Chapter 5

Question 1

ethics

Answer 1

a set of moral principles or values

Question 2

ethical dilemma

Answer 2

a situation a person faces in which a decision must be made about the appropriate behavior

Question 3

independence of mind

Answer 3

reflects the auditor’s state of mind that permits the audit to be performed with an unbiased attitude

Question 4

independence in appearance

Answer 4

result of others interpretation of this independence

Question 5

non-audit services

Answer 5

prohibited non audit services for attest clients:
bookkeeping and the other accounting services
financial information systems design and implementation
appraisal or valuation services
actuarial services
internal audit outsourcing
management or human resource functions
broker or dealer or investment adviser or investment banker services
legal and expert services unrelated to the audit
any other service that the PCAOB determines by regulation is impermissable

Question 6

audit committee

Answer 6

a selected number of a company’s board of directors whose responsibilities include helping auditors remain independent of management

Question 7

one year cooling off period

Answer 7

auditors have to wait a year after auditing a client before they can work for that client in a managing position

Question 8

partner rotation

Answer 8

the leading partner on an audit engagement has to rotate out every 5 years

Question 9

ownership interests

Answer 9

ownership in audit clients is prohibited for auditors working on that client

Question 10

indirect financial interest

Answer 10

when there is a lose but not direct ownership relationship with a client

Question 11

direct financial interest

Answer 11

ownership of stock or other equity by immediate family

Question 12

material

Answer 12

affects only when there is an indirect financial interest

Question 13

former practitioners

Answer 13

former auditors can work for a prior attest client if they are retired

Question 14

normal lending procedures

Answer 14

loans don’t change independence if they are under normal lending procedures

Question 15

director, officer, management, or employee of a company

Answer 15

someone who is this is not independent

Question 16

bookkeeping

Answer 16

in order to do bookkeeping the client must

1. accept full responsibility of the f/s
2. cpa can’t assume management role
3. f/s have to be according to auditing standards

Question 17

Rule 102

Answer 17

member shall maintain objectivity and integrity, shall be free of conflicts of interest

Question 18

Rule 201 - General standards

Answer 18

professional competence
due professional care
planning and supervision
sufficient relevant data

Question 19

Rule 202 Compliance with standards

Answer 19

members have to comply with bodies designated by council

Question 20

Rule 203

Answer 20

used when following standards would be misleading

Question 21

confidential client info

Answer 21

members shall not disclose confidential client data

Question 22

exceptions to confidentiality

Answer 22

1. obligations related to technical standards(misstatement)
2. subpoena or summons and compliance with laws and regulations
3. peer review
4. response to ethics division(AICPA)

Question 23

privileged info

Answer 23

if legal proceedings can’t require info

Question 24

Rule 302 - contingent fees

Answer 24

a member shall not perform for a contingent fee any professional services for or receive such a fee from an audit client or review client, a compilation of f/s , an examination client
2. prepare an original or amended tax return or claim for a tax refund for a contingent fee for any client

Question 25

Rule 501 acts discreditable

Answer 25

a member shall not commit an act discreditable to the profession

Question 26

Rule 502 - advertising and other forms of solicitation

Answer 26

a member in public practice shall not seek to obtain clients by advertising or other forms of solicitation in a manner that is false, misleading, or deceptive

Question 27

Rule 503 - Commissions and referral fees

Answer 27

a member cannot for a commission recommend or refer a client any product or service when the client is an audit client, compilation, or examination client
B. member who is permitted to refer clients - must disclose the commission
C. referral fees - must be disclosed to clients

Question 28

Rule 505 - form of organization and name

Answer 28

member may practice accounting only in an organization that is permitted by state law