CPA Ethics Exam 100%ACCURATE GRADE A+ GUARANTEED

Which category contains the ethical standards, a violation of which makes a member liable to disciplinary action? (a) Ethics Rulings. (b) Interpretations of the Rules. (c) Rules. (c) is the conect answer. Code of Professional Conduct, Strncture, says that infraction of any of the rules makes a member liable to disciplinary action. (a) is wrong since members who depart from the guidance in ethical rulings in similar circumstances will be asked to justify such departure. They cannot however be charged with violating a ruling. (b) is also wrong since a member cannot be charged with violating an interpretation. In a disciplina1y hearing where the member was charged with violating a rnle, the member would have the burden of justifying any departure from interpretations ofthat rule. The Trial Board may, after a hearing, do two of the three things listed below. Mark the one that the Trial Board cannot do. (a) Suspend a member. (b) Suspend the member's CPA certificate. ( c) Expel a member. (b) is the correct answer. Code of Professional Conduct, Enforcement, says a Trial Board may admonish, suspend or expel a member. The Trial Board has no jurisdiction over a member's CPA certificate. Which of the following requires that any changes in them be approved by the members of the AICPA? (a) Rules and interpretations of the rules. (b) Principles and rules. (c) Principles, rules and interpretations of the rules. (b) is correct. Code of Professional Conduct, Structure, says that Principles and Rules must be approved by the AI CPA members. (a) is wrong and ... ( c) is wrong since interpretations are prepared and issued by the Professional Ethics Executive Committee without obtaining approval by the members. The results of a guilty finding by a Trial Board will be: (a) published by the AICPA, but the member 's name will not be disclosed. (b) published by the AICPA. and the member 's name will be disclosed if the Trial Board votes to do so. (c) published by the AICPA with the member 's name given. (c) is correct. Code of Professional Conduct, Enforcement says that Trial Board convictions must be published with the member's name disclosed. (a) is then wrong since the name must be disclosed. (b) is also wrong since the Trial Board does not have the option of deciding whether or not the member's name will be disclosed. An interpretation or ethics ruling usually becomes effective: (a) the first day of the month following the month it is published in the Journal of Accountancy. (b) two weeks after it is published in The CPA Letter. (c) the last day of the month in which it is published in the Journal of Accountancy. (c) is corect. Code of Professional Conduct, Structure, says that interpretations and rulings are normally effective the last day of the month they are published in the Journal of Accountancy. (a) and (b) are therefore wrong. A CPA in public practice ______________ avoid operating under a code of professional ethics by choosing not to join either the AICPA or any state CPA society. (a) may (b) may not (b) is correct. Code of Professional Conduct, Coverage, says that no CPA practicing public accounting may avoid operating under a code of ethics. The CPA may not join the AI CPA or his or her state CPA society and therefore would not be subject to their codes of ethics. The CPA, however, cannot avoid being subject to his or her state board of accountancy's code of ethics The accounting profession 's public includes (a) Governmental agencies. (b) Credit grantors. (c) Investors. (d) All of the above (d) is the correct answer. As (see Article II) the CPA's public includes everyone that relies on them. This then would include (a) governmental agencies, (b) credit grantors and (c) investors. Compliance with the AICPA Code of Professional Conduct depends primarily on: (a) Public opinion and reinforcement of one's attestation peers. (b) Disciplinary proceedings when the code is violated. (c) Member's understanding the code and voluntary compliance with it. (c) is the correct answer. Composition, Applicability and Compliance in the Articles says that compliance with the code, as with all standards in an open society, depends primarily on member 's understanding of the code and voluntary compliance with it. (a) is wrong. This section says that reinforcement by one's peers and public opinion is secondary in obtaining compliance with the code. (b) is also wrong since this section says disciplinary proceedings against those that violate the code are the ultimate or final method of obtaining compliance. The Principles state that a member has responsibility to: (a) Colleagues. (b) Clients. (c) The public. (d) All of the above. (d) is correct. The Preamble to the Articles says that members have (a) a responsibility to colleagues, (b) to clients and (c) to the public. The Principles in the AICPA Code of Professional Conduct ___________________ enforceable under their own terms. (a) are. (b) are not. (b) is correct. Principles are not enforceable under their own terms as shown in the section Purpose. Principles are goal-oriented and the rules of ethics are made and adopted within that framework. A distinguishing mark of a profession is: (a) Acceptance of its responsibility to the public. (b) The esteem with which it is held by the public. (c) Its ability to influence legislation. (a) is correct. As stated in Article II, the distinguishing mark of a profession is acceptance of its responsibility to the public. (b) The esteem by which it is held by the public will come when it shows its responsibility to the public. (c) Influencing legislation may be important to the profession but it is not the distinguishing mark of a profession. The AICPA Code of Professional Conduct provides guidance and rules for: (a) Only members in public practice. (b) All members. (c) Only members engaged in rendering attestation services. (b) is correct. The Code of Professional Conduct provides rules for all members, As stated in the Articles, section Composition, the membership adopted the code to provide guidance and rules for all members-those in public practice, in industry, in government and in education. Due care requires a member to: (a) Perform work for clients at the lowest cost. (b) Perform work for the clients with competence and diligence. (c) Complete each year a specified number of hours of Continuing Professional Education courses. (b) is correct. Article V requires a member to per-form his professional work with competence and diligence. (a) The Principles do not address the subject of fees or (c) Continuing Professional Education. Jones & Barnes, a public accounting firm, has offices in Minneapolis, Chicago and 10 other cities. The firm 's executive office and the managing partner are in Chicago. Each office does all the work and issues the audit reports for the clients of that office. Black & Co. is an audit client of the Minneapolis office. State whether in the following situations the individual would be a "covered member" with respect to the 2001 calendar year audit of Black & Co. Gilbert , a tax partner in the Chicago office (a) is a covered member. (b) is not a covered member. (b) is correct. (Covered member (d)) includes partners in the office where the attest engagement partner is located. Since Minneapolis does all the work for this client the engagement partner has to be in Minneapolis. Gilbert is in the Chicago office and therefore he is not a covered member. Jones & Barnes, a public accounting firm, has offices in Minneapolis, Chicago and 10 other cities. The firm 's executive office and the managing partner are in Chicago. Each office does all the work and issues the audit reports for the clients of that office. Black & Co. is an audit client of the Minneapolis office. State whether in the following situations the individual would be a "covered member" with respect to the 2001 calendar year audit of Black & Co. Jacobs, an audit manager in the Minneapolis office, who does no work on the Black & Co. engagement. (a) is a covered member. (b) is not a covered member. (b) is correct. (Covered member (a)), includes all people that work on the attest engagement team. Thus professional staff that work on the audit are covered members. Since Jacobs does no work on the Black & Co. engagement, he is not a covered member. The fact that he is a manager has no bearing on the answer. Jones & Barnes, a public accounting firm, has offices in Minneapolis, Chicago and 10 other cities. The firm 's executive office and the managing partner are in Chicago. Each office does all the work and issues the audit reports for the clients of that office. Black & Co. is an audit client of the Minneapolis office. State whether in the following situations the individual would be a "covered member" with respect to the 2001 calendar year audit of Black & Co. Larson, a consulting services partner, in the Minneapolis office who has not done any work for Black & Co. (a) is a covered member (b) is not a covered member (a) is correct. (Covered member (d)) includes all partners in the office where the lead attest engagement partner works. Since Minneapolis does all the work for this client, the lead attest engagement partner has to be in Minneapolis. Larson is a partner in the Minneapolis office, and therefore he is a covered member even though he never works on the Black & Co. engagement Jones & Barnes, a public accounting firm, has offices in Minneapolis, Chicago and 10 other cities. The firm 's executive office and the managing partner are in Chicago. Each office does all the work and issues the audit reports for the clients of that office. Black & Co. is an audit client of the Minneapolis office. State whether in the following situations the individual would be a "covered member" with respect to the 2001 calendar year audit of Black & Co. Olson, a professional staff person below the rank of manager, who worked for two weeks in 2001 on a non attest consulting services engagement for Black &Co. (a) is a covered member (b) is not a covered member (b) is correct. (Covered member (c)) holds that partners or managers who provide ten hours or more of non-attest services to a client within the year are covered members. Olson however is not a partner or manager, and thus is not a covered member even though he did non-attest services for Black & Co. Jones & Barnes, a public accounting firm, has offices in Minneapolis, Chicago and 10 other cities. The firm 's executive office and the managing partner are in Chicago. Each office does all the work and issues the audit reports for the clients of that office. Black & Co. is an audit client of the Minneapolis office. State whether in the following situations the individual would be a "covered member" with respect to the 2001 calendar year audit of Black & Co. Corey, secretary to the Minneapolis office managing partner, (a) is a covered member (b) is not a covered member (b) is correct (Attest engagement team) does not include those performing routine clerical functions. Thus (Covered member (b)) does not apply to nonprofessional people unless they are in a position where they can influence the attest engagement. Corey, as a secretary, is thus not a covered member. Porter is a partner in White & Co., CPAs. State whether in the following situations the person would be classified as a member of Porter's immediate family. Porter's dependent daughter who is away at college (a) is classified as part of Porter's immediate family (b) is not classified as part of Porter's immediate family (a) is correct. (Immediate family) says it includes dependents. Even though she is away at college she is still a dependent and thus immediate family. Porter is a partner in White & Co., CPAs. State whether in the following situations the person would be classified as a member of Porter's immediate family. An elderly aunt of Porter's wife lives in a nursing home. Porter and his wife pay the monthly nursing home fees and any other expenses the aunt incurs. The aunt (a) is classified as part of Porter's immediate family (b) is not classified as part of Porter's immediate family (a) is correct. (Immediate family) says it includes dependents. Since Porter pays all her expenses, she is a dependent and thus a member of his immediate family Porter is a partner in White & Co., CPAs. State whether in the following situations the person would be classified as a member of Porter's immediate family. Porter's non-dependent son who lives next door to his father (a) is classified as part of Porter's immediate family (b) is not classified as part of Porter's immediate family (b) is correct. (Immediate family) says it includes one's spouse, spousal equivalent and dependents. Porter's son is not dependent on him and is thus not considered immediate family. Porter is a partner in White & Co., CPAs. State whether in the following situations the person would be classified as a member of Porter's immediate family. Porter's wife who is self-employed and who annually earns twice as much as Porter earns (a) is classified as part of Porter's immediate family (b) is not classified as part of Porter's immediate family (a) is correct. (Immediate family) says it includes spouses. Thus it does not matter how much she makes, where she works, etc., Porter's wife is still classified as immediate family. Porter is a partner in White & Co., CPAs. State whether in the following situations the person would be classified as a member of Porter's immediate family. Porter and his wife have been for the last year and are continuing this year to support a woman from South America who is attending the local college. She is currently a sophomore and lives in a dormitory on campus. Their support consists of paying for her tuition, books and supplies, board and room and a small amount for spending money. She is one of several students from foreign countries that members of their church have sponsored at the college. She is not related to either Porter or his wife. (a) is classified as part of Porter's immediate family (b) is not classified as part of Porter's immediate family (a) is correct. (Immediate family) says it includes dependents. Since Porter pays all her expenses she is a dependent, and thus she is classified as immediate family. The AICPA Rules of the Code of Professional Conduct apply to which group? (a) All AICPA members. (b) All CPAs who are licensed to practice. (c) All CPAs (a) is correct. (Applicability) section says that the rules apply to all AI CPA members. (b) is wrong because CPAs licensed to practice who do not belong to the AI CPA are not subject to AICPA rules. (c) is also wrong because those CPAs not belonging to the AICPA are not subject to AICPA rules. The Code of Professional Conduct says that with respect to the acts of others: (a) a member may be held responsible for compliance with the rule by all persons associated with him in the practice of public accounting who the member has the authority or capacity to control. (b) a member has no responsibility for the acts of anyone but himself. (c) it is silent on the matter. (a) is correct. (Interpretation addressing the Applicability of the AICPA Code of Professional Conduct) says a member may be held responsible for the acts of others that he has the authority to control. A member wishes to take an action but is told that it would be against the rules in the Code of Professional Conduct. His secretary then offers to take the action saying to the member, "I will do it since I am not a member of the AI CPA and their rules do not apply to me." The member makes no comment and the secretary does carry out the action. Has the member violated the Code of Professional Conduct? (a) Yes. (b) No. (a) is correct. (Interpretation addressing the Applicability of the AI CPA Code of Professional Conduct) says a member shall not knowingly let a person whom the member can control do something for the member that if the member did the same thing would be a violation of the code. Which, if any, of the following is not classified as a loan? (a) letter of credit (b) guarantee of a loan (c) line of credit ( d) loan commitment (e) all are classified as loans (e) is correct. (Loan) says that loans includes (a) letter of credit, (b) guarantee of a loan, (c) line of credit and (d) loan commitment. Daman & Co. is a one-office public accounting firm. In each of the following situations state whether the work Daman & Co. is doing would be classified as an attest engagement: Preparing a review report on the financial statements of Blakely Mfg. Co. for the calendar year. (a) This is an attest engagement (b) This is not an attest engagement (a) is correct. (Attest engagement) is an engagement that requires independence. Since review reports require the member to be independent, preparing the review report for Blakely Mfg. Co. is an attest engagement Daman & Co. is a one-office public accounting firm. In each of the following situations state whether the work Daman & Co. is doing would be classified as an attest engagement: Reviewing prior year's tax returns of Heft & Co. and reporting to Heft's board of directors the results of such a review. The tax returns were prepared by another accounting firm. This is the first work that Daman & Co. will do for Heft & Co. Daman's partners hope that this engagement will lead to annual audits or reviews and preparation of tax returns for this company. (a) This is an attest engagement (b) This is not an attest engagement (b) is correct. (Attest engagement) is an engagement that requires independence. Since reviewing tax returns does not require independence, this is not an attest engagement. Daman & Co. is a one-office public accounting firm. In each of the following situations state whether the work Daman & Co. is doing would be classified as an attest engagement: Preparing income tax returns and a compilation report for Bower's Restaurant for the calendar year. The compilation report will not disclose a lack of independence. (a) This is an attest engagement (b) This is not an attest engagement (a) is correct. (Attest engagement) is an engagement that requires independence. Preparing tax returns does not require independence. Preparing a compilation report requires independence, unless the report discloses a lack of independence, which this one doesn't. This then is an attest engagement with Bower's Restaurant. Carson is a partner in a one-office public accounting firm that is located in Illinois. In each of the following cases state whether the individual would be considered a close relative of Carson? Carson's sister who lives in California (a) The sister is a close relative (b) The sister is not a close relative (a) is correct. (Close relative) says that siblings are close relatives. Carson's sister is his sibling and thus a close relative. Carson is a partner in a one-office public accounting firm that is located in Illinois. In each of the following cases state whether the individual would be considered a close relative of Carson? Carson's teenage son who lives at home and who is attending high school (a) The son is a close relative (b) The son is not a close relative (b) is correct. (Close relative) says that non-dependent children are close relatives. Carson's son is a dependent, he lives at home and attends high school. Thus, he is immediate family not a close relative. Carson is a partner in a one-office public accounting firm that is located in Illinois. In each of the following cases state whether the individual would be considered a close relative of Carson? Carson's father-in-law who lives next door to Carson (a) The father-in-law is a close relative (b) The father-in-law is not a close relative (b) is correct. (Close relative) says that parents are close relatives. Carson's father-in-law is not his parent and thus he is not a close relative. Carson is a partner in a one-office public accounting firm that is located in Illinois. In each of the following cases state whether the individual would be considered a close relative of Carson? Carson's married daughter. She and her husband live and work in New York (a) The daughter is a close relative (b) The daughter is not a close relative (a) is correct. (Close relative) says that non-dependent children are close relatives. Carson's married daughter is obviously not a dependent. Thus she is classified as a close relative. The general counsel for a client __________ considered to have a key position in the client with respect to financial statements issued by the client. (a) is (b) is not (a) is correct. (Key position) says that those who have the ability to exercise influence over the financial statements have a key position with the entity. It then lists general counsel as one of the positions that have such influence. Mead & Mead, LLP is a one-office public accounting firm. Five years ago Wagner Mfg. Co. engaged them to be their public accountants. At that time an engagement letter was received, and two weeks later Mead and Mead began their first work for Wagner Mfg. Co. Each year they have received a new engagement letter from Wagner Mfg. Co. covering their preparation of a review report and the state and federal income tax returns for Wagner Mfg. Co. They expect that this scenario will be repeated this year. The engagement letters are received in early November. The review report is delivered to Wagner Mfg. Co. by the first of March and the income tax returns by March 31 each year. Which of the following statements is correct with respect to the period of the professional engagement(s) Mead and Mead has with Wagner Mfg. Co.? (a) Each year's engagement period runs from the time the annual engagement letter is received until the tax returns and review report for that year have been delivered to Wagner Mfg. Co. (b) The engagement period started with the receipt of the first engagement letter and continues uninterrupted to this date. (c) Each year's engagement period starts with the receipt of the engagement letter for that year and ends with the delivery of that year's review report to Wagner Mfg. Co. (b) is correct. (Period of the professional engagement) says it starts with first employment and continues uninterrupted until client dismisses the member or the member resigns. The period of the engagement could thus cover many years. (a) and (c) are wrong because though there has been no work done for the client since the last review report and/or tax returns were delivered, Mead & Mead, LLP is still considered to have an ongoing professional engagement with Wagner Mfg. Co. A member in a one-office firm is asked to audit the books of a corporation in which his partner's wife is a stockholder. The member has no financial interest in the corporation. Is the fum independent of the corporation? (a) No. (b) Yes. (a) is correct, the fum is not independent. Covered members owning stock in a client impair independence with that client (Interpretation 101-1A.1.) All partners in the office where the partner in charge of the audit is located are covered members (Chapter 3, Definitions, Covered member) (d). The partner's wife is classified Immediate family (Chapter 3, Definitions, Immediate family) . A covered member's immediate family is subject to Rule 101 (Interpretation 101-1, Application of the independence rules to a covered member's immediate family). Her ownership of stock impairs independence. A member has performed the procedures necessarily to audit the financial statements of a privately held enterprise of which the member is part owner. The report was carefully drawn and without bias. In this case the member's opinion must be (a) a compilation report with disclaimer based on lack of independence. (b) an unaudited disclaimer with footnote disclosure of the CPA's stock interest. ( c) neither of the above. (a) is correct, the member's report must be a compilation with a disclaimer based on lack of independence. Covered members having a direct financial interest in a client impair independence with that client (Interpretation 101-1A.1). The member is classified as a covered member since he is on the attest engagement team (Chapter 3, Definitions, Covered member a) The type of report he may issue is a compilation report with a disclaimer based on lack of independence (Ruling 74). A staff person below the managerial level belongs to an investment club composed of 20 members. She is the only person in the one-office fum belonging to this club. Buy and sell decisions on investments are decided by majority vote, each member of the club having one vote. The members at their last meeting voted to purchase a minor number of shares of the Jones Company, an audit client of the fum in which the staff person is located. Although she does not work on that engagement, the staff person voted against the purchase. (a) Since the staff person could not control the actions of the club, independence of the fum with Jones Company is not impaired. (b) Since only a minor number of shares were purchased, independence of the fum with the Jones Company is not impaired. (c) Since the staff person does not work on the engagement for this company, independence of the firm with Jones Company is not impaired. ( d) Independence of the firm with the Jones Company is impaired. ( c) is correct, independence is not impaired. Her share of the club's investment in Jones is considered a direct financial interest in Jones (Ruling 36). Covered members having a direct financial interest in a client impair independence with that client (Interpretation 101-1A.1). Since she does not work on the Jones engagement she is not considered a covered person. (Chapter 3, Definitions, Covered member a). Her share of the investment does not impair the fum's independence, since only covered member's direct financial interests in clients impairs independence. (a) is incorrect since whether or not she can control the actions of the club does not matter. (b) is incorrect since the amount of the direct financial interest is not the controlling factor. CONTINUED......