Form of Organization and Names

Question 1

Member Kang has purchased Fragick & Associates, an accounting firm that does audit work. Kang wants to make some changes and keep some things the same. Which of the following is not true?
Kang may reorganize Fragick, which is a general partnership, as a limited liability limited partnership even if his state’s law has no provision for such a form of organization.
Kang, who wishes to retain disgruntled employee Jones, may not induce Jones to stay by letting him call himself a partner, even if he is not a partner of the firm.
If Kang brings in any other owners, they must, like Kang, also be members of the AICPAs if the firm is to advertise itself as “Members of the AICPA.”
Kang may retain the name “Fragick” in the firm name, even if Fragick, the founder of the firm, is dead.

Answer 1

Kang may reorganize Fragick, which is a general partnership, as a limited liability limited partnership even if his state’s law has no provision for such a form of organization.

Correct! This statement is false; members in public practice may practice only in a form of organization permitted by law.

Question 2

Member Sily became tired of the high pressure Big Four atmosphere, so she left PriceCooperHouse and joined the EFG Tax Accounting Firm. No other employee at EFG is a CPA. Which of the following is true for Sily?
As an employee at EFG, Sily need not comply with the Code of Professional Conduct.
As a partner at EFG, Sily need not comply with the Code of Professional Conduct.
As an employee at EFG, Sily is responsible for EFG’s professional employees.
As a partner at EFG, Sily is responsible for EFG’s professional employees.

Answer 2

As a partner at EFG, Sily is responsible for EFG’s professional employees.

Correct! If a member becomes a partner of a firm made up of one or more nonmembers, she is responsible for the firm’s professional employees.

Question 3

A violation of the profession’s ethical standards least likely would have occurred when a CPA
Purchased another CPA’s accounting practice and based the price on a percentage of the fees accruing from clients over a 3-year period.
Received a percentage of the amounts invested by the CPA’s audit clients in a tax shelter with the client’s knowledge and approval.
Had a public accounting practice and also was president and sole stockholder of a corporation that engaged in data processing services for the public.
Formed an association, not a partnership, with two other sole practitioners and called the association “Adams, Betts and Associates.”

Answer 3

Purchased another CPA’s accounting practice and based the price on a percentage of the fees accruing from clients over a 3-year period.

This answer is correct because the purchase of another practitioner’s practice is acceptable and the professional standards do not prohibit such a contingent payment.

Question 4

Which firms must have a majority of their financial interests owned by CPAs?

I. Attest firms.
II. Firms that identify themselves as "Members of the AICPA."
I only.
II only.
I and II.
Neither I nor II.

Answer 4

I only.

Attest firms must be majority owned by CPAs.

Question 5

Allen wishes to start his own audit firm. In which form may he practice, assuming the form is permitted in his state?
Sole proprietorship.
General partnership.
LLP.
All three answer choices provided.

Answer 5

All three answer choices provided.

Because all three choices are all permitted, this is the best answer.

Question 6

Maisy wishes to start her own accounting firm and wonders what restrictions there are on names of such firms. Which of the following is accurate?
An accounting firm’s name may not be misleading.
An accounting firm’s name may include the names of past owners.
An accounting firm’s name may (if not misleading) include a fictitious name.
All three choices provided.

Answer 6

All three choices provided.

Because the three choices provided are all accurate, this is the best answer. Accounting firms have substantial leeway in choosing names, so long as they do not mislead.