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Auditing and Assurance Services, 14e (Arens)
Chapter 4 Professional Ethics
Learning Objective 4-1
1)There are no questions for this Learning
Objective. Answer:
Learning Objective 4-2
1)Describe an ethical dilemma that an auditor or an accountant might face in his or her
business career, then illustrate how the auditor or accountant might use the six-step
approach presented in the text to resolve that dilemma. Be specific.
Answer: An ethical dilemma is a situation a person faces in which a decision must be
made about an appropriate behavior. Although students' answers will vary depending
on the dilemma, their answer should list the following six steps, along with a discussion
of how each step relates to their particular dilemma:
1. Obtain the relevant facts. Students should list the key facts from their dilemma.
2. Identify the eth ical issues f rom the facts. Students should identify the key ethical issue(s) in their
dilemma.
3. Determine who is affected by the outcome of the dilemma and how each person or g
roup is affected. Students should identify who is involved and how each person is
affected by the dilemma.
4. Identify the alternatives available to the person who must resolve the dilemma . Students
should list the
alternatives available to the auditor or accountant.
5. Identify the likely consequence of each alternative. Students should identify both the
short - and long-term effects of each alternative.
6. Decide the appropriate action.
Terms: Ethical dilemma
Diff: Challenging
Objective: LO 4-2
AACSB: Reflective thinking skills
Learning Objective 4-3
1)The underlying reason for a code of professional conduct for any
profession is: A) the need for public confidence in the quality of
service of the profession.
B) that it provides a safeguard to keep unscrupulous
people out. C) that it is required by federal legislation.
D) that it allows licensing agencies to have a yardstick to measure
deficient behavior. Answer: A
Terms: Reason for code of professional conduct
Diff: Easy
Objective: LO 4-3
AACSB: Reflective thinking skills
1
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2)Which of the following statements is true when the CPA has been engaged to
perform an audit of financial statements?
A) The CPA firm is engaged and paid by the client; therefore, the firm has primary
responsibility t o be an advocate for the client.
B) The CPA firm is engaged and paid by the client, but the primary beneficiaries of the
audit are those who rely on the financial statements.
C) Should a situation arise where there is no convincing authoritative standard a vailable,
and there is a choice of actions which could impact a client's financial statements, the
CPA is free to endorse the choice which is in the investors' interests.
D) The CPA firm has primary responsibility to
the FASB. Answer: B
Terms: CPA engage d to perform audit of financial statements
Diff: Moderate
Objective: LO 4-3
AACSB: Reflective thinking skills
3)Explain why there is a special need for ethical conduct in the auditing profession.
Answer: Since users (e.g., the general public) of services provided by an auditor generally
cannot evaluate the quality of the auditor's performance, it is critical to the auditing
profession that the public have a high degree of confidence in the quality of the services
provided by the auditor. Public confid ence in the quality of professional services is
enhanced when the profession encourages high standards of performance and ethical
conduct by all its members. If users of auditing services were to lack confidence in the
quality of those services, then the value of CPA firms' audits would be diminished, as
would the demand for audits. It is essential that the users regard CPA firms as competent
and unbiased.
Terms: Need for ethical conduct in auditing profession
Diff: Easy
Objective: LO 4-3
AACSB: Reflective thinking skills
Learning Objective 4-4
1) Which of the following is(are) true concerning the Ethical Principles of the Code of
Professional Conduct?
I. They identify ideal conduct.
II. They are general ideals and difficult to
enforce. A) I only
B) II
only C) I
and II
D) Neither I
nor II Answer:
C
Terms: Ethical principles of the Code of Professional Conduct
Diff: Easy
Objective: LO 4-4
AACSB: Reflective thinking skills
2
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2)Which of the following is not one of the four parts of the AICPA's Code of
Professional Conduct? A) Principles
B) Rules of
Conduct C)
Interpretations D)
Definitions
Answer: D
Terms: AICPA Code of Professional Conduct
Diff: Easy
Objective: LO 4-4
AACSB: Reflective thinking skills
3)One of the AICPA's Ethical Principles deals with the public interest. It states that
members should accept the obligation to act in a way that will:
A)
Honor the public trust Serve the client's interest
Yes Yes
B)
Honor the public trust Serve the client's interest
No No
C)
Honor the public trust Serve the client's interest
Yes No
D)
Honor the public trust Serve the client's interest
No Yes
Answer: C
Terms: Ethical Principles; Public interest; Obligations
Diff: Moderate
Objective: LO 4-4
AACSB: Reflective thinking skills
4)According to the Principles section of the Code of Professional Conduct,
all members: A) should be independent in fact and in appearance at all
times.
B) in public practice should be independent in fact and in appearance at all times.
C) in public practice should be independent in fact and in appearance when providing
auditing and other attestations services.
D) in public practice should be independent in fact and in appearance when providing
auditing, tax, and other attestation services.
Answer: C
Terms: Principles section of the Code of Professional Conduct
Diff: Moderate
Objective: LO 4-4
AACSB: Reflective thinking skills
3
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5)Which of the following statements best describes the enforceability of the
Interpretations of the Rules of Conduct?
A) The Interpretations are not
enforceable. B) The Interpretations
are enforceable.
C) Th e Interpretations may be enforceable if they have been reviewed and approved
by the AICPA's Division of Professional Ethics.
D) The Interpretations are not enforceable, but a practitioner must justify
departure from them. Answer: D
Terms: Enforceability of Interpretations of the Rules of Conduct
Diff: Moderate
Objective: LO 4-4
AACSB: Reflective thinking skills
6)Of the four parts of the AICPA's Code of Professional Conduct , which part is
enforceable?
A) Ethical Rulings
B) Rules of Conduct
C)Principles
D) Interpretatio
ns Answer: B
Terms: AICPA Code of Professional Conduct; Enforceable
Diff: Moderate
Objective: LO 4-4
AACSB: Reflective thinking skills
7) Ethical Rulings are:
I. Explanations relating to broad hypothetical circumstances.
II. Not enforceable, but one must justify departure.
III. Explanations relating to specific factual
circumstances. A) I and II
B) I and III
C) II and III
D) I, II, and
III Answer:
C
Terms: Ethical Rulings
Diff: Moderate
Objective: LO 4-4
AACSB: Reflective thinking skills
8)The AICPA's Code of Professional Conduct requires
independence for all: A) attestation engagements.
B) services performed by accountants in public
practice. C) accounting and auditing services
performed.
D) professional work performed by
CPAs. Answer: A
Terms: Independence
Diff: Moderate
Objective: LO 4-4
AACSB: Reflective thinking skills
4
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Auditing and Assurance Services, 14e (Arens)
Chapter 4 Professional Ethics
Learning Objective 4-1
1)There are no questions for this Learning
Objective. Answer:
Learning Objective 4-2
1)Describe an ethical dilemma that an auditor or an accountant might face in his or her
business career, then illustrate how the auditor or accountant might use the six-step
approach presented in the text to resolve that dilemma. Be specific.
Answer: An ethical dilemma is a situation a person faces in which a decision must be
made about an appropriate behavior. Although students' answers will vary depending
on the dilemma, their answer should list the following six steps, along with a discussion
of how each step relates to their particular dilemma:
1. Obtain the relevant facts. Students should list the key facts from their dilemma.
2. Identify the eth ical issues f rom the facts. Students should identify the key ethical issue(s) in their
dilemma.
3. Determine who is affected by the outcome of the dilemma and how each person or g
roup is affected. Students should identify who is involved and how each person is
affected by the dilemma.
4. Identify the alternatives available to the person who must resolve the dilemma . Students
should list the
alternatives available to the auditor or accountant.
5. Identify the likely consequence of each alternative. Students should identify both the
short - and long-term effects of each alternative.
6. Decide the appropriate action.
Terms: Ethical dilemma
Diff: Challenging
Objective: LO 4-2
AACSB: Reflective thinking skills
Learning Objective 4-3
1)The underlying reason for a code of professional conduct for any
profession is: A) the need for public confidence in the quality of
service of the profession.
B) that it provides a safeguard to keep unscrupulous
people out. C) that it is required by federal legislation.
D) that it allows licensing agencies to have a yardstick to measure
deficient behavior. Answer: A
Terms: Reason for code of professional conduct
Diff: Easy
Objective: LO 4-3
AACSB: Reflective thinking skills
1
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
, To
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2)Which of the following statements is true when the CPA has been engaged to
perform an audit of financial statements?
A) The CPA firm is engaged and paid by the client; therefore, the firm has primary
responsibility t o be an advocate for the client.
B) The CPA firm is engaged and paid by the client, but the primary beneficiaries of the
audit are those who rely on the financial statements.
C) Should a situation arise where there is no convincing authoritative standard a vailable,
and there is a choice of actions which could impact a client's financial statements, the
CPA is free to endorse the choice which is in the investors' interests.
D) The CPA firm has primary responsibility to
the FASB. Answer: B
Terms: CPA engage d to perform audit of financial statements
Diff: Moderate
Objective: LO 4-3
AACSB: Reflective thinking skills
3)Explain why there is a special need for ethical conduct in the auditing profession.
Answer: Since users (e.g., the general public) of services provided by an auditor generally
cannot evaluate the quality of the auditor's performance, it is critical to the auditing
profession that the public have a high degree of confidence in the quality of the services
provided by the auditor. Public confid ence in the quality of professional services is
enhanced when the profession encourages high standards of performance and ethical
conduct by all its members. If users of auditing services were to lack confidence in the
quality of those services, then the value of CPA firms' audits would be diminished, as
would the demand for audits. It is essential that the users regard CPA firms as competent
and unbiased.
Terms: Need for ethical conduct in auditing profession
Diff: Easy
Objective: LO 4-3
AACSB: Reflective thinking skills
Learning Objective 4-4
1) Which of the following is(are) true concerning the Ethical Principles of the Code of
Professional Conduct?
I. They identify ideal conduct.
II. They are general ideals and difficult to
enforce. A) I only
B) II
only C) I
and II
D) Neither I
nor II Answer:
C
Terms: Ethical principles of the Code of Professional Conduct
Diff: Easy
Objective: LO 4-4
AACSB: Reflective thinking skills
2
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
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2)Which of the following is not one of the four parts of the AICPA's Code of
Professional Conduct? A) Principles
B) Rules of
Conduct C)
Interpretations D)
Definitions
Answer: D
Terms: AICPA Code of Professional Conduct
Diff: Easy
Objective: LO 4-4
AACSB: Reflective thinking skills
3)One of the AICPA's Ethical Principles deals with the public interest. It states that
members should accept the obligation to act in a way that will:
A)
Honor the public trust Serve the client's interest
Yes Yes
B)
Honor the public trust Serve the client's interest
No No
C)
Honor the public trust Serve the client's interest
Yes No
D)
Honor the public trust Serve the client's interest
No Yes
Answer: C
Terms: Ethical Principles; Public interest; Obligations
Diff: Moderate
Objective: LO 4-4
AACSB: Reflective thinking skills
4)According to the Principles section of the Code of Professional Conduct,
all members: A) should be independent in fact and in appearance at all
times.
B) in public practice should be independent in fact and in appearance at all times.
C) in public practice should be independent in fact and in appearance when providing
auditing and other attestations services.
D) in public practice should be independent in fact and in appearance when providing
auditing, tax, and other attestation services.
Answer: C
Terms: Principles section of the Code of Professional Conduct
Diff: Moderate
Objective: LO 4-4
AACSB: Reflective thinking skills
3
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
, To
To downloaddownload moremore ebooks,ebooks, slides,slides, SMSM andand TBTB visit:visit: http://testbanklancerhtp:/testbanklancer..blogspotblogspot..comcom
5)Which of the following statements best describes the enforceability of the
Interpretations of the Rules of Conduct?
A) The Interpretations are not
enforceable. B) The Interpretations
are enforceable.
C) Th e Interpretations may be enforceable if they have been reviewed and approved
by the AICPA's Division of Professional Ethics.
D) The Interpretations are not enforceable, but a practitioner must justify
departure from them. Answer: D
Terms: Enforceability of Interpretations of the Rules of Conduct
Diff: Moderate
Objective: LO 4-4
AACSB: Reflective thinking skills
6)Of the four parts of the AICPA's Code of Professional Conduct , which part is
enforceable?
A) Ethical Rulings
B) Rules of Conduct
C)Principles
D) Interpretatio
ns Answer: B
Terms: AICPA Code of Professional Conduct; Enforceable
Diff: Moderate
Objective: LO 4-4
AACSB: Reflective thinking skills
7) Ethical Rulings are:
I. Explanations relating to broad hypothetical circumstances.
II. Not enforceable, but one must justify departure.
III. Explanations relating to specific factual
circumstances. A) I and II
B) I and III
C) II and III
D) I, II, and
III Answer:
C
Terms: Ethical Rulings
Diff: Moderate
Objective: LO 4-4
AACSB: Reflective thinking skills
8)The AICPA's Code of Professional Conduct requires
independence for all: A) attestation engagements.
B) services performed by accountants in public
practice. C) accounting and auditing services
performed.
D) professional work performed by
CPAs. Answer: A
Terms: Independence
Diff: Moderate
Objective: LO 4-4
AACSB: Reflective thinking skills
4
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