Auditing CPA Exam Code of Professional Conduct

Posted on June 30, 2019 by HopeToRetire

Area I Ethics, Professional Responsibilities and General Principles: AICPA Code of Professional Conduct

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I recently uploaded my second book in a series on budget CPA exam preparation materials. Below is excerpts from the book and the questions. Order on Amazon for the answers and study materials.

Area I includes Nature and Scope of Engagements; Ethics, Independence and Professional Conduct; Terms of Engagement; Engagement Documentation; Communication Requirements; and Quality Control.

15-25% of the AUD section of the CPA exam is covered in Area I.

In this book, you will find and need to understand and apply the following concepts:

  • Understand the principles, rules and interpretations included in the AICPA Code of Professional Conduct.
  • Recognize situations that present threats to compliance with the AICPA Code of
    Professional Conduct, including threats to independence
  • Apply the principles, rules and interpretations included in the AICPA Code of
    Professional Conduct to given situations.
  • Apply the Conceptual Framework for Members in Public Practice included in the AICPA Code of Professional Conduct to situations that could present threats to compliance with the rules included in the Code.
  • Apply the Conceptual Framework for Members in Business included in the AICPA Code of Professional Conduct to situations that could present threats to compliance with the rules included in the Code
  • Apply the Conceptual Framework for Independence included in the AICPA Code
    of Professional Conduct to situations that could present threats to compliance with the rules included in the Code.

This is my second book in the budget CPA Exam Guides. My first book is available at https://www.amazon.com/dp/B07RVDZW6P.

The questions in this book only relate to the AICPA Code of Professional Conduct. CPA exam study materials generally cost $80 and up, so I wanted to create budget materials for you to work on your weak areas or supplement other exam preparation material.

Future study guides will come out for more of Area I and the other Areas of the Audit Exam, along with FAR, REG and BEC.

I have found that the best way to study for the CPA exam is to answer questions.

The answers will have an explanation. The related text is study materials related to the topics in the questions and applicable definitions.

I believe most exam takers can pass the Audit section after devoting 100 hours of study within 6 weeks of the exam. The studying should be productive, meaning concentrate on questions and go into further detail on missed questions and weaknesses.

I make no guarantees you will pass the exam using my materials. These questions are up-to-date as of June 2019, but the exam changes once or twice annually.

I was able to pass AUD using 4 year old used study guides, with a score of 88. Although much changed, underlying principles do not change as frequently.

Please note WordPress changed some of the lettering to numbers.

Questions

 Question 1. Which of the following is not a safeguard implemented by the professional or through regulations and legislature to mitigate the threat of independence?

  1. Continuing professional education requirements
  2. Audit Committee
  3. Peer review of the firm’s system of quality control
  4. Educational and experience requirements

 Question 2. Which of the following is not an undue influence threat?

  1. The firm’s engagement manager left the client as a controller within the last year.
  2. The client has threatened to replace the firm.
  3. The client refuses to award additional engagements to the firm due to disagreements about a tax matter.
  4. A third party affiliated with the client has threatened the firm if certain conclusions are not reached.

Question 3. Which of the following may justify a departure from Generally Accepted Accounting Principles?

  1. Unusual degree of materiality
  2. Industry practices
  3. Comparable financial information is not available
  4. New forms of business transactions

Question 4. What rule is a Member violating if he/she make misleading claims in firm advertisements?

  1. Acts discreditable
  2. Fair advertising
  3. False advertising
  4. Promotional

Question 5. According to the code, which of the following is not included as a broad category of threats?

  1. Self-review
  2. Self-interest
  3. Self-appointed
  4. Undue influence


Question 6. Which of the following is a self-review threat to member independence?

  1. A member of the audit team’s spouse works as a controller at the auditee.
  2. An internal auditor promoted this year from accounts payable department, reviewing prior year invoices.
  3. The audit partner owns 10% of the auditee.
  4. The member is pressured to become associated with misleading information.

Question 7. When can a firm designate itself as “Members of the American Institute of Certified Public Accountants?”

  1. All partners are licensed CPAs
  2. The firm has a firm account with the AICPA
  3. The managing partner is a member of the AICPA
  4. All CPA owners are members of the AICPA

Question 8. According to the code, which of the following activities would most likely not impair a CPA’s independence?

  1. Performing management advisory services for an attest client.
  2. Processing invoices and payments for an attest client.
  3. Vacationing with an attest client that pays for vacation.
  4. Administrative support services for an attest client.

Question 9. Which of the following would not be considered an affiliate of an attest client?

  1. Entity the attest client can control.
  2. Sponsor of a single employer employee benefit plan attest client.
  3. Entity controlled by attest client that has a direct financial interest in the client.
  4. Entity with an immaterial financial interest in the attest client.

Question 10. In what situations can Hansen CPA perform attest services and expert witness services for a client?

  1. Hansen CPA cannot, the advocacy threat is violated.
  2. Hansen CPA can if for a large group of plaintiffs is covered with a few stipulations at the outset of the engagement.
  3. Hansen CPA provides a fact witness testimony.
  1. A only
  2. B only
  3. C only
  4. B and C

Question 11. How are monitoring activities performed?

  1. Ongoing evaluations
  2. Separate evaluations
  1. A
  2. B
  3. A & B
  4. Neither

Question 12. According to the code, which of the following circumstances will prevent a CPA performing audit engagements from being independent?

  1. Employment of the partner’s spouse as a client’s controller.
  2. Litigation with a client relating to billing for services in which the
    amount is immaterial.
  3. Obtaining a collateralized loan from a bank client.
  4. Acting as an honorary board member for a nonprofit client.

 Question 13. Which of the following is management responsibility and would impair an auditor’s independence if performing for an attest client?

  1. Testing the design and implementation of internal controls.
  2. Accepting responsibility for the presentation of the financial statements.
  3. Advising on cash disbursement policies.
  4. Reviewing financial statement disclosures to ensure material assertions are covered.

Question 14. Which or the following consulting engagements would be a threat to an auditor’s independence in performing for an attest client?

  1. Assist management in their assessment of business risk control procedures.
  2. Present risk considerations to the board of directors on behalf of management.
  3. Assist management in developing business strategies.
  4. Assist the client in drafting an offering document.
  5. Make business risk decisions.
  6. Consummate a transaction on behalf of the client.
  7. Assist management in analyzing the effects of a proposed transaction with potential buyers.

Question 15. According to Standards, which of the following are considered consulting services that could affect independence?

  1. Implementation
  2. Advisory
  3. Product
  1. A, B, and C
  2. A and B only
  3. A and C only
  4. C only

 

Question 16. According to the code, __________ means that the member or member’s staff possess the appropriate technical qualifications to perform professional services and the member supervises and evaluates the quality of work performed.

  1. SKE (suitable skill, knowledge and experience)
  2. Competence
  3. Proficiency
  4. Certified

Question 17. The code would likely be violated when a member sends promotional materials with a stated fee that the:

  1. Fee is much lower than others in the area
  2. actual fee will likely be substantially higher
  3. fee was through a competitive bid process
  4. fee varies based on deliverables

Question 18. What rule would a member violate if using the CPA credential is a false, misleading or deceptive manner?

  1. Ethical conflicts rule
  2. Independence rule
  3. Public practice rule
  4. Advertising and other forms of solicitation rule

Question 19. When is a member required to disclose a commission will be received under the Commissions and Referral Fees Rule for an attest client?

  1. Disclosure is not required
  2. When a commission is received
  3. At the time of the recommendation
  4. Members are prohibited from receiving commissions

Question 20. Is independence impaired?

A – Firm hires an employee of an attest client in a key position as an independent contractor?

B – Provide professional services for a significantly below market price?

  1. Yes, Yes
  2. Yes, No
  3. No, Yes
  4. No, No

Question 21. Which of the following would be in violation of the Acts Discreditable Rule?

A – The member retains copies of a client’s files after the employment is terminated

B – Revealing confidential client information during a peer review

  1. Yes, Yes
  2. Yes, No
  3. No, Yes
  4. No, No

Question 22. In which situation is a contingent fee not permitted?

  1. Member prepares an amended federal return claiming a refund due to inadvertently omitted information.
  2. Representing a client in connection with obtaining a private letter ruling.
  3. Representing a client in connection with a revenue agent’s examination of the client’s federal tax return.
  4. Filing an amended federal return claiming a refund greater than the threshold for review by the Joint Committee on Taxation.

Question 23. May a CPA firm rely on the work of a hired non-CPA computer systems analyst that was brought on to develop, implement and analyze CAATs (computer aided audit tools)?

  1. Yes, provided a CPA is qualified to perform the tasks
  2. No, non-CPAs cannot create attest tools
  3. Yes, provided a CPA supervises and evaluates the analyst and their finished product.
  4. No, only procedures performed by licensed CPAs are allowable in attest services.

Question 24. According to the code, members have the professionally responsibility or right to disclose employer information, if not prohibited by law when:

  1. Protecting the member’s professional interests in legal proceedings
  2. Complying with professional standards
  3. Responding to an inquiry from the State CPA society
  4. A, B & C
  5. A & C
  6. C only
  7. A & C only

Question 25. Allen Hansen is a CPA working as a Finance Director for a large nonprofit, which of the following is allowed in using his CPA credential on his email signature and business cards for the nonprofit?

  1. He cannot use CPA designation since not independent in respect to the nonprofit.
  2. He can use as long as the company name is not included on the business card, but cannot use in the email since from a nonprofit email address.
  3. He can use without restriction on both.
  4. He must adhere to his State’s Board of Accountancy

Question 26. What are put in place to eliminate or diminish the influence of threats?

  1. Controls
  2. Policies & procedures
  3. Safeguards
  4. Generally Accepted Accounting Procedures (GAAP)

Question 27. Which of the following may create and advocacy threat?

  1. Performing tax services for an attest client
  2. Having a difference of opinion with an attest client
  3. Signing a document containing misleading information
  4. Accepting gifts from a client

Question 28.  Which of the following reports can be issued by a Member that is not independent?

  1. Audit
  2. Review
  3. Compilation
  4. Agreed-upon procedures

Question 29. All who accept membership in the American Institute of Certified Public Accountants commit themselves to honor ____________.

  1. Generally Accepted Accounting Principles (GAAP)
  2. The public trust
  3. Governing laws and regulations
  4. The Code of Professional Conduct

Question 30. Katie Hansen is a senior staff auditor with Hall & Associates, working on an audit of Worley, Inc.’s financials. Which of the following would impair her independence?

  1. Katie owns stock in Worley through a mutual fund that she participates in through her 401(k) plan.
  2. Katie’s best friend is an internal auditor at Worley.
  3. Worley sends a $75 box Swiss Farm meats and cheeses to the external audit staff for Christmas.
  4. Katie’s firm also prepares Worley’s tax return.
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