1. According to the Principles section of the Code ofProfessional Conduct, all members:: in public practiceshould be independent in fact and in appearance when providingauditing and other attestations services.2. According to the profession's ethical standards, anauditor would be considered independent in which ofthe following instances?: The auditor's checking account,which is fully insured by a federal agency, is held at a clientfinancial institution.3. The accounting firm of Fine & Herman, CPAs, providesbookkeeping and tax services for HendersonCorporation, a privately held company. Mr. Hermanalso performs the annual audit of HendersonCorporation.: IS NOT a violation- 101 Independence4. An advantage of specific rules in the Code of ProfessionalConduct is the enforceability of minimum behavior andperformance standards.: True5. An advantage of the principles of professional conduct inthe Code of Professional Conduct is that they are moreeasily enforced than are the specific rules of conduct.:False6. The AICPA's Code of Professional Conduct ________ aCPA firm from doing both bookkeeping and auditingservices for the same public company client?: prohibits7. The AICPA's Code of Professional Conduct requiresindependence for all:: attestation engagements.8. The AICPA's Code of Professional Conduct states that aCPA should maintain integrity and objectivity. The term"objectivity" in the Code refers to a CPA's ability to::maintain an impartial attitude on matters that come under theCPA's review.9. The audit committee of a private company need notapprove all non-audit services provided by thecompany's financial statement auditor.: True10. An auditor's independence is considered impaired ifthe auditor has:: a joint, closely held business investmentwith the client that is material to the auditor's net worth.11. Charley Ray, CPA, is a member of the engagement teamthat performs the audit of Desiree Corporation.Charley's five-year-old daughter, Becky, received tenshares of Desiree common stock for her fifth birthdayin a trust fund established by Becky's grandmother.: IS aviolation; 101 Independence12. The Code of Conduct rule on independence indicatesthat materiality must be considered when:: Evaluatingindirect ownership; NOT evaluating direct investments made bythe CPA13. The Code of Professional Conduct is established by themembership of the AICPA, and the Interpretations ofthe Rules of Conduct are prepared by the:: ProfessionalEthics Executive Committee of the AICPA.14. Companies are required to disclose in their proxystatement or annual filings with the SEC the totalamount of audit and non-audit fees paid to the auditfirm for the two most recent years. Which of thefollowing is not one of the categories of fees that must bedisclosed?: consulting fees15. A CPA firm should decline an offer to performconsulting services engagement if:: acceptance wouldrequire the CPA firm to make management decisions for an auditclient.16. CPAs are prohibited from which of the following formsof advertising?: Use of phrases, such as "Guaranteed largesttax refunds in town!"17. CPAs may provide bookkeeping services to their non-public audit clients, but there are a number ofconditions that must be met if the auditor is to maintainindependence. Which of the following conditions is notnecessary?: The client must hire an external CPA to approve allof the journal entries prepared by the auditor.18. Elaine Cooper CPA, is the auditor of Paula's Pizza.Towards the end of the audit, Paula gave Elaine herestimate of receivable collectability and Elaine acceptedit without further cooperation.: IS a violation; 102-Integrity and Objectivity19. Ethical rulings: These are explanations by the executivecommittee of the professional ethics division of specific factualcircumstances; are not enforceable, but a practitioner must justifyany departure.20. Ethical Rulings are:I. Explanations relating to broad hypotheticalcircumstances.II. Not enforceable, but one must justify departure.III. Explanations relating to specific factualcircumstances.: II and III21. Financial interests family members of a CPA can affectthe CPA's independence. Which of the following partieswould not be included as a "direct financial interest" ofthe CPA?: Sibling living in the same city as the CPA22. For which of the following professional services mustCPAs be independent?: Audits of financial statements.23. Four of the six Ethical Principles in the AICPA's Code ofProfessional Conduct are equally applicable to allmembers of the AICPA. Which of the followingprinciples applies only to members in public practice?:Scope and Nature of Services24. Freeman and Johnson formed a successful CPA practiceten years ago. In 20x4, they approached AdamSawtooth, a surgeon and medical expert, and asked himto assist them with their growing medical consultingpractice. Sawtooth agreed, but only after he was givenan ownership interest in the firm. Sawtooth does intendto reduce his private practice hours and spend 40% ofhis working hours devoted to the Freeman & Johnsonpractice.: IS a violation; 505- Form of Organization & NameAudit Ch 4Study online at quizlet.com/_tvcqe25. Identify the four parts to the AICPA's Code ofProfessional Conduct: Principles, rules of conduct,interpretations, and ethical rulings26. "Independence" in auditing means:: taking an unbiasedand objective viewpoint27. Independence is required of a CPA when performing::all attestation services28. The Independence Standards Board was formed toprovide a conceptual framework for independenceissues related to audits of public companies.: True29. In determining independence with respect to any auditengagement, the ultimate decision as to whether or notthe auditor is independent must be made by the:: auditor30. In some situations, the interpretations of the Rules ofConduct permit former partners to have relationshipswith a client of the firm without affecting the firm'sindependence. Which of the following situations wouldcause a loss of independence?I. The former partner uses the CPA firm's office spaceand has significant influence over a client.II. The former partner severs relations with the firmand accepts employment with the firm's client afterhaving been retired for 18 months.III. The former partner is held out as an associate of thefirm and takes part in the firm's business activities.: IIand III31. Interpretations: Interpretations of rules are intended to clarifythe rules of conduct when there are questions from practitionersabout a specific rule; are not officially enforceable, but apractitioner must justify any departure.32. Interpretations of Independence Rule 101 prohibitcovered members from owning any stock or other directinvestment in audit clients. Covered members wouldinclude which of the following?: All partners in theengagement office even if they have no engagementresponsibility; Individuals on the attest engagement; The firmand its employee benefit plans33. Interpretations of rules of conduct in the Code ofProfessional Conduct are not officially enforceable andpractitioners need not justify departure from them.:False34. Interpretations of the AICPA Code of ProfessionalConduct are dominated by the concept of:: independence35. Interpretations of the rules regarding independenceallow an auditor to serve as:: an honorary director for a not-for-profit charitable or religious organization36. Interpretations to the Rules of Conduct permit a CPAfirm to do both bookkeeping and auditing for the sameclient if three criteria are met. Which of the following isnot one of those criteria?: The client is required to file anannual report, including audited financial statements, with theSecurities and Exchange Commission.37. In the AICPA Code of Professional Conduct, ethicalrulings are less specific than rules of conduct.: False38. In the AICPA Code of Professional Conduct,interpretations of rules are more specific than ethicalrulings.: False39. In the AICPA Code of Professional Conduct, the secondprinciple of professional conduct, entitled "The PublicInterest," applies only to members of the AICPA inpublic practice and not to members who work asaccountants in business, government, or education.:False40. In the AICPA Code of Professional Conduct, the sixthprinciple of professional conduct, entitled "Scope andNature of Services," applies to members of the AICPAwho work in public practice, business, government, oreducation.: False41. Jason Alexander is an audit manager with Reese & Co.,CPAs. Jason owns 100 shares of common stock in one ofthe firm's audit clients, but he does not provide anyaudit or non-audit services to the company.: IS NOT aviolation, rule 101- Independence42. Julie and Lisa are sisters. Julie is a CPA auditing thecompany where Lisa works. Julie's independence isimpaired if:: Lisa is the controller43. Margaret Henry is a partner in the Tupelo office ofJenkins & Thorn, CPAs. Margaret's father is thecontroller at Markrich Sporting Supplies, Inc., apublicly held company in Tupelo. Markrich is one ofJenkins & Thorn's audit clients. Margaret is notinvolved in the audit of Markrich.: IS a violation; 101Independence44. A member firm of the AICPA is not only responsible forits compliance with the Rules of Conduct, but it is alsoresponsible for compliance by its:: employees andshareholders45. The members of a client's "audit committee" should be::directors who are not a part of company management.46. Non-CPA members of a firm with AICPA membershipare not eligible for membership within the AICPA andtherefore do not have to follow the AIPCA Code ofProfessional Conduct.: False47. Oehlers, CPA, is a staff auditor participating in theengagement of Capital Trust, Inc. Which of the followingcircumstances impairs Oehlers independence?: Oehlerssister is an internal auditor employed part-time by Capital Trust.48. Of the four parts of the AICPA's Code of ProfessionalConduct, which part is enforceable?: Rules of Conduct49. One of the AICPA's Ethical Principles deals with thepublic interest. It states that members should accept theobligation to act in a way that will:: Honor the publicinterest, NOT serve the client's interest50. Principles: These establish ideal standards of ethical conductstated in philosophical terms; not officially enforceable.51. The provisions of the Sarbanes-Oxley Act of 2002 aremost likely to allow which of the following non-auditservices for audit clients?: tax consulting52. A public company may purchase internal audit servicesfrom their financial statement auditor if they areapproved by the company's audit committee.: False53. Rule 101, Independence, prohibits a CPA fromperforming both audit services and bookkeepingservices for the same public company in the same year.:True54. Rule 201 - General Standards requires members tocomply with certain standards and interpretations.Which of the following is not a standard specificallyaddressed in Rule 201?: professional integrity55. Rule 301 of the AICPA's Code of Professional Conductrequires CPAs to maintain the confidentiality of clientinformation. This rule would be violated if a CPAdisclosed information without a client's consent as aresult of a:: request by a client's largest stockholder.56. Rule 502, Advertising and Other Forms of Solicitation,prohibits members of the AICPA in public practice fromperforming comparative advertising.: False57. Rule 505, Form of Organization and Name, prohibitsCPA firms from practicing as limited liabilitypartnerships.: False58. Rule 505 of the AICPA's Code of Professional Conductpermits CPA firms to organize as:: proprietorships, generalpartnerships, general corporations, professional corporations,limited liability companies, and limited liability partnerships ifpermitted by state law59. Rules of conduct: These are the minimum standards of ethicalconduct stated as explicit rules that must be followed by everyCPA in the practice of public accounting; are officiallyenforceable60. Salley Preen has a successful computer networkconsulting business. Sally has recommended one of herclients to Sam Walton, CPA. To show gratitude for thereferral, Sam has agreed to pay Sally a token gift of $50.Sam has not disclosed the payment arrangement to hisnew clients.: IS a violation; 503- Commission and Referal Fees61. The Sarbanes-Oxley Act does not require auditcommittee approval of all non-audit services prior totheir performance by the company's external auditor.:False62. The Sarbanes-Oxley Act permits the auditor to performa wide variety of non-audit services for audit clients.:False63. The Sarbanes-Oxley Act requires a cooling off period of________ before a member of an audit team can workfor a client in a key management position?: eighteenmonths64. The Sarbanes-Oxley Act requires which employees of anaccounting firm to rotate off the engagement every fiveyears?: Partner responsible for concurring viewpoint; NOT in-charge auditor65. Several months after an unqualified audit report wasissued, the auditor discovers the financial statementswere materially misstated. The client's CEO agrees thatthere are misstatements, but refuses to correct them.She claims that "confidentiality" prevents the CPA frominforming anyone.: The CEO is incorrect, and the auditor hasan obligation to issue a revised audit report, even if the CEO willnot correct the financial statements.66. The underlying reason for a code of professionalconduct for any profession is: the need for public confidencein the quality of service of the profession.67. Under Rule 101, Independence, independence isconsidered to be impaired if fees remain unpaid forprofessional services provided more than six monthsbefore the date of the current year's report.: False68. Under Rule 301, Confidential Client Information,permission is not required from the client to use theaudit documentation relating to that client during anAICPA-authorized peer review program with anotherCPA firm.: True69. Under Rule 505, Form of Organization and Name, a CPAfirm may use any name as long as it is not misleading.:True70. When CPAs are able to maintain their actualindependence, it is referred to as independence in:: Fact71. When determining whether independence is impairedbecause of an ownership interest in a client company,materiality will affect ownership:: only for indirectownership72. Which of the following activities is allowed for a CPAfirm's attestation clients?: Contingent fees based on savingsdue to implementation of an information system.73. Which of the following is(are) true concerning theEthical Principles of the Code of Professional Conduct?I. They identify ideal conduct.II. They are general ideals and difficult to enforce.: I andII74. Which of the following is not one of the four parts of theAICPA's Code of Professional Conduct?: Definitions (areparts: Principles, Rules of Conduct, Interpretations)75. Which of the following services are allowed by the SECwhenever a CPA also audits the company?: Servicesrelated to assessing the effectiveness of internal control overfinancial reporting.76. Which of the following services is not prohibited by theSEC whenever a CPA also audits the company?: assistingthe company in preparing certain SEC registration statements(e.g., 10-Q, 10-K)77. Which of the following statements are true with respectto audit committees?I. One member has to be a financial expert.II. Audit committees are required for all companies.III. Outside member of the board of directors shouldcomprise the audit committee.: II and III78. Which of the following statements best describes the enforceability of the Interpretations of the Rules of Conduct?: TheInterpretations are not enforceable, but a practitioner must justify departure from them.79. Which of the following statements is correct regarding non-audit services that are not prohibited by Sarbanes-Oxley orSEC?: They must be approved by the company's audit committee.80. Which of the following statements is true? The CPA firm will lose its independence if:: a staff auditor providing audit servicesto the client acquires stock in that client.81. Which of the following statements is true when the CPA has been engaged to perform an audit of financial statements?: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.