Discreditable Acts Flashcards
Which of the following members has not committed a discreditable act?
Charles refuses to hire accountants over 50 because his experience is that they are already in the downhill part of their careers.
Felicia is an excellent tax accountant. All her clients are thrilled with her services, though some years she gets so busy making sure that all her clients’ tax returns are timely filed that she forgets to file her own.
Sonya charges an hourly rate that is 15% more than that charged by any other tax accountant in her city.
Tiller advertises that he has a Ph.D in accounting, although he never really finished his degree. He did, however, complete all the coursework.
Sonya charges an hourly rate that is 15% more than that charged by any other tax accountant in her city.
Correct! Charging such high rates may not be admirable behavior, but it is not discreditable under the Code’s provisions.
Among the four categories of records that are established for determining when a member must comply with record requests, which of the following are deliverables set forth in the engagement letter? Client-provided records. Member-prepared records. Member's work product. Working papers.
Member’s work product.
Correct! Member’s work product is indeed defined as “deliverables set forth in the engagement letter.”
The Penn accounting firm has a fractured relationship with a client, Teller. Teller has demanded return of records that he provided to the firm. Penn is resisting the request because it believes that Teller owes them money for services performed. Which of the following is true?
Penn should deliver the records to Teller upon his request.
Penn should deliver the records to Teller upon his request, but only if he has fully paid his bill.
Penn should deliver the records to Teller, but only if ordered to do so by a court.
Penn need not deliver the records to Teller.
Penn should deliver the records to Teller upon his request.
Correct! These client-provided records belong to Teller and should be delivered to him promptly upon his request, even if he has not paid his bills.
Member Stiller is having a dispute with client Meara over fees she has not paid and record requests from her that he has not honored. Which of the following is true?
If there are records that Stiller should deliver to Meara, he should do so within 75 days of the request.
If Meara so requests, Stiller must convert paper records to electronic form before delivering them to her.
If Meara requests delivery of Stiller’s working papers, he must deliver them, but only if he has been paid.
If Meara requests delivery of Stiller’s working papers, he need not deliver them even if he has been paid.
If Meara requests delivery of Stiller’s working papers, he need not deliver them even if he has been paid.
Incorrect. Working papers belong to the member and need not be handed over to the client even if the client has paid his or her bills.
Which of the following actions by a CPA most likely violates the profession’s ethical standards?
Arranging with a financial institution to collect notes issued by a client in payment of fees due.
Compiling the financial statements of a client that employed the CPA’s spouse as a bookkeeper.
Retaining client records after the client has demanded their return.
Purchasing a segment of an insurance company’s business that performs actuarial services for employee benefit plans.
Retaining client records after the client has demanded their return.
This answer is correct. Retention of client records after a demand is made for them is considered a violation of the ethical standards.
Which of the following statements is correct?
Client-prepared records (e.g., the general ledger) may be retained by the CPA until fees due to the CPA are received.
CPA working papers are the joint property of the CPA and the client.
CPA working papers that include copies of client’s records are not available to third parties under any circumstances.
Supporting records not reflected in the client’s records (e.g., proposed adjusting entries) may be withheld by the CPA if fees for the engagement remain unpaid.
Supporting records not reflected in the client’s records (e.g., proposed adjusting entries) may be withheld by the CPA if fees for the engagement remain unpaid.
This answer is correct because the CPA may retain supporting records which he or she has prepared.
Which of the following acts by a CPA would not necessarily be considered an act discreditable to the profession under the AICPA Code of Professional Conduct?
Prohibiting a client’s new CPA firm from reviewing the audit working papers after the client has requested the CPA to do so.
Engaging in discriminatory employment practices.
Committing a felony.
Knowingly signing a false tax return.
Prohibiting a client’s new CPA firm from reviewing the audit working papers after the client has requested the CPA to do so.
This answer is correct because the CPA, for valid business reasons (e.g., when litigation is involved) may refuse a request by another CPA to allow review of working papers.
Client Lewis has demanded return of work product produced by the Martin accounting firm. The Martin firm is resisting the demand. Which of the following is not a proper ground for Martin to deny return of the work product?
Lewis owes money to the Martin firm for work Martin did that is unrelated to these documents.
Lewis owes money to the Martin firm for its work in preparing these particular documents.
The work product is incomplete.
Lewis has sued Martin and these records are the subject of a disputed discovery request.
Lewis owes money to the Martin firm for work Martin did that is unrelated to these documents.
Correct! It is not proper to withhold these specific work products when their preparation has been paid for.
Which of the following actions by a CPA most likely constitutes an act discreditable to the profession?
Discriminating on the basis of race in employment.
Negligently making false journal entries.
Failing to pay one’s own personal income tax.
All three of the choices provided.
All three of the choices provided.
All of these are listed as discreditable acts according to the Acts Discreditable Rule. This is the best answer.
Which of the following actions by a CPA most likely does not constitute an act discreditable to the profession?
Sexually harassing an employee.
Providing for a right of contribution from the client in an audit engagement letter.
Providing for a right of indemnification from the client in an audit engagement letter.
All of the above.
Providing for a right of contribution from the client in an audit engagement letter.
While the SEC and most government agencies oppose full indemnification of wrongdoers, contribution is typically allowed and, therefore, would not violate the Code.
Spinner, CPA, had audited Lasco Corp.’s financial statements for the past several years. Prior to the current year’s engagement, a disagreement arose that caused Lasco to change auditing firms. Lasco has demanded that Spinner provide Lasco with Spinner’s audit documentation so that Lasco may show them to prospective auditors to help them prepare their bids for Lasco’s audit engagement. Spinner refused and Lasco commenced litigation. Under the ethical standards of the profession, will Spinner be successful in refusing to turn over the documentation?
Yes, because Spinner is the owner of the audit documentation.
Yes, because Lasco is required to direct prospective auditors to contact Spinner to make arrangements to view the audit documentation in Spinner’s office.
No, because Lasco has a legitimate business reason for demanding that Spinner surrender the audit documentation.
No, because it was Lasco’s financial statements that were audited.
Yes, because Spinner is the owner of the audit documentation.
Spinner may, under proper circumstances, have to convey to Lasco (a) client-provided records, (b) client records prepared by Spinner, and (c) supporting records. However, it should not have to convey its audit documentation, which it owns.
According to the AICPA Code of Professional Conduct, which of the following actions by a CPA most likely involves an act discreditable to the profession?
Refusing to provide the client with copies of the CPA’s audit documentation.
Auditing financial statements according to governmental standards despite the client’s preferences.
Accepting a commission from a nonattest function client.
Retaining client records after the client demands their return.
Retaining client records after the client demands their return.
Client records belong to the client and should be returned to the client upon demand (even if there is an ongoing fee dispute).
Which of the following actions by a CPA most likely violates the profession’s ethical standards?
Arranging with a financial institution to collect notes issued by a client in payment of fees due.
Compiling the financial statements of a client that employed the CPA’s spouse as a bookkeeper.
Retaining client records after the client has demanded their return.
Purchasing a segment of an insurance company’s business that performs actuarial services for employee benefit plans.
Retaining client records after the client has demanded their return.
Only audit documentation may be retained indefinitely by a CPA. Such documentation may be necessary for defending against a malpractice suit. Client records, however, must be returned to a client upon request.
