2.03 - Consulting Services Standards Flashcards
2.03 - Consulting Services Standards
Kopel was engaged to prepare Raff’s 20x4 federal income tax return. During the tax preparation interview, Raff told Kopel that he paid $3,000 in property taxes in 20x4. Actually, Raff’s property taxes amounted to only $600.
Based on Raff’s word, Kopel deducted the $3,000 on Raff’s return, resulting in an understatement of Raff’s tax liability.
Kopel had no reason to believe that the information was incorrect.
Kopel did not request underlying documentation and was reasonably satisfied by Raff’s representation that Raff had adequate records to support the deduction. Which of the following statements is correct?
A) To avoid the preparer penalty for willful understatement of tax liability, Kopel was obligated to examine the underlying documentation for the deduction.
B) To avoid the preparer penalty for willful understatement of tax liability, Kopel would be required to
obtain Raff’s representation in writing.
C) Kopel is not subject to the preparer penalty for willful understatement of tax liability because the deduction that was claimed was more than 25% of the actual amount that should have been deducted.
D) Kopel is not subject to the preparer penalty for willful understatement of tax liability because Kopel was justified in relying on Raff’s
representation.
D) Kopel is not subject to the preparer penalty for willful understatement of tax liability because Kopel was justified in relying on Raff’s
representation.
So long as information received from the client does not clearly appear to be incorrect or incomplete, the tax preparer is justified in relying on information that a client represents as correct.
2.03 - Consulting Services Standards
Under the Statements on Standards for Consulting Services, which of the following statements best reflects a CPA’s responsibility when undertaking a consulting services engagement? The CPA must
A) Inform the client of significant reservations concerning the benefits of the engagement.
B) Obtain a written understanding with the client concerning the time for completion of the engagement.
C) Not seek to modify any agreement made with the client.
D) Not perform any attest services for the client
A) Inform the client of significant reservations concerning the benefits of the engagement.
One standard for consulting services requires communication to the client of any significant reservations about the potential benefits of the engagement.
2.03 - Consulting Services Standards
Which of the following services may a CPA perform in carrying out a consulting service engagement for a client?
I. Review of the client-prepared business plan.
II. Preparation of information for obtaining financing.
A) II only
B) I only
C) Neither I nor II
D) Both I and II
D) Both I and II
Among the many consulting services that may be performed by a CPA include review of a client’s business plan and assistance in obtaining financing for the client’s business.
2.03 - Consulting Services Standards
Nile, CPA, on completing an audit, was asked by the client to provide technical assistance in implementing a new Electronic Data
Processing (EDP) system. The set of pronouncements designed to guide Nile in this engagement is the Statement(s) on
A) Standards for Accountants’ EDP Services.
B) Standards for Consulting Services.
C) Quality Control Standards.
D) Auditing Standards.
B) Standards for Consulting Services.
EDP system implementation services are a category of consulting services.
Auditing standards guide performance on individual audit engagements.
2.03 - Consulting Services Standards
Which of the following actions by a CPA most likely violates the profession’s ethical standards?
A) Retaining client records after the client has demanded their return.
B) Arranging with a financial
institution to collect notes issued by a client in payment of fees due.
C) Purchasing a segment of an insurance company’s business that performs actuarial services for employee benefit plans.
D) Compiling the financial
statements of a client that employed the CPA’s spouse as a bookkeeper
A) Retaining client records after the client has demanded their return.
Retaining client records after the client has demanded their return is a violation of the profession’s code of conduct.
Arranging for third party collection of fees is acceptable.
A CPA may acquire an interest in other types of businesses.
Compiling statements of a client that employed the CPA’s spouse is not a violation, because compilations do not
involve any form of attestation and require no independence
