1. Management's financial statements excluded a footnote describing pending litigation against the company. This misstatement is qualitatively material.

1. True
2. False

2. When the risks of material misstatement are high, and the auditor fails to respond to those risks, detection risk will be high.

1. True
2. False

3. Which of the following situations is not a violation of the Code of Professional Conduct?

1. The CPA shared information regarding the salaries of client personnel with another CPA in her office.

2. The CPA's report stated that the financial statements were i/c/w GAAP when the accounts receivable clerk accidentally recorded all sales invoices twice during the year.

3. The CPA issued a review report with several typographical errors.

4. The CPA prepared a tax return for his company's CEO.

4. Auditor independence in appearance is required, in addition to independence in mind, because independence in mind is unobservable.

1. True
2. False

5. Which of the following statements about the Code of Professional Conduct is inaccurate?

1. The Rules are differentiated from the Principles in that the Rules are enforceable.
2. The AICPA imposes monetary fines for violations of the Code.
3. Having a Code of Conduct increases the credibility of the profession.
4. Several Rules are related to the exercise of integrity.