M8-The AICPA Code of Professional Conduct

Question 1

Any direct financial interest in a client impairs independence, even if it is immaterial. (true or false)

Answer 1

true

Question 2

According to the Advertising and Other Forms of Solicitation Rule, advertising that is not false, misleading or deceptive is permitted by the CPA. (true or false)

Answer 2

true

Question 3

Examples of positions that are audit-sensitive include cashier, internal auditor, accounting supervisor, purchasing agent, or inventory warehouse supervisor. (true or false)

Answer 3

true

Question 4

The following types of loans do not impair independence:

Answer 4

1) Automobile loans
2) Loans of the surrender value under terms of an insurance policy
3) Borrowings fully collateralized by cash deposits at the same financial institution
4) Credit cards and cash advances on checking accounts with an aggregate unpaid balance of $10,000 or less

Question 5

According to the Independence Rule, independence requirements extend to the member’s spouse, dependent children, and dependent relatives. A spouse working for a client is considered part of the class of “members” subject to independence requirements. (true or false)

Answer 5

true

Question 6

According to the Independence Rule of the Code of Professional Conduct, a member’s independence is impaired with respect to a client who is more than one year overdue in the payment of professional fees. An attestation engagement, such as an audit, requires independence of mind and in appearance. Fees from prior work must be paid in full before the issuance of a report on the following year’s work. (true or false)

Answer 6

true

Question 7

Due care in performing an audit requires a member to plan and supervise adequately any professional activity for which he or she is responsible. This includes critical review at every level of supervision of the work done and the judgment exercised by those assisting in the examination. (True or false)

Answer 7

true

Question 8

Independence is not required for compilation engagements or for preparation of a tax return. (true or false)

Answer 8

true

Question 9

A distinguishing mark of a profession is its acceptance of responsibility to the public. (true or false)

Answer 9

true

Question 10

The accountant must be independent to issue a standard report on an examination of a financial forecast. (true or false)

Answer 10

true

Question 11

A CPA must maintain objectivity and integrity in the performance of any professional service. (true or false)

Answer 11

true

Question 12

Fees are not regarded as being contingent when they are fixed by courts or other public authorities or in tax matters, if they are based on the results of court proceedings or the findings of governmental agencies. Further, contingent fees are permitted for compilations only if the member includes a statement that the member is not independent. (true or false)

Answer 12

true

Question 13

A CPA must always be objective; however, a CPA need not be independent, except when engaged in public practice. (true or false)

Answer 13

true

Question 14

A member’s independence is impaired if a member has a loan with a client and that loan is preferential in relationship to “other borrowers.” (true or false)

Answer 14

true

Question 15

Accepting more than a token gift from a client impairs independence. (true or false)

Answer 15

true

Signing a client’s check, even in emergency situations, is a management function and would impair independence.

Question 16

Examples of activities with an attestation client that impart independence would include bookkeeping activities that include authorizing, executing or consummating a transaction on behalf of a client or preparing source documents or originating data (e.g., purchase orders.) (true or false)

Answer 16

true

Question 17

An ethics ruling related to the Confidential Client Information Rule states that it is permissible for a member to disclose the name of a client without the client’s consent unless the disclosure of the client’s name results in the release of confidential information. The specific example given in the ethics ruling states that client may be experiencing financial difficulties, which would be confidential information. Confidential client information cannot be disclosed without the client’s consent. (true or false)

Answer 17

true

Question 18

The Accounting Principles Rule of the Code of Professional Conduct of the AICPA states that if the financial statements or data contain a GAAP departure, the departure may be justified if the CPA can demonstrate that due to unusual circumstances, such as new legislation or the evolution of a new form of business transaction, the financial statements would otherwise be misleading. Under these circumstances, the auditor’s report should describe the departure, its approximate effects, if practicable, and the reasons why compliance with the generally accepted principle would result in a misleading statement. (true or false)

Answer 18

true

Question 19

An auditor’s independence is not impaired if the auditor has a cash balance in a brokerage account that is fully covered by the Securities Investor Protection Corporation. (true or false)

Answer 19

true

Question 20

The General Standards Rule of the AICPA Code of Professional Conduct states that the auditor must have adequate technical training as an auditor. (true or false)

Answer 20

true

Question 21

The AICPA Code of Professional Conduct’s general standards include professional competence, due professional care, planning and supervision, and sufficient relevant data. Internal control is not one of the general standards. (true or false)

Answer 21

true