Advocacy, Third-Party Service Providers (TSPs), General Standards, and Accounting Principles Flashcards
Which of the following is proper activity within the Code of Professional Conduct?
Shandy, who is on the audit team for client ABC Co., also has a background in real estate appraisal. ABC would like Shandy to be its expert witness in a lawsuit that involves the value of real estate that ABC owns.
Kiron, who is on the audit team for client DEF Co., also has a law license. DEF would like Kiron to represent it in a breach of contract action against XYZ Co.
Indira, a tax professional who provides tax advice to client JKL Co., also is a practicing lawyer. JKL would like Indira to represent JKL in an insurance dispute with Trinity Insurance Co.
Donkle, who is on the audit team for client QRS, also has substantial experience in tax and has been asked by QRS to represent it in a tax matter in front of the IRS.
Indira, a tax professional who provides tax advice to client JKL Co., also is a practicing lawyer. JKL would like Indira to represent JKL in an insurance dispute with Trinity Insurance Co.
Correct! Members not doing attest work may advocate for their nonattest clients, but should avoid advocacy that is unduly zealous and might undermine their credibility as objective professional service providers.
Issues of objectivity and integrity might arise if the Silken Accounting Firm (SAF) outsources the following service to third-party service providers: Record storage. Software application hosting. Tax return preparation. Authorized e-file transmittal services.
Tax return preparation.
Correct! Outsourcing substantive services such as tax return preparation can threaten objectivity and integrity and therefore must be handled carefully with notice and client permission.
Hermione’s accounting firm is extraordinarily busy, yet new non-audit business keeps coming to it from the growing community in which it is located. Hermione would like to take on as much of this non-audit business as possible, and considers outsourcing a possible solution to her firm’s bandwidth limitations. Which of the following is not true as Hermione thinks this through?
Hermione may outsource administrative support services to third-party service providers (TSPs) without undue worry regarding threats to objectivity and integrity.
If Hermione wishes to outsource substantive services, she should notify her clients, ideally in writing, before providing any of their confidential information to the TSPs.
If any clients object to Hermione’s outsourcing of substantive services, she should either decline the engagement or do the work herself.
If any clients object to Hermione’s outsourcing of substantive services, they should just get over it.
If any clients object to Hermione’s outsourcing of substantive services, they should just get over it.
Correct! This is the answer that is not true, for clients have the right to object to outsourcing of substantive services and if they do object then the accounting firms should either do the work themselves or decline the engagement altogether.
Turner has just left a big accounting firm to strike out on his own. Which of the following is true regarding new clients and their business that come his way?
If a client asks Turner to perform services that he has no experience providing and would have to do some research to figure out what to do, he must decline the engagement.
If a client asks Turner to perform services that he has no experience providing, but he could seek a specialist’s assistance, he could accept the engagement.
If Turner feels out of his depth providing a particular service, but he could just turn it over to a third-party service provider and not worry about it anymore, that would be fine.
It’s an uncertain world, but if Turner makes some good faith estimates as to proper advice to render to a client, that is close enough because the AICPA does not expect perfection.
If a client asks Turner to perform services that he has no experience providing, but he could seek a specialist’s assistance, he could accept the engagement.
Correct! This is the best answer because a specialist’s assistance can make it ok to accept such an engagement
Kate has a very unusual auditing situation. An unusual transaction has created a situation where following GAAP seems problematic. Kate needs advice. Which of the following is true as Kate considers how to handle the situation?
To depart from GAAP, all Kate need do is demonstrate that following GAAP would mislead investors.
To depart from GAAP, all Kate need to is describe the departure, its approximate effects, and the reasons why compliance with GAAP would mislead.
To depart from GAAP, Kate need both demonstrate that following GAAP would mislead investors, and describe the departure, its approximate effects, and the reasons why compliance would mislead.
Circumstances justifying departure from GAAP do not include new legislation or evolution of a new business form.
To depart from GAAP, Kate need both demonstrate that following GAAP would mislead investors, and describe the departure, its approximate effects, and the reasons why compliance would mislead.
Correct! Kate must do both these things in order to justifying departure from GAAP.
Dena prepared personal income tax returns for 100 clients last year. Two of her clients have come to her with valid complaints about errors she made in their returns, causing them to pay more than they should have in taxes. Which of the following is true?
I. Dena’s CPA license should be revoked, because she obviously cannot exercise due professional care.
II. While it is certainly possible that Dena has acted without due professional care in these two instances, the AICPA does not demand perfection.
I only.
II only.
I and II.
Neither I nor II.
II only.
The AICPA and state accountancy boards do not expect CPAs to be “Ms. or Mr. Super Accountant.”
Which of the following is true?
Clients have the right to veto any outsourcing by a CPA firm.
Clients must be informed in writing before any professional services are outsourced.
If the client objects to outsourcing of professional services, then the member should either not outsource the work or decline to provide the service altogether.
All three choices provided.
If the client objects to outsourcing of professional services, then the member should either not outsource the work or decline to provide the service altogether.
The outsourcing of professional services requires notification and client approval.
Dain would violate the Code of Professional Responsibility if, during an audit, he:
I. Stated that he was not aware of any material modifications that should be made to the audited financial statements in order for them to be in conformity with GAAP if he was, in fact, aware of needed material modifications.
II. Stated that he was not aware of any material modifications that should be made to the audited financial statements in order for them to be in conformity with GAAP if he was aware of immaterial modifications that would be desirable.
I only.
II only.
I and II.
Neither I nor II.
I only.
Material departures from GAAP, which require material modifications, violate the Code of Professional Conduct.
Members may properly:
I. Advocate on behalf of audit clients. II. Advocate on behalf of tax clients. I only. II only. I and II. Neither I nor II.
II only.
Members may advocate on behalf of tax and advisory service clients, although they should never stretch the bounds of performance standards, go beyond sound and reasonable professional practice, or compromise their credibility.
According to the profession’s ethical standards, which of the following events may justify a departure from a Statement of Financial Accounting Standards?
New legislation Evolution of a new form of business transaction
No Yes
Yes No
Yes Yes
No No
Yes Yes
There is a strong presumption that established accounting principles must always be followed. However, the AICPA cannot always anticipate all circumstances in which such principles might be applied and recognizes that there may be occasional situations where literal application of pronouncements on accounting principles would render financial statements misleading. In those situations, departure from the accounting principles is justified under the Code of Ethics.
An unusual degree of materiality or the existence of conflicting industry practices are given as examples of circumstances where departure from accounting principles is NOT usually justified. But new legislation and evolution of a new form of business transaction are BOTH given as examples of circumstances where departure IS justified.
Sally has her own small accounting firm. Due to some personal connections with a top officer of Mediumsize Corporation, Sally landed an interview with Mediumsize as a potential tax client. Mediumsize has some complicated tax issues of a type that Sally has not handled before. Which of the following is true?
I. Because Sally has not handled these complicated issues before, she cannot take this engagement.
II. Sally can take this engagement if she believes in good faith that she can research these tax issues and handle them competently.
III. Sally can take this engagement if she believes in good faith that she can consult with experts in the area and thereby handle these tax issues competently.
I only.
II only.
I and II.
II and III..
II and III..
Because choices II and III are both accurate, this is the best answer.
