AICPA Part 2

Question 1

a contingency fee can be charged for its consulting services to the same client if…

Answer 1

a CPA discloses its lack of independence

Question 2

independence is impaired if a covered member owns…

Answer 2

1. shares in a mutual fund and has a direct finanical interest in the fund
2. more than 5% of the shares of a diversified fund (indirect interest) have to determine materiality
3. shares of an undiverisfied fund must determine if indirect interest in
   underlying shares is material

Question 3

PTI

Answer 3

person in a position to influence

Question 4

independence rules apply to which groups of individuals?

Answer 4

1. covered members and their families
2. partners or professional employees who own 5% or less of an attest client’s
   ownership interests

Question 5

independence is not impaired for a covered member who…

Answer 5

1. has no active role in investing
2. owns less than 10% of audit client’s stock
3. owns less than 10% of its assets invested

Question 6

independence of a CPA who serves as a trustee of a trust or executor of an estate with a direct or material indirect financial interest in a client is impaired if:

Answer 6

1. the CPA can make investment decisions for the entity
2. if the entity holds more than 10% of the client
3. if the stock in the client exceeds 10% of the entity’s holdings

Question 7

prior to accepting an audit engagement, auditors must have adequate technical training through…

Answer 7

AIPE
1. accounting education (continuing)
2. industry knowledge
3. practical experience

Question 8

one audit cycle waiting period _____ observed by SOX if the audit client is a __________ company

Answer 8

is NOT; private
is; public

Question 9

there are 6 quality control elements for a CPA firm

Answer 9

H.E.A.L.M.E
1. human resources
2. ethical requirements
3. acceptance and continuance of client
4. leadership responsibilites for quality
5. monitoring
6. engagement performance

Question 10

For a trust- a covered members interest is DIRECT if there is

Answer 10

OAR-CID
1. ownership,
2. the ability to amend or revoke a trust,
3. the authority to control the trust
4. AND the ability to supervise the trust’s investment decisions

Question 11

what is a private letter ruling

Answer 11

a statement from the IRS that provides interpretations of tax law as it relates to situations specific to a particular taxpayer

Question 12

if the CPA performs a service for a contingent fee, they may NOT perform either of these services for the same client:

Answer 12

1. audits or reviews of F/S
2. examinations of prospective financial information

Question 13

adverse interest threat

Answer 13

CPA’s interests conflict with clients

Question 14

advocacy threat

Answer 14

CPA promotes client’s interests

Question 15

familiarity threat

Answer 15

relationship makes CPA sympathetic to client

Question 16

management participation threat

Answer 16

CPA performs management functions for client

Question 17

self-interest threat

Answer 17

CPAs interests align with clients

Question 18

self-review threat

Answer 18

CPA expected to judge their own (or their firm’s) work

Question 19

undue influence threat

Answer 19

CPA is (or appears to be) overly influenced by someone else (ie. client or third-party)

Question 20

gifts are an example of what kind of threats?

Answer 20

undue influence but can be self-interest or familiarity even if gift doesn’t violate firm policy

Question 21

the independence rules for employment relationships focuses on which two groups?

Answer 21

partners and professional employees rather than just covered members

Question 22

A covered member must maintain independence for what attest services?

Answer 22

think attest A.R.E.A.
1. Audits
2. Reviews
3. Examinations
4. Agreed upon procedures

Question 23

In what five circumstances is it permitted to disclose client confidentially?

Answer 23

1. in conjunction with arbitration proceedsings relating to the client
2. to a professional liability carrier regarding a claim
3. in use of a records retention agency
4. as long as its not the CPAs primary field of services (ie. NOT in conjunction with a bankruptcy)
5. client says OK

Question 24

members in public practice are obligated to follow these 3 rules of conduct:

Answer 24

1. independence
2. contingent fees
3. commissions

Question 25

there are 5 steps of dissociation from prior ER who becomes new ERs audit client

Answer 25

1. dispose of financial interest

Question 26

CPAs may not release client confidential information without consent even to….

Answer 26

IRS or FASB

Question 27

which type of lease impairs independence?

Answer 27

capital lease

Question 28

if these three conditions are met, which type of lease does not impair independence and what are the 3 conditions?

Answer 28

operating leases
the 3 conditions are:
1. the lease meets GAAP criteria for an operating lease
2. the terms/conditions are comparable to those of similar leases
3. all amounts are paid in accordance with the terms of the lease

Question 29

CPAs may not accept commissions in connection with sales to client for whom they perform

Answer 29

attest services (audits or reviews of F/S, compilation of F/S used by third parties unless lack of independence disclosed, examinations of prospective financial information)

Question 30

a covered member may not borrow money from or loan money to…

Answer 30

an attest client or any of its officers, directors or 10% shareholders