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Question(s) / Instruction(s):

41.
medium     When determining whether independence is impaired because of an ownership interest in client company, materiality will affect whether ownership is a violation of Rule 101
     a.     in all circumstances.
     b.     only for direct ownership.
     c.     only for indirect ownership.
     d.     under no circumstances.
     

42.
medium     Interpretations of Rule 101 regarding a “direct financial interest” have presumed that a violation exists in the following circumstance, unless other circumstances offset such a presumption.
     a.     When close relatives such as nondependent children, brothers, and sisters have a significant financial interest in the client.
     b.     When close relatives such as nondependent children, brothers, and sisters have any financial interest in the client.
     c.     When the CPA owns shares in a mutual fund that has an ownership interest in the client.
     d.     When close relatives such as brother, sister, or in-laws are employed by client.
     
43.     Which of the following circumstances would ordinarily not impair the auditor’s independence?
medium     a.     Litigation by client against audit firm related to tax services.
     b.     Litigation by client against audit firm claiming a deficiency in the previous audit.
     c.     Litigation by audit firm against client claiming management fraud or deceit.
     d.     Intent to start a lawsuit at some future date, after the current audit is completed, claiming a deficiency in the previous audit.
     
44.
medium
     The interpretations to the Rules of Conduct permit a CPA firm to do both bookkeeping and auditing for the same client if three important requirements are satisfied. Which of the following is not one of those requirements?
     a.     The client must accept full responsibility for the financial statements, and must be sufficiently knowledgeable about the activities, financial condition, and the accounting principles so that client can accept that responsibility.
     b.     The client is required to file an annual report, including audited financial statements, with the Securities and Exchange Commission.
     c.     The CPA must not assume the role of employee or of manager.
     d.     The CPA must conform to generally accepted auditing standards.
     
45.
medium     Which of the following consulting services is prohibited by the SEC whenever a CPA also audits a corporation?
     a.     Internal audit outsourcing.
     b.     Financial information systems design and implementation.
     c.     Human resource management functions.
     d.     All of the above are prohibited services.
     
46.     The members of a client’s “audit committee” should be
medium     a.     members of management.
     b.     directors who are not a part of company management.
     c.     non-directors and non-managers.
     d.     directors and managers.
     
47.
medium     An increasing number of companies require stockholders to approve the selection of a new CPA firm or the continuation of the existing CPA firm because
     a.     stockholders are presumably more objective than management.
     b.     the SEC requires it.
     c.     the AICPA requires it.
     d.     the stockholders are better able to evaluate the performance of auditors.
     
48.
medium
     Rule 301 of the AICPA’s Code of Professional Conduct states that a member in public practice shall not disclose any confidential client information without the specific consent of the client. This rule would be violated if CPA disclosed information without client’s consent as a result of
     a.     a subpoena or summons.
     b.     a peer review.
     c.     a complaint filed with the trial board of the Institute.
     d.     a request by client’s largest stockholder.
49.     Which one of the following statements is not true?
medium
     a.     The auditor’s responsibility to act in accordance with professional standards is greater than the responsibility for confidentiality.
     b.     Information that a CPA obtains from a client is generally not privileged.
     c.     When a CPA firm conducts an AICPA-authorized peer review of the quality controls of another CPA firm, permission of the client is not needed in order to examine the working papers.
     d.     A CPA firm which observes substandard working papers of another firm can initiate a complaint of substandard performance with the AICPA Ethics Division trial board notwithstanding the confidentiality of the working papers.
     
50.     A CPA is allowed to accept a referral fee for recommending a client to another CPA if
medium     a.     the client approves of the transaction either before or after the event.
     b.     the client pre-approves the transaction.
     c.     payment of the referral fee is disclosed to the client.
     d.     None of the above are true. Referrals are never acceptable.
     
51.     Rule 505 of the AICPA’s Code of Professional Conduct permits CPA firms to organize as
medium     a.     proprietorships or partnerships only.
     b.     proprietorships, partnerships, or professional corporations.
     c.     proprietorships, general partnerships, general corporations, professional corporations, limited liability partnerships and limited liability companies if permitted by state law.
     d.     single proprietorships, partnerships, professional corporations if permitted by state law, or regular corporations.
     
52.
medium     According to the profession’s ethical standards, an auditor would be considered independent in which of the following instances?
     a.     The auditor’s checking account, which is fully insured by a federal agency, is held at a client financial institution.
     b.     The auditor is also an attorney who advises the client as its general counsel.
     c.     An employee of the auditor donates service as treasurer of a charitable organization that is a client.
     d.     The client owes the auditor fees for two consecutive annual audits.
     
53.
medium     If a nonpublic company asks an accountant to perform a review engagement, and the accountant has an immaterial direct financial interest in the company, the accountant is
     a.     independent because the financial interest is immaterial and, therefore, may issue a review report.
     b.     not independent and, therefore, may not issue a review report.
     c.     not independent and, therefore, may not be associated with the financial statements.
     d.     not independent and, therefore, may issue a review report, but may not issue an auditor’s opinion.
     
54. (SOX)
medium     The Sarbanes-Oxley Act requires a cooling off period of how long before a member of an audit team can work for a client in a key management position?
     a.     Eighteen months.
     b.     One year.
     c.     Three years.
     d.     It is not specified, rather it is left to the individual auditor’s discretion.
     
55.
medium     In determining independence with respect to any audit engagement, the ultimate decision as to whether or not the auditor is independent must be made by the
     a.     auditor.
     b.     client.
     c.     audit committee.
     d.     public.
     
56.     A CPA firm should decline an offer to perform management advisory services engagement for a nonpublic company if
medium     a.     the CPA firm audits the financial statements of a subsidiary of the prospective client.
     b.     recommendations made by the CPA firm are to be subject to review by the client.
     c.     acceptance would require the CPA firm to make management decisions for an audit client.
     d.     the proposed engagement is not accounting-related.
     
57.
medium
     Which of the following statements best describes why the profession of certified public accountants has deemed it essential to promulgate a code of ethics and to establish a mechanism for enforcing observance of the code?
     a.     A distinguishing mark of a profession is its acceptance of responsibility to the public.
     b.     A prerequisite to success is the establishment of an ethical code that stresses primarily the professional’s responsibility to clients and colleagues.
     c.     A requirement of most state laws calls for the profession to establish a code of ethics.
     d.     An essential means of self-protection for the profession is the establishment of flexible ethical standards by the profession.
     
58.
medium
     In which of the following circumstances would a CPA be bound by ethics to refrain from disclosing any confidential information obtained during the course of a professional engagement?
     a.     The CPA is issued a summons enforceable by a court order which orders the CPA to present confidential information.
     b.     A major stockholder of a client company seeks accounting information from the CPA after management declined to disclose the requested information.
     c.     Confidential client information is made available as part of a quality review of the CPA’s practice by a peer review team authorized by the AICPA.
     d.     An inquiry by a disciplinary body of a state CPA society requests confidential client information.
     
59.
medium
     Companies are required to disclose in their proxy statement or annual filings with the SEC the total amount of audit and non-audit fees paid to the audit firm for the two most recent years. Which of the following is not one of the categories of fees that must be disclosed?
a.     “tax fees”
b.     “consulting fees”
c.     “audit-related fees”
d.     “all other fees”

60.
challenging
     Four of the six Ethical Principles in the AICPA’s Code of Professional Conduct are equally applicable to all members of the AICPA, regardless of whether the members practice in a CPA firm or work for business or government. Which of the following Principles applies only to members in public practice?
     a.     Scope and Nature of Services.
     b.     Integrity.
     c.     Due Care.
     d.     The Public Interest.

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