ACCT 4553 Ethics Final UPDATED ACTUAL Questions and CORRECT Answers
1. Jane, a partner in a CPA firm, borrows $100,000 on a B.) Yes, because Jane bor-
secured note from one of the firm's bank audit clients rowed the money from an
to build a new dormer on her house. The amount of audit client while she was
the loan is material to Jane. Jane practices in the same a covered member.
office as the lead partner on the bank's audit. Jane will
not provide any services to the bank and she is unable
to influence the engagement. Is Jane's independence
impaired under the AICPA code?
A.) No, because Jane is not on the attest team or able
to influence the engagement.
B.) Yes, because Jane borrowed the money from an
audit client while she was a covered member.
C.) No, because the note is secured and is related to
Jane's primary residence.
E.) Yes, because the loan is material to Jane's net worth
2. Cartwright & Cheyenne, CPAs (C&C), and its client, Lott D.) Yes, if C&C also per-
Lighting, are discussing a possible advisory engage- formed a review engage-
ment in which C&C would review Lott's accounts re- ment for Lott.
ceivable system and recommend changes that would
streamline the company's collection process. Lott will
pay C&C a fee based on improved performance in
accounts receivable collections. Would this contingent
fee arrangement raise any ethical concerns under the
profession's rules?
, A.) No, provided C&C documents the arrangement in
the engagement letter.
B.) Yes, but only if C&C was performing other services
for Lott.
C.) No, but only if Lott is a publicly-traded company
subject to SEC and PCAOB rules.
D.) Yes, if C&C also performed a review engagement
for Lott.
3. Under SEC rules, which relationships between a cov- A.) Immaterial land-
ered person and an SEC client are NOT prohibited? lord-tenant relationships
A.) Immaterial landlord-tenant relationships
B.) Joint business ventures
C.) Agreements to share costs or profits
D.) Limited partnership agreements
4. Duncan & Co., CPAs, has provided annual audit and A.) Duncan may perform
tax advisory services to Victoria Corp. for several the audit as long as the
years. Last year, Victoria experienced severe cash flow unpaid fees relating to
problems and was unable to pay Duncan in full, leav- the prior year are paid
ing a significant balance unpaid. Duncan is ready to in full before the cur-
begin fieldwork for the upcoming audit. What options rent-year report is issued.
are available to Duncan and Victoria under the AICPA
, code?
A.) Duncan may perform the audit as long as the
unpaid fees relating to the prior year are paid in full
before the current-year report is issued.
B.) Duncan may set up a payment plan with Victoria to
settle the unpaid fees over the next two years.
C.) Victoria may give Duncan a note with a maturity
date not later than one year after the date of the
current-year report.
D.) Victoria may have another firm perform the field-
work and Duncan will review the other firm's work
papers and issue the report.
5. Suppose a statute exists in your state that allows you B.) Yes
to place a lien on client records in the event of unpaid
fees. Given these facts, are you obligated to return
records to a client who has not paid his fees?
A.) No, not until he pays the fees.
B.) Yes
6. Leeann Raasch, CPA, runs a small CPA firm in Podunk, B.) Professional compe-
Oklahoma. Leeann was asked to conduct an audit tence and due care
of an oil-drilling company with complex operations.
, Leeann went to school in Illinois and has only recently
moved her business to Oklahoma. All of her past audit
work has been involved with banks and insurance
companies—none of which maintain any significant
amount of inventory. Leeann agrees to conduct the
audit. Since she's just getting started in Oklahoma and
had a lot of expenses associated with her move, she's
not willing to spend the money to bring in someone
with more oil and gas experience. Which of the follow-
ing fundamental principles has Leeann violated?
A.) Leeann has not violated any of the fundamental
principles.
B.) Professional competence and due care
C.) Confidentiality
D.) Integrity
E.) Professional behavior
F.) Objectivity
7. Matthew Davasiachen, CPA, is conducting an audit C.) Undue influence threat
for Trent & Taylor Co. Trent & Taylor's financial state-
ments include a complicated footnote that deals with
revenue from trading of corn and soybean futures.
Matthew sits down with the CEO and CFO to gain a
better understanding of the footnote. Their charming
CFO, Kaytlin Reynolds, says, "Why, Matthew, please
don't concern yourself with that. It's a very complex
1. Jane, a partner in a CPA firm, borrows $100,000 on a B.) Yes, because Jane bor-
secured note from one of the firm's bank audit clients rowed the money from an
to build a new dormer on her house. The amount of audit client while she was
the loan is material to Jane. Jane practices in the same a covered member.
office as the lead partner on the bank's audit. Jane will
not provide any services to the bank and she is unable
to influence the engagement. Is Jane's independence
impaired under the AICPA code?
A.) No, because Jane is not on the attest team or able
to influence the engagement.
B.) Yes, because Jane borrowed the money from an
audit client while she was a covered member.
C.) No, because the note is secured and is related to
Jane's primary residence.
E.) Yes, because the loan is material to Jane's net worth
2. Cartwright & Cheyenne, CPAs (C&C), and its client, Lott D.) Yes, if C&C also per-
Lighting, are discussing a possible advisory engage- formed a review engage-
ment in which C&C would review Lott's accounts re- ment for Lott.
ceivable system and recommend changes that would
streamline the company's collection process. Lott will
pay C&C a fee based on improved performance in
accounts receivable collections. Would this contingent
fee arrangement raise any ethical concerns under the
profession's rules?
, A.) No, provided C&C documents the arrangement in
the engagement letter.
B.) Yes, but only if C&C was performing other services
for Lott.
C.) No, but only if Lott is a publicly-traded company
subject to SEC and PCAOB rules.
D.) Yes, if C&C also performed a review engagement
for Lott.
3. Under SEC rules, which relationships between a cov- A.) Immaterial land-
ered person and an SEC client are NOT prohibited? lord-tenant relationships
A.) Immaterial landlord-tenant relationships
B.) Joint business ventures
C.) Agreements to share costs or profits
D.) Limited partnership agreements
4. Duncan & Co., CPAs, has provided annual audit and A.) Duncan may perform
tax advisory services to Victoria Corp. for several the audit as long as the
years. Last year, Victoria experienced severe cash flow unpaid fees relating to
problems and was unable to pay Duncan in full, leav- the prior year are paid
ing a significant balance unpaid. Duncan is ready to in full before the cur-
begin fieldwork for the upcoming audit. What options rent-year report is issued.
are available to Duncan and Victoria under the AICPA
, code?
A.) Duncan may perform the audit as long as the
unpaid fees relating to the prior year are paid in full
before the current-year report is issued.
B.) Duncan may set up a payment plan with Victoria to
settle the unpaid fees over the next two years.
C.) Victoria may give Duncan a note with a maturity
date not later than one year after the date of the
current-year report.
D.) Victoria may have another firm perform the field-
work and Duncan will review the other firm's work
papers and issue the report.
5. Suppose a statute exists in your state that allows you B.) Yes
to place a lien on client records in the event of unpaid
fees. Given these facts, are you obligated to return
records to a client who has not paid his fees?
A.) No, not until he pays the fees.
B.) Yes
6. Leeann Raasch, CPA, runs a small CPA firm in Podunk, B.) Professional compe-
Oklahoma. Leeann was asked to conduct an audit tence and due care
of an oil-drilling company with complex operations.
, Leeann went to school in Illinois and has only recently
moved her business to Oklahoma. All of her past audit
work has been involved with banks and insurance
companies—none of which maintain any significant
amount of inventory. Leeann agrees to conduct the
audit. Since she's just getting started in Oklahoma and
had a lot of expenses associated with her move, she's
not willing to spend the money to bring in someone
with more oil and gas experience. Which of the follow-
ing fundamental principles has Leeann violated?
A.) Leeann has not violated any of the fundamental
principles.
B.) Professional competence and due care
C.) Confidentiality
D.) Integrity
E.) Professional behavior
F.) Objectivity
7. Matthew Davasiachen, CPA, is conducting an audit C.) Undue influence threat
for Trent & Taylor Co. Trent & Taylor's financial state-
ments include a complicated footnote that deals with
revenue from trading of corn and soybean futures.
Matthew sits down with the CEO and CFO to gain a
better understanding of the footnote. Their charming
CFO, Kaytlin Reynolds, says, "Why, Matthew, please
don't concern yourself with that. It's a very complex
