AUD 2 Professional Responsibilities and Ethics 2 Flashcards

Question 1

Q

A member who possesses a direct or material indirect financial interest in an attest client creates a self-interest threat that cannot be reduced to an _________ level and the member’s __________ would be impaired.

Answer

A

A member who possesses a direct or material indirect financial interest in an attest client creates a self-interest threat that cannot be reduced to an acceptable level and the member’s independence would be impaired.

Question 2

Q

Financial interests in retirement, savings, compensation, or similar firm-sponsored plans may be direct or indirect financial interests, based on circumstances.

    •  Investments in a firm-sponsored plan are \_\_\_\_\_ financial interests of the firm.

Answer

A

Financial interests in retirement, savings, compensation, or similar firm-sponsored plans may be direct or indirect financial interests, based on circumstances.

    •  Investments in a firm-sponsored plan are direct financial interests of the firm.

Question 3

Q

Financial interests in retirement, savings, compensation, or similar firm-sponsored plans may be direct or indirect financial interests, based on circumstances.

    •  The ability to supervise or participate in a plan’s investment decisions creates a \_\_\_\_\_ financial interest while the inability to do so results in an indirect financial interest.

Answer

A

Financial interests in retirement, savings, compensation, or similar firm-sponsored plans may be direct or indirect financial interests, based on circumstances.

    •  The ability to supervise or participate in a plan’s investment decisions creates a direct financial interest while the inability to do so results in an indirect financial interest.

Question 4

Q

Financial interests in retirement, savings, compensation, or similar firm-sponsored plans may be direct or indirect financial interests, based on circumstances.

    •  Financial interests held by a defined benefit plan are only considered the financial interest of a member who is a trustee or otherwise supervises or participates in the plan’s investment d\_\_\_\_\_\_\_\_s.

Answer

A

Financial interests in retirement, savings, compensation, or similar firm-sponsored plans may be direct or indirect financial interests, based on circumstances.

    •  Financial interests held by a defined benefit plan are only considered the financial interest of a member who is a trustee or otherwise supervises or participates in the plan’s investment decisions.

Question 5

Q

Financial interests in retirement, savings, compensation, or similar firm-sponsored plans may be direct or indirect financial interests, based on circumstances.

    •  Allocated shares held in an employee stock ownership plan (ESOP) are \_\_\_\_\_\_ financial interests until the member has the right to dispose of the allocated shares of the ESOP.

Answer

A

Financial interests in retirement, savings, compensation, or similar firm-sponsored plans may be direct or indirect financial interests, based on circumstances.

    •  Allocated shares held in an employee stock ownership plan (ESOP) are indirect financial interests until the member has the right to dispose of the allocated shares of the ESOP.

Question 6

Q

Financial interests in retirement, savings, compensation, or similar firm-sponsored plans may be direct or indirect financial interests, based on circumstances.

    •  Interests resulting from share-based compensation arrangements, including rights to acquire equity interests and restricted stock awards are \_\_\_\_\_ financial interests even if they are not vested or exercisable.

Answer

A

Financial interests in retirement, savings, compensation, or similar firm-sponsored plans may be direct or indirect financial interests, based on circumstances.

    •  Interests resulting from share-based compensation arrangements, including rights to acquire equity interests and restricted stock awards are direct financial interests even if they are not vested or exercisable.

Question 7

Q

Financial interests in retirement, savings, compensation, or similar firm-sponsored plans may be direct or indirect financial interests, based on circumstances.

Examples:

Answer

A

Financial interests in retirement, savings, compensation, or similar firm-sponsored plans may be direct or indirect financial interests, based on circumstances.

    * Investments in a firm-sponsored plan are direct financial interests of the firm.
    * The ability to supervise or participate in a plan’s investment decisions creates a direct financial interest while the inability to do so results in an indirect financial interest.
    * Financial interests held by a defined benefit plan are only considered the financial interest of a member who is a trustee or otherwise supervises or participates in the plan’s investment decisions.
    * Allocated shares held in an employee stock ownership plan (ESOP) are indirect financial interests until the member has the right to dispose of the allocated shares of the ESOP.
    * Interests resulting from share-based compensation arrangements, including rights to acquire equity interests and restricted stock awards are direct financial interests even if they are not vested or exercisable.

Question 8

Q

A partnership interest is a _____ financial interest in a general.

Answer

A

A partnership interest is a direct financial interest in a genera.

Question 9

Q

A partnership interest is a ______ financial interest in a general or a limited partnership.

      •  A general partner has a \_\_\_\_\_ financial interest in the partnership’s financial interests.

Answer

A

A partnership interest is a direct financial interest in a general or a limited partnership.

      •  A general partner has a direct financial interest in the partnership’s financial interests.

Question 10

Q

A partnership interest is a ______ financial interest in a general or a limited partnership.

 •  A limited partner has an \_\_\_\_\_\_\_\_ financial interest in the partnership’s financial interests

unless the limited partner controls the partnership, supervises or participates in the partnership’s investment decisions, or has the ability to replace the general partner or participate in investment decisions, in which case the interest is ______.

Answer

A

A partnership interest is a direct financial interest in a general or a limited partnership.

      * A general partner has a direct financial interest in the partnership’s financial interests.
      * A limited partner has an indirect financial interest in the partnership’s financial interests

unless the limited partner controls the partnership, supervises or participates in the partnership’s investment decisions, or has the ability to replace the general partner or participate in investment decisions, in which case the interest is direct.

Question 11

Q

An ownership interest in a limited liability company (LLC) is a ______ financial interest in the LLC.

Answer

A

An ownership interest in a limited liability company (LLC) is a direct financial interest in the LLC.

Question 12

Q

An ownership interest in a limited liability company (LLC) is a ______ financial interest in the LLC.

        • The managing member and those with the ability to control, supervise, or participate in the LLC’s investment decisions have \_\_\_\_ financial interests in the LLC’s financial interests.

Answer

A

An ownership interest in a limited liability company (LLC) is a direct financial interest in the LLC.

        • The managing member and those with the ability to control, supervise, or participate in the LLC’s investment decisions have direct financial interests in the LLC’s financial interests.

Question 13

Q

An ownership interest in a limited liability company (LLC) is a ______ financial interest in the LLC.

         • Others without the ability to control, supervise, or participate in the LLC’s investment decisions have \_\_\_\_\_\_\_ financial interests.

Answer

A

An ownership interest in a limited liability company (LLC) is a direct financial interest in the LLC.

        • Others without the ability to control, supervise, or participate in the LLC’s investment decisions have indirect financial interests.

Question 14

Q

An ownership interest in a limited liability company (LLC) is a ______ financial interest in the LLC.

       * The managing member and those with the ability to control, supervise, or participate in the LLC’s investment decisions have \_\_\_\_ financial interests in the LLC’s financial interests.
       * Others without the ability to control, supervise, or participate in the LLC’s investment decisions have \_\_\_\_\_\_\_ financial interests.

Answer

A

An ownership interest in a limited liability company (LLC) is a direct financial interest in the LLC.

        * The managing member and those with the ability to control, supervise, or participate in the LLC’s investment decisions have direct financial interests in the LLC’s financial interests.
        * Others without the ability to control, supervise, or participate in the LLC’s investment decisions have indirect financial interests.

Question 15

Q

The account owner of a Section 529 plan (Education savings plan) has a ______ financial interest in the plan, but beneficiaries do not have a direct or indirect financial interest in the plan.

Answer

A

The account owner of a Section 529 plan (Education savings plan) has a direct financial interest in the plan, but beneficiaries do not have a direct or indirect financial interest in the plan.

Question 16

Q

The account owner of a Section 529 plan (Education savings plan) has a direct financial interest in the plan, but beneficiaries do not have a ______ or ________ financial interest in the plan.

Answer

A

The account owner of a Section 529 plan (Education savings plan) has a direct financial interest in the plan, but beneficiaries do not have a direct or indirect financial interest in the plan.

Question 17

Q

If an estate or trust has any direct or any material indirect financial interest in an attest client, a threat to the member’s ___________ would not be at an acceptable level

if the member served as trustee of the trust, or executor or administrator of the estate, during the period of the professional engagement

if any of the following also applied:

The member had the authority to make investment decisions for the trust or estate;
The trust or estate either owned an equity interest in excess of 10% of the attest client’s outstanding equity securities; or
The value of the equity interest in the attest client exceeded 10% of the total assets of the trust or estate.

Answer

A

Trusts and Estates

If an estate or trust has any direct or any material indirect financial interest in an attest client, a threat to the member’s independence would not be at an acceptable level if the member served as trustee of the trust, or executor or administrator of the estate, during the period of the professional engagement if any of the following also applied:

The member had the authority to make investment decisions for the trust or estate;
The trust or estate either owned, or was committed to acquire, an equity interest in excess of 10% of the attest client’s outstanding equity securities; or
The value of the equity interest in the attest client exceeded 10% of the total assets of the trust or estate.

Question 18

Q

When the CPA is the grantor of a trust, the trust and its investments are considered _____ financial interests of the CPA,

even if the trust is a blind trust, if the trust’s investments ultimately revert to the CPA, or if the CPA:

Can amend or revoke the trust;
Has the authority to control the trust; or
Has the ability to participate in, or supervise, the trust’s investment decisions.

If none of those circumstances apply, the CPA has a _____ financial interest in the trust and an indirect financial interest in the trust’s underlying investments.

Answer

A

When the CPA is the grantor of a trust, the trust and its investments are considered direct financial interests of the CPA,

even if the trust is a blind trust, if the trust’s investments ultimately revert to the CPA, or if the CPA:

Can amend or revoke the trust;
Has the authority to control the trust; or
Has the ability to participate in, or supervise, the trust’s investment decisions.

If none of those circumstances apply, the CPA has a direct financial interest in the trust and an indirect financial interest in the trust’s underlying investments.

Question 19

Q

When a CPA is a participant in an employee benefit plan that is either sponsored by an attest client or is, itself, an attest client, ____________ is generally impaired due to the s___ - ________ threat.

Answer

A

Participation in Employee Benefit Plans

When a CPA is a participant in an employee benefit plan that is either sponsored by an attest client or is, itself, an attest client, independence is generally impaired due to the self-interest threat.

Question 20

Q

When a CPA is a participant in an employee benefit plan, independence is generally impaired due to the self-interest threat.

The threat would be reduced to an _________ level in certain circumstances the CPA is a participant in a public employee retirement plan that is sponsored by more than one governmental organization, one of which is the employer of the CPA.

Answer

A

Participation in Employee Benefit Plans

When a CPA is a participant in an employee benefit plan that is either sponsored by an attest client or is, itself, an attest client, independence is generally impaired due to the self-interest threat.

The threat would be reduced to an acceptable level, however, in certain circumstances the CPA is a participant in a public employee retirement plan that is sponsored by more than one governmental organization, one of which is the employer of the CPA.
plied with.

Question 21

Q

When a CPA is a participant in an employee benefit plan, independence is generally impaired due to the self-interest threat.

The threat would be reduced to an acceptable level in certain circumstances the CPA is a participant in a public employee retirement plan that is sponsored by more than one governmental organization, one of which is the employer of the CPA.

In addition:

• The CPA is required as an employee to p_______ in the plan, which is offered to all employees in comparable positions;

Answer

A

Participation in Employee Benefit Plans

When a CPA is a participant in an employee benefit plan that is either sponsored by an attest client or is, itself, an attest client, independence is generally impaired due to the self-interest threat.

The threat would be reduced to an acceptable level, however, in certain circumstances the CPA is a participant in a public employee retirement plan that is sponsored by more than one governmental organization, one of which is the employer of the CPA.

In addition:

The CPA is required as an employee to participate in the plan, which is offered to all employees in comparable positions;
The CPA does not influence or control key aspects of the plan such as investment strategy, benefits, or other management activities; and
The CPA may not serve in a role prohibited by ET 1.275, Current Employment or Association with an Attest Client.

When, as a result of an immediate family member’s employment, that family member is a participant in a plan that is an attest client or is sponsored by an attest client, the requirements of ET 1.270, Family Relationships with Attest Clients, are to be complied with.

Question 22

Q

When a CPA is a participant in an employee benefit plan, independence is generally impaired due to the self-interest threat.

The threat would be reduced to an acceptable level in certain circumstances the CPA is a participant in a public employee retirement plan that is sponsored by more than one governmental organization, one of which is the employer of the CPA.

In addition:

• The CPA is required as an employee to p_______ in the plan, which is offered to all employees in comparable positions;

Answer

A

Participation in Employee Benefit Plans

When a CPA is a participant in an employee benefit plan that is either sponsored by an attest client or is, itself, an attest client, independence is generally impaired due to the self-interest threat.

The threat would be reduced to an acceptable level, however, in certain circumstances the CPA is a participant in a public employee retirement plan that is sponsored by more than one governmental organization, one of which is the employer of the CPA.

In addition:

The CPA is required as an employee to participate in the plan, which is offered to all employees in comparable positions;
The CPA does not influence or control key aspects of the plan such as investment strategy, benefits, or other management activities; and
The CPA may not serve in a role prohibited by ET 1.275, Current Employment or Association with an Attest Client.

When, as a result of an immediate family member’s employment, that family member is a participant in a plan that is an attest client or is sponsored by an attest client, the requirements of ET 1.270, Family Relationships with Attest Clients, are to be complied with.

Question 23

Q

The threat would be reduced to an acceptable level, however, in certain circumstances the CPA is a participant in a public employee retirement plan that is sponsored by more than one g_________ organization, one of which is the employer of the CPA.

In addition:

• The CPA does not influence or control key aspects of the plan such as investment strategy, benefits, or other management activities;

Answer

A

The threat would be reduced to an acceptable level, however, in certain circumstances the CPA is a participant in a public employee retirement plan that is sponsored by more than one governmental organization, one of which is the employer of the CPA.

In addition:

• The CPA does not influence or control key aspects of the plan such as investment strategy, benefits, or other management activities;

Question 24

Q

A firm may have funds on deposit at an attest client that is a bank or similar depository institution without impairing its independence as long as the firm concludes that the likelihood that the institution will experience financial difficulties is r______.

Answer

A

Depository, Brokerage, and Other Accounts

A firm may have funds on deposit at an attest client that is a bank or similar depository institution without impairing its independence as long as the firm concludes that the likelihood that the institution will experience financial difficulties is remote.

Question 25

Q

A firm may have funds on deposit at an attest client that is a bank or similar depository institution without impairing its independence as long as the firm concludes that the likelihood that the institution will experience financial difficulties is remote.

An individual’s ____________ would not be impaired as long as:

The balance on deposit is fully insured; or
The aggregate of uninsured amounts is not material to the individual; or
Uninsured amounts that are considered material are reduced to an amount that is not material within 30 days of when it became, or becomes, material to the individual.

Answer

A

Depository, Brokerage, and Other Accounts

A firm may have funds on deposit at an attest client that is a bank or similar depository institution without impairing its independence as long as the firm concludes that the likelihood that the institution will experience financial difficulties is remote.

An individual’s independence would not be impaired as long as:

The balance on deposit is fully insured; or
The aggregate of uninsured amounts is not material to the individual; or
Uninsured amounts that are considered material are reduced to an amount that is not material within 30 days of when it became, or becomes, material to the individual.

Question 26

Q

When a CPA maintains brokerage or other accounts with an attest client that is an insurance company, investment advisor, broker-dealer, bank, or other member of the financial services industry, impairment of independence may be avoided if certain s________s are in place:

Answer

A

Depository, Brokerage, and Other Accounts

When a CPA maintains brokerage or other accounts with an attest client that is an insurance company, investment advisor, broker-dealer, bank, or other member of the financial services industry, impairment of independence may be avoided if certain safeguards are in place:

Question 27

Q

When a CPA maintains brokerage or other accounts with an _____ client that is an insurance company, investment advisor, broker-dealer, bank, or other member of the financial services industry, impairment of independence may be avoided if certain safeguards are in place:

Answer

A

Depository, Brokerage, and Other Accounts

When a CPA maintains brokerage or other accounts with an attest client that is an insurance company, investment advisor, broker-dealer, bank, or other member of the financial services industry, impairment of independence may be avoided if certain safeguards are in place:

Question 28

Q

When a CPA maintains brokerage or other accounts with an ____ client that is an insurance company, investment advisor, broker-dealer, bank, or other member of the financial services industry, impairment of independence may be avoided if certain safeguards are in place:

The ______ client is providing services applying its normal terms, procedures, and requirements; and
Any risk of loss, such as from the client’s bankruptcy, insolvency, fraud or illegal acts, or other circumstances, is not material to the individual after considering protections from federal, state, or other insurers or from other sources.

Answer

A

Depository, Brokerage, and Other Accounts

When a CPA maintains brokerage or other accounts with an attest client that is an insurance company, investment advisor, broker-dealer, bank, or other member of the financial services industry, impairment of independence may be avoided if certain safeguards are in place:

The attest client is providing services applying its normal terms, procedures, and requirements; and
Any risk of loss, such as from the client’s bankruptcy, insolvency, fraud or illegal acts, or other circumstances, is not material to the individual after considering protections from federal, state, or other insurers or from other sources.

Question 29

Q

Depository, Brokerage, and Other Accounts

An individual’s independence would not be impaired as long as:

The balance on deposit is fully insured; or
The aggregate of uninsured amounts is not _______ to the individual; or
Uninsured amounts that are considered ________ are reduced to an amount that is not _______ within __ days of when it became, or becomes, material to the individual.

Answer

A

Depository, Brokerage, and Other Accounts

A firm may have funds on deposit at an attest client that is a bank or similar depository institution without impairing its independence as long as the firm concludes that the likelihood that the institution will experience financial difficulties is remote.

An individual’s independence would not be impaired as long as:

The balance on deposit is fully insured; or
The aggregate of uninsured amounts is not material to the individual; or
Uninsured amounts that are considered material are reduced to an amount that is not material within 30 days of when it became, or becomes, material to the individual.

Question 30

Q

An insurance policy from a stock or mutual life insurance company is not considered a financial interest unless the policy offers the policy holder an investment option.

Holding such a policy would create a ___-_____ threat to independence only if the policy was not obtained under the issuing entity’s normal terms, procedures, and requirements.

Answer

A

An insurance policy from a stock or mutual life insurance company is not considered a financial interest unless the policy offers the policy holder an investment option.

Holding such a policy would create a self-interest threat to independence only if the policy was not obtained under the issuing entity’s normal terms, procedures, and requirements.

Question 31

Q

An insurance policy from a stock or mutual life insurance company is not considered a _______ interest unless the policy offers the policy holder an investment option.

Holding such a policy would create a self-interest threat to independence only if the policy was not obtained under the issuing entity’s normal terms, procedures, and requirements.

Answer

A

An insurance policy from a stock or mutual life insurance company is not considered a financial interest unless the policy offers the policy holder an investment option.

Holding such a policy would create a self-interest threat to independence only if the policy was not obtained under the issuing entity’s normal terms, procedures, and requirements.

Question 32

Q

An insurance policy from a stock or mutual life insurance company is not considered a financial interest unless the policy offers the policy holder an investment option.

Holding such a policy would create a self-interest threat to ___________ only if the policy was not obtained under the issuing entity’s normal terms, procedures, and requirements.

Answer

A

Holding such a policy would create a self-interest threat to independence only if the policy was not obtained under the issuing entity’s normal terms, procedures, and requirements.

Question 33

Q

When a CPA holds an insurance policy with an investment option, _________ may be impaired.

Answer

A

Depository, Brokerage, and Other Accounts

When a CPA holds an insurance policy with an investment option, independence may be impaired.

Question 34

Q

When a CPA holds an insurance policy with an _________ option, independence may be impaired.

Answer

A

Depository, Brokerage, and Other Accounts

When a CPA holds an insurance policy with an investment option, independence may be impaired.

Question 35

Q

When a CPA holds an insurance policy with an investment option, independence may be impaired.

• If not obtained under the insurer’s normal terms, procedures, and requirements, threats to ____________ would not be at an acceptable level.

Answer

A

Depository, Brokerage, and Other Accounts

• If not obtained under the insurer’s normal terms, procedures, and requirements, threats to independence would not be at an acceptable level.

Question 36

Q

When a CPA holds an insurance policy with an investment option, independence may be impaired.

• When obtained under the insurer’s normal terms, procedures, and requirements, a ____ financial interest would be created if the CPA participates in or oversees investment decisions and the s___ - _______ threat would be at an unacceptable level

Answer

A

Depository, Brokerage, and Other Accounts

• When obtained under the insurer’s normal terms, procedures, and requirements, a direct financial interest would be created if the CPA participates in or oversees investment decisions and the self-interest threat would be at an unacceptable level

Question 37

Q

When a CPA holds an insurance policy with an investment option, independence may be impaired.

• When obtained under the insurer’s normal terms, procedures, and requirements, a _____ financial interest would be created if the CPA participates in or oversees investment decisions and the self-interest threat would be at an unacceptable level

Answer

A

Depository, Brokerage, and Other Accounts

• When obtained under the insurer’s normal terms, procedures, and requirements, a direct financial interest would be created if the CPA participates in or oversees investment decisions and the self-interest threat would be at an unacceptable level

Question 38

Q

Loans to or from an attest client, an officer or director of an attest client, or an individual owning __% or more of an attest client’s outstanding ownership interests create a self-interest threat that may not be at an acceptable level.

Answer

A

Loans, Leases, and Guarantees

Loans to or from an attest client, an officer or director of an attest client, or an individual owning 10% or more of an attest client’s outstanding ownership interests create a self-interest threat that may not be at an acceptable level.

Question 39

Q

Loans to or from an _____ client, an officer or director of an attest client, or an individual owning 10% or more of an ______ client’s outstanding ownership interests create a self-interest threat that may not be at an acceptable level.

Answer

A

Loans, Leases, and Guarantees

Loans to or from an attest client, an officer or director of an attest client, or an individual owning 10% or more of an attest client’s outstanding ownership interests create a self-interest threat that may not be at an acceptable level.

Question 40

Q

Loans to or from an attest client, an officer or director of an attest client, or an individual owning 10% or more of an attest client’s outstanding ownership interests create a ____ - ________ threat that may not be at an acceptable level.

Answer

A

Loans, Leases, and Guarantees

Loans to or from an attest client, an officer or director of an attest client, or an individual owning 10% or more of an attest client’s outstanding ownership interests create a self-interest threat that may not be at an acceptable level.

Question 41

Q

Unsecured loans that are not material to the CPA’s net worth, home mortgage loans, and s_____ loans will not raise the threat to an unacceptable level if certain safeguards are all in place:

Answer

A

Loans, Leases, and Guarantees

Unsecured loans that are not material to the CPA’s net worth, home mortgage loans, and secured loans will not raise the threat to an unacceptable level if certain safeguards are all in place:

Question 42

Q

Unsecured loans that are not _______ to the CPA’s net worth, home mortgage loans, and secured loans will not raise the threat to an unacceptable level if certain safeguards are all in place:

Answer

A

Loans, Leases, and Guarantees

Unsecured loans that are not material to the CPA’s net worth, home mortgage loans, and secured loans will not raise the threat to an unacceptable level if certain safeguards are all in place:

Question 43

Q

Unsecured loans that are not material to the CPA’s net worth, home mortgage loans, and secured loans will not raise the threat to an unacceptable level if certain s______s are all in place:

Answer

A

Loans, Leases, and Guarantees

Unsecured loans that are not material to the CPA’s net worth, home mortgage loans, and secured loans will not raise the threat to an unacceptable level if certain safeguards are all in place:

Question 44

Q

Unsecured loans that are not material to the CPA’s net worth, ____ mortgage loans, and secured loans will not raise the threat to an unacceptable level if certain safeguards are all in place:

Answer

A

Loans, Leases, and Guarantees

Unsecured loans that are not material to the CPA’s net worth, home mortgage loans, and secured loans will not raise the threat to an unacceptable level if certain safeguards are all in place:

Question 45

Q

Loans to or from an attest client, an officer or director of an attest client, or an individual owning 10% or more of an attest client’s outstanding ownership interests create a self-interest _____ that may not be at an acceptable level.

Unsecured loans that are not material to the CPA’s net worth, home mortgage loans, and secured loans will not raise the _____ to an unacceptable level if certain safeguards are all in place:

Answer

A

Loans, Leases, and Guarantees

Loans to or from an attest client, an officer or director of an attest client, or an individual owning 10% or more of an attest client’s outstanding ownership interests create a self-interest threat that may not be at an acceptable level.

Unsecured loans that are not material to the CPA’s net worth, home mortgage loans, and secured loans will not raise the threat to an unacceptable level if certain safeguards are all in place:

Question 46

Q

Unsecured loans that are not material to the CPA’s net worth, home mortgage loans, and secured loans will not raise the threat to an unacceptable level if certain safeguards are all in place:

• The loan was obtained under the institutions ______ terms, procedures, and requirements.

Answer

A

Loans, Leases, and Guarantees

• The loan was obtained under the institutions normal terms, procedures, and requirements.

Question 47

Q

Unsecured loans that are not material to the CPA’s net worth, home mortgage loans, and secured loans will not raise the threat to an unacceptable level if certain safeguards are all in place:

• The loan was obtained ____ to the institution becoming an attest client;

from a lender that was not an attest client but was subsequently sold to an attest client;

or ____to the CPA becoming a covered member.

Answer

A

Loans, Leases, and Guarantees

• The loan was obtained prior to the institution becoming an attest client;

from a lender that was not an attest client but was subsequently sold to an attest client;

or prior to the CPA becoming a covered member.

Question 48

Q

Unsecured loans that are not material to the CPA’s net worth, home mortgage loans, and secured loans will not raise the threat to an unacceptable level if certain safeguards are all in place:

• The loan has been maintained as c______ at all times as long as the borrower has been a covered member and there have been no changes to the terms of the loan not provided for in the original agreement.

Answer

A

Loans, Leases, and Guarantees

• The loan has been maintained as current at all times as long as the borrower has been a covered member and there have been no changes to the terms of the loan not provided for in the original agreement.

Question 49

Q

Unsecured loans that are not material to the CPA’s net worth, home mortgage loans, and secured loans will not raise the threat to an unacceptable level if certain safeguards are all in place:

• The loan has been maintained as current at all times as long as the borrower has been a ______ member and there have been no changes to the terms of the loan not provided for in the original agreement.

Answer

A

Loans, Leases, and Guarantees

• The loan has been maintained as current at all times as long as the borrower has been a covered member and there have been no changes to the terms of the loan not provided for in the original agreement.

Question 50

Q

Unsecured loans that are not material to the CPA’s net worth, home mortgage loans, and secured loans will not raise the threat to an unacceptable level if certain safeguards are all in place:

• The estimated value of collateral at least equals the outstanding balance of the home mortgage or s_____ loan.

Answer

A

Loans, Leases, and Guarantees

• The estimated value of collateral at least equals the outstanding balance of the home mortgage or secured loan.

Question 51

Q

Unsecured loans that are not material to the CPA’s n__ _____, home mortgage loans, and secured loans will not raise the threat to an unacceptable level if certain safeguards are all in place:

Answer

A

Loans, Leases, and Guarantees

Unsecured loans that are not material to the CPA’s net worth, home mortgage loans, and secured loans will not raise the threat to an unacceptable level if certain safeguards are all in place:

Question 52

Q

Obtaining one of the following from a lending institution under its n____ lending procedures, terms, and requirements would not impair a CPA’s independence as long as the CPA is in compliance with the terms of the agreement at all times:

Automobile loans
Loans fully collateralized
Credit cards less than $10,000

Answer

A

Loans, Leases, and Guarantees

Obtaining one of the following from a lending institution under its normal lending procedures, terms, and requirements would not impair a CPA’s independence as long as the CPA is in compliance with the terms of the agreement at all times:

Automobile loans or leases collateralized by the automobile;
Loans fully collateralized by the cash surrender value of an insurance policy or cash deposits at the same institution; or
Credit cards and overdraft protection with an aggregate balance of no more than $10,000 after payment of the most recent monthly statement, made within the grace period.

Question 53

Q

Obtaining one of the following from a lending institution under its normal lending procedures, terms, and requirements would not impair a CPA’s independence as long as the CPA is in compliance with the terms of the agreement at all times:

Automobile loans
Loans fully collateralized
Credit cards less than $_________

Answer

A

Loans, Leases, and Guarantees

Automobile loans
Loans fully collateralized
Credit cards less than $10,000

Question 54

Q

Obtaining one of the following from a lending institution under its normal lending procedures, terms, and requirements would not impair a CPA’s independence as long as the CPA is in compliance with the terms of the agreement at all times:

• Automobile loans or leases c__________ by the automobile;

Answer

A

Loans, Leases, and GuaranteesLoans, Leases, and Guarantees

• Automobile loans or leases collateralized by the automobile;

Question 55

Q

Obtaining one of the following from a lending institution under its normal lending procedures, terms, and requirements would not impair a CPA’s independence as long as the CPA is in compliance with the terms of the agreement at all times:

• Loans fully c________ by the cash surrender value of an insurance policy or cash deposits at the same institution;

Answer

A

Loans, Leases, and GuaranteesLoans, Leases, and Guarantees

• Loans fully collateralized by the cash surrender value of an insurance policy or cash deposits at the same institution; or

Question 56

Q

Obtaining one of the following from a lending institution under its normal lending procedures, terms, and requirements would not impair a CPA’s independence as long as the CPA is in compliance with the terms of the agreement at all times:

• Credit cards and o_______ protection with an aggregate balance of no more than $10,000 after payment of the most recent monthly statement, made within the grace period.

Answer

A

• Credit cards and overdraft protection with an aggregate balance of no more than $10,000 after payment of the most recent monthly statement, made within the grace period.

Question 57

Q

A lease arrangement with an attest client would not raise threats to an unacceptable level if all of the following safeguards are in place:

• The lease meets the criteria to be accounted for as an o______ lease under GAAP

Answer

A

Loans, Leases, and Guarantees

• The lease meets the criteria to be accounted for as an operating lease under GAAP

Question 58

Q

A lease arrangement with an attest client would not raise threats to an unacceptable level if all of the following safeguards are in place:

• All p________s are made in accordance with the lease terms.

Answer

A

Loans, Leases, and Guarantees

• All payments are made in accordance with the lease terms.

Question 59

Q

A lease arrangement with an attest client would not raise threats to an unacceptable level if all of the following safeguards are in place:

• The terms and conditions are comparable to other similar _______

Answer

A

Loans, Leases, and Guarantees

• The terms and conditions are comparable to other similar leases

Question 60

Q

A lease arrangement with an attest client would not raise threats to an _________ level if all of the following safeguards are in place:

The lease meets the criteria to be accounted for as an operating lease under GAAP;
The terms and conditions are comparable to other similar leases; and
All payments are made in accordance with the lease terms.

Answer

A

Loans, Leases, and Guarantees

A lease arrangement with an attest client would not raise threats to an unacceptable level if all of the following safeguards are in place:

The lease meets the criteria to be accounted for as an operating lease under GAAP;
The terms and conditions are comparable to other similar leases; and
All payments are made in accordance with the lease terms.

Question 61

Q

Members of a CPA’s immediate family and all dependents are required to comply with the _________ rules to avoid impairing the __________ of the CPA.

Answer

A

Family Relationships with Attest Clients

Members of a CPA’s immediate family and all dependents are required to comply with the independence rules to avoid impairing the independence of the CPA.

Question 62

Q

In general, members of a CPA’s immediate family, which include the CPA’s spouse or spousal equivalent,

and all d__________s, whether related or not,

are required to comply with the independence rules to avoid impairing the independence of the CPA.

Answer

A

Family Relationships with Attest Clients

In general, members of a CPA’s immediate family, which include the CPA’s spouse or spousal equivalent,

and all dependents, whether related or not,

are required to comply with the independence rules to avoid impairing the independence of the CPA.

Question 63

Q

Without impairing a CPA’s independence, an immediate family member may:

• Be employed by an attest client provided it is NOT in a ___ position, which would create the threats of management participation, familiarity, and self-interest.

Answer

A

Family Relationships with Attest Clients

Any financial interests of immediate family members are attributed to the CPA, including when determining the materiality of an indirect financial interest.

Without impairing a CPA’s independence, an immediate family member may:

• Be employed by an attest client provided it is NOT in a key position, which would create the threats of management participation, familiarity, and self-interest.

Question 64

Q

Without impairing a CPA’s independence, an immediate family member may:

• Be employed by an attest client provided it is NOT in a key position, which would create the threats of m_________ participation, f_______, and s___ - interest.

Answer

A

Family Relationships with Attest Clients

Any financial interests of immediate family members are attributed to the CPA, including when determining the materiality of an indirect financial interest.

Without impairing a CPA’s independence, an immediate family member may:

• Be employed by an attest client provided it is NOT in a key position, which would create the threats of management participation, familiarity, and self-interest.

Answer 65

A

Family Relationships with Attest Clients

Any financial interests of immediate family members are attributed to the CPA, including when determining the materiality of an indirect financial interest.

Without impairing a CPA’s independence, an immediate family member may:

• Be employed by an attest client provided it is NOT in a key position, which would create the threats of management participation, familiarity, and self-interest.

Answer 66

A

Family Relationships with Attest Clients

Any financial interests of immediate family members are attributed to the CPA, including when determining the materiality of an indirect financial interest.

Without impairing a CPA’s independence, an immediate family member may:

• Participate in an employee benefit plan that is an attest client or is sponsored by an attest client as long as

the family member is NOT in a key position with the client,

the plan is offered to ALL employees in comparable positions,

the family member is not part of the plan’s governance,

and the family member does not participate in or oversee investment decisions.

Answer 67

A

Family Relationships with Attest Clients

Without impairing a CPA’s independence, an immediate family member may:

• Participate in an employee benefit plan that is an attest client or is sponsored by an attest client as long as

the family member is NOT in a key position with the client,

the plan is offered to ALL employees in comparable positions,

the family member is NOT part of the plan’s governance,

and the family member does NOT participate in or oversee investment decisions.

Answer 68

A

Family Relationships with Attest Clients

Without impairing a CPA’s independence, an immediate family member may:

• Participate in an employee benefit plan that is an attest client or is sponsored by an attest client as long as

the family member is NOT in a key position with the client,

the plan is offered to ALL employees in comparable positions,

the family member is NOT part of the plan’s governance,

and the family member does NOT participate in or oversee investment decisions.

Answer 69

A

Family Relationships with Attest Clients

Without impairing a CPA’s independence, an immediate family member may:

• Participate in an employee benefit plan that is an attest client or is sponsored by an attest client as long as

the family member is NOT in a key position with the client,

Answer 70

A

Family Relationships with Attest Clients

Without impairing a CPA’s independence, an immediate family member may:

• Participate in an employee benefit plan that is an attest client or is sponsored by an attest client as long as

the family member is NOT in a key position with the client,

the plan is offered to ALL employees in comparable positions,

Answer 71

A

the family member does NOT participate in or oversee investment decisions.

Answer 72

A

Family Relationships with Attest Clients

Without impairing a CPA’s independence, an immediate family member may:

• Participate in a retirement plan that is NOT an attest client or sponsored by an attest client but that holds an investment in an attest client provided:

   o The CPA does not participate in, and cannot influence, the attest engagement;

Answer 73

A

Family Relationships with Attest Clients

Without impairing a CPA’s independence, an immediate family member may:

• Participate in a retirement plan that is NOT an attest client or sponsored by an attest client but that holds an investment in an attest client provided:

        o The family member has no investment options that do not involve an investment option in an attest client;

Answer 74

A

Family Relationships with Attest Clients

Without impairing a CPA’s independence, an immediate family member may:

• Participate in a retirement plan that is NOT an attest client or sponsored by an attest client but that holds an investment in an attest client provided:

    o If given the opportunity to invest in other than in attest client or an attest client investment option,

the family member disposes of financial interests in attest clients as soon as is practicable, no later than 30 days after the option becomes available.

Answer 75

A

Family Relationships with Attest Clients

Without impairing a CPA’s independence, an immediate family member may:

• Participate in a retirement plan that is NOT an attest client or sponsored by an attest client but that holds an investment in an attest client provided:

    o If given the opportunity to invest in other than in attest client or an attest client investment option,

the family member disposes of financial interests in attest clients as soon as is practicable, no later than 30 days after the option becomes available.

Answer 76

A

Family Relationships with Attest Clients

Without impairing a CPA’s independence, an immediate family member may:

• Participate in a retirement plan that is NOT an attest client or sponsored by an attest client but that holds an investment in an attest client provided:

   o The CPA does not participate in, and cannot influence, the attest engagement;

    o The family member has no investment options that do not involve an investment option in an attest client; and

    o If given the opportunity to invest in other than in attest client or an attest client investment option, the family member disposes of financial interests in attest clients as soon as is practicable, no later than 30 days after the option becomes available.

Answer 77

A

Family Relationships with Attest Clients

Actions and circumstances related to close relatives, which are parents, siblings, and nondependent children, may also result in an impairment of a member’s independence.

Answer 78

A

Family Relationships with Attest Clients

This would be the case if either a member of the engagement team, or an individual in a position to influence the engagement team or any partner or partner equivalent in the office of the engagement has a close relative:

In a key position
With a financial interest in the attest client

Answer 79

A

Family Relationships with Attest Clients

Actions and circumstances related to close relatives, which are

parents,
siblings, and
nondependent children,

may also result in an impairment of a member’s independence.

Answer 80

A

Family Relationships with Attest Clients

Actions and circumstances related to close relatives, which are

parents,
siblings, and
nondependent children,

may also result in an impairment of a member’s independence.

Answer 81

A

Family Relationships with Attest Clients

Actions and circumstances related to close relatives, which are

parents,
siblings, and
nondependent children,

may also result in an impairment of a member’s independence.

Answer 82

A

Family Relationships with Attest Clients

In a key position with the attest client during the period covered by the engagement or during the period of the engagement; or
With a financial interest in the attest client that is known or believed to be material to the relative or enables the relative to exercise significant influence over the attest client.

Answer 83

A

Current Employment or Association with an Attest Client

the familiarity, management participation, advocacy, or self-review threats will be raised to an unacceptable level and independence will be impaired.

Answer 84

A

Current Employment or Association with an Attest Client

the familiarity, management participation, advocacy, or self-review threats will be raised to an unacceptable level and independence will be impaired.

Answer 85

A

Current Employment or Association with an Attest Client

the familiarity, management participation, advocacy, or self-review threats will be raised to an unacceptable level and independence will be impaired.

Answer 86

A

Current Employment or Association with an Attest Client

the familiarity, management participation, advocacy, or self-review threats will be raised to an unacceptable level and independence will be impaired.

Answer 87

A

Current Employment or Association with an Attest Client

the familiarity, management participation, advocacy, or self-review threats will be raised to an unacceptable level and independence will be impaired.

Answer 88

A

Current Employment or Association with an Attest Client

When a member is employed or associated with an attest client as a director, officer, employee, promoter, underwriter, voting trustee, or trustee of a pension or profit-sharing plan during the period covered by financial statements or during the period of the professional engagement,

the familiarity, management participation, advocacy, or self-review threats will be raised to an unacceptable level and independence will be impaired.

Answer 89

A

Current Employment or Association with an Attest Client

• Is NOT in a key position with the educational institution;

Answer 90

A

Current Employment or Association with an Attest Client

The member may serve as an adjunct faculty member for an attest client educational institution provided the member:

• Does not participate on, nor can influence, the engagement team;

Answer 91

A

Current Employment or Association with an Attest Client

• Is employed by the educational institution in a non-tenured or part-time position;

Answer 92

A

Current Employment or Association with an Attest Client

• Is employed by the educational institution in a non-tenured or part-time position;

Answer 93

A

Current Employment or Association with an Attest Client

The member may serve as an adjunct faculty member for an attest client educational institution provided the member:

Is NOT a participant in an employee benefit plan to the extent that it is not required; and
Does not assume management responsibilities or set policy for the institution.

Answer 94

A

Current Employment or Association with an Attest Client

• Does not assume management responsibilities or set policy for the institution.

Answer 95

A

Current Employment or Association with an Attest Client

The member may serve as an adjunct faculty member for an attest client educational institution provided the member:

Is NOT in a key position with the educational institution;
Does not participate on, nor can influence, the engagement team;
Is employed by the educational institution in a non-tenured or part-time position;
Is not a participant in an employee benefit plan to the extent that it is not required; and
Does not assume management responsibilities or set policy for the institution.

Answer 96

A

Current Employment or Association with an Attest Client

Threats would be at an acceptable level if a member’s association with an attest client consisted of:

• Serving as an honorary director or trustee for an attest client not-for-profit organization provided the position is clearly honorary and held in name only;

Answer 97

A

Current Employment or Association with an Attest Client

Threats would be at an acceptable level if a member’s association with an attest client consisted of:

• Serving as an honorary director or trustee for an attest client not-for-profit organization provided the position is clearly honorary and held in name only;

Answer 98

A

Current Employment or Association with an Attest Client

Threats would be at an acceptable level if a member’s association with an attest client consisted of:

• Serving as an honorary director or trustee for an attest client not-for-profit organization provided the position is clearly honorary and held in name only;

the member does not vote or otherwise participate in board or management responsibilities;

Answer 99

A

Current Employment or Association with an Attest Client

Threats would be at an acceptable level if a member’s association with an attest client consisted of:

• Serving as an honorary director or trustee for an attest client not-for-profit organization provided the position is clearly honorary and held in name only;

the member does not vote or otherwise participate in board or management responsibilities; and,

if named in letterheads or materials that are circulated externally, is identified as an honorary director or trustee.

Answer 100

A

Current Employment or Association with an Attest Client

Threats would be at an acceptable level if a member’s association with an attest client consisted of:

• Serving on the advisory board of an attest client provided the responsibilities are truly advisory in nature;

Answer 101

A

Current Employment or Association with an Attest Client

Threats would be at an acceptable level if a member’s association with an attest client consisted of:

• Serving on the advisory board of an attest client provided the responsibilities are truly advisory in nature;

the advisory board is neither authorized to make nor does it appear to make management decisions;

Answer 102

A

Current Employment or Association with an Attest Client

Threats would be at an acceptable level if a member’s association with an attest client consisted of:

• Serving on the advisory board of an attest client provided the responsibilities are truly advisory in nature;

the advisory board is neither authorized to make nor does it appear to make management decisions; and

the advisory board is distinct from the decision-making body with a minimum of common members.

Answer 103

A

Current Employment or Association with an Attest Client

Threats would be at an acceptable level if a member’s association with an attest client consisted of:

• Serving on a committee established to study possible changes in the form of an attest client county government,

Answer 104

A

Current Employment or Association with an Attest Client

Threats would be at an acceptable level if a member’s association with an attest client consisted of:

• Serving on a committee established to study possible changes in the form of an attest client county government, or

the government of the state in which the attest client county government resides, and

advising the county government client.

Answer 105

A

Current Employment or Association with an Attest Client

Threats would be at an acceptable level if a member’s association with an attest client consisted of:

• Serving as the treasurer for a mayoral campaign when the attest client is the candidate’s political party or

the municipality in which the candidate is running.

Independence would be impaired, however, if the campaign organization itself was the attest client.

Answer 106

A

Current Employment or Association with an Attest Client

Threats would be at an acceptable level if a member’s association with an attest client consisted of:

• Serving as the treasurer for a mayoral campaign when the attest client is the candidate’s political party or

the municipality in which the candidate is running.

Independence would be impaired, however, if the campaign organization itself was the attest client.

Answer 107

A

Current Employment or Association with an Attest Client

A CPA may not serve on the engagement team, or be in a position to influence the engagement team, of an attest client

at which the CPA had been employed as an officer, director, promoter, underwriter, voting trustee, or trustee

for the entity’s pension or profit sharing trust during any portion of the period or periods to which the attest engagement applies.

Answer 108

A

Current Employment or Association with an Attest Client

Independence will not be impaired if a CPA fails to disassociate from an attest client before becoming a covered member if certain safeguards are all met:

• The member discontinues participation in the client’s employee health and welfare plans

unless the client is legally required to allow the member to participate and the member pays 100% of the cost of participation on a current basis;

Answer 109

A

Current Employment or Association with an Attest Client

Independence will not be impaired if a CPA fails to disassociate from an attest client before becoming a covered member if certain safeguards are all met:

• The member discontinues participation in the client’s employee health and welfare plans

unless the client is legally required to allow the member to participate and the member pays 100% of the cost of participation on a current basis;

Answer 110

A

Current Employment or Association with an Attest Client

Independence will not be impaired if a CPA fails to disassociate from an attest client before becoming a covered member if certain safeguards are all met:

• The member discontinues participation in all other employee benefit plans and

disposes of all vested benefits from the plan at the earliest date permitted by the plan;

   o Disposal is not required if the member would be subject to a significant penalty

   o The covered member must not participate on the attest engagement team or be in a position to influence the engagement.

Answer 111

A

Current Employment or Association with an Attest Client

Independence will not be impaired if a CPA fails to disassociate from an attest client before becoming a covered member if certain safeguards are all met:

The member disposes of any direct and any material indirect financial interest in the client;
The member collects or repays any loans to or from the client’ and
The covered member evaluates whether other relationships with the attest client create additional threats that must be addressed.

Answer 112

A

Current Employment or Association with an Attest Client

Independence will not be impaired if a CPA fails to disassociate from an attest client before becoming a covered member if certain safeguards are all met:

• The covered member evaluates whether other relationships with the attest client create additional threats that must be addressed.

Answer 113

A

Current Employment or Association with an Attest Client

Independence will not be impaired if a CPA fails to disassociate from an attest client before becoming a covered member if certain safeguards are all met:

The member disposes of any direct and any material indirect financial interest in the client;
The member collects or repays any loans to or from the client’ and
The covered member evaluates whether other relationships with the attest client create additional threats that must be addressed.

Answer 114

A

Current Employment or Association with an Attest Client

Seeking or discussing potential employment or other association with an attest client, including receiving a specific offer of employment, would impair independence unless:

The circumstances are promptly reported to an appropriate party at the firm; or
The individual discontinues participation in the engagement or providing services to the attest client until either the offer is rejected or employment with the client is no longer being sought.

Answer 115

A

Current Employment or Association with an Attest Client

Seeking or discussing potential employment or other association with an attest client, including receiving a specific offer of employment, would impair independence unless:

The circumstances are promptly reported to an appropriate party at the firm; or
The individual discontinues participation in the engagement or providing services to the attest client until either the offer is rejected or employment with the client is no longer being sought.

Answer 116

A

Current Employment or Association with an Attest Client

A member who leaves from a CPA firm to take a key position with an attest client would potentially have created the threat of familiarity, self-interest, undue influence, or management participation.

Independence will be impaired unless:

• Amounts due to the member from the firm are not material to the firm;

Answer 117

A

Current Employment or Association with an Attest Client

A member who leaves from a CPA firm to take a key position with an attest client would potentially have created the threat of familiarity, self-interest, undue influence, or management participation.

Independence will be impaired unless:

Amounts due to the member from the firm are not material to the firm;
The member has no remaining capital balance in the CPA firm;

Answer 118

A

Current Employment or Association with an Attest Client

Independence will be impaired unless:

• The member cannot influence the firm’s operations or financial position;

Answer 119

A

Current Employment or Association with an Attest Client

Independence will be impaired unless:

• The member is not associated with the firm and does not participate,

or appear to participate, in the firm’s business once employed or associated with the attest client, even if compensated for doing so.

Answer 120

A

Current Employment or Association with an Attest Client

A member who leaves from a CPA firm to take a key position with an attest client would potentially have created the threat of familiarity, self-interest, undue influence, or management participation.

Independence will be impaired unless:

Amounts due to the member from the firm are not material to the firm;
The member has no remaining capital balance in the CPA firm;
The member cannot influence the firm’s operations or financial position; and
The member is not associated with the firm and does not participate, or appear to participate, in the firm’s business once employed or associated with the attest client, even if compensated for doing so.

Answer 121

A

Current Employment or Association with an Attest Client

In addition, the ongoing engagement team should consider whether to modify engagement procedures.

If the member left the firm within one year of an engagement,

an appropriate firm member should review the subsequent attest engagement and ascertain that an appropriate level of professional skepticism was applied.

Answer 122

A

Current Employment or Association with an Attest Client

The position the member holds with the attest client’
The position the member held with the firm; and
The nature of services performed by the member for the attest client while associated with the firm.

Answer 123

A

Employment with Audit Client

• Prior to leaving:
o Must inform audit firm of conversations with client about possible employment.
o Immediately be removed from the audit.
o Once removed, the audit firm must review the work performed by the departed auditor.

• After employed by the audit client:
o Audit firm must consider modifying the audit plan.
o Assure remaining audit team is objective.

• The next annual audit must be separately reviewed by an audit firm professional uninvolved in the audit.

Answer 124

A

Employment with Audit Client

• Prior to leaving:
o Must inform audit firm of conversations with client about possible employment.
o Immediately be removed from the audit.
o Once removed, the audit firm must review the work performed by the departed auditor.

• After employed by the audit client:
o Audit firm must consider modifying the audit plan.
o Assure remaining audit team is objective.

• The next annual audit must be separately reviewed by an audit firm professional uninvolved in the audit.

Answer 125

A

Memberships

Although memberships do create or enhance threats associated with management participation, self-review, and self-interest, they do not necessarily impair independence.

Answer 126

A

Memberships

Although memberships do create or enhance threats associated with management participation, self-review, and self-interest, they do not necessarily impair independence.

Answer 127

A

Memberships

Although memberships do create or enhance threats associated with management participation, self-review, and self-interest, they do not necessarily impair independence.

Answer 128

A

Memberships

• A pro rata share of a club’s equity or debt securities held by a CPA belonging to an attest client social club would not be considered a direct financial interest if the club membership is essentially a social matter.

Answer 129

A

Memberships

• A pro rata share of a club’s equity or debt securities held by a CPA belonging to an attest client social club would not be considered a direct financial interest if the club membership is essentially a social matter.

Answer 130

A

Memberships

• Membership in an attest client trade association would not impair independence

unless the CPA serves in an inappropriate position, as indicated in ET section 1.275, such as a director, officer, or employee during the period covered by the financial statements subject to the attest engagement or during the period of the engagement.

Answer 131

A

Memberships

• Membership in an attest client trade association would not impair independence

unless the CPA serves in an inappropriate position, as indicated in ET section 1.275, such as a director, officer, or employee during the period covered by the financial statements subject to the attest engagement or during the period of the engagement.

Answer 132

A

Memberships

Threats associated with membership in a common interest realty association (CIRA) that is an attest client would not impair independence if:

• The association performs public safety, road maintenance, and utility functions, similar to a local government;

Answer 133

A

Memberships

• The association performs public safety, road maintenance, and utility functions, similar to a local government;

Answer 134

A

Memberships

Threats associated with membership in a common interest realty association (CIRA) that is an attest client would not impair independence if:

• The CPA’s annual assessment is not material to either the CPA or the CIRA’s budget;

Answer 135

A

Memberships

Threats associated with membership in a common interest realty association (CIRA) that is an attest client would not impair independence if:

Liquidation of the CIRA would not result in a distribution to the CPA; and
The CPA would not be liable to the CIRA’s creditors if it were to become insolvent.

Answer 136

A

Memberships

Threats associated with membership in a common interest realty association (CIRA) that is an attest client would not impair independence if:

The association performs public safety, road maintenance, and utility functions, similar to a local government;
The CPA’s annual assessment is not material to either the CPA or the CIRA’s budget;
Liquidation of the CIRA would not result in a distribution to the CPA; and
The CPA would not be liable to the CIRA’s creditors if it were to become insolvent.

Answer 137

A

Memberships

Subject to those restrictions related to depository accounts and loans,

membership in an attest client credit union would not impair the CPA’s independence

if membership was based on the CPA’s qualifications or characteristics other than the fact that the CPA provides professional services to the credit union.

Answer 138

A

Memberships

If membership in an attest client credit union is due to providing professional services to the credit union, independence would be impaired.

Subject to those restrictions related to depository accounts and loans,

membership in an attest client credit union would not impair the CPA’s independence

if membership was based on the CPA’s qualifications or characteristics other than the fact that the CPA provides professional services to the credit union.

If membership is due to providing professional services to the credit union, independence would be impaired.

Answer 139

A

Gifts and Entertainment

Offering a gift to, or accepting a gift from, an attest client, an individual in a key position with an attest client, or an individual owning 10% or more of an attest client’s outstanding equity may impair independence if the threats of undue influence or self-interest are increased to an unacceptable level.

Answer 140

A

Gifts and Entertainment

Offering a gift to, or accepting a gift from, an attest client, an individual in a key position with an attest client,

or an individual owning 10% or more of an attest client’s outstanding equity may impair independence

if the threats of undue influence or self-interest are increased to an unacceptable level.

Answer 141

A

Gifts and Entertainment

Offering a gift to, or accepting a gift from, an attest client, an individual in a key position with an attest client,

or an individual owning 10% or more of an attest client’s outstanding equity may impair independence

if the threats of undue influence or self-interest are increased to an unacceptable level.

Answer 142

A

Gifts and Entertainment

Offering a gift to, or accepting a gift from, an attest client, an individual in a key position with an attest client, or an individual owning 10% or more of an attest client’s outstanding equity may impair independence if the threats of undue influence or self-interest are increased to an unacceptable level.

To avoid impairing independence:

• A gift may only be accepted from an attest client if it is clearly insignificant to the recipient.

Answer 143

A

Gifts and Entertainment

Offering a gift to, or accepting a gift from, an attest client, an individual in a key position with an attest client, or an individual owning 10% or more of an attest client’s outstanding equity may impair independence if the threats of undue influence or self-interest are increased to an unacceptable level.

To avoid impairing independence:

A gift may only be accepted from an attest client if it is clearly insignificant to the recipient.
Being entertained by an attest client is acceptable if it is reasonable under the circumstances.
A CPA may only offer gifts or entertainment to a client that is reasonable under the circumstances.

Answer 144

A

Gifts and Entertainment

In determining if a gift or entertainment is reasonable under the circumstances, the CPA will consider:

The nature of the item and the occasion giving rise to it;
The cost or value;
The nature, value, and frequency of other gifts or entertainment offered or accepted;

Answer 145

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Gifts and Entertainment

In determining if a gift or entertainment is reasonable under the circumstances, the CPA will consider:

Whether business was actively conducted before, during, or after entertainment;
Whether or not other attest clients participated; and
The individuals from the attest client involved.

Answer 146

A

Gifts and Entertainment

In determining if a gift or entertainment is reasonable under the circumstances, the CPA will consider:

The nature of the item and the occasion giving rise to it;
The cost or value;
The nature, value, and frequency of other gifts or entertainment offered or accepted;
Whether business was actively conducted before, during, or after entertainment;
Whether or not other attest clients participated; and
The individuals from the attest client involved.

Answer 147

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Gifts and Entertainment

In determining if a gift or entertainment is reasonable under the circumstances, the CPA will consider:

• The nature, value, and frequency of other gifts or entertainment offered or accepted;

Answer 148

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Actual or Threatened Litigation

Litigation, whether actual or the expressed intention to begin litigation may create an adverse interest or a self-interest threat that could be at an unacceptable level.

Answer 149

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Actual or Threatened Litigation

Litigation, whether actual or the expressed intention to begin litigation may create an adverse interest or a self-interest threat that could be at an unacceptable level.

Answer 150

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Actual or Threatened Litigation

Litigation, whether actual or the expressed intention to begin litigation may create an adverse interest or a self-interest threat that could be at an unacceptable level.

The materiality of such actual or threatened litigation to the CPA, the CPA’s firm, and to the client should be evaluated by the CPA in making a determination.

Answer 151

A

Actual or Threatened Litigation

Whether or not independence is impaired will depend on the facts and circumstances surrounding each situation and will require the CPA to apply professional judgment.

Answer 152

A

Actual or Threatened Litigation

Whether or not independence is impaired will depend on the facts and circumstances surrounding each situation and will require the CPA to apply professional judgment.

Answer 153

A

Actual or Threatened Litigation

Some, but not all, actual or threatened litigation between a CPA and an attest client will impair independence.

Answer 154

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Actual or Threatened Litigation

Independence will not be impaired by litigation that is not related to the client’s attestation engagement and is not material to either the CPA or the attest client.

Answer 155

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Actual or Threatened Litigation

Examples of litigation that will impair independence include:

Deficiencies in audit work performed for the attest client alleged by its present management.
Allegations by the CPA of fraud or deceit by management.

Answer 156

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Actual or Threatened Litigation

Examples of litigation that will impair independence include:

Deficiencies in audit work performed for the attest client alleged by its present management.
Allegations by the CPA of fraud or deceit by management.

Answer 157

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Actual or Threatened Litigation

Any threats to a CPA’s independence due to actual or threatened litigation is eliminated when the parties reach final resolution and the matter no longer affects the relationship with the attest client.

This is a matter of the CPA’s professional judgment.

Answer 158

A

Actual or Threatened Litigation

Any threats to a CPA’s independence due to actual or threatened litigation is eliminated when the parties reach final resolution and the matter no longer affects the relationship with the attest client.

This is a matter of the CPA’s professional judgment.