Question 1

A CPA has installed a fairly large neon sign over the entrance to her building which reads, Jane Jones, Certified Public Accountant, Audits, Taxes, Bookkeeping.

Yes

No

Question 2

A CPA places an ad in the local newspaper announcing the admission of new partners to the firm, the relocation of the office, the new phone number, office hours, and hourly rates charged. The ad also mentions that certain of their partners and staff are fluent in Spanish.

Yes

No

Question 3

A state wherein a CPA practices has just passed a law mandating that all municipalities over 10,000 population have annual audits. The CPA and his partners telephone all the council presidents and city managers of cities of that size soliciting their audit work.

Yes

No

Question 4

A CPA, a partner in a one-office accounting firm, has a brother who is a member of the board of directors of an audit client. The partner lives about ten miles from her brother. She and her husband do not have any joint investments with her brother. Social contacts with her brother are infrequent.

Yes

No

Question 5

A CPA audits the books of a corporation in which his wife is a stockholder. The CPA has no financial interest in the client.

Yes

No

Question 6

A CPA audited the financial statements of a client for the year ended December 31, 2011. In November 2011 a partner in the same firm assisted the client in obtaining financing under an arrangement in which the fee for such service would not be paid unless the financing was obtained.

Yes

No

Question 7

A regulatory agency asked a CPA to supply confidential client information in connection with an investigation of the client. The client refused the give the CPA permission to comply with the agency's request, but the CPA supplied the information anyway.

Yes

No

Question 8

A CPA has been served with a validly issued and enforceable subpoena to turn over certain client records that contain confidential client information. The client refused the give the CPA permission to comply with the subpoena, but the CPA turned over the records anyway.

Yes

No

Question 9

A CPA audited a company's financial statements for the year ended June 30, 2012, and was issued stock by the client in payment of the audit fee. Because the stock was immaterial to the CPA's personal net worth, she kept the stock in her investment portfolio.

Yes

No

Question 10

On January 5 2012, a client engages a CPA to perform its audit for the 12 months ended December 31, 2011. In March 2011, the CPA prepared the company's 2010 corporate tax return for which he has still not been paid. The CPA decides to accept the audit engagement and commence with the fieldwork, but has made an arrangement with the client to be paid in full for the 2010 tax engagement prior to the issuance of the 2011 audit report.

Yes

No

Question 11

The trustee of a bankruptcy estate engaged a CPA to audit a client in bankruptcy. The CPA performed the audit for this same client the prior year, and has not been paid. The CPA accepts the audit engagement and commences with fieldwork. No arrangements have yet been made for payment for either audit engagement.

Yes

No

Question 12

A CPA performs payroll preparation services for an audit client, which include preparing and signing payroll checks. The CPA is also responsible for mailing the checks to employees or authorizing a transfer of funds from a client bank account to employees' bank accounts.

Yes

No

Question 13

A CPA has a loan from a client financial institution that the CPA believes meets the requirements for a grandfathered loan under Ethics Interpretation 101-5. Periodically, the bank requires the CPA to submit personal financial statements and other information in order to reevaluate the CPA's creditworthiness to renew the loan. Since the CPA believes the loan continues to be considered grandfathered, she continues to audit the client's financial statements on an ongoing basis.

Yes

No

Question 14

A CPA's dependent parent is a 5% limited partner in an audit client of the CPA. The CPA is a partner in his accounting firm.

Yes

No

Question 15

A staff-level CPA participating in a review engagement, has a dependent daughter who owns 10 shares of the review client's stock.

Yes

No

Question 16

A CPA, a partner assigned to a review engagement, has a non-dependent son who is employed by the client as a machine operator.

Yes

No

Question 1

A member of the AICPA may render which service under a contingent fee arrangement?

A.

A provision of investment advisory services, with the fee based on a percentage of the investment portfolio.

B.

A compilation of the financial statements of client seeking a loan, with the fee contingent upon the amount the client is able to borrow. The report does not disclose lack of independence.

C.

An audit of the financial statements of a company that intends to issue securities for sale to the public, with the fee contingent upon the proceeds from the sale of the securities.

D.

An examination of the prospective financial statements of a client who intends to sell limited partnerships, with the CPA's fee contingent upon the proceeds.

1 points

Question 2

Which of the following is the authoritative body designated to promulgate attestation standards for non-issuers?

A.

Financial Accounting Standards Board.

B.

Governmental Accounting Standards Board.

C.

Auditing Standards Board.

D.

General Accounting Office.

1 points

Question 3

Which of the following professional services is considered an attest engagement?

A.

A consulting service engagement to provide computer advice to a client.

B.

An engagement to report on compliance with statutory requirements.

C.

An income tax engagement to prepare federal and state tax returns.

D.

The compilation of financial statements from a client's accounting records.

1 points

Question 4

According to the PCAOB, an accounting firm's independence is least likely to be impaired if the firm

A.

Provides a service to the audit client for a contingent fee.

B.

Provides tax services to a person in a financial reporting oversight role at the audit client.

C.

Receives a commission from the audit client.

D.

Has an audit client that employs a former firm professional.

1 points

Question 5

When Congress passed the Sarbanes-Oxley Act of 2002, it imposed greater regulation on issuers and their auditors and required increased accountability. Which of the following is not a provision of the Act?

A.

The Act provides criminal penalties for fraud.

B.

Auditors may not provide specific non-audit services for their audit clients.

C.

Audit firms must be rotated on a periodic basis.

D.

Executives must certify the appropriateness of the financial statements.

1 points

Question 6

What is the meaning of the generally accepted auditing standard that requires the auditor to be independent?

A.

The auditor may have a direct ownership interest in the client's business if it is not material.

B.

The auditor must adopt a critical attitude during the audit.

C.

The auditor's sole obligation is to third parties.

D.

The auditor must be without bias with respect to the client under audit.

1 points

Question 7

Under the ethical standards of the profession, which of the following situations involving nondependent members of an auditor's family is most likely to impair the independence of an individual participating in an audit engagement?

A.

A spouse's employment with a client.

B.

A sibling's loan to a director of a client.

C.

A first cousin's loan from a client.

D.

A parent's immaterial investment in a client.

1 points

Question 8

Which action is not considered a discreditable act under the Interpretations of Conduct Rule 501, Acts Discreditable?

A.

A CPA fails to follow standards and procedures established by governmental agencies in audits of grants by those agencies.

B.

A CPA has a bank collect notes received from a client in payment of fees.

C.

A CPA-defendant has lost a final appeal of an adverse verdict in a racial discrimination suit in federal court.

D.

A CPA-defendant has lost a final appeal of an adverse verdict in a sexual harassment suit in state court.

1 points

Question 9

Which is the benchmark against which a member must ultimately test all decisions?

A.

Objectivity.

B.

Due care.

C.

Integrity.

D.

Competence.

1 points

Question 10

Inclusion of which of the following statements in a CPA's advertisement is not acceptable pursuant to the AICPA Code of Professional Conduct?

A.

Paul Fall, Certified Public Accountant, J.D., Evans Law School 1990.

B.

Paul Fall, Certified Public Accountant, Free Consultation.

C.

Paul Fall, Certified Public Accountant, Fluency in Spanish and French.

D.

Paul Fall, Certified Public Accountant, Endorsed by the AICPA.

1 points

Question 11

Under the ethical standards of the profession, which of the following business relationships would generally not impair an auditor's independence?

A.

Client's general counsel.

B.

Member of a client's board of directors.

C.

Promoter of a client's securities.

D.

Advisor to a client's board of trustees.

1 points

Question 12

An external auditor is not permitted to discuss confidential client information except with the specific consent of the client. This ethical proscription

A.

Will prevent the auditor from engaging another auditing firm to conduct a peer review.

B.

Will not preclude the auditor from complying with a validly issued court subpoena.

C.

Is unenforceable.

D.

Is often used by a client to blunt the auditor's efforts to modify the standard auditor's report.

1 points

Question 13

Which of the following best describes what is meant by the term generally accepted auditing standards?

A.

Procedures to be used to gather evidence to support financial statements.

B.

Measures of the audit quality.

C.

Rules acknowledged by the accounting profession because of their universal application.

D.

Pronouncements issued by the Auditing Standards Board.

1 points

Question 14

Which of the following best describes the reason an independent auditor reports on financial statements?

A.

The company preparing the statements and the persons using the statements may have different interests.

B.

A management fraud may exist, and is more likely to be detected by independent auditors.

C.

A misstatement of account balances may exist and is generally corrected as the result of the independent auditor's work.

D.

The company preparing the statements may have a poorly designed internal control structure.

1 points

Question 15

The AICPA Code of Professional Conduct states, in part, that a CPA should maintain integrity and objectivity. Objectivity in the Code refers to a CPA's ability to

A.

Be unyielding in all matters dealing with auditing procedures.

B.

Chose independently between alternative accounting principles and auditing standards.

C.

Be impartial, intellectually honest, and free of conflicts of interest.

D.

Distinguish independently between accounting practices that are acceptable and those that are not.

1 points

Question 16

Monarch & Company, CPAs, has provided annual audit and tax advisory services to Brickstone Corporation for several years. Last year, Brickstone experienced severe cash flow problems and was unable to pay Monarch in full, leaving a significant balance unpaid. Monarch is ready to begin fieldwork for the upcoming audit. What options are available to Monarch and Brickstone?

A.

Brickstone may give the member a note with a maturity date no later than one year after the date of the current year report.

B.

Brickstone may have another firm perform the field work and Monarch will review the workpapers and issue the report.

C.

Monarch may perform the audit as long as the unpaid fees relating to the prior year are paid in full before the current year report is issued.

D.

Monarch may set up a payment plan with Brickstone over the next two years to settle the unpaid fees.

1 points

Question 17

Users of an issuer's financial statements demand independent audits because

A.

Users demand assurance that fraud does not exist.

B.

Management relies on the auditor to improve internal control.

C.

Users expect auditors to correct management errors.

D.

Management may not be objective in reporting.

1 points

Question 18

The employment of your spousal equivalent at an audit client would generally impair your independence if he or she was employed as:

A.

A warehouse supervisor.

B.

A controller.

C.

A data entry clerk.

D.

Any of these choices would generally impair independence of a spousal equivalent.

1 points

Question 19

The AICPA Code of Professional Conduct would be violated if a CPA accepted a fee for services and the fee was

A.

Fixed by a public authority.

B.

Payable after a specified finding was attained in a review of financial statements.

C.

Based on the results of judicial proceedings in a tax matter.

D.

Based on a price quotation submitted in competitive bidding.

1 points

Question 20

An auditor's independence is considered impaired if the auditor has

A.

An immaterial, indirect financial interest in a client.

B.

A mortgage loan, executed with a financial institution client on March 1, 1990, that is material to the auditor's net worth.

C.

A joint, closely held business investment with the client that is material to the auditor's net worth.

D.

An automobile loan from a client bank, collateralized by the automobile.

1 points

Question 21

Notes that are included with the financial statements are the responsibility of the

A.

Company's management.

B.

Internal auditor.

C.

Independent auditor.

D.

Securities and Exchange Commission.

1 points

Question 22

Which of the following standards requires a critical review of the work done and appropriate judgment exercised by those assisting in an audit at every level of supervision?

A.

Inspection.

B.

Proficiency.

C.

Audit risk.

D.

Due care.

1 points

Question 23

The AICPA Code of Professional Conduct contains both general ethical principles that are aspirational in character and also a

A.

Description of a member's procedures for responding to an inquiry from a trial board.

B.

List of violations that would cause the automatic suspension of a member's license.

C.

List of specific acts discreditable to the profession.

D.

Set of specific, mandatory rules describing minimum levels of conduct a member must maintain.

1 points

Question 24

According to the ethical standards of the profession, which of the following acts is generally prohibited?

A.

Accepting a commission for recommending a product to an audit client.

B.

Writing a financial management newsletter promoted and sold by a publishing company.

C.

Accepting engagements obtained through the efforts of third parties.

D.

Purchasing a product from a third party and reselling it to a client.

1 points

Question 25

A staff member below the managerial level belongs to an investment club composed of 20 members. She is the only person in the one-office CPA firm belonging to this club. Buy and sell decisions on investments are decided by majority vote, each member of the club having one vote. The members at their last meeting voted to purchase a minor number of shares of the Jones Company, an audit client of the firm in which the staff person is located. Although she does not work on that engagement, the staff person voted against the purchase.

A.

Since the staff person could not control the actions of the club, independence of the firm with Jones Company is not impaired.

B.

Since only a minor number of shares were purchased, independence of the firm with Jones Company is not impaired.

C.

Independence of the firm with Jones Company is impaired.

D.

Since the staff person is below the managerial level and does not work on the engagement for this company, independence of the firm with Jones Company is not impaired.

1 points

Question 26

The purpose of establishing quality control policies and procedures for deciding whether to accept or continue a client relationship is to

A.

Document objective criteria for the CPA firm's responses to peer review comments.

B.

Provide reasonable assurance that personnel are adequately trained to fulfill their responsibilities.

C.

Minimize the likelihood of associating with clients whose management lacks integrity.

D.

Monitor the risk factors concerning misstatements arising from the misappropriation of assets.

1 points

Question 27

Which of the following acts by a CPA is a violation of professional standards regarding the confidentiality of client information?

A.

Releasing financial information to a local bank with the approval of the client's mail clerk.

B.

Allowing a review of professional practice without client authorization.

C.

Responding to an enforceable subpoena.

D.

Faxing a tax return to a loan officer at the request of the client.

1 points

Question 28

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.

Possessing an advanced college degree in the relevant professional subject matter.

C.

Rigid adherence to the professional standards of engagement performance.

D.

The application of skill and knowledge with reasonable care and diligence.

1 points

Question 29

Under the AICPA Code of Professional Conduct, which of the following is required to be independent in fact and appearance when discharging professional responsibilities?

A.

All CPAs.

B.

A CPA in public practice providing tax and management advisory services.

C.

A CPA not in public practice.

D.

A CPA in public practice providing auditing and other attestation services.

1 points

Question 30

Meagan Whittier, CPA, was offered the engagement to audit Rosemont Corporation for the year ended June 30, 2012. She has served as a director of Rosemont Corporation until June 30, 2011, her spouse currently owns 10 of the 10,000 outstanding shares of Rosemont Corporation, and her sister works for Rosemont Corporation as a sales manager. Under the AICPA Code of Professional Conduct, she should

A.

Refuse the engagement because she had served as a director.

B.

Refuse the engagement because of her sister's position as a sales manager.

C.

Refuse the engagement because of her spouse's stock ownership.

D.

Accept the engagement.

1 points

Question 31

CPAs within each state have formed state societies or associations of CPAs. Which one of the following statements about these associations is false?

A.

Most associations have their own codes of professional ethics that closely parallel the AICPA Code of Professional Conduct.

B.

Members of state associations may also be members of the AICPA.

C.

The state societies are independent of the AICPA.

D.

All CPAs in the state must be members of the state association or society.

1 points

Question 32

To make effective ethical decisions, CPAs need to be able to:

A.

Refer matters to the AICPA ethics hotline.

B.

Recognize an ethical issue.

C.

Comply with competence and technical standards.

D.

Consider rules of other regulators.

1 points

Question 33

An attest engagement is one in which a CPA is engaged to

A.

Provide tax advice or prepare a tax return based on financial information the CPA has not audited or reviewed.

B.

Assemble prospective financial statements based on the assumptions of the entity's management without expressing any assurance.

C.

Testify as an expert witness in accounting, auditing, or tax matters, given certain stipulated facts.

D.

Issue an examination, a review, or an agreed-upon procedures report on subject matter, or an assertion about subject matter that is the responsibility of another party.

1 points

Question 34

GAAS require the auditor to be independent in mental attitude. An auditor is independent if he or she is

A.

Independent in fact and in appearance.

B.

Consistent and independent in fact.

C.

Intelligent.

D.

Logical and intellectually honest.

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