Question 1

What is "Operation Broken Gate?"

Accepted Answer

A)   An SEC initiative to identify audit firms that violate independence standards
B)   A PCAOB initiative to identify audit firms with deficiencies in audits through its inspection program
C)   An SEC initiative to identify auditors who neglect their duties and the required auditing standards
D)   An AICPA program to implement its conceptual framework standardsE) A) and C)
F) A) and B)

Question 2

Explain how CPAs should evaluate risks to integrity and objectivity when considering providing gifts to audit clients and/or client management or accepting risks from them.
Gifts made or received, in particular, may cloud audit judgment and impair independence. They can compromise objectivity and integrity because of the size and/or importance of the gift and the purpose of giving it or receiving it from the client. To avoid a conflict of interest that may impair integrity, objectivity and independence, the following guidelines should be followed.
If the audit is completed, the first question is whether the acceptance of the gift might make it appear to a reasonable observer that the gift is intended to influence the audit opinion. If so, that would create an undue influence threat and compromise integrity and objectivity. Also, it could be perceived as an advance payoff for future audit opinions. The influence does not have to be immediate. Beyond that, an important issue to consider is: Would acceptance violate any laws, regulations, or firm policies. If so, acceptance would create a threat that cannot be reduced or eliminated through any safeguards. If not, consider the following:
What is the nature, value, and intent of the gift?
Is it more than clearly inconsequential?
Is it reasonable in the circumstances?
Is it standard practice to accept or reject such gifts?
Does the client expect a "quid pro quo?"

Accepted Answer

From an ethical perspective, the best wa...

Question 3

An example of a self-review threat for CPAs in business is:

Accepted Answer

A)   Serving as both the CFO of a company and member of its audit committee
B)   Owning stock in the company the CPA works for
C)   Internal auditor accepts work she previously performed in a different position
D)   Serving as both the CFO of a company and member of the board of directorsE) All of the above
F) C) and D)

Question 4

Which statement is correct with respect to a CPA's ethical obligation to return client books and records and CPA workpapers?

Accepted Answer

A)   Client-provided records in the custody or control of the CPA should be returned to the client at the client's request
B)   CPA workpapers should be given to the client at the end of each audit
C)   CPA work product never has to be turned over to the client
D)   Client-provided records should be destroyed after the auditE) A) and B)
F) C) and D)

Question 5

Objectivity may be impaired when a CPA prepares a tax return for a client because:

Accepted Answer

A)   The CPA violates the independence rule
B)   The CPA violates the integrity rule
C)   The CPA serves in a tax advocacy position for the client
D)   The CPA must prepare the tax return solely based on the information provided by the clientE) None of the above
F) C) and D)

Question 6

The House Subcommittee on Oversight and Investigations made its recommendations after looking into failures at each of the following companies except:

Accepted Answer

A)   ESM Government Securities
B)   Continental Illinois National Bank and Trust
C)   Penn Square Bank
D)   EnronE) A) and B)
F) B) and C)

Question 7

The KBC Solutions case deals with:

Accepted Answer

A)   Whether the controller should give in to the pressure and go along with false financial statements
B)   Whether the senior in charge of an audit can provide adequate explanations for the accounting for transactions being questioned by the review partner
C)   Whether the senior in charge of an audit pressures staff accountants to not increase the workload at year-end because of audit budget considerations
D)   Whether an audit firm should go along with the client's demands for accelerating the recording of revenueE) A) and B)
F) A) and D)

Question 8

During the period of 1986-1995 the failures at savings and loan institutions were caused by:

Accepted Answer

A)   Stealing $300 million from shareholders
B)   questionable home mortgage loans and risky investments
C)   Creating cookie jar reserves
D)   Engaging in a Ponzi schemeE) None of the above
F) A) and B)

Question 9

The requirement that there should be reasonable support for a tax return position before a CPA recommends it to a client most directly aligns with which tax standard?

Accepted Answer

A)   The tax return should not be based on a frivolous position
B)   There is a realistic possibility of success if the tax position is challenged
C)   It is more likely than not that the tax position will be upheld if challenged
D)   Contingent fees cannot be accepted when providing tax services for an audit clientE) A) and B)
F) A) and C)

Question 10

Discuss the conceptual framework for independence in the Revised AICPA Code and how it deals with risks to independence.

Accepted Answer

Independence in fact requires avoiding r...

Question 11

On July 1, 2015, the SEC charged Deloitte & Touche with violating auditor independence because:

Accepted Answer

A)   It provided certain nonaudit services to an audit client
B)   It provided audit services to a client when engaged in a business relationship with management
C)   Its consulting affiliate kept a business relationship with a trustee serving on the board of three funds Deloitte audited
D)   Its consulting affiliate owned stock of a firm Deloitte auditedE) C) and D)
F) B) and C)

Question 12

Which of the following is NOT a safeguard that can help to mitigate threats to independence?

Accepted Answer

A)   Safeguards created by the Sarbanes-Oxley Act
B)   Safeguards created by the corporate governance system of the attest client
C)   Quality control safeguards created by the audit firm
D)   Safeguards performed by the audit firm that are the responsibility of management.E) B) and C)
F) C) and D)

Question 13

Which of the following statements best reflect the ethical obligation of CPAs with respect to working with outside advertising agencies to market professional services for the CPA?

Accepted Answer

A)   Make sure that advertising is done professionally
B)   Prohibit advertising on social media
C)   Make sure the agency does not do anything that would put you in violation of the ethics rules
D)   Prohibit statements about the scope of professional servicesE) A) and B)
F) A) and C)

Question 14

The Tax Shelters case deals with:

Accepted Answer

A)   Ignoring the recording of lottery gains in a client's tax return
B)   Changing culture in the tax department of a CPA firm
C)   Pressure from one's superior to manipulate financial statements
D)   Whether to sell tax shelter products to members of the audit firmE) B) and D)
F) B) and C)

Question 15

Common judgment traps include:

Accepted Answer

A)   Group think, judgment triggers, and reacting to pressures
B)   Group think, judgment triggers, and a rush to solve problems
C)   Reacting to pressures, a rush to solve problems, and Systems 1 thinking
D)   Systems 1 thinking, cognitive dissonance, a rush to solve problemsE) A) and B)
F) A) and C)

Question 16

The anchoring tendency relates to:

Accepted Answer

A)   Starting from an initial numerical value and then adjusting insufficiently away from it in forming a final judgment
B)   Starting from management's estimate and then adjusting sufficiently away from it in forming a final judgment
C)   Developing a system to give voice to one's values
D)   Developing a decision making frameworkE) All of the above
F) A) and D)

Question 17

The SEC approach to independence emphasizes independence in fact and appearance in all of the following ways except:

Accepted Answer

A)   Proscribing certain financial interests in an audit client.
B)   Whether a conceptual framework approach is used for evaluating ethics violations
C)   Restricting certain nonauditing services to audit clients.
D)   Subjecting all auditor conduct to a standard of independence.E) A) and C)
F) B) and C)

Question 18

The CPA firm that became involved in tax shelter controversies with the IRS and settled the case for $456 million to prevent the firm's criminal prosecution is:

Accepted Answer

A)   Ernst & Young
B)   Deloitte & Touche
C)   PricewaterhouseCoopers
D)   KPMGE) All of the above
F) A) and B)

Question 19

Did the CPA Violate any Rules of Conduct case focuses on:

Accepted Answer

A)   Whether merger and acquisition services should be provided for an audit client
B)   Whether a firm's protective covenants are reasonable in scope.
C)   Whether tax documents were properly filed with the IRS.
D)   Whether personal relationships between company management and external auditors is allowed.E) A) and C)
F) A) and B)

Question 20

Each of the following were themes of Congressional investigations of the accounting profession during the 1970s and 1980s except:

Accepted Answer

A)   Whether low-balling to obtain audits impairs independence
B)   Whether nonaudit services impair auditor independence
C)   The need for a report on internal controls
D)   The importance of developing techniques to prevent and detect fraudE) B) and D)
F) C) and D)

Exam 4: Ethics and Professional Judgment in Accounting

Common judgment traps include:

Correct Answer
verified

What is "Operation Broken Gate?"

Correct Answer
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During the period of 1986-1995 the failures at savings and loan institutions were caused by:

Correct Answer
verified

The requirement that there should be reasonable support for a tax return position before a CPA recommends it to a client most directly aligns with which tax standard?

Correct Answer
verified

An example of a self-review threat for CPAs in business is:

Correct Answer
verified

The anchoring tendency relates to:

Correct Answer
verified

The CPA firm that became involved in tax shelter controversies with the IRS and settled the case for $456 million to prevent the firm's criminal prosecution is:

Correct Answer
verified

Objectivity may be impaired when a CPA prepares a tax return for a client because:

Correct Answer
verified

Which statement is correct with respect to a CPA's ethical obligation to return client books and records and CPA workpapers?

Correct Answer
verified

The Tax Shelters case deals with:

Correct Answer
verified

On July 1, 2015, the SEC charged Deloitte & Touche with violating auditor independence because:

Correct Answer
verified

The KBC Solutions case deals with:

Correct Answer
verified

Which of the following is NOT a safeguard that can help to mitigate threats to independence?

Correct Answer
verified

Correct Answer
verified
From an ethical perspective, the best wa...
View Answer

The SEC approach to independence emphasizes independence in fact and appearance in all of the following ways except:

Correct Answer
verified

The House Subcommittee on Oversight and Investigations made its recommendations after looking into failures at each of the following companies except:

Correct Answer
verified

Each of the following were themes of Congressional investigations of the accounting profession during the 1970s and 1980s except:

Correct Answer
verified

Did the CPA Violate any Rules of Conduct case focuses on:

Correct Answer
verified

Which of the following statements best reflect the ethical obligation of CPAs with respect to working with outside advertising agencies to market professional services for the CPA?

Correct Answer
verified

Discuss the conceptual framework for independence in the Revised AICPA Code and how it deals with risks to independence.

Correct Answer
verified
Independence in fact requires avoiding r...
View Answer

Exam 4: Ethics and Professional Judgment in Accounting

Common judgment traps include:

Correct AnswerverifiedShow Answer

What is "Operation Broken Gate?"

Correct AnswerverifiedShow Answer

During the period of 1986-1995 the failures at savings and loan institutions were caused by:

Correct AnswerverifiedShow Answer

The requirement that there should be reasonable support for a tax return position before a CPA recommends it to a client most directly aligns with which tax standard?

Correct AnswerverifiedShow Answer

An example of a self-review threat for CPAs in business is:

Correct AnswerverifiedShow Answer

The anchoring tendency relates to:

Correct AnswerverifiedShow Answer

The CPA firm that became involved in tax shelter controversies with the IRS and settled the case for $456 million to prevent the firm's criminal prosecution is:

Correct AnswerverifiedShow Answer

Objectivity may be impaired when a CPA prepares a tax return for a client because:

Correct AnswerverifiedShow Answer

Which statement is correct with respect to a CPA's ethical obligation to return client books and records and CPA workpapers?

Correct AnswerverifiedShow Answer

The Tax Shelters case deals with:

Correct AnswerverifiedShow Answer

On July 1, 2015, the SEC charged Deloitte & Touche with violating auditor independence because:

Correct AnswerverifiedShow Answer

The KBC Solutions case deals with:

Correct AnswerverifiedShow Answer

Which of the following is NOT a safeguard that can help to mitigate threats to independence?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedFrom an ethical perspective, the best wa...View AnswerShow Answer

The SEC approach to independence emphasizes independence in fact and appearance in all of the following ways except:

Correct AnswerverifiedShow Answer

The House Subcommittee on Oversight and Investigations made its recommendations after looking into failures at each of the following companies except:

Correct AnswerverifiedShow Answer

Each of the following were themes of Congressional investigations of the accounting profession during the 1970s and 1980s except:

Correct AnswerverifiedShow Answer

Did the CPA Violate any Rules of Conduct case focuses on:

Correct AnswerverifiedShow Answer

Which of the following statements best reflect the ethical obligation of CPAs with respect to working with outside advertising agencies to market professional services for the CPA?

Correct AnswerverifiedShow Answer

Discuss the conceptual framework for independence in the Revised AICPA Code and how it deals with risks to independence.

Correct AnswerverifiedIndependence in fact requires avoiding r...View AnswerShow Answer

Correct Answer
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From an ethical perspective, the best wa...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Independence in fact requires avoiding r...
View Answer