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4-1CHAPTER4Multiple-ChoiceQuestions1.Societyhasattachedaspecialmeaningtotheterm“professional.”Aprofessionalis:easya.someonewhohaspassedaqualifyingexamtoenterthejobmarket.bb.apersonwhoisexpectedtoconducthimselforherselfatahigherlevelthantherequirementsofsociety’slawsorregulations.c.anypersonwhoreceivespayfortheservicesperformed.d.someonewhohasbothaneducationinthetradeandon-the-jobexperiencereceivedunderanexperiencedsupervisor.2.Theunderlyingreasonforacodeofprofessionalconductforanyprofessionis:easya.theneedforpublicconfidenceinthequalityofserviceoftheprofession.ab.thatitprovidesasafeguardtokeepunscrupulouspeopleout.c.thatitisrequiredbyfederallegislation.d.thatitallowslicensingagenciestohaveayardsticktomeasuredeficientbehavior.3.AchallengeassociatedwiththeEthicalPrinciplesstatedintheCodeofProfessionalConductis:easya.theemphasisonpositiveactivities.cb.thattheyidentifyidealconduct.c.thedifficultyofenforcingprinciples,orgeneralideals.d.thattherearetoomanytoremember.4.ForwhichofthefollowingprofessionalservicesmustCPAsbeindependent?easya.Managementadvisoryservices.bb.Auditsoffinancialstatements.c.Preparationoftaxreturns.d.Allthreeoftheabove.5.“Independence”inauditingmeans:easya.remainingalooffromaclient.cb.notbeingfinanciallydependentonaclient.c.takinganunbiasedandobjectiveviewpoint.d.beinganadvocateforaclient.6.WhenCPAsareabletomaintaintheiractualindependence,itisreferredtoasindependencein:easya.conduct.cb.appearance.c.fact.d.total.7.Whichofthefollowingstatementsisnottrue?TheCPAfirmwillloseitsindependenceif:easyda.anyofthepartnersintheofficeprovidingauditservicestotheclientacquiresstockinthatclient.b.amanagerwhoprovides15hoursofnon-auditservicestotheclientacquiresstockinthatclient.c.anyoneworkingontheauditshouldacquirestockinthatclient.d.alloftheabovearetrue.4-28.easyInterpretationsofRule101prohibitcoveredmembersfromowninganystockorotherdirectinvestmentinauditclients.Coveredmembersincludeallbutwhichofthefollowing?aa.Allpartnersinanofficethathasnoresponsibilityfortheengagement.b.Thefirmanditsemployeebenefitplans.c.Individualsontheattestengagement.d.Alloftheabovedescribecoveredmembers.9.easycInsomesituations,theinterpretationsoftheRulesofConductpermitformerpartnerstohaverelationshipswithaclientofthefirmwithoutaffectingthefirm’sindependence.Whichofthefollowingsituationswouldnotcausealossofindependence?a.TheformerpartnerinvestsinacurrentclientofthefirmandreceivesretirementbenefitsfromtheCPAfirm,whicharedependentuponthefirm’sfinancialperformance.b.TheformerpartnerusestheCPAfirm’sofficespaceandhassignificantinfluenceoveraclient.c.Theformerpartnerseversrelationswiththefirmandacceptsemploymentwiththefirm’sclientafterhavingbeenretiredfor18months.d.Theformerpartnerisheldoutasanassociateofthefirmandtakespartinthefirm’sbusinessactivities.10.easyThefinancialinterestsofwhichofthefollowingpartieswouldnotbeincludedasa“directfinancialinterest”oftheCPA?da.Spouse.b.Dependentchild.c.RelativesupportedbytheCPA.d.Financialinterestsofeachoftheseindividualswouldbeconsideredas“directfinancialinterests.”11.Interpretationsoftherulesregardingindependenceallowanauditortoserveas:easya.adirectororofficerofanauditclient.db.anunderwriterforthesaleofaclient’ssecurities.c.atrusteeofaclient’spensionfund.d.anhonorarydirectorforanot-for-profitcharitableorreligiousorganization.12.easybWhenthequestionariseswhetheraCPAfirmmaydobothbookkeepingandauditingservicesforthesamepubliccompanyclient,theInterpretationsoftheAICPA’sCodeofProfessionalConduct:a.encourageit.b.prohibitit.c.allowit.d.alloweachfirmtodeterminetheansweronacase-by-casebasis.13.TheCPAmustnotsubordinatehisorherprofessionaljudgmenttothatofothersinany:easya.engagement.ab.auditengagement.c.engagementexcludingtaxservices.d.engagementexcludingmanagementadvisoryservices.14.Whichofthefollowingwouldbeaviolationoftherulerequiring“objectivity”bytheCPA?easyca.Theauditoracceptsmanagement’sopinionregardingthecollectionofaccountsreceivablewithoutanindependentevaluation.b.Inpreparingaclient’staxreturn,theCPAencouragesaclienttotakeadeductionwhichtheCPAbelievesisrisky,butunlikelytobefoundduringanIRSaudit.c.Eitheraorbwouldbeaviolationoftherule.d.Neitheranorbwouldbeaviolationoftherule.4-315.easydSeveralmonthsafteranunqualifiedauditreportwasissued,theauditordiscoversthefinancialstatementsweremateriallymisstated.Theclient’sCEOagreesthattherearemisstatements,butrefusestocorrectthem.Sheclaimsthat“confidentiality”preventstheCPAfrominforminganyone.a.TheCEOiscorrectandtheauditormustmaintainconfidentiality.b.TheCEOisincorrect,butbecausetheauditreporthasbeenissueditistoolate.c.TheCEOiscorrect,buttobeethicallycorrecttheauditorshouldviolatetheconfidentialityruleanddisclosetheerror.d.TheCEOisincorrect,andtheauditorhasanobligationtoissuearevisedauditreport,eveniftheCEOwillnotcorrectthefinancialstatements.16.easyAmemberinpublicpracticemaynotperformforacontingentfeeanyprofessionalservicesforaclientforwhomthememberormember’sfirmperforms:ca.anaudit.b.areview.c.eitheranauditorreview.d.anyprofessionalserviceregardlessofthespecificn