Question

- Multiple Choice: (30pts) _ 1-The profession's ethical standards would most likely be considered to have been violated when a CPA: a- Continued an audit engagement after the commencement of litigation against the CPA alleging excessive fees filed in a stockholder's derivative action b- Represented to a potential client that the CPA's fees were substantially lower than the fees charged by another CPA's for comparable services. C- Issued a report on a financial forecast that omitted a caution regarding achievability. d- Accepted a consultation engagement concerning data processing services for which the auditor lacked independence 2- The concept of materiality would be the least important to an auditor when considering the a- Adequacy of disclosure of a client's illegal act b- Discovery of weaknesses in a client's internal control structure C- Effects of direct financial interest in the client on the CPA's independence d- Decision whether to use positive or negative confirmations of receivables 3- A CPA's license to practice will ordinarily be suspended or revoked automatically for a- Committing an act discreditable to the profession b- Conviction of willful failure to file personal income tax returns - Refusing to respond to an inquiry by the AICPA practice review committee d- Accepting compensation while honoring a subpoena to appear as an expert witness. 4- Which of the following is not an acceptable form of organization for a CPA's practice a- Proprietorship b- LLP or LLC C- Professional Corporation d- General Corporation e- Partnership 5- Which of these would be an Act Discreditable to the profession by you under the Code of Professional Conduct? a- Withholding audit work papers which contain data , to which the client has no other access, from a successor auditor where you have not been paid for the prior year's audit b- Being sued for ordinary negligence by your audit client and losing C- Making a clerical error on your tax client's tax return and not informing the corresponding government agency d- Calling the President a "limelight - seeking coward" e- None of these 6-Which two of the following elements are member-adopted sections of the Code: a- Principles b- Ethical Rulings C- Interpretations d- Rules of Conduct

Answer 1

1. B ( Because a CPA can't solicit clients on the basis of lower fees. He can continue audit engagement after commencement of litigation till he is not proved guilty. Financial forecast generally involves risk of achievability, non disclosure of which is not a major concern.CPA can accept consultation engagement and not audit engagement, where he lacks independence.)

2. A (because client's ILLEGAL act is required to be disclosed irrespective of it's materiality.)

3.C (Not responding to inquiry by AICPA will automatically revoke or suspend CPA. For other given options, a complaint is required to be filed against the CPA to AICPA.)

4. D (General corporation is not acceptable form of organization for CPA Practice. )

5. B (Being sued by client for negligence and losing brings discredit to the profession.)

6. B & C (Ethical Rulings and Interpretations are developed by members over a period of time and not mentioned in the act.)