Ch4%20Solutions[1] - Chapter 4 Professional Ethics Multiple...

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Chapter 4 - Professional Ethics Multiple Choice Questions From CPA Examinations 4-18 a. (1) b. (3) c. (1) 4-19 a. (1) b. (3) c. (3) 4-20 Service Violation? a. Providing bookkeeping services to a public company. The services were pre-approved by the audit committee of the company. Yes b. Providing internal audit services to a public company that is not an audit client. No c. Designing and implementing a financial information system for a private company. No d. Recommending a tax shelter to a client that is publicly held. The services were pre-approved by the audit committee. No * e. Providing internal audit services to a public company client with the pre-approval of the audit committee. Yes f. Providing bookkeeping services to an audit client that is a private company. No * Recommending tax shelters is not prohibited, but has the potential to impair independence. 4-22 a. No violation as long as Williams does not perform or give advice on management functions of the organization. See Interpretation 101-4. b. Violation. Rule 505 states that all owners of the firm shall be persons who actively provide services to the firm’s clients. There is a violation of Rule 505 because administrative personnel are responsible primarily for office administration, and do not directly provide services to the firm’s clients. In addition, there may be a violation if the state in which the firm operates does not allow incorporation of CPA firms. c. No violation. 101-3 permits the performance of other services for clients. Before a member performs such services, he or she must carefully evaluate the potential effect of such services on independence. The member should establish a clear understanding with the client, and should not be responsible for preparing source documents, originating data, or performing any management functions. d. Violation if the services performed are attestation related, otherwise, no violation. A CPA is not permitted to pay a commission to obtain a client for attestation related services (Rule 503). This rule is intended to discourage obtaining clients on the basis of a commission to a decision maker, rather than on the basis of the quality of the attestation services or fee to the client.
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