Module B

Question 1

Which of the following best defines what is meant by an ethical problem situation?

Answer 1

One where an individual must make a decision where there is a choice among alternative actions, the right choice is not clear, and the final choice affects the well-being of other persons

Question 2

Which of the following agencies issues independence rules for the auditors of public companies?

Answer 2

Public Company Accounting Oversight Board (PCAOB)

Question 3

Close Family Members

Answer 3

Parent, sibling, or nondependent child

Question 4

Immediate Family Members

Answer 4

Spouse, spouse equivalent, or dependents

Question 5

An auditor’s independence would not be considered impaired if she or he had:

Answer 5

owned common stock of the audit client but sold it before the company became a client

Question 6

Auditors are interested in having independence in appearance because:

Answer 6

they want the public at large to have confidence in the profession

Question 7

When a CPA knows that a tax client has skimmed cash receipts and not reported the income in the federal income tax return but signs the return as a CPA who prepared the return, the CPA has violated which of the following AICPA Rules of Conduct?

Answer 7

The Integrity and Objectivity Rule

Question 8

A CPA’s legal license to practice public accounting can be revoked by the:

Answer 8

State board of accountancy

Question 9

What agency has the ultimate authority in defining independence for public companies?

Answer 9

the SEC

Question 10

Dara & Company Audit Hill Corporation. Ellie is the engagement partner on the audit with an office in Buffalo Grove. Which of the following would not be considered a covered member?

Answer 10

Julie, a partner in Dara & Company, with an office in Elmhurst

Question 11

CPA Krogstad is the executive in charge of the Omaha office of the audit firm. He is responsible for the practice in all areas of audit, tax, and consulting, but he does not serve as a field audit partner or a reviewer. CPA Ward is the partner in charge of the Dodger, Incorporated audit (an SEC filing). The audit firm’s independence is impaired if

Answer 11

Krogstad owns Dodger common stock

Question 12

Perry Pinkney, CPA, is one of the general partners in a partnership, which, in turn, invested 70 percent of its assets in the common stock of Pinkney’s audit client (Darby Corporation). According to the AICPA Code of Professional Conduct, Pinkney is considered to have

Answer 12

a direct financial interest in Darby

Question 13

Red and Green, CPAs, are the external auditors for Blue Corporation, a publicly held company. Blue Corporation has outsourced its internal audit function to Red and Green. Which of the following statements is true?

Answer 13

Public accounting firms cannot be both the internal and external auditors for publicly held companies and maintain independence

Question 14

Based on Sarbanes-Oxley, who is ultimately responsible for the independence of the external auditor?

Answer 14

the audit committee

Question 15

An audit client hires a member of the audit engagement team to be its new controller. Sarbanes-Oxley rules require that

Answer 15

the client must find a new audit firm

Question 16

Julie and Lisa are sisters. Julie is a CPA auditing the company where Lisa works. Julie’s independence is impaired if

Answer 16

Lisa is the controller

Question 17

An interpretation of the Independence Rule allows members to

Answer 17

have loans from a client that are collateralized by cash deposits held by the client

Question 18

The SEC requires companies to disclose fees paid to independent public accounting firms for audit and consulting services in the belief that

Answer 18

client directors and financial statement users should consider all aspects related to auditors’ independence, and information about fees is important

Question 19

According to the ethical standards of the profession, which of the following acts is generally prohibited?

Answer 19

Accepting a commission for recommending a product to an audit client

Question 20

Which of the following statements included in the advertising of a CPA firm is permissible according to the Advertising and Other Forms of Solicitation Rule?

Answer 20

“We audit the five largest manufacturing companies in the state.”

Question 21

Which of the following is not one of the AICPA Principles of Professional Conduct?

Answer 21

reliability

Question 22

Maralee has been approached by J. Fox Entertainment to perform an audit of her theatre company. Maralee has never audited a theatre company before. Maralee can

Answer 22

accept the engagement if she can obtain the required knowledge before the end of the engagement

Question 23

Which of the following defines the imperative principle of ethics?

Answer 23

Ethics are a function of moral rules and principles