Professional skepticism links to professional judgment through the ethical standards of

Chapter 4

Professional skepticism links to professional judgment through the ethical standards of:A. Independent thought, objectivity, and intelligenceB. Objectivity, intelligence, and reflective thoughtC. Independent thought, objectivity, and due care

D. Honest

C. Independent thought, objectivity, and due care

Which of the following is NOT something the CPA should do in tax planning?A. Uncritically accept the client's explanations for assumptions and representationsB. Establish the relevant background facts

C. Consider the reasonableness of the assumptions an

A. Uncritically accept the client's explanations for assumptions and representations

The most significant change in the Revised AICPA Code of Professional Conduct is:A. A conceptual framework approach for evaluating ethics violationsB. Two conceptual frameworks: one for members in public practice and one for CPAs in business

C. Eliminat

B. Two conceptual frameworks: one for members in public practice and one for CPAs in business

Which of the following is NOT a component of the KPMG Professional Judgment Framework?A. Clarify issues and conclusionsB. Clarify issues and objectivesC. Gather and evaluate information

D. Articulate and document rationale

A. Clarify issues and conclusions

An example of a management participation threat is:A. Establishing and maintaining the budget for audit completionB. Establishing and maintaining internal controls for the clientC. Initiating litigation against the client

D. Preparing source documents

B. Establishing and maintaining internal controls for the client

On July 1, 2015, the SEC charged Deloitte & Touche with violating auditor independence because:A. It provided certain nonaudit services to an audit clientB. 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

The anchoring tendency relates to: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 fina

A. Starting from an initial numerical value and then adjusting insufficiently away from it in forming a final judgment

What is "Operation Broken Gate?"A. An SEC initiative to identify audit firms that violate independence standardsB. A PCAOB initiative to identify audit firms with deficiencies in audits through its inspection program

C. An SEC initiative to identify aud

C. An SEC initiative to identify auditors who neglect their duties and the required auditing standards

A conflict of interest exists when:A. A professional service or relationship creates a situation that might impair completion of the auditB. A professional service or relationship creates a situation that might impair objective judgment

C. Professional

B. A professional service or relationship creates a situation that might impair objective judgment

Each of the following were themes of Congressional investigations of the accounting profession during the 1970s and 1980s except:A. Whether low-balling to obtain audits impairs independenceB. Whether nonaudit services impair auditor independence

C. The

A. Whether low-balling to obtain audits impairs independence

The confidentiality standard in the AICPA code provides a blanket exception to the rule in each of the following situations except:A. In response to a validly issued court summonsB. To provide information to the PCAOB in its inspection process

C. To def

D. In response to a successor auditor's request

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

A. Client-provided records in the custody or control of the CPA should be returned to the client at the client's request

Which of the following is NOT a safeguard that can help to mitigate threats to independence?A. Safeguards created by the Sarbanes-Oxley ActB. Safeguards created by the corporate governance system of the attest client

C. Quality control safeguards create

D. All of the above are safeguards

The SEC's Advisory Committee on Improvements to Financial Reporting (CIFiR) developed a framework for accounting judgments consisting of which components?A. A critical good faith thought process and reflective judgment

B. A critical good faith thought pr

B. A critical good faith thought process and documentation

PwC's actions in their audits of Avon and Pinnacle were similar in that the SEC alleged that the firm:A. Owned stock in both clientsB. Served on the board of directors of both clientsC. Borrowed money from both clients

D. Was influenced in their opinio

D. Was influenced in their opinions by the size of nonaudit services

Ethical conflicts for CPAs in business can occur when:A. Obstacles exist to complying with professional and legal standardsB. Relationships exist with vendors

C, Threats from higher levels of management create constraints to providing accurate and relia

Personal values link to:A. Ethical judgment and motivationB. Ethical motivation and actionC. Ethical sensitivity and action

D. Ethical sensitivity and judgment

George has been asked by his audit client to provide income tax services including tax planning. Prior to providing such services, George should be certain that:A. He first completes the auditB. He assesses threats to independence

C. The CEO pre-approve

B. He assesses threats to independence

The committee that first recommended that the profession institute a voluntary program for peer review was:A. Metcalf committeeB. Cohen committeeC. The House Subcommittee on Oversight and Investigations

D. Mintz and Morris committee

The AOL-Time Warner case deals with:A. Whether the merger of two large telecommunications companies should be allowedB. Recording round-trip transactions as revenue in one year and an expense in a later one

C. Recording expenditures as capital costs rat

D. Whether a whistle-blower was a hero or villain

The KPMG Professional Judgment Framework defines judgment as:A. The process of reaching a decision or drawing a conclusion where there are a number of possible alternative solutions

B. The process of making a judgment where there are a number of possible

A. The process of reaching a decision or drawing a conclusion where there are a number of possible alternative solutions

Michael has been approached by the CEO of an audit client and offered two tickets to the FIFA tournament during the Rio 2016 Olympic Games. The CEO knows that Michael's wife is from Rio and thought this was a nice way to thank him for twenty-years of exce

B. Threats created by the gifts are at an acceptable level

The principle of ethical behavior in the AICPA Code that asks questions directly related to ethical courage is:A. IndependenceB. ObjectivityC. Integrity

D. Due care

A common requirement/effect of the commissions and contingent fees rule is:A. A CPA who accepts such a payment always violates independenceB. The CPA must disclose the acceptance of such a payment to the firm

C. A CPA is prohibited from accepting such a

C. A CPA is prohibited from accepting such a form of payment when engaged in attest services for a client

Which rule of professional conduct in the AICPA Code does not apply both to internal and external accountants who are CPAs and members of the Institute?A. IndependenceB. IntegrityC. Objectivity

D. Due care

Professional skepticism can best be defined as having:A. An inquiring mind and deliberate decision makingB. Deliberate decision making and suspension of beliefC. An inquiring mind and suspension of belief

D. Careful observation and virtue-based decisio

C. An inquiring mind and suspension of belief

Diane is a CFO at We Do What We Want, Inc. She was just instructed by her boss, the CEO, to accelerate the recording of revenue into an earlier year to meet financial analysts' earnings projections. In order to meet the ethical standards of the accounting

D. Works through the chain of command within the company to avoid subordinating judgment

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?A. Make sure that advertising is done professionally

B. Prohibit advertisi

C. Make sure the agency does not do anything that would put you in violation of the ethics rules

The insider trading case against Scott London focused on:A. Providing confidential information about audit clients to a friendB. Personally buying stock of audit clients after receiving confidential information

C. Providing confidential information abou

A. Providing confidential information about audit clients to a friend

The conceptual framework in the AICPA Code establishes a:A. Threats and safeguards approach to assess whether ethics rules have been violatedB. Rules to assess independence violations apart from those affecting other services

C. New rule on when to foll

A. Threats and safeguards approach to assess whether ethics rules have been violated

CPAs in business face threats to independence just as CPAs in public practice. Which of the following threats do not exist for CPAs in business?A. Adverse interest threatB. Advocacy threatC. Self-interest threat

D. Management participation threat

In its investigation of ZZZZ Best, the House Subcommittee on Oversight and Investigations looked into:A. Why the board of directors failed to uncover the fraud at ZZZZ BestB. How the company was able to create 80% or more fictitious revenue

C. How the c

B. How the company was able to create 80% or more fictitious revenue

Objectivity may be impaired when a CPA prepares a tax return for a client because:A. The CPA violates the independence ruleB. The CPA violates the integrity ruleC. The CPA serves in a tax advocacy position for the client

D. The CPA must prepare the tax

C. The CPA serves in a tax advocacy position for the client

The due care principle in the AICPA code:A. Addresses the quality of the individual who performs professional servicesB. Addresses the quality of services performed by the CPAC. Addresses whether the independence standards have been met

D. Addresses wh

B. Addresses the quality of services performed by the CPA

To whom does the CPA owe ultimate allegiance in carrying out professional obligations?A. StockholdersB. Public interestC. Client

D. Stakeholders

The accounting issues at failed savings and loan institutions included:A. The failure to provide adequate allowances for loan lossesB. The failure to disclose dubious deals between the S&Ls and some of its major customers

C. The existence of inadequate

The SEC's position on independence can best be characterized as:A. Permitting certain financial interests with the clientB. Prohibiting auditors from providing tax advice to audit clientsC. Proscribing certain business relationships with the client

C. Proscribing certain business relationships with the client

The failure of Lehman Brothers was due in large part to:A. Accelerating recording revenue into an earlier period than warrantedB. Understating allowance for loan lossesC. Aggressive valuation of marketable securities

D. Use of Repo 105 transactions

The ethical issue in the Beauda Medical case is:A. Whether an audit firm should inform one audit client about malfunctioning equipment at another client that the former plans to buy

B. Whether an audit firm should inform one audit client about fraudulent

A. Whether an audit firm should inform one audit client about malfunctioning equipment at another client that the former plans to buy

During the investigations by the House Subcommittee on Oversight and Investigations, a question that was raised was:A. Why was fraud allowed to occur at some many companies?B. Where was the board of directors in all these frauds?

C. Where were the audit

C. Where were the auditors?

On January 24, 2014, KPMG agreed to pay $8.2 million to settle charges by the SEC that the firm violated auditor independence rules because it:A. Provided certain nonaudit services to affiliate companies whose books KPMG was auditing

B. Provided audit se

A. Provided certain nonaudit services to affiliate companies whose books KPMG was auditing

Integrity is measured in terms of what is right and just. What is a question that a CPA can ask to test decisions?A. Am I doing what another CPA would do?B. Am I serving the interests of my client?

C. Am I protecting my self-interests?

D. Have I retained my integrity?

The M&A Transaction case focuses on:A. Whether merger and acquisition services should be provided for an audit clientB. Whether merger and acquisition services should be provided for a tax client

C. Whether a merger should go through between two audit c

A. Whether merger and acquisition services should be provided for an audit client

The KBC Solutions case deals with:A. Whether the controller should give in to the pressure and go along with false financial statements

C. Whether the senior in charge of an audit pressures staff accountants to not increase the workload at year-end becau

B. Whether the senior in charge of an audit can provide adequate explanations for the accounting for transactions being questioned by the review partner

The main issue in the Valley View Hospital case is:A. Fraudulent financial statementsB. Improper inventory valuationC. Medicare fraud

D. Bribery of foreign officials

An alternative practice structure can best be described as:A. A form of ownership where a CPA firm owns a public company and audits that company

B. A form of structure where a public company provides nonattest services for a client that is also provided

B. A form of structure where a public company provides nonattest services for a client that is also provided with attest services by an affiliate of the public company

Why don't auditors prepare financial statements, as well as audit them?A. It would take away a job from the controller of the companyB. It would not eliminate errors in the financial statements

C. It would be a conflict of interest and violate ethical s

C. It would be a conflict of interest and violate ethical standards

Madison is in the process of gathering evidence to support the audit opinion on Jefferson & Adams, Inc. She's a new staff accountant and wants to make sure she exercises the appropriate level of professional skepticism. Madison asks for your advice as the

B. Always review the evidence you gather to assess persuasiveness

Impairments of independence can occur when:A. A CPA owns a direct financial interest in a clientB. A CPA owns a material indirect financial interest in a clientC. Immediate family members of the CPA are in violation of the independence rules

D. All of

An example of a self-review threat is:A. Establishing and maintaining the internal controls for the clientB. Preparing source documents used to generate the client's financial statements

C. Promoting the client's securities through investment banking ac

B. Preparing source documents used to generate the client's financial statements

Circular 230 applies to CPAs who:A. Audit the financial statements of a tax clientB. Practice before the IRSC. Practice before the SEC

D. Prepare tax services for clients

B. Practice before the IRS

The Tax Shelters case deals with:A. Ignoring the recording of lottery gains in a client's tax returnB. Changing culture in the tax department of a CPA firmC. Pressure from one's superior to manipulate financial statements

D. Whether to sell tax shelter

B. Changing culture in the tax department of a CPA firm

A CPA can accept a gift from a client as long as:A. Adequate safeguards exist to prevent any threats to compliance with the Integrity and Objectivity rule

B. Adequate internal controls exist in the client entity to ensure gifts are made without any pre-c

A. Adequate safeguards exist to prevent any threats to compliance with the Integrity and Objectivity rule

The House Subcommittee on Oversight and Investigations made its recommendations after looking into failures at each of the following companies except:A. ESM Government SecuritiesB. Continental Illinois National Bank and TrustC. Penn Square Bank

D. Enro

CPAs can advertise and solicit clients as long as such practices are:A. Conducted in a professional mannerB. Informative about the CPA's servicesC. Not conducted in a misleading or deceptive manner

D. Paid for by outside parties

C. Not conducted in a misleading or deceptive manner

During the period of failures at savings and loan institutions, Lincoln S&L was charged with:A. Stealing $300 million from shareholdersB. Causing retirees to lose their life savingsC. Causing employees to lose their jobs

D/ Engaging in a Ponzi scheme

B. Causing retirees to lose their life savings

The Family Games case deals with the following accounting issue:A. Whether an audit firm should inform one audit client about fraudulent financial statements of another clientB. Whether certain expenditures should be capitalized rather than expensed

C. Whether revenue should be accelerated into an earlier period

To prevent subordination of judgment, a CPA should evaluate threats to:A. Independence and Due CareB. Objectivity and IntegrityC. Integrity and Due care

D. Independence and Scope of Services

B. Objectivity and Integrity

Independence may be impaired when a partner leaves an audit firm and is subsequently employed by the client if that partner:A. Is in a position to influence the management's decisions with respect to the audit

B. Is in a position to influence the account

B. Is in a position to influence the accounting firm's operations

Safeguards implemented by the attest client include each of the following except:A. Proper oversight by client managementB. Management participation in the client by the attest firmC. Policies and procedures to address ethical conduct

D. The tone at th

B. Management participation in the client by the attest firm

The insider trading case against Thomas Flanagan focused on:A. Providing confidential information about audit clients to a friendB. Personally trading in securities of audit clients after receiving confidential information

C. Providing confidential info

B. Personally trading in securities of audit clients after receiving confidential information

Which of the following is NOT a common judgment tendency?A. Availability tendencyB. Confirmation tendencyC. Over-confidence tendency

D. Decision making tendency

One of the differences between the ethical obligations of CPAs and lawyers is:A. Lawyers are obligated first and foremost to the public interest while CPAs are obligated to their clients' interests

B. Lawyers are obligated first and foremost to the clien

B. Lawyers are obligated first and foremost to the client's interest while CPAs are obligated to the public interest

The CPA firm that became involved in tax shelter controversies with the IRS is:A. Ernst & YoungB. Deloitte & ToucheC. PricewaterhouseCoopers

D. KPMG

In Han, Kang & Lee, LLC, the main accounting issue being discussed with the client is:A. Whether to write-down inventory by 20 percentB. Whether to increase the value of inventory by 20 percent

C. Whether to record an expenditure of $2 million as a capi

A. Whether to write-down inventory by 20 percent

Common judgment traps include:A. Group think, judgment triggers, and reacting to pressuresB. Group think, judgment triggers, and a rush to solve problemsC. Reacting to pressures, a rush to solve problems, and Systems 1 thinking

D. Systems 1 thinking, c

B. Group think, judgment triggers, and a rush to solve problems

Professional judgment is influenced by:A. Organizational valuesB. Personal code of ethicsC. Personal behavioral traits

D. Organizational dissonance

C. Personal behavioral traits

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?A. The tax return should not be based on a frivolous position

B. There is a realistic po

B. There is a realistic possibility of success if the tax position is challenged

In the PeopleSoft case, the auditors violated what aspect of independence?A. The auditor borrowed money from the clientB. The auditor was exposed to an intimidation threat by the client

C. The auditor was involved in a business relationship with the cli

C. The auditor was involved in a business relationship with the client

Which of the following is NOT an outright restriction on providing nonattest services for an attest client?A. Tax servicesB. Financial information systems design and implementationC. Appraisal or valuation services

D. Internal audit outsourcing service

Each of the following is a threat to independence except:A. Self-review threatB. Adverse interest threatC. Self-interest threat

D. Undue influence threat

Which of the following is NOT an example of a conflict of interest?A. Advising two clients at the same time who are competing to acquire the same company when the advice might be relevant to the parties' competitive positions

B. Advising a client to inve

D. Accepting commissions in a financial planning engagement for a nonaudit client

Ethics rules in the AICPA Code apply to:A. Individual CPAs who are licensed by state boards of accountancy onlyB. Individual CPAs who are licensed by state boards of accountancy and accounting firms

C. Licensed accounting firms and certain members of al

D. Individual CPAs who are licensed by state boards of accountancy, licensed accounting firms, and certain members of alternative practice structures

Which of the following is NOT a safeguard to mitigate threats to compliance with the rules for CPAs in business or reduce them to an acceptable level?A. Independent external auditB. Tone at the topC. Independent audit committee

D. Whistle-blower hot li

A. Independent external audit

A CPA can accept a contingent fee in providing tax services for an attest client if:A. The CPA discloses this fact to the tax clientB. The CPA receives the permission of the client to accept such a form of payment

C. The CPA's tax services will be revie

C. The CPA's tax services will be reviewed by a taxing authority

The risk-based approach is used to assess:A. Whether a CPA's scope of services poses an unacceptable risk to IndependenceB. Whether a CPA's relationship with a client would pose an unacceptable risk to IndependenceC. Risk of audit failure

D. Risk of fr

B. Whether a CPA's relationship with a client would pose an unacceptable risk to Independence

One of the Contributions of the Treadway Commission Report and the work of the Committee of Sponsoring Organizations (COSO) was:A. To establish a voluntary process for peer reviewB. To identify red flags that might lead to fraud

C. To identify the tone

C. To identify the tone at the top for management to create an ethical culture

An example of a self-review threat for CPAs in business is:A. Serving as both the CFO of a company and member of its audit committeeB. Owning stock in the company the CPA works for

C. Internal auditor accepts work she previously performed in a different

C. Internal auditor accepts work she previously performed in a different position

Under the Sarbanes-Oxley Act, the auditor's responsibility with respect to internal controls can best be stated as:A. Develop a system of internal controls that help to prevent and detect fraud

B. Assess whether the internal controls help to prevent and

C. Assess management's report on internal controls

The global code of ethics for the accounting profession is called:A. AICPA Code of Professional ConductB. IMA Ethical and Professional StandardsC. Handbook of the Code of Ethics for Professional Accountants

D. Public Interest Framework for the Accounta

C. Handbook of the Code of Ethics for Professional Accountants