsorprofits. 3. Immaterial landlord-tenant relationships. 4. Limited partnership agreements. 29.Under the SEC rules, a one-year \"cooling-off\" period applies to which of the following scenarios? 1. A tax manager working on a client's tax engagement is offered a managerial position at the client. 2. Aclientwantstohireitsfirm'sleadauditpartnertotakeoverasCFO. 3. A technology consulting senior manager in the firm is seeking an executive role with the client. 4. Aprofessionalstaffpersononanauditappliesforapositionassenioraccount antattheclient. 30.Which of the following statements best describes the SEC rules relating to bookkeeping services? 1. Bookkeeping services are permitted, as long as the individuals performing these services are not the same individuals performing the audit. 2. Bookkeepingservicesarepermittedifthefeesfromtheseservicesareinsign ificantrelativetothe audit fees. 3. Bookkeeping services are permitted if the client agrees in writing to accept responsibility for the adequacy of these services. 4. An accountant generally cannot provide bookkeeping services to an SEC audit client. 31.Which of the following best describes a significant similarity between the AICPA and IESBA codes? 1. Both codes incorporate the conceptual framework approach for evaluating threats when specific rules on a matter do not exist. 2. Bothcodescontainspecificethicsandindependenceprovisionsrelatedtop ublicinterestentities. 3. The codes combine the rules for members in business and public practice in one section. 4. Thecodescontaintheexactsameprovisionsforcorporateaccountants. 32.The SEC has historically raised questions regarding the independence of firms that derive a significant portion of their total revenues from one audit client or group of clients because the SEC staff believes this situation causes CPA firms to 1. Profit excessively from a client or group of clients. 2. Dependtooheavilyonthefeesgeneratedbytheclientorclients. 3. Have a mutuality of interests with the client or group of clients. 4. Placetooheavyaburdenontheclient'sfinancialposition. 33.The GAO's Yellow Book stresses five ethical principles, including all of the following except: 1. The public interest. 2. Professionalbehavior. 3. The proper use of government information, resources and position. 4. Thepropersafeguardingofclientinformation. 34. One of the GAO's ethical principles described in the Yellow Book stresses that 1. Government employees may not accept gifts under any circumstances. 2. Governmentinformation,resources,andpositionsshouldnotbeusedfortheaudito r'spersonal gain. 3. Auditors may use government resources if the proper requisition forms are completed beforehand. 4. Auditorsshouldnotusepersonale-mailaccountsforgovernmentrelatedcommunications. 35. Department of Labor (DOL) independence rules apply to 1. All services provided to employee benefit plans. 2. Accountingservicesprovidedtoemployeebenefitplans'sponsors. 3. Audit services provided to employee benefit plans subject to ERISA requirements. 4. All governmental audit and accounting engagements. 36. In which way do DOL independence rules differ from the AICPA rules? 1. The DOL rules on nonattest services are more comprehensive than the AICPA independence rules. 2. TheDOLrulesbanauditorsfromprovidingactuarialservicestobenefitplansthatth eyaudit. 3. The DOL defines member much more broadly than the AICPA's covered member. 4. TheDOLpermitsauditorstoperformrecordkeeping,whereastheAICPAruleswoul dnot. 37. Which of the following statements most accurately describes the Federal Deposit Insurance Corporation's (FDIC) auditor independence requirements? a. b. c. d. a.FDIC independence requirements incorporate requirements for attorneys and actuaries. b.FDIC independence requirements mirror the AICPA and DOL independence rules. c.Certain FDIC policy statements address auditor independence. d.The FDIC has not adopted regulations that incorporate SEC independence rules. 38. Tax return preparers may generally rely on a client's representations without verification unless 1. The client is incompetent. 2. The tax matter is complex. 3. The information seems incorrect, inconsistent, or incomplete. 4. The client is new to the preparer. 39. Violating an AICPA or IRS rule may result in the following: 1. Suspension of AICPA membership or the ability to practice before the IRS. 2. ImpositionofamonetarypenaltybytheIRS. 3. Publication of an admonishment by the AICPA. 4. Alloftheabove. 40.Technical qualifications necessary to supervise the work of others in completing a professional assignment is a characteristic of 1. Due professional care. 2. Independence. 3. Competence. 4. Costbenefit. 41.A practitioner is engaged to prepare a client's federal income tax return for 2013 and 2014. The practitioner files the 2013 return on the client's behalf. After the 2014 return is prepared, the client disputes the fees for the 2014 tax engagement, terminates the relationship, and requests all tax returns and related records. The client has not yet paid for preparation of the 2014 return. Under IRS Circular No. 230, which records must the practitioner return to the client? 1. Schedules the practitioner prepared, which the client needs to file in its 2014 federal income tax return. 2. Theengagementletterexecutedbytheclientforpreparationofthe2014fed eralincometax return. 3. An appraisal the practitioner prepared in connection with the 2013 federal income tax return. 4. Notes the practitioner took when meeting with the client about the 2013 and 2014 tax returns. 42.Sam Burke, CPA, finds a material error in his client's tax return and advises the client on how to correct it. Under AICPA rules, what should Sam do if the client does not agree to correct the error? 1. Document the consultation with the client, including the client's rationale for not amending the return, but nothing further. 2. Makethecorrectionwithouttheclient'sknowledgeandfilethereturn. 3. Consider whether the client's decision not to correct the error may predict future behavior that warrants termination of the client relationship. 4. DisclosethemattertotheAICPAProfessionalEthicsdivision. 43.A CPA firm performs the annual audit of The Leahy Group, a private company. The client has asked the firm to perform a study to determine whether the company would qualify for certain municipal tax credits and prepare the request. The firm will receive 15 percent of any tax credits that Leahy obtains for the client as a result of the request but no fees if the request is denied. City officials do not perform a substantive review of each request for tax credits. Would this fee arrangement be permitted under the AICPA Code of Professional Conduct? 1. Yes, because the services are tax-related. 2. Yes,iftheprojectedfeeswouldbeimmaterialtothefirm. 3. No, because the fee arrangement is a prohibited contingent fee. 4. No,becausetheservicewouldbeconsideredtobeamanagementfunction. 44.The clientele of Black & Company's audit practice consists primarily of privately- owned small and middle market companies. Recently the firm won two audits of public companies, including one issuer. From an independence perspective, what impact will these new client engagements have on Black & Company? 1. Black & Co. will have to comply with SEC and PCAOB independence rules. 2. Black & Co. will have to comply with DOL and GAO independence rules. 3. Black & Co. will have to apply the IESBA's conceptual framework approach. 4. Black & Co. will need an annual peer review and PCAOB inspection. 45.Rocky Point Brewery (RPB) filed an initial public offering in January 2015. RPB engaged Olsen & Alain, CPAs in 2012 to keep the books and prepare monthly and annual financial statement (while the company was privately-held), and terminated those services in December 2014. Could RPB engage Olsen & Alain to be their auditors now that they are a public company? a.Yes, because the prohibited non-audit services were performed before the period of professional engagement. b.Yes,butonlyifO&Arescindsanyindemnificationlanguageexistingintheirnon-audit engagement letters. c.No, because the prohibited non-audit services were performed during the period covered by the financial statements. d.No,butonlyifthefeesO&Areceivedfromtheseengagementsexceededfivepercentofth e firm's overall annual revenues