Which 1. of the following statements best describes the ethical standard of the profession
pertaining to advertising and solicitation?
a. All forms of advertising and solicitation are prohibited.
b. There are no prohibitions regarding the manner in which CPAs may solicit new
business.
c.
A CPA may advertise in any manner that is not false, misleading, or deceptive.
d. A CPA may only solicit new clients through mass mailings.
2. Under the ethical standards of the profession, which of the following situations involving
nondependent members of an auditor's family is most likely to impair the auditor's
independence?
a. A parent's immaterial investment in a client.
b. A first cousin's loan from a client.
c.
A spouse's employment with a client.
d. A sibling's loan to a director of a client.
3. Under the ethical standards of the profession, which of the following investments in a
client is not considered to be a direct financial interest?
a. An investment held through a non-client regulated mutual fund.
b. An investment held through a non-client investment club.
c.
An investment held in a blind trust.
d. An investment held by the trustee of a trust.
4. Burrow & Co., CPAs, have provided annual audit and tax compliance services to Mare
Corp. for several years. Mare has been unable to pay Burrow in full for services Burrow
rendered 19 months ago. Burrow is ready to begin fieldwork for the current year's audit.
Under the ethical standards of the profession, which of the following arrangements will
permit Burrow to begin the fieldwork on Mare's audit?
a. Mare sets up a two-year payment plan with Burrow to settle the unpaid fee
balance.
b. Mare commits to pay the past due fee in full before the audit report is issued.
c.
Mare gives Burrow an 18-month note payable for the full amount of the past due
fees before Burrow begins the audit.
d. Mare engages another firm to perform the fieldwork, and Burrow is limited to
reviewing the work papers and issuing the audit report.
5. Kar, CPA, is a staff auditor participating in the audit engagement of Fort, Inc. Which of
the following circumstances impairs Kar's independence?
a. During the period of the professional engagement, Fort gives Kar tickets to a
football game worth $75.
b. Kar owns stock in a corporation that Fort's 401(k) plan also invests in.
c.
Kar's friend, an employee of another local accounting firm, prepares Fort's tax
returns.
d. Kar's sibling is an internal auditor employed part-time by Fort.
6. On June 1, 2000, a CPA obtained a $100,000 personal loan from a financial institution
client for whom the CPA provided compilation services. The loan was fully secured and
considered material to the CPA's net worth. The CPA paid the loan in full on December
31, 2000. On April 3, 2001, the client asked the CPA to audit the client's financial
statements for the year ended December 31, 2001. Is the CPA considered independent
with respect to the audit of the client's December 31, 2001, financial statements?
a. Yes, because the loan was fully secured.
b. Yes, because the CPA was not required to be independent at the time the loan
was granted.
c.
No, because the CPA had a loan with the client during the period of a
professional engagement.
d. No, because the CPA had a loan with the client during the period covered by the
financial statements.
7. According to the ethical standards of the profession, which of the following acts is
generally prohibited?
a. Purchasing a product from a third party and reselling it to a client.
b. Writing a financial management newsletter promoted and sold by a publishing
company.
c.
Accepting a commission for recommending a product to an audit client.
d. Accepting engagements obtained through the efforts of third parties.
8. According to the standards of the profession, which of the following activities may be
required in exercising due care?
a. Consulting with experts, yes. Obtaining specialty accreditation, yes.
b. Consulting with experts, yes. Obtaining specialty accreditation, no.
c. Consulting with experts, no. Obtaining specialty accreditation, yes.
d. Consulting with experts, no. Obtaining specialty accreditation, no.
9. According to the standards of the profession, which of the following circumstances will
prevent a CPA performing audit engagements from being independent?
a. Obtaining a collateralized automobile loan from a financial institution client.
b. Litigation with a client relating to billing for consulting services for which the
amount is immaterial.
c.
Employment of the CPA's spouse as a client's internal auditor.
d. Acting as an honorary trustee for a not-for-profit organization client.
10. The profession's ethical standards most likely would be considered to have been violated
when a CPA represents that specific consulting services will be performed for a stated
fee and it is apparent at the time of the representation that the:
a. Actual fee would be substantially higher.
b. Actual fee would be substantially lower than the fees charged by other CPAs for
comparable services.
c.
CPA would not be independent.
d. was Fee a competitive bid.
11. According to the profession's ethical standards, which of the following events may justify
a departure from a Statement of Financial Accounting Standards?
a. New legislation, no. Evolution of a new form of business transaction, yes.
b. New legislation, yes. Evolution of a new form of business transaction, no.
c.
New legislation, yes. Evolution of a new form of business transaction, yes.
d. New legislation, no. Evolution of a new form of business transaction, no.
12. To exercise due professional care an auditor should:
a. Critically review the judgment exercised by those assisting in the audit.
b. Examine all available corroborating evidence supporting management's
assertions.
c.
Design the audit to detect all instances of illegal acts.
d. Attain the proper balance of professional experience and formal education.
13. Which of the following actions by a CPA most likely violates the profession's ethical
standards?
a. Arranging with a financial institution to collect notes issued by a client in payment
of fees due.
b. Compiling the financial statements of a client that employed the CPA's spouse as
a bookkeeper.
c.
Retaining client records after the client has demanded their return.
d. Purchasing a segment of an insurance company's business that performs
actuarial services for employee benefit plans.
14. Which of the following statements best explains why the CPA profession has found it
essential to promulgate ethical standards and to establish means for ensuring their
observance?
a. A distinguishing mark of a profession is its acceptance of responsibility to the
public.
b. A requirement for a profession is to establish ethical standards that stress
primary responsibility to clients and colleagues.
c.
Ethical standards that emphasize excellence in performance over material
rewards establish a reputation for competence and character.
d. Vigorous enforcement of an established code of ethics is the best way to prevent
unscrupulous acts.
15. According to the profession's ethical standards, an auditor would be considered
independent in which of the following instances?
a. The auditor is the officially appointed stock transfer agent of a client.
b. The auditor's checking account that is fully insured by a federal agency, is held at
a client financial institution.
c.
The client owes the auditor fees for more than two years prior to the issuance of
the audit report.
d. The client is the only tenant in a commercial building owned by the auditor.
16. According to the profession's ethical standards, a CPA would be considered independent
in which of the following instances?
a. A client leases part of an office building from the CPA, resulting in a material
indirect financial interest to the CPA.
b. The CPA has a material direct financial interest in a client, but transfers the
interest into a blind trust.
c.
The CPA owns an office building and the mortgage on the building is guaranteed
by a client.
d. The CPA belongs to a country club client in which membership requires the
acquisition of a pro rata share of equity.
17. A violation of the profession's ethical standards most likely would have occurred when a
CPA:
a. Issued an unqualified opinion on the 1992 financial statements when fees for the
1991 audit were unpaid.
b. Recommended a controller's position description with candidate specifications to
an audit client.
c.
Purchased a CPA firm's practice of monthly write-ups for a percentage of fees to
be received over a three-year period.
d. Made arrangements with a financial institution to collect notes issued by a client
in payment of fees due for the current year's audit.
18. According to the ethical standards of the profession, which of the following acts generally
is prohibited?
a. Accepting a contingent fee for representing a client in connection with obtaining a
private letter ruling from the Internal Revenue Service.
b. Retaining client records after the client has demanded their return.
c.
Revealing client tax returns to a prospective purchaser of the CPA's practice.
d. Issuing a modified report explaining the CPA's failure to follow a governmental
regulatory agency's standards when conducting an attest service for a client.
19. An auditor's independence is considered impaired if the auditor has:
a. An immaterial, indirect financial interest in a client.
b. An automobile loan from a client bank, collateralized by the automobile.
c.
A joint, closely-held business investment with the client that is material to the
auditor's net worth.
d. A mortgage loan, executed with a financial institution client on March 1,1990, that
is material to the auditor's net worth.
20. Under the ethical standards of the profession, which of the following positions would be
considered a position of significant influence in an audit client?
a. A marketing position related to the client's primary products.
b. A policy-making position in the client's finance division.
c.
A staff position in the client's research and development division.
d. A senior position in the client's human resources division.