Chap 3

Question 1

What is meant by the term ethical dilemma?

Answer 1

An ethical dilemma is a situation that an individual faces involving a decision about appropriate behavior.

Question 2

Briefly describe the two parts of the AICPA Code of Professional Conduct.

Answer 2

Principles - a goal-oriented, positively stated discussion of the profession’s responsibilities to the public, clients and fellow practitioners. Provides overall framework.
Rules- enforceable applications of the Principles. They define acceptable behavior and identify sources of authority for performance standards

Question 3

According to the AICPA Conceptual Framework of Independence Standards, list and describe three categories of threats to accountant independence.

Answer 3

Self-review, advocacy, Adverse interest, Familiarity, undue influence, financial self-interest, management participation.

Question 4

Explain how a CPA might have an indirect financial interest in an audit client. Does the AICPA Code of Professional Conduct prohibit such interests?

Answer 4

Indirect financial interest generally involves an intermediary of some sort; investment in companies or mutual funds.

Question 5

With respect to ethics, what are responsibilities of the PCAOB? What is the source of the Board’s authority?

Answer 5

Given authority to develop and enforce ethical rules for audits of public companies.
The source was careless work or lack of integrity and concerns about the credibility of audits cause congress to question the AICPA’s ethical rules and enforcement processes.

Question 6

Describe what is meant by the term “covered member.” Which part (or parts) of AICPA Code of Professional Conduct Standard 101 on independence relies on the concept of a covered member?

Answer 6

An individual, firm or entity that is capable of influencing an attest engagement and includes: refer to pg 77
Interpretation 101-1 Section A

Question 7

How do the rules for the audit of public v nonpublic differ with respect to the independence of a CPA who performs routine accounting services for a client?

Answer 7

Public - CPA’s cannot work on audit

Nonpublic

Question 8

In performing a consulting engagement for a client, a CPA may perform any services that the client requests?

Answer 8

No, services cannot be management functions or management decisions

Question 9

Identify the circumstances under which a CPA may not perform professional services on a continent fee basis.

Answer 9

Tax preparation or amended tax returns or claims.
Professional services performed and also performs audits, reviews, financial statements that 3rd party might use and complications doesn’t disclose a lack of independence, or examinations of prospective financial information.

Question 10

Must a CPA maintain independence and an impartial mental attitude when preparing a client’s income tax return?

Answer 10

No, but must adhere to standards of objectivity and integrity Rule 102.

Question 11

In perparing a client’s income tax return, a CPA feels that certain expenses are unreasonably high and probably overstated. Explain responsibilities of CPA.

Answer 11

That client pays correct amount and to observe preparer’s declaration if cannot comply CPA must make sufficient investigation to resolve issue

Question 12

Which of the following is not a covered member for an attest engagement under Rule 101 of the AICPA code of Professional Conduct:

1. An individual assigned to the attest engagement
2. A partner in the office of the partner in charge of the attest engagement
3. A manager who is in charge of providing tax services to attest clients
4. A partner in the national office of the firm that performs marketing services

Answer 12

4.

1,2&3 - violates Part A of Rule 101