Why might acceptance of a contingent fee impair a CPA's independence?

	Accepting a contingent fee is illegal in Calfiornia
	Contingent fees may create a conflict of interest

	Accepting a contingent fee for an audit violates AICPA rules
	Contingent fees represent dishonesty

Question 2

Which of the following is NOT something external auditors are expected to do in looking for fraud?

	Considering audit risk and materiality
	Assessing the control environment of the organization

	Evaluating management's commitment to serve the public interest
	Evaluating internal controls

Question 3

Strong corporate governance relies on a strong board of directors. Which of the following would be a strong candidate to be a board director for XYZ, Inc.?

	Investor who has a multi-million-dollar joint venture with the CEO and CFO.
	Retired controller of a Fortune 500 company.

	Community member who has already served on the board for 15 years.
	Community member who receives annual large consulting contracts from XYZ

Question 4

An example of a self-review threat is:

	Borrowing money from the client
	Preparing source documents used to generate the client's financial statements

	when the CPA's spouse is employed by the client.
	Promoting the client's securities through investment banking activities

Question 5

Thelma & Louise, LLP is the auditing firm for Flight Inc. They also prepare the tax return Flight Inc. What threat to independence may be present?

	Familiarity threat
	Self-review threat

	Financial self-interest threat
	Adverse interest threat

Question 6

The fraud at Groupon, covered in Chapter 3, occurred because the company:

	Included revenue from nonexistent customers
	Accelerated the recording of customer revenues from high-priced offers

	Failed to set aside enough money to cover customer refunds
	Delayed recording customer refunds

Question 7

The Public Interest Principle in the AICPA Code of Professional Conduct recognizes:

	The importance of maintaining confidentiality
	The importance of whistleblowing when financial wrongdoing exists

	The importance of integrity in decision making
	The importance of loyalty to one's superior

Question 8

The method of ethical reasoning that evaluates actions in terms of harms and benefits is:

	Utilitarianism
	Deontology

	Egoism
	Virtue

Question 9

Identify the false statement:

	AICPA confidentiality rules prohibit disclosing the name of a client without the clients permission.
	Independence is impaired when a client employs the CPAs brother as controller.

	Seeking employment with a client may impair a CPAs independence.
	Acceptance of free lodging, meals and entertainment at a client-owned resort may impair a CPAs independence.

Question 10

Which of the following would normally be considered sufficient to demonstrate due care on the part of the auditor?

	No omissions or misstatements have been found in the client's financial statements
	The auditor signs a statement expressing its unmodified opinion as to the fairness of the financial statements

	The auditor had its work reviewed by another audit firm
	The auditor cites adherence to generally accepted auditing standards (GAAS)

Question 11

Performing which of the following bookkeeping services impairs the independence of a CPA who audits, reviews or complies the financial statements of a company that is not publicly held?

	Recording journal entries approved by management.
	None of the above.

	Preparing source documents.
	Proposing journal entries.

Question 12

Lou Kale is an auditor on the engagement team for Styx Inc. Lou is a close, personal friends with the VP of Sales for Styx. Which specific threat to independence may be present?

	Familiarity
	Advocacy

	Self-review
	Self-interest

Question 13

An ethical organization includes the following traits:

	A focus on results over process
	Shared values, goals, and problem-solving mechanisms

	A culture of do what I say, not what I do
	Zero tolerance for individual and collective mistakes

Question 17

Jane finds a material misstatement while auditing a client's accounts receivables. Her senior tells her to ignore the misstatement so that the client does not get upset. Jane wants to be viewed as a team player in order to advance in the firm so Jane follows her senior's instructions and ignores the misstatement. Which ethical theory did Jane use to make her decision?

	Deontology (Rights Theory)
	Utilitarianism

	Virtue ethics
	Egoism

Question 18

Deontology deals with:

	A specific field of denistry
	Rights of others and duties toward them

	Following the law as an element of ethical behavior
	Consequences of actions

Question 19

What is the main fiduciary duty of the board of directors?

	Allow high risk and aggressive accounting practices
	Maximize profits for the company

	Safeguard the interests of the company's stakeholders
	Monitor executive compensation

Question 20

Under the Private Securities Litigation Reform Act (PSLRA), if an auditor concludes that an illegal act with a material effect on the financial statements has been reported to, but not dealt with by senior management, the auditor should next report his/her conclusions to:

	The CIA
	The company's board of directors

	The FBI
	The SEC

Question 21

Lorenzo is auditing Tin Roof Inc.s contract revenue, an area in which the risk of fraud has been assessed as high. Which of the following pieces of audit evidence is the most reliable?

	Contract invoices obtained by Lorenzo from Tin Roofs accounting department.
	Purchase orders from the other party to the contract obtained by Tin Roofs controller.

	Contract terms obtained by Lorenzo from the other party to the contract.
	Photocopies of contract labor records obtained by Lorenzo from Tin Roofs payroll processing provider.

Question 22

Confirmation bias is the tendency of people to employ confirmatory search strategiesthat is, to gather facts that support their expected conclusion. Research shows which of the following is true regarding confirmation bias in auditors?

	Experienced auditors tend to employ confirmatory search strategies, but inexperienced auditors do not.
	Inexperienced auditors tend to employ confirmatory search strategies, but experienced auditors do not.

	Experienced auditors tend to be skeptical of information that rebuts a clients assertion but use confirmatory search strategies in assessing information that supports a clients assertion.
	Inexperienced auditors tend to be more skeptical of information provided by the audit partner than of information provided by the client CFO.

Question 23

When a CPA is employed as a controller, which of the following ethical principles does not apply?

	Independence
	Integrity

	Due Care
	Objectivity

Question 24

The best restatement of Kant's categorical imperative is:

	Always place your self interests above others
	Do to others as you would have everyone do unto you

	That the ends justifies the means
	That those with a smaller stake should have a smaller say compared to those with a bigger stake

Question 25

Accountants employed in private industry must be:

	Inoculated for the flu.
	Objective

	Free of all conflicts of interest.
	Independent

Question 28

Section 302 of the Sarbanes-Oxley Act requires that management:

	Assess the company's internal controls
	Assess the company's internal controls

	Disclose all executive compensation
	Certify the financial statements

Question 29

Which of the following elements is not an integral part of Deontology (Rights Theory)?

	Act in a way that is universally accepted
	Act in a way you would want others to act in similar situations

	Treat people as an end and not merely as a means to an end
	Act based on the consequences of one's actions on others

Question 30

Fraud can be defined as:

	A deliberate misrepresentation of gain an advantage over another party.
	An error in preparing financial statements

	All of the above.
	A cover-up of a mistake made in the financial statements

Question 31

Ethical relativism can best be described as a:

	Point of view that morality is relative to the norms of one's culture.
	Concept that holds that integrity should be maintained in the face of pressure by others.

	An ethical reasoning method that holds one should always act in the manner that produces the greatest good for the greatest number of stakeholders.
	An ethical reasoning method that holds one should always act out of self-interest.

Question 32

Which of the following is not a professional organization for supporting accounting professionals?

	Institute of Management Accountants (IMA)
	American Institute of Certified Public Accountants (AICPA)

	California Society of Certified Public Accountants (CalCPA)
	Tax Preparers Anonymous (TPA)

Question 35

The ethical dissonance model looks at the ethical fit of the organizational and individual values. The optimal fit for an individual with high individual ethics would be:

	Low-High
	Low-Low

	High-High
	High-Low

Question 36

Which of the following is an example of what Howard Gardner refers to as "positive periodic inoculations"?

	Attending a conference where the presenter speaks of his company's impact to the community.
	Meditating for 20 minutes a day.

	Getting your annual flu shot.
	Attending a conference where the presenter speaks of the fraud he committed at his last company.

Question 37

Teleology deals with:

	Fairness to others
	Respecting the rights of others

	Consequences of actions
	Following prescribed virtue characteristics

Question 39

The fraud at Groupon occurred because the company:

	Failed to set aside enough money to cover customer refunds
	Included revenue from nonexistent customers

	Delayed recording customer refunds
	Accelerated the recording of customer revenues from high-priced offers

Question 40

Performing which of the following bookkeeping services impairs the independence of a CPA who audits, reviews or complies the financial statements of a company that is not publicly held?

	Preparing source documents.
	None of the above.

	Recording journal entries approved by management.
	Proposing journal entries.

Question 41

Which of the following is an element of the introductory paragraph of an auditor's report under AICPA standards?

	Identifies audit testing and procedures used
	Identifies the type of opinion the auditor is giving

	Identifies the generally accepted auditing standards followed in conducting the audit
	Identifies the entity, financial statements being audited and time period

Question 45

According to the PCAOB, a mindset of professional skepticism is particularly important with regard to several specific areas during an audit. Which of the following is NOT one of these areas identified by the PCAOB?

	Significant management judgments.
	Revenue recognition

	Financing transactions.
	The auditor's consideration of fraud.