Conflicts of Interest, Directorships, and Gifts Flashcards
What are the two main types of conflict of interest for members?
Conflicts between the interests of two clients and between the interests of a client on one hand and the firm and/or its members on the other.
Conflicts between the interests of two clients and between the interests of a client and the government.
Conflicts between the interests of a client on one hand and the firm and/or its members on the other and between the interests of a client and the government.
Conflicts between the interests of a client on one hand and the firm and/or its members on the other and between a client and a nonclient.
Conflicts between the interests of two clients and between the interests of a client on one hand and the firm and/or its members on the other.
Correct! The two types of conflicts of interest are (a) between the interests of two clients so that the member cannot fulfill professional duties to both simultaneously, and (b) between a client and the member and/or the firm so that it would injure the client for the member to serve the interests of the firm and/or himself or herself.
The Yoyogurt accounting firm has developed an expertise in auditing airlines. Both FlySkies Airlines and SailAway Airlines wish to hire Yoyogurt as their auditor. FlySkies and SailAway are competitors. Which of the following is true?
Yoyogurt may not audit two firms that are competitors.
Yoyogurt may audit both firms and not concern itself with any conflicts of interest so long as it has disclosed to each client that it is auditing the other company.
Yoyogurt may audit both firms even without disclosing to FlySkies that it is auditing SailAway and vice versa because both clients should be pleased with the extra expertise Yoyogurt is developing by auditing competitors.
Yoyogurt may audit both firms, but should take steps to minimize the impact of the potential conflict of interest by, for example, using separate engagement teams.
Yoyogurt may audit both firms, but should take steps to minimize the impact of the potential conflict of interest by, for example, using separate engagement teams.
This Answer is Correct
Correct! Using separate engagement teams does help minimize the damage from a conflict of interest. Other beneficial steps would include policies and procedures to limit access to confidential information, regular review by senior managers not involved in the engagement, and consulting with third parties, such as legal counsel or a professional body.
Please tell member Patma which of the following is true regarding disclosure of conflicts of interest.
Conflicts of interest need not be disclosed to clients if they have been reduced to an acceptable level.
It is always sufficient to disclose the existence of the conflict of interest without disclosing its particulars.
Conflicts of interest never need to be disclosed to third parties who are not clients.
Conflicts of interest should be disclosed to clients and affected third parties, even if threats to compliance have been reduced to an acceptable level.
Conflicts of interest should be disclosed to clients and affected third parties, even if threats to compliance have been reduced to an acceptable level.
Correct! The Code provides that conflicts should be disclosed to both clients and affected third parties even if threats to compliance are at an acceptable level.
Maya was on a consulting team for the URL Corporation. Her task was, in part, to value the physical assets owned by a URL subsidiary that the URL management team wished to convince the board of directors to sell. The folks at URL are very sociable. Which of the following situations might endanger Maya’s objectivity and/or integrity?
On Maya’s birthday, URL gave her a birthday cake and a six-pack of beer produced by a microbrewery that operated by a URL subsidiary.
At the end of a long day of meetings, Maya and her team went to a local sandwich restaurant with a few URL employees to grab a bite before they all went back to work. Sam, the senior URL employee at the meal paid for everyone’s meals with her personal credit card without telling anyone until everyone was ready to leave.
Also on her birthday, URL’s CEO, Tisha, gave Maya a beautiful necklace worth $1,000.
During yet another long string of meetings between Maya’s team and URL employees, URL ordered in a bunch of pizza for everyone to share.
Also on her birthday, URL’s CEO, Tisha, gave Maya a beautiful necklace worth $1,000.
Correct! Even though it was Maya’s birthday, the value of this gift seems suspiciously high. This is not reasonable in the circumstances and would appear to compromise Maya’s objectivity and integrity if she keeps the necklace.
Under the ethical standards of the profession, which of the following business relationships would generally not impair an auditor’s independence? Promoter of a client’s securities. Member of a client’s board of directors. Client’s trustee for its pension fund. Advisor to client’s board of trustees.
Advisor to client’s board of trustees.
This answer is correct. An auditor may serve as an advisor to a client’s board of trustees and not be in violation of the AICPA Code of Professional Conduct or any of its interpretations.
Which of the following would constitute a conflict of interest that poses a threat to objectivity?
The ABC Accounting Firm is hired by Bozo Co. to provide litigation support services in its lawsuit against Bebop Corp., which is a tax client of ABC.
Quan suggests that his tax client Linda invest her tax refund in Blitz Corporation without disclosing that he owns a large stake in Blitz.
Tibble recommends that his tax client Borton hire a financial planner named Tilden without disclosing that Tilden has agreed in exchange to refer all his clients who need an accountant to Tibble.
All three of the choices provided.
All three of the choices provided.
Because the three choices provided are all examples of conflicts of interest, this is the best answer.
The Patterson Accounting Firm (PAF) does not wish to have its integrity or objectivity compromised by the fact that its tax client, Borovia Corporation, is a constant giver of gifts and entertainment to its outside consulting, law, and accounting firms. Which of the following should PAF keep in mind?
As long as the gifts are given by Borovia’s owners, but not Borovia itself, no objectivity problems arise.
PAF’s accountants should remember that a violation of the integrity duty is presumed if they receive gifts that violate PAF’s rules and the member knows or is reckless in not knowing of the violation.
Gifts that a jury would find “reasonable in the circumstances” are fine even if they violate Borovia’s official policy.
Gifts of entertainment are treated differently for these purposes than gifts of objects or money.
PAF’s accountants should remember that a violation of the integrity duty is presumed if they receive gifts that violate PAF’s rules and the member knows or is reckless in not knowing of the violation.
Correct! If there is both a gift that violates the accounting firm’s or the client’s rules and the accountant knows or is reckless in not aware of the violation, a violation of the duties of objectivity and integrity is presumed.
Selden has provided sage tax advice to QRS Co. for many years. QRS has invited Selden to join its board of directors. Which of the following is advice that Selden should heed?
Because as a tax professional he need not worry about independence, it is perfectly fine for Selden to join the QRS board.
Because Selden’s position as a director will be fully disclosed, he need not worry about threats to objectivity.
If QRS wishes to tap Selden’s expertise, it would probably be preferable to have him serve as a consultant to the QRS board rather than to join the board as a member.
It would never be acceptable for Selden to serve on the QRS board.
If QRS wishes to tap Selden’s expertise, it would probably be preferable to have him serve as a consultant to the QRS board rather than to join the board as a member
Correct! This choice provides a route whereby QRS can gain from Selden’s wisdom, yet the threat to his objectivity is minimized.
In which of the following situations would member Taka not be in a conflict of interest?
Taka is giving financial advice to both the buyer and the seller in a commercial real estate deal.
Taka is giving financial advice to both the husband and the wife in a messy divorce proceeding.
Taka is providing financial advice to ABC Co. as it readies a bid to buy a large office building knowing that Taka’s own firm is simultaneously planning to submit a bid itself.
Taka’s firm is bidding to buy a tract of real estate that is owned by a company that was a tax client of the firm more than 10 years before.
Taka’s firm is bidding to buy a tract of real estate that is owned by a company that was a tax client of the firm more than 10 years before.
Correct! Because the seller has not been a client for at least ten years, it seems unlikely that there could be a conflict of interest here. Only if the accounting firm had learned some confidential proprietary information while serving the client that is still of value a decade later would there be some sort of a conflict here.
If Maria has ABC for an attest client, from which of the following should she be wary of accepting gifts that might threaten her objectivity? ABC. ABC's officers. ABC's major (> 10%) shareholders. All three of the choices provided.
All three of the choices provided.
Because all three answer choices provided are correct, this is the best answer. Maria should also be very concerned about gifts from ABC’s directors.
