1. Dorothy (an audit manager) has been assigned to the audit of Tandem Electric, Inc.
Dorothy is concerned that Joanne, a friend from her college days, is on the internal audit
staff of Tandem Electric. Dorothy believes she could provide services to this client in an
objective manner. Which statement best describes how Dorothy should apply the AICPA
conceptual framework approach in this situation?
a. Consider the threats to her independence and whether safeguards may be applied
that reduce the threats to an acceptable level.
b. Dorothy should not provide services to Tandem Electric because no safeguards
would be effective in mitigating threat(s) to her independence
c. Dorothy should not participate in the audit of Tandem Electric before obtaining a
written waiver from her firm's general counsel
d. Dorothy should document her assessment of independence, which should include
a sworn statement from Joann
2. The AICPA Code of Professional Conduct includes which sections?
a. Preface, rules, and interpretations applicable to members in tax practice, and
rules and interpretations applicable to members in business.
b. Preface, rules, and interpretations applicable to members in tax practice, and
rules and interpretations applicable to members in audit practice
c. Preface, rules, and interpretations applicable to members in public practice,
and rules and interpretations applicable to members in business.
d. Preface, rules, and interpretations applicable to members in audit practice, and
rules and interpretations applicable to members in business
3. Sarah, the controller of a large beverage supplier, supervises two employees. Her boss,
Vladimir, instructs her to increase the company's inventory balance for an amount that
is material to the financial statements by crediting several small “miscellaneous”
expense accounts. She does not understand why he wants her to make these entries but
immediately directs one of her staff to make them because she has been instructed to
do so. Which statement best describes Sarah's actions?
a. Sarah failed to evaluate a potential ethical issue
b. Sarah failed to refer the matter to the AICPA ethics hotline
c. Sarah failed to ensure that her staff was competent to make the entries
d. Sarah failed to consider the rules of other regulators
4. Which body develops independence rules that apply to engagements performed under
generally accepted government auditing standards (GAGAS)?
, a. U.S. Government Accountability Office
b. U.S. Department of Labor
c. U.S. Department of the Treasury
d. U.S. Federal Deposit Insurance Corporation
5. What step should be performed after recognizing an ethical issue?
a. Identify the people or organizations that will benefit or be harmed by the ethical
issue
b. Gather the critical facts and information involved with the ethical issue.
c. Consider the alternative approaches to the ethical issue
d. Consider the rules, regulations, and laws that apply to the ethical issue
6. Josie is an accounting supervisor at Monk & Sons Realty. She instructs her
subordinate, Maria, to make certain accounting entries in the company's books that
will increase revenue. The amount of revenue involved is material to Monk's financial
statements. Maria researches the matter and confirms her suspicion that making these
entries would overstate revenue. She tells Josie that recognizing revenue in this way
would be premature and not consistent with generally accepted accounting principles.
Josie disagrees and insists that Maria record the entries. According to the AICPA Code
of Professional Conduct (the code), what's the first thing Maria should do next?
a. Resign her position quietly
b. Discuss her concerns with Josie's boss
c. Take out a professional liability policy
d. Report the matter to the senior partner in the firm
7. Your employer is a social media company. Which situation best illustrates potential
noncompliance with laws and regulations (NOCLAR), as proposed by the AICPA's
Professional Ethics Executive Committee?
a. The company's management is violating data protection laws.
b. The company's largest vendor inadvertently violated data protection
regulations
c. The company's contractor has several violations on its record.
d. The company's CEO has not filed his income tax returns for two years.
Dorothy is concerned that Joanne, a friend from her college days, is on the internal audit
staff of Tandem Electric. Dorothy believes she could provide services to this client in an
objective manner. Which statement best describes how Dorothy should apply the AICPA
conceptual framework approach in this situation?
a. Consider the threats to her independence and whether safeguards may be applied
that reduce the threats to an acceptable level.
b. Dorothy should not provide services to Tandem Electric because no safeguards
would be effective in mitigating threat(s) to her independence
c. Dorothy should not participate in the audit of Tandem Electric before obtaining a
written waiver from her firm's general counsel
d. Dorothy should document her assessment of independence, which should include
a sworn statement from Joann
2. The AICPA Code of Professional Conduct includes which sections?
a. Preface, rules, and interpretations applicable to members in tax practice, and
rules and interpretations applicable to members in business.
b. Preface, rules, and interpretations applicable to members in tax practice, and
rules and interpretations applicable to members in audit practice
c. Preface, rules, and interpretations applicable to members in public practice,
and rules and interpretations applicable to members in business.
d. Preface, rules, and interpretations applicable to members in audit practice, and
rules and interpretations applicable to members in business
3. Sarah, the controller of a large beverage supplier, supervises two employees. Her boss,
Vladimir, instructs her to increase the company's inventory balance for an amount that
is material to the financial statements by crediting several small “miscellaneous”
expense accounts. She does not understand why he wants her to make these entries but
immediately directs one of her staff to make them because she has been instructed to
do so. Which statement best describes Sarah's actions?
a. Sarah failed to evaluate a potential ethical issue
b. Sarah failed to refer the matter to the AICPA ethics hotline
c. Sarah failed to ensure that her staff was competent to make the entries
d. Sarah failed to consider the rules of other regulators
4. Which body develops independence rules that apply to engagements performed under
generally accepted government auditing standards (GAGAS)?
, a. U.S. Government Accountability Office
b. U.S. Department of Labor
c. U.S. Department of the Treasury
d. U.S. Federal Deposit Insurance Corporation
5. What step should be performed after recognizing an ethical issue?
a. Identify the people or organizations that will benefit or be harmed by the ethical
issue
b. Gather the critical facts and information involved with the ethical issue.
c. Consider the alternative approaches to the ethical issue
d. Consider the rules, regulations, and laws that apply to the ethical issue
6. Josie is an accounting supervisor at Monk & Sons Realty. She instructs her
subordinate, Maria, to make certain accounting entries in the company's books that
will increase revenue. The amount of revenue involved is material to Monk's financial
statements. Maria researches the matter and confirms her suspicion that making these
entries would overstate revenue. She tells Josie that recognizing revenue in this way
would be premature and not consistent with generally accepted accounting principles.
Josie disagrees and insists that Maria record the entries. According to the AICPA Code
of Professional Conduct (the code), what's the first thing Maria should do next?
a. Resign her position quietly
b. Discuss her concerns with Josie's boss
c. Take out a professional liability policy
d. Report the matter to the senior partner in the firm
7. Your employer is a social media company. Which situation best illustrates potential
noncompliance with laws and regulations (NOCLAR), as proposed by the AICPA's
Professional Ethics Executive Committee?
a. The company's management is violating data protection laws.
b. The company's largest vendor inadvertently violated data protection
regulations
c. The company's contractor has several violations on its record.
d. The company's CEO has not filed his income tax returns for two years.
