ACCT 4553 Ethics Final Part 1 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 years. the audit as long as the
Last year, Victoria experienced severe cash flow prob- unpaid fees relating to the
lems and was unable to pay Duncan in full, leaving prior year are paid in full
a significant balance unpaid. Duncan is ready to be- before the current-year re-
gin fieldwork for the upcoming audit. What options port is issued.
are available to Duncan and Victoria under the AICPA
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 years. the audit as long as the
Last year, Victoria experienced severe cash flow prob- unpaid fees relating to the
lems and was unable to pay Duncan in full, leaving prior year are paid in full
a significant balance unpaid. Duncan is ready to be- before the current-year re-
gin fieldwork for the upcoming audit. What options port is issued.
are available to Duncan and Victoria under the AICPA
