Download AICPA Ethics Exam Questions and Answers 2025 and more Exams Accounting in PDF only on Docsity!
Mary (a tax manager) has been assigned to the audit of MPC, Inc. Jeremy, a close friend of Mary's family for many years, is the CFO of MPC. Concerned about the appearance of her independence, Mary applies the AICPA conceptual framework and determines that the threat to her independence is significant and cannot be mitigated by safeguards. As a result, what is Mary's best course of action? She should participate on the audit engagement because her firm wants her to. She should not provide audit services to MPC. She should not participate in the audit unless she obtains a written waiver from her firm's general counsel. She should document her assessment of independence, which should include a sworn statement from Jeremy. Which part of the AICPA Code of Professional Conduct applies to members in public practice? Part 1. Part 3. Part 0. Part 2. Bryan, the controller of a midsize manufacturing company, supervises four employees. His boss, Mariam, instructs him to increase the company's profits for an amount that is material to the financial statements by adjusting several small “miscellaneous” revenue accounts. Though concerned about the effect on the financial statements, Bryan directs his staff to make the entries. What should Bryan have done in these circumstances? Ensured that his staff were competent to make the entries. Identified this matter as a potential ethical issue. Referred the matter to the AICPA's professional ethics hotline. Considered the rules of other regulators. Which bodies are responsible for licensing and overseeing the conduct of certified public accountants (CPAs) in the U.S.? State boards of accountancy. U.S. Department of Occupations. State CPA societies. State colleges and universities. Once you have identified the people or organizations that will benefit or be harmed by an ethical issue, which step should you perform next? Gather the critical facts related to the ethical issue. Make a decision about the ethical issue. Document your conclusions.
Consider the alternative approaches to the ethical issue. Jolene is an accounting supervisor at Ross Property Management. She instructs her subordinate, Mariana, to make certain accounting entries in the company's books that will increase revenue by a material amount. Based on her research, Mariana believes that recognizing revenue in this way would be premature and not consistent with GAAP. What should Mariana do next, according to the AICPA Code of Professional Conduct? Discuss her findings with Jolene. Resign her position quietly. Report the matter to the board of directors. Discuss her concerns with Jolene's boss. Your employer is a social media company whose CFO is engaging in an activity that would violate federal securities regulations. Which statement best describes when such activity would be considered noncompliance with laws and regulations (NOCLAR)? When the illegal activity is related to personal misconduct. When compliance with securities regulations is required under company policy. When the illegal activity reflects poorly on the company's business. When compliance with securities regulations is fundamental to the company. Stephanie, the CFO of Love Pet Supplies, receives an invitation to dinner from Nelson, the CEO of one of her company's vendors, to discuss some business. She has dined with Nelson before, generally once a year in a local, moderately priced restaurant. When determining whether this situation presents any significant threats to her compliance with the AICPA code, what other factor should Stephanie consider? Whether Nelson or others at the vendor provide other gifts or entertainment to her. Whether Nelson excluded certain other Love employees from the invitation. Whether the meal with Nelson involves the consumption of alcoholic beverages. Whether Stephanie truly earned and deserves to be treated to these dinners. You identify a conflict of interest before performing tax services for a client and determine that threats to your compliance with the AICPA code are not at an acceptable level. According to the “Conflicts of Interest” interpretation, what should you consider next? Whether safeguards might reduce threats to an acceptable level. Whether to obtain a waiver to perform the tax services engagement. Whether the client knows about the conflict of interest. Whether to decline to perform the tax services.
The interpretation applies solely to members who are grossly negligent when preparing a client or employer's financial statements. The member is not in violation of this interpretation if failure to file a client or employer's financial statements in a timely manner was due to a heavy workload. Which statement best describes the AICPA interpretation relating to a member's outsourcing of professional services? Members outsourcing professional services to another service provider must disclose that fact to the client before sharing confidential information. Members outsourcing professional services to another service provider must fairly compensate the other service provider. A member's use of another service provider to perform professional services is considered a form of unprofessional conduct. A member's use of another service provider to perform professional services is considered an act discreditable to the profession. Which statement best describes a basic concept that applies to the AICPA independence rules? The “Independence Rule” applies to attest, tax, and advisory engagements equally. The code requires members to be independent of affiliates of financial statement attest clients. The “Conceptual Framework for Independence” applies even when a specific independence rule addresses a threat. A violation of the “Confidential Client Information Rule” would be considered to impair independence. Under AICPA rules, which statement best describes the primary purpose of the “Conceptual Framework for Independence”? The framework acts as a discussion tool for educational classes on independence. The framework acts as a quality control check on compliance with independence rules. The framework provides a rationale for noncompliance with the independence rules. The framework provides a mechanism for analyzing threats to independence. A partner is seeking a mortgage loan from BC Credit Union. In which circumstance may this situation be permissible under the independence rules? The partner performs attest services for BC Credit Union. The partner can influence BC Credit Union's audit engagement. The partner does not practice in the same office as BC Credit Union's lead audit partner or provide services to BC Credit Union.
The partner will perform between 10 and 15 hours of nonattest services for BC Credit Union this fiscal year. Logan's firm performs attest services for PBA Clothing Co. When would Logan be considered a covered member with respect to PBA Clothing? Logan is engaged to teach CPA firm personnel about new accounting standards. Logan hires personnel and conducts onboarding activities for the CPA firm. Logan directly supervises the lead engagement partner who performs the audit of PBA Clothing. Logan performs certain administrative work for the CPA firm. Your spouse works for a clothing retailer that is an audit client. You are a covered member with respect to that client. Which employment position held by your spouse would be most likely to impair your independence? Cashier. Controller. Warehouse supervisor. Buyer. Rose, a partner in a CPA firm, borrowed $200,000 from one of her firm's audit clients to renovate her vacation home. The amount of the loan is material to Rose's net worth. She works in the same office as the partner who performs the audit. She will not provide any services to the client and cannot influence the engagement. Which statement best describes why this loan impairs Rose's independence under the AICPA code? The loan relates to a vacation home rather than Rose's primary residence. The loan balance is material to Rose's net worth. Rose may try to exercise influence over her partner's audit engagement. Rose obtained a loan from an audit client while she was a covered member. Analynn is an accountant at MBJ Wholesalers. She applies for and is hired as a staff auditor at the CPA firm that audits MBJ. Which statement best describes a safeguard that the independence rules require Analynn to apply before she becomes a covered member with respect to MBJ? She should disassociate from MBJ. She should serve as a trainee on MBJ's upcoming audit engagement. She should obtain a new MBJ email address.
Request that Charlie and other members of the engagement team reperform all of Dan's audit work. Dennis & Co. owes JMM, CPAs, $25,000 for previously rendered tax and consulting services. The fees have been outstanding for more than one year and are significant to JMM. Dennis asked JMM to perform this year's audit but is unable to pay the fees prior to release of the audit report. Which threats to compliance with the AICPA independence rules apply in this situation? Self-review and management participation threats. Familiarity and adverse interest threats. Self-bias and objectivity threats. Undue influence and advocacy threats. A CPA firm performs the annual audit of Wilson Group, a private company. Wilson asks the firm to determine whether the company would qualify for certain municipal tax credits and prepare the application. The firm will receive 15% of any tax credits that Wilson obtains as a result of the requested credits; if the request is denied, no fees will be due. Wilson expects city officials to perform a substantive review of its application. Which statement best describes why this fee arrangement would be a permissible contingent fee arrangement under the AICPA Code of Professional Conduct? The firm expects the city to perform a substantive review of Wilson's application. The firm does not expect the contingent fee to be material on any level. The contingent fee relates to tax services. The contingent fee of 15% is a relatively small portion of the potential tax credit. Which option is the subject of a fundamental principle in the SEC independence rules indicating situations that an audit firm must avoid when considering a relationship or service with an audit client? Auditing one's own work. Discussing the audit fee with the client's board of directors. Auditing the work of another firm. Having adequate time to complete the engagement. Robert Moore has a home mortgage on his primary home from DDG Bank. Which circumstance would allow him to work on his firm's audit of DDG? He is not the lead engagement partner or manager on the account. His loan is not material to his net worth. His loan meets conditions in the SEC rule. He will charge less than 20 hours to the credit union's audit.
Under the SEC independence rules, which scenario will require a one-year “cooling-off” period before a firm member's employment at a client company begins? A tax manager is offered a senior position with the client. A lead audit partner accepts an internal audit director position at her client's company. A tax client offers a partner a managerial position at the company. A nonattest client offers to hire its firm's lead audit partner to be its new CFO.、 Which statement is accurate regarding the SEC independence rules on bookkeeping services? Bookkeeping services are permitted in most circumstances under the SEC's independence rules if proper safeguards are in place. Bookkeeping services are permitted if the individuals performing these services perform no other services for the client. Bookkeeping services are prohibited if the fees from these services are greater than the audit fee. Bookkeeping services are prohibited even if the client approves the books and records as the services are performed. Lee Corp., a small public company, acquires a private company. Austin & Co. audits Lee Corp. and will now audit the combined company, which will file reports with the SEC. Which independence rules will apply to the combined company? Only AICPA rules will apply. SEC and PCAOB rules will apply. Austin may choose between the AICPA and SEC rules. Austin should apply the DOL and IESBA rules. Which statement best explains why the SEC has concerns about the independence of an audit firm that has a contingent fee arrangement with its audit client? Conflict of interests Petersen & Benez, CPAs, performed the audit of Titan Brewery, a public company, in 20X1 and 20X2. In 20X2, Petersen & Benez also performed expert services in connection with pending litigation between Titan and another party. Which statement best describes how the expert services affected Petersen & Benez's independence in 20X2 under SEC independence rules? Petersen & Benez was not independent unless management approved its expert services.
Auditors should not use government resources unless the requisition forms are completed beforehand. Auditors should not use personal email accounts for government-related communications. Government employees may not accept gifts from suppliers under any circumstances. Which statement best describes a provision in the Department of Labor (DOL) independence rules? The DOL will consider all relevant circumstances when evaluating independence. The auditor may not have an indemnification agreement with the client. The DOL will not comment on auditor independence matters. The auditor may not perform nonaudit services for the client. Olivia is an auditor who has identified a threat to her independence when applying the GAO's conceptual framework (framework). Which step should she apply next? Evaluate the threat to her independence. Apply safeguards to mitigate the threat to independence. Seek a waiver from the audit client. Reconsider her use of the framework. When will a firm auditing an insured depository institution (IDI) be subject to Part 363 of the Federal Deposit Insurance Corporation (FDIC) regulations? Once the institution becomes a public company. Once the audit firm registers with the PCAOB. Once the audit firm passes its peer review. Once the IDI's total assets exceed a certain dollar amount. Which statement best describes an issue that federal banking agencies communicated to auditors regarding auditor independence? Auditors of banks must register with the PCAOB and be inspected at least annually. Auditors of banks should comply with SEC independence rules in all instances. An auditor's fee for performing nonaudit services should not exceed its audit fee. An auditor may not have an indemnification or similar agreement with its client.
Julio, a tax preparer, encounters a conflict of interest related to an individual client. Which source of rules would be most likely to lead Julio to understand his professional responsibilities? SEC Rule 2-01. IRS Circular No. 230. AICPA bylaws. GAO Yellow Book. In reviewing a tax client's information, Jacob determines that certain information is lacking. What should Jacob do to comply with the Statements on Standards for Tax Services (SSTSs)? Use professional judgment to complete the information. Perform research to complete the information. Complete the tax return without the information. Ask the client about the missing information. A client asks Lara, a tax practitioner, to provide tax advisory services. Which statement best describes an activity that would illustrate the application of competence under the AICPA Code of Professional Conduct? Lara will apply to be an enrolled agent. Lara will have a written engagement letter. Lara will structure the fee as a contingent fee. Lara will comply with professional standards. Which statement is accurate regarding IRC Section 6694 preparer penalty provisions? Penalties can be assessed on a practitioner when a disclosed tax position does not have a reasonable basis. A penalty would never lead to an investigation by the IRS Office of Professional Responsibility (OPR). Penalties apply to the practitioner and the taxpayer that underpaid the income taxes. A penalty can range from $50 to $200 if misconduct is found. Which is an explicit requirement in the Circular No. 230 rule on solicitations with respect to published fee information? The practitioner may not charge rates that exceed amounts in published fee schedules within a certain period of time. The practitioner should send copies of proposed fee scheduled to the IRS. The practitioner should retain copies of all fee schedules for at least 36 months.
