CPA Core 1 - Unit 2-Latest Exam
Questions with Actual Detailed Answers
2026 Updated.
Which of the following statements describes the principle of confidentiality?
A. Members must behave in a professional way that maintains the good reputation of the
profession.
B. Members must be mindful and diligent with information given with respect to the affairs and
the business of their employer or client.
C. Members must not allow bias or conflict of interest to override their professional judgment.
D. Members must maintain their knowledge and skill at a level required by the professional
bodies. - Answer B. Members must be mindful and diligent with information given with
respect to the affairs and the business of their employer or client.
Which of the following statements regarding codes of professional conduct is true?
A. CPAs can use their professional judgment to determine when they should follow the codes of
professional conduct.
B. The codes of professional conduct guide members in the following areas: professional
competence, independence, integrity, objectivity, and professional behaviour.
C. CPAs and students do not need to know the codes of professional conduct, as their employers
will help them be aware of them.
D. The codes of professional conduct do not guide the expected behaviour of members and
students. - Answer B. The codes of professional conduct guide members in the following
areas: professional competence, independence, integrity, objectivity, and professional
behaviour.
Which of the following statements regarding the principle of integrity and due care is true?
A. Integrity and due care apply to CPA members in the performance of their professional and
business activities.
B. CPAs use their professional judgment to decide when to act with integrity and due care.
C. Integrity and due care mean the CPA member must maintain their knowledge and skill at a
level required by the professional bodies.
D. To exercise integrity and due care, the CPA member must be discreet with information from
their employer or client. - Answer A. Integrity and due care apply to CPA members in the
performance of their professional and business activities.
Which of the following statements regarding the principle of professional competence is true?
,A. CPAs have fulfilled their knowledge and skills requirements once they have completed the
Common Final Examination (CFE).
B. CPAs can undertake any accounting work as long as they have adequate time and resources.
C. The professional bodies determine the standards that members must meet to maintain their
knowledge and skill levels.
D. An example of a violation of the professional competence principle would be a CPA member
offering clients a commission fee for future referrals. - Answer C. The professional bodies
determine the standards that members must meet to maintain their knowledge and skill levels.
Which of the following situations identifies the correct violation of the codes of professional
conduct?
A. Preeti, CPA, is keen on expanding her new accounting practice and therefore is offering a 20%
discount to all new clients that have her complete their tax return. Preeti is in violation of
confidentiality.
B. Tara, CPA, is afraid of disappointing her client by delaying the audit report, so she promptly
completes the audit engagement without thoroughly reviewing all sections. Tara is in violation
of objectivity.
C. Summit, CPA, has been offered a contract to prepare the cash flow projections for a privately-
owned business that is being purchased by a competitor. The owner has offered Summit a 5%
commission of the sale price, which Summit has accepted. Summit is in violation of
confidentiality.
D. Dorit, CPA, and her firm have been approached to complete a forensic audit. This is the first
forensic audit Dorit wi - Answer D. Dorit, CPA, and her firm have been approached to complete
a forensic audit. This is the first forensic audit Dorit will complete, and she believes the correct
approach is to examine all transactions. Dorit is in violation of professional competence.
One year ago, Bird and Chun LLP (B&C) set up a public practice firm in Oshawa, Ontario, a
prosperous car manufacturing town outside of Toronto. After obtaining a few small clients, B&C
has finally managed to obtain one major audit client, Parts R Us, a large car parts manufacturer.
B&C will receive the majority of its income from the Parts R Us audit. As Oshawa is a small town,
some of B&C's smaller clients are also customers of Parts R Us.
Which of the following case facts would be used in the second step, analyzing the situation, of
the CPA Way?
A. B&C has finally managed to obtain one major audit client, Parts R Us.
B. That Parts R Us is a large car parts manufacturer.
C. That the auditor is economically dependent on this one major client so there is a potential
threat to B&C's independence.
D. B&C should implement appropriate safeguards to ensure that it is considered independent
from Parts R Us. - Answer C. That the auditor is economically dependent on this one major
client so there is a potential threat to B&C's independence.
,The Snow White Ski Club (SWSC), a not-for-profit organization, is required to follow accounting
standards for not-for-profit organizations. SWSC has approached M&L, a small CPA firm, for
advice and assistance in preparing a business plan for the bank. The ski club has asked that it be
charged $500 unless the loan is approved.
Which of the following case facts would be used in the third step, concluding and advising, of
the CPA Way?
A. The ski club has asked that it be charged $500 unless the loan is approved.
B. The ski club is not-for-profit organization and is required to following accounting standards for
not-for-profit organizations
C. This is an ethical issue as a CPA cannot provide an assurance engagement on a contingency
fee basis or without fee. Therefore, the ethical issue relates to an engagement acceptance issue.
D. M&L has a number of options such as accepting SWSC's offer, rejecting SWSC's offer, or prop -
Answer D. M&L has a number of options such as accepting SWSC's offer, rejecting SWSC's
offer, or proposing a change to the fee structure in SWSC's offer.
An audit team is nearing completion of the year-end audit of Coast to Roast Coffee (CRC). As a
result of audit procedures performed over taxes payable, the team has identified a material
misstatement. After presenting the misstatement to management, the CEO was shocked and
questioned the misstatement, explaining that CRC had hired someone from the same public
accounting firm to help them prepare the tax provision and taxes payable estimate.
Using the CPA Way, assess the situation and identify which of the following threats to
independence is present.
A. Self-interest
B. Advocacy
C. Familiarity
D. Self-review - Answer D. Self-review
Taylor White, CPA at Smyle LLP, has been the auditor for Boundary Family Dental Practice
(Boundary) for the past three years. As business has steadily grown at Boundary, the office
manager has reached out to Taylor and, as a thank you, offered Taylor and his immediate family
a year's worth of dental services, free of charge.
Using the CPA Way to conclude and advise, which of the following is the best response to the
office manager's offer?
A. Taylor should not accept the office manager's offer for himself or his immediate family.
B. Taylor should not accept the office manager's offer for himself, but his immediate family can.
C. Taylor should accept the office manager's offer because the value of the offer is likely
insignificant.
D. Taylor should accept the office manager's offer because it will allow him to gain a better
understanding of his client's business. - Answer A. Taylor should not accept the office
manager's offer for himself or his immediate family.
, No gifts should be accepted by the auditor or their immediate family unless the value is clearly
insignificant. The value of a year's worth of dental services is not likely insignificant and,
therefore, accepting the offer could be perceived as a threat to independence (self-interest
threat).
BDP LLP is the auditor of Books and Things Ltd. The engagement partner, Melinda, wants to
acknowledge and celebrate the CFO of Books and Things Ltd.'s birthday.
Which of the following gifts is the MOST appropriate to celebrate the audit client's birthday?
A. A designer watch.
B. Tickets to an upcoming, highly anticipated rock concert.
C. A $200 gift card to their favourite local restaurant for a nice meal out.
D. A birthday cake and a greeting card signed by all members of the engagement team. - Answer
D. A birthday cake and a greeting card signed by all members of the engagement team.
A lawsuit has been launched against Raymond and Real's LLP's audit client, Green Grass Ltd.
(GGL). GGL has asked that the firm provide a statement supporting its position.
This is an example of which of the following threats to independence?
A. Self-interest
B. Self-review
C. Advocacy
D. Familiarity - Answer C. Advocacy
PB LLP has been the auditor of Speaker Systems Corp. (SSC) for the past five years. Jason Estroso
has been the engagement partner for the SSC audit throughout this time. Jason's only daughter
now attends high school with the daughter of SSC's chief operating officer. The two families
spend all school holidays together at a nearby mountain resort.
Which of the following safeguards is the MOST appropriate to mitigate the threat(s) identified in
this situation?
A. No safeguards are needed.
B. A quality control reviewer should be added to the engagement team at PB, and Jason should
disclose his relationship with SSC's chief operating officer to the SSC board of directors.
C. Jason should be rotated off the SSC audit engagement and replaced with a different partner
from PB.
D. PB should no longer perform the audit engagement for SSC. - Answer C. Jason should be
rotated off the SSC audit engagement and replaced with a different partner from PB.
The audit firm, Bond and Khan LLP, is preparing for the year-end audit of Top Tabletops Ltd. (TT).
Members of the engagement team have been asked to disclose any relationships with staff at TT
to the engagement partner. Through this, the engagement manager disclosed that her son is
interning in the marketing department at TT.
Questions with Actual Detailed Answers
2026 Updated.
Which of the following statements describes the principle of confidentiality?
A. Members must behave in a professional way that maintains the good reputation of the
profession.
B. Members must be mindful and diligent with information given with respect to the affairs and
the business of their employer or client.
C. Members must not allow bias or conflict of interest to override their professional judgment.
D. Members must maintain their knowledge and skill at a level required by the professional
bodies. - Answer B. Members must be mindful and diligent with information given with
respect to the affairs and the business of their employer or client.
Which of the following statements regarding codes of professional conduct is true?
A. CPAs can use their professional judgment to determine when they should follow the codes of
professional conduct.
B. The codes of professional conduct guide members in the following areas: professional
competence, independence, integrity, objectivity, and professional behaviour.
C. CPAs and students do not need to know the codes of professional conduct, as their employers
will help them be aware of them.
D. The codes of professional conduct do not guide the expected behaviour of members and
students. - Answer B. The codes of professional conduct guide members in the following
areas: professional competence, independence, integrity, objectivity, and professional
behaviour.
Which of the following statements regarding the principle of integrity and due care is true?
A. Integrity and due care apply to CPA members in the performance of their professional and
business activities.
B. CPAs use their professional judgment to decide when to act with integrity and due care.
C. Integrity and due care mean the CPA member must maintain their knowledge and skill at a
level required by the professional bodies.
D. To exercise integrity and due care, the CPA member must be discreet with information from
their employer or client. - Answer A. Integrity and due care apply to CPA members in the
performance of their professional and business activities.
Which of the following statements regarding the principle of professional competence is true?
,A. CPAs have fulfilled their knowledge and skills requirements once they have completed the
Common Final Examination (CFE).
B. CPAs can undertake any accounting work as long as they have adequate time and resources.
C. The professional bodies determine the standards that members must meet to maintain their
knowledge and skill levels.
D. An example of a violation of the professional competence principle would be a CPA member
offering clients a commission fee for future referrals. - Answer C. The professional bodies
determine the standards that members must meet to maintain their knowledge and skill levels.
Which of the following situations identifies the correct violation of the codes of professional
conduct?
A. Preeti, CPA, is keen on expanding her new accounting practice and therefore is offering a 20%
discount to all new clients that have her complete their tax return. Preeti is in violation of
confidentiality.
B. Tara, CPA, is afraid of disappointing her client by delaying the audit report, so she promptly
completes the audit engagement without thoroughly reviewing all sections. Tara is in violation
of objectivity.
C. Summit, CPA, has been offered a contract to prepare the cash flow projections for a privately-
owned business that is being purchased by a competitor. The owner has offered Summit a 5%
commission of the sale price, which Summit has accepted. Summit is in violation of
confidentiality.
D. Dorit, CPA, and her firm have been approached to complete a forensic audit. This is the first
forensic audit Dorit wi - Answer D. Dorit, CPA, and her firm have been approached to complete
a forensic audit. This is the first forensic audit Dorit will complete, and she believes the correct
approach is to examine all transactions. Dorit is in violation of professional competence.
One year ago, Bird and Chun LLP (B&C) set up a public practice firm in Oshawa, Ontario, a
prosperous car manufacturing town outside of Toronto. After obtaining a few small clients, B&C
has finally managed to obtain one major audit client, Parts R Us, a large car parts manufacturer.
B&C will receive the majority of its income from the Parts R Us audit. As Oshawa is a small town,
some of B&C's smaller clients are also customers of Parts R Us.
Which of the following case facts would be used in the second step, analyzing the situation, of
the CPA Way?
A. B&C has finally managed to obtain one major audit client, Parts R Us.
B. That Parts R Us is a large car parts manufacturer.
C. That the auditor is economically dependent on this one major client so there is a potential
threat to B&C's independence.
D. B&C should implement appropriate safeguards to ensure that it is considered independent
from Parts R Us. - Answer C. That the auditor is economically dependent on this one major
client so there is a potential threat to B&C's independence.
,The Snow White Ski Club (SWSC), a not-for-profit organization, is required to follow accounting
standards for not-for-profit organizations. SWSC has approached M&L, a small CPA firm, for
advice and assistance in preparing a business plan for the bank. The ski club has asked that it be
charged $500 unless the loan is approved.
Which of the following case facts would be used in the third step, concluding and advising, of
the CPA Way?
A. The ski club has asked that it be charged $500 unless the loan is approved.
B. The ski club is not-for-profit organization and is required to following accounting standards for
not-for-profit organizations
C. This is an ethical issue as a CPA cannot provide an assurance engagement on a contingency
fee basis or without fee. Therefore, the ethical issue relates to an engagement acceptance issue.
D. M&L has a number of options such as accepting SWSC's offer, rejecting SWSC's offer, or prop -
Answer D. M&L has a number of options such as accepting SWSC's offer, rejecting SWSC's
offer, or proposing a change to the fee structure in SWSC's offer.
An audit team is nearing completion of the year-end audit of Coast to Roast Coffee (CRC). As a
result of audit procedures performed over taxes payable, the team has identified a material
misstatement. After presenting the misstatement to management, the CEO was shocked and
questioned the misstatement, explaining that CRC had hired someone from the same public
accounting firm to help them prepare the tax provision and taxes payable estimate.
Using the CPA Way, assess the situation and identify which of the following threats to
independence is present.
A. Self-interest
B. Advocacy
C. Familiarity
D. Self-review - Answer D. Self-review
Taylor White, CPA at Smyle LLP, has been the auditor for Boundary Family Dental Practice
(Boundary) for the past three years. As business has steadily grown at Boundary, the office
manager has reached out to Taylor and, as a thank you, offered Taylor and his immediate family
a year's worth of dental services, free of charge.
Using the CPA Way to conclude and advise, which of the following is the best response to the
office manager's offer?
A. Taylor should not accept the office manager's offer for himself or his immediate family.
B. Taylor should not accept the office manager's offer for himself, but his immediate family can.
C. Taylor should accept the office manager's offer because the value of the offer is likely
insignificant.
D. Taylor should accept the office manager's offer because it will allow him to gain a better
understanding of his client's business. - Answer A. Taylor should not accept the office
manager's offer for himself or his immediate family.
, No gifts should be accepted by the auditor or their immediate family unless the value is clearly
insignificant. The value of a year's worth of dental services is not likely insignificant and,
therefore, accepting the offer could be perceived as a threat to independence (self-interest
threat).
BDP LLP is the auditor of Books and Things Ltd. The engagement partner, Melinda, wants to
acknowledge and celebrate the CFO of Books and Things Ltd.'s birthday.
Which of the following gifts is the MOST appropriate to celebrate the audit client's birthday?
A. A designer watch.
B. Tickets to an upcoming, highly anticipated rock concert.
C. A $200 gift card to their favourite local restaurant for a nice meal out.
D. A birthday cake and a greeting card signed by all members of the engagement team. - Answer
D. A birthday cake and a greeting card signed by all members of the engagement team.
A lawsuit has been launched against Raymond and Real's LLP's audit client, Green Grass Ltd.
(GGL). GGL has asked that the firm provide a statement supporting its position.
This is an example of which of the following threats to independence?
A. Self-interest
B. Self-review
C. Advocacy
D. Familiarity - Answer C. Advocacy
PB LLP has been the auditor of Speaker Systems Corp. (SSC) for the past five years. Jason Estroso
has been the engagement partner for the SSC audit throughout this time. Jason's only daughter
now attends high school with the daughter of SSC's chief operating officer. The two families
spend all school holidays together at a nearby mountain resort.
Which of the following safeguards is the MOST appropriate to mitigate the threat(s) identified in
this situation?
A. No safeguards are needed.
B. A quality control reviewer should be added to the engagement team at PB, and Jason should
disclose his relationship with SSC's chief operating officer to the SSC board of directors.
C. Jason should be rotated off the SSC audit engagement and replaced with a different partner
from PB.
D. PB should no longer perform the audit engagement for SSC. - Answer C. Jason should be
rotated off the SSC audit engagement and replaced with a different partner from PB.
The audit firm, Bond and Khan LLP, is preparing for the year-end audit of Top Tabletops Ltd. (TT).
Members of the engagement team have been asked to disclose any relationships with staff at TT
to the engagement partner. Through this, the engagement manager disclosed that her son is
interning in the marketing department at TT.
