CHAPTER 4

Multiple-Choice Questions
1. Society has attached a special meaning to the term professional. A professional is:
easy a. someone who has passed a ualifying e!am to enter the "o# mar$et.
# #. a person who is e!pected to conduct himself or herself at a higher le%el than the
reuirements of society&s laws or regulations.
c. any person who recei%es pay for the ser%ices performed.
d. someone who has #oth an education in the trade and on-the-"o# e!perience recei%ed
under an e!perienced super%isor.
'. (he underlying reason for a code of professional conduct for any profession is:
easy a. the need for pu#lic confidence in the uality of ser%ice of the profession.
a #. that it pro%ides a safeguard to $eep unscrupulous people out.
c. that it is reuired #y federal legislation.
d. that it allows licensing agencies to ha%e a yardstic$ to measure deficient #eha%ior.
). A challenge associated with the *thical +rinciples stated in the Code of Professional Conduct
is:
easy a. the emphasis on positi%e acti%ities.
c #. that they identify ideal conduct.
c. the difficulty of enforcing principles, or general ideals.
d. that there are too many to remem#er.
-. .or which of the following professional ser%ices must C+As #e independent/
easy a. Management ad%isory ser%ices.
# #. Audits of financial statements.
c. +reparation of ta! returns.
d. All three of the a#o%e.
0. 1ndependence in auditing means:
easy a. remaining aloof from a client.
c #. not #eing financially dependent on a client.
c. ta$ing an un#iased and o#"ecti%e %iewpoint.
d. #eing an ad%ocate for a client.
2. 3hen C+As are a#le to maintain their actual independence, it is referred to as independence
in:
easy a. conduct.
c #. appearance.
c. fact.
d. total.
4. 3hich of the following statements is not true/ (he C+A firm will lose its independence if:
easy
d
a. any of the partners in the office pro%iding audit ser%ices to the client acuires stoc$ in
that client.
#. a manager who pro%ides 10 hours of non-audit ser%ices to the client acuires stoc$ in that
client.
c. anyone wor$ing on the audit should acuire stoc$ in that client.
d. all of the a#o%e are true.
--1
5.
easy
1nterpretations of 6ule 171 prohi#it co%ered mem#ers from owning any stoc$ or other direct
in%estment in audit clients. Co%ered mem#ers include all #ut which of the following/
a a. All partners in an office that has no responsi#ility for the engagement.
#. (he firm and its employee #enefit plans.
c. 1ndi%iduals on the attest engagement.
d. All of the a#o%e descri#e co%ered mem#ers.
8.
easy
c
1n some situations, the interpretations of the 6ules of Conduct permit former partners to ha%e
relationships with a client of the firm without affecting the firm&s independence. 3hich of the
following situations would not cause a loss of independence/
a. (he former partner in%ests in a current client of the firm and recei%es retirement #enefits
from the C+A firm, which are dependent upon the firm&s financial performance.
#. (he former partner uses the C+A firm&s office space and has significant influence o%er a
client.
c. (he former partner se%ers relations with the firm and accepts employment with the firm&s
client after ha%ing #een retired for 15 months.
d. (he former partner is held out as an associate of the firm and ta$es part in the firm&s
#usiness acti%ities.
17.
easy
(he financial interests of which of the following parties would not #e included as a direct
financial interest of the C+A/
d a. Spouse.
#. 9ependent child.
c. 6elati%e supported #y the C+A.
d. .inancial interests of each of these indi%iduals would #e considered as direct financial
interests.
11. 1nterpretations of the rules regarding independence allow an auditor to ser%e as:
easy a. a director or officer of an audit client.
d #. an underwriter for the sale of a client&s securities.
c. a trustee of a client&s pension fund.
d. an honorary director for a not-for-profit charita#le or religious organi:ation.
1'.
easy
#
3hen the uestion arises whether a C+A firm may do #oth #oo$$eeping and auditing ser%ices
for the same pu#lic company client, the 1nterpretations of the A1C+A&s Code of Professional
Conduct:
a. encourage it.
#. prohi#it it.
c. allow it.
d. allow each firm to determine the answer on a case-#y-case #asis.
1). (he C+A must not su#ordinate his or her professional "udgment to that of others in any:
easy a. engagement.
a #. audit engagement.
c. engagement e!cluding ta! ser%ices.
d. engagement e!cluding management ad%isory ser%ices.
1-. 3hich of the following would #e a %iolation of the rule reuiring o#"ecti%ity #y the C+A/
easy
c
a. (he auditor accepts management&s opinion regarding the collection of accounts
recei%a#le without an independent e%aluation.
#. 1n preparing a client&s ta! return, the C+A encourages a client to ta$e a deduction which
the C+A #elie%es is ris$y, #ut unli$ely to #e found during an 16S audit.
c. *ither a or # would #e a %iolation of the rule.
d. ;either a nor # would #e a %iolation of the rule.
--'
10.
easy
d
Se%eral months after an unualified audit report was issued, the auditor disco%ers the financial
statements were materially misstated. (he client&s C*< agrees that there are misstatements,
#ut refuses to correct them. She claims that confidentiality pre%ents the C+A from informing
anyone.
a. (he C*< is correct and the auditor must maintain confidentiality.
#. (he C*< is incorrect, #ut #ecause the audit report has #een issued it is too late.
c. (he C*< is correct, #ut to #e ethically correct the auditor should %iolate the
confidentiality rule and disclose the error.
d. (he C*< is incorrect, and the auditor has an o#ligation to issue a re%ised audit report,
e%en if the C*< will not correct the financial statements.
12.
easy
A mem#er in pu#lic practice may not perform for a contingent fee any professional ser%ices for
a client for whom the mem#er or mem#er&s firm performs:
c a. an audit.
#. a re%iew.
c. either an audit or re%iew.
d. any professional ser%ice regardless of the specific nature of the ser%ice.
14. 3hich of the following acti%ities is allowed for a C+A firm&s attestation clients/
easy a. Contingent fees #ased on sa%ings due to implementation of an information system.
a #. Commissions for referring a re%iew client to an insurance agency for insurance co%erage.
c. +reparation of ta! returns for which fees are #ased upon client refunds.
d. *ach of the a#o%e is allowed.
15.
easy
A mem#er in pu#lic practice shall neither recei%e from, nor pay to, a client a commission when
the mem#er or mem#er&s firm also performs for that client:
d a. an audit or re%iew.
#. a compilation that will #e used #y a third party.
c. an audit of prospecti%e financial information.
d. any of the a#o%e.
18.
easy
1f the #oard of accountancy in the state in which a C+A firm is licensed has rules that are
different than the A1C+A&s rules, the C+A firm must follow:
# a. whiche%er rules are less restricti%e.
#. whiche%er rules are more restricti%e.
c. the rules of the A1C+A.
d. the rules of the state&s #oard of accountancy.
'7.
easy
*lise, C+A, owns a pu#lic accounting firm and wishes to esta#lish a separate partnership to
offer data processing ser%ices to the pu#lic and other pu#lic accountants.
# a. *lise cannot #e a partner in any separate partnership that offers data processing ser%ices.
#. *lise may form a separate partnership.
c. *lise may form a separate partnership as long as partners are C+As.
d. *lise may form a separate partnership, #ut must gi%e up the pu#lic accounting practice.
'1. =S<>?
medium
(he Sar#anes-<!ley Act reuires which partners of an accounting firm to rotate off the
engagement e%ery fi%e years/
c a. @ead partner on the engagement.
#. +artner responsi#le for concurring re%iew.
c. Aoth a and #.
d. *ither a or #, #ut not #oth.
--)
''.
medium
(he A1C+A&s Code of Professional Conduct states that a C+A should maintain integrity and
o#"ecti%ity. (he term o#"ecti%ity in the Code refers to a C+A&s a#ility to:
d a. choose independently #etween alternate accounting principles and auditing standards.
#. distinguish #etween accounting practices that are accepta#le and those that are not.
c. #e unyielding in all matters dealing with auditing procedures.
d. maintain an impartial attitude on matters that come under the C+A&s re%iew.
').
medium
3hich of the following is reuired for a firm to designate itself Mem#er of the American
1nstitute of Certified +u#lic Accountants on its letterhead/
# a. At least one of the partners must #e a mem#er of the A1C+A.
#. All partners must #e mem#ers of the A1C+A.
c. (he partners whose names appear in the firm name must #e mem#ers of the A1C+A.
d. A ma"ority of the partners must #e mem#ers of the A1C+A.
'-. C+As are prohi#ited from which of the following forms of ad%ertising/
medium a. Self-laudatory ad%ertising.
d #. Cele#rity endorsement ad%ertising.
c. Bse of trade names, such as Awesome Auditors.
d. Bse of phrases, such as Cuaranteed largest ta! refunds in townD
'0.
medium
d
Anna Creer, a C+A in pu#lic practice, contacts Ala$e Sawyers, an employee of Eac$son F
Eac$son, @@+, and ma$es him an offer of employment without first notifying Eac$son F
Eac$son, @@+. According to the A1C+A&s Code of Professional Conduct, Anna&s #eha%ior:
a. is a %iolation of the Code of Professional Conduct.
#. is a %iolation only if Creer and Sawyers are C+As.
c. is a %iolation only if Eac$son F Eac$son @@+ is a C+A firm.
d. is not a %iolation.
'2.
medium
#
C+As may pro%ide #oo$$eeping ser%ices to their non-pu#lic audit clients, #ut there are a
num#er of conditions that must #e met if the auditor is to maintain independence. 3hich of the
following conditions is not necessary/
a. (he C+A must not assume a management role or function.
#. (he client must hire an e!ternal C+A to appro%e all of the "ournal entries prepared #y the
auditor.
c. (he auditor must comply with CAAS when auditing wor$ prepared #y hisGher firm.
d. (he client must accept responsi#ility for the financial statements.
'4. 3hich of the following statements is not true with respect to audit committees/
medium a. 1ndi%iduals not on a firm&s #oard of directors should comprise the audit committee.
d #. (he audit committee generally helps in resol%ing conflicts #etween the auditors and
company management.
c. All companies listed on the ;HS* are reuired to ha%e an audit committee.
d. Audit committees are reuired for all companies.
'5. (o emphasi:e auditor independence from management, many corporations:
medium a. appoint a partner of the firm conducting the audit to the corporation&s audit committee.
c #. esta#lish a policy of discouraging social contact #etween employees of the corporation
and the staff of the independent auditor.
c. ha%e the independent auditor report to an audit committee of outside mem#ers of the
#oard of directors.
d. reuest that a representati%e of the independent auditor #e on hand at the annual
stoc$holders& meeting.
---
'8.
medium
3hich of the following statements is true when the C+A has #een engaged to do an attestation
engagement/
# a. (he C+A firm is engaged and paid #y the clientI therefore, the firm has primary
responsi#ility to #e an ad%ocate for the client.
#. (he C+A firm is engaged and paid #y the client, #ut the primary #eneficiaries of the audit
are those who rely on the financial statements.
c. Should a situation arise where there is no con%incing authoritati%e standard a%aila#le,
and there is a choice of actions which could impact a client&s financial statements, the
C+A is free to endorse the choice which is in the in%estors& interests.
d. ;one of the a#o%e is true.
)7.
medium
1n a code of conduct, the ad%antage of general statements of ideal conduct, as opposed to
specific rules of #eha%ior, is the:
a a. emphasis on positi%e attri#utes and related #eha%iors.
#. a#ility to enforce the ideals.
c. enforcea#ility of minimum #eha%ior and performance standards.
d. tendency to define the rules as ma!imum rather than minimum standards.
)1.
medium
3hich of the following is not one of the four parts of the A1C+A&s Code of Professional
Conduct/
d a. +rinciples.
#. 6ules of Conduct.
c. 1nterpretations.
d. 9efinitions.
)'.
medium
<ne of the A1C+A&s *thical +rinciples deals with the pu#lic interest. 1t states that mem#ers
should accept the o#ligation to act in a way that will:
d a. ser%e the pu#lic interest.
#. honor the pu#lic trust.
c. demonstrate commitment to professionalism.
d. do all of the a#o%e.
)). According to the +rinciples section of the Code of Professional Conduct, all mem#ers:
medium a. should #e independent in fact and in appearance at all times.
c #. in pu#lic practice should #e independent in fact and in appearance at all times.
c. in pu#lic practice should #e independent in fact and in appearance when pro%iding
auditing and other attestations ser%ices.
d. in pu#lic practice should #e independent in fact and in appearance when pro%iding
auditing, ta!, and MAS ser%ices.
)-. <f the %arious parts of the A1C+A&s Code of Professional Conduct, the:
medium a. +rinciples are enforcea#le.
d #. *thical 6ulings are enforcea#le.
c. 1nterpretations are enforcea#le.
d. 6ules of Conduct are enforcea#le.
)0.
medium
3hich of the following statements #est descri#es the enforcea#ility of the 1nterpretations of the
6ules of Conduct/
d a. (he 1nterpretations are not enforcea#le.
#. (he 1nterpretations are enforcea#le.
c. (he 1nterpretations may #e enforcea#le if they ha%e #een re%iewed and appro%ed #y the
A1C+A&s 9i%ision of +rofessional *thics.
d. (he 1nterpretations are not enforcea#le, #ut a practitioner must "ustify departure from
them.
)2. <f the four parts of the A1C+A&s Code of Professional Conduct, which part is enforcea#le/
medium a. *thical 6ulings.
# #. 6ules of Conduct.
--0
c. +rinciples.
d. 1nterpretations.
)4. *thical 6ulings are:
medium a. issued #y the A1C+A&s Aoard of Co%ernors.
# #. e!planations relating to specific factual circumstances.
c. e!planations relating to #road hypothetical circumstances.
d. enforcea#le.
)5. (he A1C+A&s Code of Professional Conduct reuires independence for all:
medium a. attestation engagements.
a #. ser%ices performed #y accountants in pu#lic practice.
c. accounting and auditing ser%ices performed.
d. professional wor$ performed #y C+As.
)8.
medium
6ules of Conduct contained in the Code of Professional Conduct apply to all A1C+A mem#ers
for all ser%ices pro%ided, whether or not the mem#er is in the practice of pu#lic accounting:
d a. in all circumstances.
#. for non-attestation ser%ices.
c. e!cept for the single e!ception of a ta! practice.
d. unless it is specifically stated otherwise in the Code.
-7.
medium
A mem#er firm of the A1C+A is not only responsi#le for its compliance with the 6ules of
Conduct, #ut also responsi#le for compliance #y:
d a. employees.
#. partners.
c. shareholders.
d. all of the a#o%e.
-1.
medium
d
Although it is possi#le to ta$e the e!treme position that anything affecting either independence
in fact or in appearance must #e eliminated to ensure a high le%el of respect in the community,
the difficulty with this position is that it is li$ely to restrict significantly:
a. the ser%ices offered to clients.
#. the freedom of C+As to practice in the traditional manner.
c. the a#ility of C+A firms to hire competent staff.
d. all three of the a#o%e.
-'.
medium
An e!ample of an indirect ownership interest in a client would #e ownership of a client&s
stoc$ #y a mem#er&s:
c a. dependent child.
#. spouse.
c. non-dependent grandfather.
d. All of the a#o%e are e!amples of indirect ownership.
-).
medium
3hen determining whether independence is impaired #ecause of an ownership interest in a
client company, materiality will affect whether ownership is a %iolation of 6ule 171:
c a. in all circumstances.
#. only for direct ownership.
c. only for indirect ownership.
d. under no circumstances.
--2
--.
medium
1nterpretations of 6ule 171 regarding a direct financial interest ha%e presumed that a
%iolation e!ists in which of the following circumstances, unless other circumstances offset such
a presumption/
a a. 3hen close relati%es such as nondependent children, #rothers, and sisters ha%e a
significant financial interest in the client.
#. 3hen close relati%es such as nondependent children, #rothers, and sisters ha%e any
financial interest in the client.
c. 3hen the C+A owns shares in a mutual fund that has an ownership interest in the client.
d. 3hen close relati%es such as #rother, sister, or in-laws are employed #y client.
-0. 3hich of the following circumstances would ordinarily not impair the auditor&s independence/
medium a. @itigation #y a client against an audit firm related to ta! ser%ices.
a #. @itigation #y a client against an audit firm claiming a deficiency in the pre%ious audit.
c. @itigation #y an audit firm against a client claiming management fraud or deceit.
d. 1ntent to start a lawsuit at some future date, after the current audit is completed, claiming
a deficiency in the pre%ious audit.
-2.
medium
1nterpretations to the 6ules of Conduct permit a C+A firm to do #oth #oo$$eeping and auditing
for the same client if three criteria are met. 3hich of the following is not one of those criteria/
# a. (he client must accept full responsi#ility for the financial statements.
#. (he client is reuired to file an annual report, including audited financial statements,
with the Securities and *!change Commission.
c. (he C+A must not assume the role of employee or of manager.
d. (he C+A must follow applica#le auditing standards.
-4.
medium
3hich of the following ser%ices is not prohi#ited #y the S*C whene%er a C+A also audits the
company/
d a. 1nternal audit outsourcing.
#. @egal ser%ices unrelated to the audit.
c. Appraisal or %aluation ser%ices.
d. Ser%ices related to assessing the effecti%eness of internal control o%er financial reporting.
-5.
medium
3hich of the following ser%ices is not prohi#ited #y the S*C whene%er a C+A also audits the
company/
# a. Actuarial ser%ices.
#. Assisting the company in preparing certain S*C registration statements =e.g., 17-Q, 17-
J? .
c. 1n%estment #an$er ser%ices.
d. Aoo$$eeping ser%ices.
-8. (he mem#ers of a client&s audit committee should #e:
medium a. mem#ers of management.
# #. directors who are not a part of company management.
c. non-directors and non-managers.
d. directors and managers.
07.
medium
An increasing num#er of companies reuire stoc$holders to appro%e the selection of a new
C+A firm or the continuation of the e!isting C+A firm #ecause:
a a. stoc$holders are presuma#ly more o#"ecti%e than management.
#. the S*C reuires it.
c. the A1C+A reuires it.
d. the stoc$holders are in a #etter position to e%aluate the performance of pre%ious or
potential auditors.
--4
01.
medium
d
6ule )71 of the A1C+A&s Code of Professional Conduct reuires C+As to maintain the
confidentiality of client information. (his rule would #e %iolated if a C+A disclosed
information without a client&s consent as a result of a:
a. su#poena or summons.
#. peer re%iew.
c. complaint filed with the trial #oard of the 1nstitute.
d. reuest #y a client&s largest stoc$holder.
0'. 3hich one of the following statements is false/
medium
a
a. (he auditor&s responsi#ility to follow +CA<A standards is greater than the responsi#ility
for confidentiality.
#. 1nformation that a C+A o#tains from a client is generally not pri%ileged.
c. 3hen a C+A firm conducts an A1C+A-authori:ed peer re%iew of the uality controls of
another C+A firm, permission of the client is not needed to e!amine audit documentation.
d. A C+A firm which o#ser%es su#standard audit documentation of another firm can initiate
a complaint of su#standard performance with the A1C+A *thics 9i%ision trial #oard
notwithstanding the confidentiality rule.
0). A C+A is allowed to accept a referral fee for recommending a client to another C+A if:
medium a. the client appro%es of the transaction either #efore or after the e%ent.
c #. the client pre-appro%es the transaction.
c. payment of the referral fee is disclosed to the client.
d. All of the a#o%e are true.
0-. 6ule 070 of the A1C+A&s Code of Professional Conduct permits C+A firms to organi:e as:
medium a. proprietorships or partnerships only.
c #. proprietorships, partnerships, or professional corporations.
c. proprietorships, general partnerships, general corporations, professional corporations,
limited lia#ility companies, and limited lia#ility partnerships if permitted #y state law.
d. single proprietorships, partnerships, professional corporations if permitted #y state law, or
regular corporations.
00.
medium
According to the profession&s ethical standards, an auditor would #e considered independent in
which of the following instances/
a a. (he auditor&s chec$ing account, which is fully insured #y a federal agency, is held at a
client financial institution.
#. (he auditor is also an attorney who ad%ises the client as its general counsel.
c. An employee of the auditor ser%es as treasurer of a charita#le organi:ation that is a client.
d. (he client owes the auditor fees for two consecuti%e annual audits.
02.
medium
1f a nonpu#lic company as$s an accountant to perform a re%iew engagement, and the
accountant has an immaterial direct financial interest in the company, the accountant is:
# a. independent #ecause the financial interest is immaterial and, therefore, may issue a
re%iew report.
#. not independent and, therefore, may not issue a re%iew report.
c. not independent and, therefore, may not #e associated with the financial statements.
d. not independent and, therefore, may issue a re%iew report, #ut may not issue an auditor&s
opinion.
--5
04. =S<>?
medium
(he Sar#anes-<!ley Act reuires a cooling off period of how long #efore a mem#er of an audit
team can wor$ for a client in a $ey management position/
# a. *ighteen months.
#. (wel%e months.
c. (hirty si! months.
d. 1t is not specifiedI rather it is left to the auditor&s discretion.
05.
medium
1n determining independence with respect to any audit engagement, the ultimate decision as to
whether or not the auditor is independent must #e made #y the:
a a. auditor.
#. client.
c. audit committee.
d. pu#lic.
08. A C+A firm should decline an offer to perform management ad%isory ser%ices engagement if:
medium a. the proposed engagement is not accounting-related.
c #. recommendations made #y the C+A firm are to #e su#"ect to re%iew #y the client.
c. acceptance would reuire the C+A firm to ma$e management decisions for an audit
client.
d. any of the a#o%e is true.
27.
medium
1n which of the following circumstances would a C+A #e #ound #y ethics to refrain from
disclosing any confidential information a#out a client/
# a. (he C+A is issued a summons enforcea#le #y a court order which orders the C+A to
present confidential information.
#. A ma"or stoc$holder of a client company see$s accounting information from the C+A
after management declined to disclose the reuested information.
c. Confidential client information is made a%aila#le as part of a uality re%iew of the C+A&s
practice #y a peer re%iew team authori:ed #y the A1C+A.
d. An inuiry #y a disciplinary #ody of a state C+A society reuests confidential client
information.
21.
challenging
#
Companies are reuired to disclose in their pro!y statement or annual filings with the S*C the
total amount of audit and non-audit fees paid to the audit firm for the two most recent years.
3hich of the following is not one of the categories of fees that must #e disclosed/
a. (a! fees
#. Consulting fees
c. Audit-related fees
d. All other fees
2'.
challenging
a
.our of the si! *thical +rinciples in the A1C+A&s Code of Professional Conduct are eually
applica#le to all mem#ers of the A1C+A. 3hich of the following principles applies only to
mem#ers in pu#lic practice/
a. Scope and ;ature of Ser%ices.
#. 1ntegrity.
c. 9ue Care.
d. (he +u#lic 1nterest.
2). 1nterpretations of the AICPA Code of Professional Conduct are dominated #y the concept of:
challenging a. independence.
a #. compliance with standards.
c. accounting.
d. acts discredita#le to the profession.
--8
2-.
challenging
An audit committee, consisting of mem#ers of the client&s #oard of directors who are not a part
of company management, is reuired for all companies:
c a. that ha%e audits performed #y A1C+A mem#er firms.
#. that must file 17-J reports with the S*C.
c. listed on the ;ew Hor$ Stoc$ *!change.
d. in all circumstances.
20.
challenging
(he Code of Professional Conduct is esta#lished #y the mem#ership of the A1C+A, and the
1nterpretations of the 6ules of Conduct are prepared #y the:
d a. .inancial Accounting Standards Aoard.
#. Securities and *!change Commission.
c. C+A licensing agencies within each state.
d. 9i%ision of +rofessional *thics of the A1C+A.
22.
challenging
Cenerally, loans #etween a C+A firm or its mem#ers and an audit client are prohi#ited #ecause
they create a financial relationship. 3hich of the following is not an e!ception to this rule/
d a. Automo#ile loans.
#. @oans fully collaterali:ed #y cash deposits at the same financial institution.
c. Kome mortgages.
d. Bnpaid credit card #alances not e!ceeding L10,777.
24.
challenging
c
Cenerally, loans #etween a C+A firm or its mem#ers and an audit client are prohi#ited #ecause
it is a financial relationship. 3hich of the following, made under normal lending procedures,
is not an e!ception to this rule/
a. 1mmaterial loans.
#. Kome mortgages.
c. Material loans.
d. Secured loans.
25. 6ule 171 indicates that materiality is a consideration for:
challenging a. e%aluating direct in%estments made #y the C+A.
# #. e%aluating indirect ownership in%estments.
c. either a or #.
d. neither a nor #.
28. =S<>?
challenging
#
1n the first year of S<> implementation, many auditors did not ad%ise their clients regarding
accounting or internal control related matters. 3hich of the following statements #est
descri#es why this occurred/
a. (he auditors were prohi#ited from pro%iding such guidance to their clients #y S*C
regulations.
#. Corporate e!ecuti%es were concerned that if auditors pro%ided ad%ice the auditors would
lose their independence.
c. Aoth a and # are correct answers.
d. ;either a nor # is correct.
47. 1t is not a %iolation of the A1C+A&s Code of Professional Conduct for a C+A to:
challenging
a
a. charge fees as an e!pert witness determined #y the amount awarded to the plaintiff, e%en
though the C+A also performs a compilation for client use .
#. #ase consulting fees on a percentage of a #ond issue, e%en though the C+A performs a
re%iew of the client&s financial statements.
c. #ase fees for a ta! ser%ice on the amount of the refund that the client will recei%e.
d. #ase consulting fees on a percentage of a #ond issue, e%en though C+A performs an audit
of the client&s financial statements.
--17
41.
challenging
3hich of the following is not defined as an act discredita#le in either the 6ules or the
1nterpretations of the A1C+A&s Code of Professional Conduct/
d a. (he C+A firm has issued the standard unualified audit report after auditing a
go%ernmental agency, although CAAS was not followed #ecause the go%ernment reuired
procedures different from CAAS.
#. (he C+A firm discriminates in its hiring practices #ased on the age of the applicant.
c. (he C+A retains the client&s #oo$s and records to enforce past-due payment of the C+A&s
#ill, e%en after the client has demanded they #e returned.
d. (he C+A firm&s partner-in-charge was arrested recently on his way home from the firm&s
holiday party. Ke was a passenger in a car dri%en #y his wife and she was charged with
dri%ing while into!icated.
4'.
challenging
(here are a num#er of offenses for which a C+A may #e e!pelled from mem#ership in the
A1C+A. 3hich of the following is not one of these offenses/
c a. (he willful failure to file any income ta! return that the C+A, as an indi%idual ta!payer,
is reuired #y law to file.
#. (he willful filing of a fraudulent income ta! return on a client&s #ehalf.
c. Con%iction of a crime punisha#le #y imprisonment of 2 months.
d. Con%iction of a crime punisha#le #y imprisonment for more than 1' months.
4). 3hich of the following statements regarding professional and regular corporations is not true/
challenging
a
a. Shareholders in #oth professional corporations and regular corporations are indi%idually
lia#le in litigation against the C+A firm.
#. (he shareholders, officers, and employees must comply with all Code of Professional
Conduct reuirements.
c. Stoc$ in a pu#lic accounting corporation must #e held #y only those C+As who are
ualified to practice.
d. (he firm name must meet the same reuirements as those for a single proprietorship and
partnership.
4-.
challenging
1n which of the following instances would the independence of the C+A not #e considered to #e
impaired/ (he C+A has #een retained as the auditor of a:
c a. charita#le organi:ation in which an employee of the C+A ser%es as treasurer.
#. municipality in which the C+A owns L'07,777 of the L',077,777 inde#tedness of the
municipality.
c. cooperati%e apartment house in which the C+A owns an apartment and is not part of the
management.
d. company in which the C+A&s in%estment clu# owns a one-tenth interest.
40.
challenging
6ule '71 - Ceneral Standards reuires mem#ers to comply with certain standards and
interpretations. 3hich of the following is not a standard specifically addressed in 6ule '71/
a a. +rofessional integrity.
#. 9ue professional care.
c. +lanning and super%ision.
d. Sufficient rele%ant data.
42. =S<>?
challenging
d
3hich of the following statements is correct/
a. ;on-audit ser%ices that are not prohi#ited #y Sar#anes-<!ley or the S*C rules must #e
appro%ed #y management of the client.
#. ;on-audit ser%ices that are not prohi#ited #y Sar#anes-<!ley or the S*C rules must #e
appro%ed #y staff of the +CA<A.
c. ;on-audit ser%ices that are not prohi#ited #y Sar#anes-<!ley or the S*C rules must #e
appro%ed #y staff of the +CA<A and the S*C.
d. ;on-audit ser%ices that are not prohi#ited #y Sar#anes-<!ley or the S*C rules must #e
appro%ed #y the company&s audit committee.
*ssay Questions
--11
44.
easy
*!plain why there is a special need for ethical conduct in the auditing profession.
Answer:
Since users =e.g., the general pu#lic? of ser%ices pro%ided #y an auditor generally cannot
e%aluate the uality of the auditor&s performance, it is critical to the auditing profession
that the pu#lic ha%e a high degree of confidence in the uality of the ser%ices pro%ided #y
the auditor. +u#lic confidence in the uality of professional ser%ices is enhanced when the
profession encourages high standards of performance and ethical conduct #y all its
mem#ers. 1f users of auditing ser%ices were to lac$ confidence in the uality of those
ser%ices, then the %alue of C+A firms& audits would #e diminished, as would the demand
for audits.
45.
medium
9iscuss the ways the accounting profession and society encourage C+As to conduct themsel%es
in a professional mannerI i.e., the factors that influence the ethical conduct of audit
practitioners.
Answer:
(here are many factors that encourage C+As to conduct themsel%es at a high le%el,
including:
CAAS and interpretations.
Code of Professional Conduct.
@egal lia#ility.
Quality control.
+eer re%iew.
Continuing professional education reuirements.
C+A e!amination.
S*C.
9i%ision of C+A firms.
+u#lic Company Accounting <%ersight Aoard.
48.
medium
1dentify and descri#e each of the four parts to the A1C+A&s Code of Professional Conduct. Also
discuss which parts are officially enforcea#le and which are not.
Answer:
(he four parts to the Code are:
Principles. (hese esta#lish ideal standards of ethical conduct stated in philosophical
terms. (hey are not officially enforcea#le.
Rules of conduct. (hese are the minimum standards of ethical conduct stated as
specific rules. (hey are officially enforcea#le.
Interpretations. 1nterpretations of rules are intended to clarify the rules of conduct.
(hey are not officially enforcea#le, #ut a practitioner must "ustify any departure.
Ethical rulings. (hese are answers to specific uestions su#mitted to the A1C+A #y
practitioners. (hey are not enforcea#le, #ut a practitioner must "ustify any departure.
--1'
57.
medium
Ariefly descri#e the ad%antages and disad%antages of stating a code of conduct using general
statements of ideal conduct as opposed to specific rules that define unaccepta#le #eha%ior.
Answer:
Ad%antages 9isad%antages
Ceneral statements *mphasis on positi%e 9ifficult to enforce.
acti%ities encouraging
a high le%el of
performance.
Specific rules *nforcea#ility of (endency for rules
minimum #eha%ior to #e regarded as
and performance ma!imum rather
standards. than minimum
standards.
51.
medium
3hat are the si! *thical +rinciples stated in the Code of Professional Conduct/ Ariefly discuss
each principle. Are these principles enforcea#le/
Answer:
(he si! *thical +rinciples of the Code of Professional Conduct are:
1. Responsibilities. Mem#ers should e!ercise sensiti%e professional and moral
"udgments.
'. The Public Interest. Mem#ers should demonstrate commitment to professionalism #y
ser%ing the pu#lic interest and honoring the pu#lic trust.
). Integrity. Mem#ers should maintain the highest sense of integrity.
-. Objectivity and Independence. Mem#ers should remain free of conflicts of interest
and when pro%iding attestation ser%ices #e independent in fact and in appearance.
0. ue Care. Mem#ers should o#ser%e standards and continually stri%e to impro%e
uality of ser%ices and discharge of responsi#ilities.
2. !cope and "ature of !ervices. Mem#ers should o#ser%e the +rinciples of the Code of
Professional Conduct in determining the scope and nature of ser%ices to #e pro%ided.
(he *thical +rinciples are not enforcea#le.
5'.
medium
*ach of the following situations in%ol%es a possi#le %iolation of the rule on independence. .or
each situation, =1? decide whether the Code of Professional Conduct has #een %iolated, and ='?
#riefly e!plain how the situation %iolates =or does not %iolate? the Code of Professional Conduct.
a. Karry Arown is a partner in the (ope$a office of Kedley F Co., C+As. Karry&s #rother is
employed in an audit-sensiti%e position #y Eensen Appliances, a pu#licly held company in
Jansas. Eensen Appliances is one of Kedley F Co.&s audit clients. ;either Karry nor
personnel from the (ope$a office is in%ol%ed in the audit of Eensen .
Miolation/ Hes ;o
*!planation:
Answer:
;o %iolation. Although partners in a C+A firm are not allowed to ha%e close relati%es
employed in a position of significant influence #y a client, it is accepta#le to ha%e a close
relati%e employed in an audit-sensiti%e position =with no significant influence?, as long as
the partner does not participate in the engagement.
--1)
#. Eohn 3oods is an audit manager with Calden F Co., C+As, a one-office C+A firm. Eohn
owns 177 shares of common stoc$ in one of the firm&s audit clients, #ut he does not pro%ide
any audit or non-audit ser%ices to the company.
Miolation/ Hes ;o
*!planation:
Answer:
;o %iolation. Eohn is not a co%ered mem#er with respect to the audit client as he has no
responsi#ility for the engagement and is not in a position to influence the engagement.
c. (he accounting firm of .ine F Kerman, C+As, pro%ides #oo$$eeping and ta! ser%ices for
Kenderson Corporation, a pri%ately held company. .ine F Kerman also performs the annual
audit of Kenderson Corporation.
Miolation/ Hes ;o
*!planation:
Answer:
;o %iolation. (he A1C+A does not prohi#it C+A firms from pro%iding #oo$$eeping, ta!,
and audit ser%ices to the same non-pu#lic client.
d. Ao# Shelton C+A, is the auditor of Cafe *c$o. A couple of wee$s ago, Cafe *c$o&s
management e!pressed an intention to commence litigation against Ao#, alleging he was
negligent in last year&s audit. Ao# #elie%es there is a strong possi#ility that management
will proceed with the litigation. Kowe%er, Cafe *c$o has not fired Ao# as its auditor, and he
is now wor$ing on the current year&s audit.
Miolation/ Hes ;o
*!planation:
Answer:
Miolation. 3hen there is a lawsuit or intent to start a lawsuit #etween a C+A and an audit
client&s management related to audit ser%ices, independence is impaired.
e. Kamilton Appliance has not paid Jaren @inwood, C+A, her audit fee for the past two years.
Jaren is starting wor$ on the current year&s audit of Kamilton.
Miolation/ Hes ;o
*!planation:
Answer:
Miolation. 1ndependence is impaired if fees remain unpaid for ser%ices pro%ided more
than one year prior to the date of the report.
5).
medium
(he following situations in%ol%e a possi#le %iolation of the A1C+A&s Code of Professional
Conduct. .or each situation, =1? determine the applica#le rule num#er or name from the Code,
='? decide whether or not the Code has #een %iolated, and =)? #riefly e!plain how the situation
%iolates =or does not %iolate? the Code.
--1-
a. 1n '77-, .reeman and Eohnson, #oth C+As, decided to form a C+A practice. 1n '774,
.reeman and Eohnson approached Aill 9elaney, a physician and medical e!pert, and as$ed
him to assist them with their growing medical consulting practice. 9elaney agreed, #ut only
after he was gi%en an ownership interest in the firm. 9elaney does not intend to uit his
pri%ate medical practice.
6ule: NNNNNNNNNN Miolation/ Hes ;o
*!planation:
Answer:
Miolation of 6ule O070-.orm of <rgani:ation and ;ame. ;on-C+A ownership of firms is
allowa#le, howe%er, a non-C+A owner must acti%ely pro%ide ser%ices to the firm&s clients
as their principal occupation.
#. Arian 9e+alie has a successful dentistry practice in Charleston. Arian has recommended
one of his patients to Jatie 3alton, C+A. (o show gratitude for the referral, Jatie has
agreed to pay Arian a to$en gift of L07. Jatie discloses the payment arrangement to her
new clients.
6ule: NNNNNNNNNN Miolation/ Hes ;o
*!planation:
Answer:
;o %iolation of 6ule O07)-Commissions and 6eferral .ees. A C+A may pay a referral fee
to a non-C+A as long as the payment is disclosed to the client.
c. (he accounting firm of Aayer F +eng, C+As, is negotiating a fee with a new audit client.
(hey agree the client will pay L07,777 if Aayer F +eng issues a clean, unualified opinion,
L-7,777 if a ualified opinion is issued, and only L'7,777 if an ad%erse opinion is issued.
6ule: NNNNNNNNNN Miolation/ Hes ;o
*!planation:
Answer:
Miolation of 6ule O)7'-Contingent .ees. (his is a contingent fee agreement and is
prohi#ited #y 6ule )7'.
d. 9on Smith, C+A, is a mem#er of the engagement team that performs the audit of Shaw
Corporation. 9on&s fi%e-year-old daughter, +recious, recei%ed ten shares of Shaw
Corporation&s common stoc$ for her fifth #irthday. (he stoc$ was a gift from +recious&s
grandmother.
6ule: NNNNNNNNNN Miolation/ Hes ;o
*!planation:
Answer:
Miolation of 6ule O171-1ndependence. 9on is a co%ered mem#er for purposes of 6ule 171.
Aecause his daughter is a dependent, her ownership interest in Shaw is treated as a direct
financial interest of her father.
e. Eennifer Karris, C+A, is a partner in the C+A firm that audits Alltech, 1nc., a closely held
corporation. Eennifer&s sister-in-law is the chief financial officer at Alltech, 1nc.
6ule O NNNNNNNNNN Miolation/ Hes ;o
*!planation:
Answer:
;o %iolation of 6ule O171. According to the Code a close relati%e is defined as a parent,
--10
si#ling, or nondependent child. (hus, a sister-in-law is not considered to #e a close
relati%e.
5-.
medium
(he following situations in%ol%e a possi#le %iolation of the A1C+A&s Code of Professional
Conduct. .or each situation, =1? determine the applica#le rule from the Code, ='? decide whether
or not the Code has #een %iolated, and =)? #riefly e!plain how the situation %iolates =or does not
%iolate? the Code.
a. Koward Cunningham F Co., C+As, designates its firm as Mem#ers of the American
1nstitute of Certified +u#lic Accountants. All of the partners of the firm are C+As.
Kowe%er, one of the partners has recently chosen to allow her mem#ership to lapse #ecause
of personal reasons.
6ule: NNNNNNNNNN Miolation/ Hes ;o
*!planation:
Answer:
Miolation of 6ule O070-.orm of <rgani:ation and ;ame. A firm may not designate itself
as Mem#ers of the American 1nstitute of Certified +u#lic Accountants unless all of its
owners are mem#ers of the 1nstitute.
#. Arad @ong, C+A, was tra%eling from <rlando to Miami, .lorida when he was pulled o%er
#y a police officer on suspicion of dri%ing under the influence. Ke was con%icted in court of
dri%ing while under the influence of alcohol. Aecause of past con%ictions, Arad was
sentenced to 0 years in prison.
6ule: NNNNNNNNNN Miolation/ Hes ;o
*!planation:
Answer:
Miolation of 6ule O071-Acts 9iscredita#le. .elonies are considered acts discredita#le.
c. Jelley Arent, C+A, is a partner in a one-office C+A firm that audits 9ane, 1nc., a closely
held corporation. Jelley&s sister was recently appointed as the chief financial officer for
9ane, 1nc.
6ule: NNNNNNNNNN Miolation/ Hes ;o
*!planation:
Answer:
Miolation of 6ule O171-1ndependence. According to the Code, Jelly&s sister is a close
relati%e and she occupies a $ey position at an audit client. Aecause Jelly is a partner in
the office that pro%ides the audit ser%ices to 9ane, the firm is not independent.
d. Sarah Matrin, C+A, is a senior auditor in the San .rancisco office of Cooper F Kowell,
C+As. Sarah&s father is employed as the controller of @ine *lectronics, a pu#lic company in
9etroit, Michigan. @ine *lectronics is one of the firm&s audit clients. ;either Sarah nor the
San .rancisco office is in%ol%ed in the audit of @ine *lectronics.
6ule: NNNNNNNNNN Miolation/ Hes ;o
*!planation:
--12
Answer:
;o %iolation of 6ule O171-1ndependence. 3hile Sarah&s father occupies a $ey position
with an audit client of the firm, there is no independence %iolation as long as Sarah is not
a mem#er of the engagement team. (he firm may pro%ide the audit ser%ices.
--14
e. <n August '7, '772, Kan$ Anderson, C+A and partner, was offered and accepted the
engagement to audit the annual financial statements of Eernigan Corporation for the year
ended 9ecem#er )1, '772. +reliminary wor$ #egan on the audit on Septem#er 10, '772
and the engagement ended on March 4, '774. Eernigan is regulated #y the S*C. Kan$
ser%ed as controller of Eernigan Corporation from 9ecem#er 1, '77', until April 17, '772,
at which time he terminated his employment with Eernigan.
6ule: NNNNNNNNNN Miolation/ Hes ;o
*!planation:
Answer:
Miolation of 6ule O171-1ndependence. Since Kan$ had an employment relationship with
the client during part of the period co%ered #y the financial statements, his independence
is impaired.
50.
medium
9iscuss the A1C+A&s Code of Professional Conduct rule on ad%ertising and solicitation. Ci%e
two e!amples of permitted ad%ertising or solicitation, and two e!amples of prohi#ited
ad%ertising or solicitation.
Answer:
(he rule on ad%ertising and solicitation prohi#its mem#ers in pu#lic practice from
ad%ertising in a manner that is false, misleading, or decepti%e. 1t also prohi#its
solicitation #y the use of coercion, o%er-reaching, or harassment.
*!amples of permitted ad%ertising include the use of tele%ision, radio, newspapers, and
#ill#oards to communicate truthful information a#out the C+A. *!amples of prohi#ited
ad%ertising identified #y 1nterpretation 07'-' of the A1C+A&s Code of Professional
Conduct include any ad%ertisement that creates a false or un"ustified e!pectation of
fa%ora#le results, and any ad%ertisement that contains statements that would #e li$ely to
cause a reasona#le person to #e decei%ed.
52.
medium
9escri#e the methods used #y the A1C+A and State Aoards of Accountancy to enforce the rules
of conduct.
Answer:
(he A1C+A uses two le%els of disciplinary action. .or less serious %iolations of 6ules of
Conduct, remedial or correcti%e action may #e reuired of the %iolator. .or more serious
%iolations, the %iolator may #e suspended or e!pelled from mem#ership in the A1C+A.
Miolation of a State Aoards& rules of conduct is punisha#le #y loss of the %iolator&s C+A
certificate and license to practice.
54.
challenging
(he '77-le%el rules of the Code of Professional Conduct =6ules '71, '7', and '7)? are $nown
as the technical standards. Summari:e each of these three technical standards.
Answer:
6ule '71PCeneral Standards reuires the C+A to comply with four standards of conduct:
a. underta$e only those ser%ices for which the C+A has the necessary professional
competence.
#. e!ercise due professional care in the performance of professional ser%ices.
c. adeuately plan and super%ise the ser%ices.
d. o#tain sufficient rele%ant data to support conclusions.
6ule '7'PCompliance with Standards reuires C+As to perform professional ser%ices in
compliance with standards promulgated #y #odies designated #y the A1C+A.
--15
6ule '7)PAccounting +rinciples reuires that if a C+A e!presses an opinion that
financial statements are presented in conformity with generally accepted accounting
principles, those statements must not contain any departure from an accounting principle
promulgated #y #odies designated #y the A1C+A to esta#lish such principles.
55.
challenging
9escri#e an ethical dilemma that an auditor or an accountant might face in his or her #usiness
career, then illustrate how the auditor or accountant might use the si!-step approach presented
in the te!t to resol%e that dilemma. Ae specific.
Answer:
Although students& answers will %ary depending on the dilemma, their answer should list
the following si! steps, along with a discussion of how each step relates to their particular
dilemma:
1. Obtain the relevant facts. Students should list the $ey facts from their dilemma.
'. Identify the ethical issues fro# the facts. Students should identify the $ey ethical
issue=s? in their dilemma.
). eter#ine $ho is affected by the outco#e of the dile##a and ho$ each person or
group is affected. Students should identify who is in%ol%ed and how each person is
affected #y the dilemma.
-. Identify the alternatives available to the person $ho #ust resolve the dile##a.
Students should list the alternati%es a%aila#le to the auditor or accountant.
0. Identify the li%ely conse&uence of each alternative. Students should identify #oth the
short- and long-term effects of each alternati%e.
2. ecide the appropriate action.
58.
challenging
9iscuss 6ule )71PConfidential Client 1nformation, including the four e!ceptions to the rule.
Answer:
6ule )71 prohi#its a mem#er from disclosing any confidential client information without
permission from the client. Kowe%er, there are four conditions when client permission is
not reuired:
<#ligations related to technical standardsI i.e., when 6ule '7' or 6ule '7) reuires
the disclosure.
1n response to a %alid su#poena or summons.
A peer re%iew is #eing conducted under A1C+A, state C+A Society, or State Aoard of
Accountancy authori:ation.
(he C+A is initiating or responding to an inuiry from a recogni:ed in%estigati%e
#ody or the professional ethics di%ision.
<ther <#"ecti%e Answer .ormat Questions
87.
easy
a
An ad%antage of specific rules in the Code of Professional Conduct is the enforcea#ility of
minimum #eha%ior and performance standards.
a. (rue
#. .alse
--18
81. =S<>?
easy
#
(he Sar#anes-<!ley Act permits the auditor to perform a wide %ariety of non-audit ser%ices for
audit clients.
a. (rue
#. .alse
8'. =S<>?
easy
#
A company may purchase internal audit ser%ices from their financial statement auditor if they
are appro%ed #y the company&s audit committee.
a. (rue
#. .alse
8).
easy
a
(he audit committee of a pri%ate committee need not appro%e all non-audit ser%ices pro%ided
#y the company&s financial statement auditor.
a. (rue
#. .alse
8-.
easy
#
An ad%antage of the principles of professional conduct in the Code of Professional Conduct is
that they are more easily enforced than are the specific rules of conduct.
a. (rue
#. .alse
80.
easy
a
6ule 171, 1ndependence, prohi#its a C+A from performing #oth audit ser%ices and
#oo$$eeping ser%ices for the same pu#lic company in the same year.
a. (rue
#. .alse
82.
easy
#
Bnder 6ule 171, 1ndependence, independence is considered to #e impaired if fees remain
unpaid for professional ser%ices pro%ided more than si! months #efore the date of the current
year&s report.
a. (rue
#. .alse
84.
easy
#
1mprisonment for a period of si! months or longer will result in automatic e!pulsion from the
A1C+A.
a. (rue
#. .alse
85.
easy
#
6ule 070, .orm of <rgani:ation and ;ame, prohi#its C+A firms from practicing as limited
lia#ility partnerships.
a. (rue
#. .alse
88.
easy
a
Bnder 6ule 070, .orm of <rgani:ation and ;ame, a C+A firm may use any name as long as it
is not misleading.
a. (rue
#. .alse
177.
medium
#
A C+A firm may practice pu#lic accounting only in a form of organi:ation permitted #y federal
law or regulation whose characteristics conform to resolutions of Council.
a. (rue
#. .alse
171.
medium
#
1n the AICPA Code of Professional Conduct, ethical rulings are less specific than rules of
conduct.
a. (rue
#. .alse
17'.
medium
#
1nterpretations of rules of conduct in the Code of Professional Conduct are not officially
enforcea#le and practitioners need not "ustify departure from them.
a. (rue
#. .alse
--'7
17). =S<>?
medium
#
(he Sar#anes-<!ley Act does not reuire audit committee appro%al of all non-audit ser%ices
prior to their performance #y the company&s e!ternal auditor.
a. (rue
#. .alse
17-.
medium
#
1n the AICPA Code of Professional Conduct, interpretations of rules are more specific than
ethical rulings.
a. (rue
#. .alse
170.
medium
#
1n the AICPA Code of Professional Conduct, the second principle of professional conduct,
entitled (he +u#lic 1nterest, applies only to mem#ers of the A1C+A in pu#lic practice and not
to mem#ers who wor$ as accountants in #usiness, go%ernment, or education.
a. (rue
#. .alse
172.
medium
#
1n the AICPA Code of Professional Conduct, the si!th principle of professional conduct,
entitled Scope and ;ature of Ser%ices, applies to mem#ers of the A1C+A who wor$ in pu#lic
practice, #usiness, go%ernment, or education.
a. (rue
#. .alse
174.
medium
a
Auditors are allowed to ha%e an indirect financial interest in an audit client, such as ownership
of stoc$ in a client&s company #y the auditor&s #rother, as long as the amount of the financial
interest is immaterial to the #rother.
a. (rue
#. .alse
175.
medium
#
6ule 171, 1ndependence, applies to mem#ers of the A1C+A when performing any professional
ser%ice.
a. (rue
#. .alse
178.
medium
a
6ule 171, 1ndependence, applies to co%ered mem#ers in a position to influence an attest
engagement.
a. (rue
#. .alse
117.
medium
a
Bnder 6ule )71, Confidential Client 1nformation, permission is not reuired from the client to
use the audit documentation relating to that client during an A1C+A-authori:ed peer re%iew
program with another C+A firm.
a. (rue
#. .alse
111.
medium
#
1nformation o#tained #y a C+A from a client is legally pri%ileged in federal court.
a. (rue
#. .alse
--'1
11'.
medium
#
6ule 07', Ad%ertising and <ther .orms of Solicitation, prohi#its mem#ers of the A1C+A in
pu#lic practice from performing comparati%e ad%ertising.
a. (rue
#. .alse
11).
medium
#
Bnder 6ule 070, .orm of <rgani:ation and ;ame, a C+A firm may not designate itself as
Mem#ers of the American 1nstitute of Certified +u#lic Accountants unless a ma"ority of its
owners are mem#ers of the 1nstitute.
a. (rue
#. .alse
11-.
medium
#
*!pulsion from the A1C+A for failing to follow the rules of conduct is, #y itself, sufficient to
pre%ent a C+A from practicing pu#lic accounting.
a. (rue
#. .alse
110.
medium
#
Bnder the AICPA's Code of Professional Conduct, C+As are prohi#ited from offering audit
clients a discount for referring a prospecti%e client e%en if they are disclosed.
a. (rue
#. .alse
112.
medium
#
All owners of a C+A firm must #e C+As who are ualified to practice.
a. (rue
#. .alse
114.
medium
a
(he 1ndependence Standards Aoard was formed to pro%ide a conceptual framewor$ for
independence issues related to audits of pu#lic companies.
a. (rue
#. .alse
--''