(A6, S1) Professional Responsibilities, etc.

Question 1

If a CPA’s spouse is employed by the client in a position which is audit-sensitive, which position could this include?

Answer 1

Cashier, internal auditor, accounting supervisor, purchasing agent, or inventory warehouse supervisor.

Question 2

Which types of loans do not impair independence?

Answer 2

• Automobile Loans
• Loans of the surrender value under terms of an insurance policy
• Borrowings fully collateralized by cash deposits at the same financial institution
• Credit Cards and cash advances on checking accounts with an aggregate unpaid balance of $10,000 or less.

Question 3

What is the SEC’s rule for partner rotation on audit teams?

Answer 3

The lead and concurring partner must rotate off the engagement after five years and other audit partners must rotate after seven years. (IFAC rules requires they rotate after no more than seven years)

Question 4

Under DOL rules, when is independence impaired for audits of employee benefit plans?

Answer 4

When an auditor also serves as an investment advisor to the employee benefit plan. And auditor CAN audit both the employee benefit plan and the financial statements of the plan sponsor.

Question 5

When is independence impaired in regards to investing in a client?

Answer 5

Independence is impaired based on control or the appearance of control that a member can exert over the investment. While it is still not desirable to even own shares in a nonclient regulated mutual fund that has investments in the client company, this is the best choice. The member does not control which stocks the mutual fund is investing in.

Question 6

What activity may be required in exercising due care?

Answer 6

Consultation or referral when a professional engagement exceeds the CPA’s personal competence. There is no requirement to obtain specialty accreditation.

Question 7

New legislation and evolution of a new form of business transaction justify a departure from GAAP.
True or False?

Answer 7

True.

Question 8

Why does the CPA profession find it essential to promulgate ethical standards and to establish means for ensuring their observance?

Answer 8

A distinguished mark of a profession is its acceptance of responsibility to the public.

Question 9

A CPA who is NOT in public practice is obligated to follow which of the rules of conduct?

Answer 9

Integrity and objectivity.