Which of the following is not considered to be a “cooperative arrangement” between a member firm and a client that would impair independence?
A) A joint venture to develop or market products or services where the arrangement is material to the client but not the member firm.
B) An arrangement to combine one or more services or products of the member firm with one or more services or products of the client and market the package with references to both parties. The arrangement is material to the member firm but not to the client.
C) A prime/subcontractor arrangement to provide services or products to a third party where the arrangement is not material to the firm or to the client.
D) All of the above are cooperative arrangements that would impair the member firm’s independence.
Crohn & Saba, CPA’s performed an audit engagement for Starr Publishing for the year ended December 31, 20X4. In addition to the audit engagement, the firm provides various other services for the company including tax preparation and consulting.Which of the following situations would impair Crohn & Saba, CPA’s independence with respect to the audit engagement with Starr Publishing?
A) The commencement of litigation by the management of Starr Publishing alleging deficiencies in audit work for the company.
B) The commencement of litigation by Crohn & Saba, CPA’s against the present management of Starr Publishing alleging management fraud or deceit
C) Threatened litigation by Starr Publishing against Crohn & Saba, CPA’s regarding a fee dispute not related to the audit engagement. The amount in dispute is neither material to Crohn & Saba, CPA’s nor to Starr Publishing.
D) All of the above
E) Both a. and b
Adler, Grimes & Hastings, CPA’s has been in business for over 30 years. Barbara Adler, a long-time partner of the firm, died last year. The firm wants to admit Jones as a partner and go by the name Adler, Grimes, Jones & Hastings, CPA’s. Jones is a member of the State CPA Society but is not a member of the AICPA. Adler was a member of the AICPA and both Grimes and Hastings, the only other partners, are also members of the AICPA. Which of the following statements is true?
A) The firm may continue to use Adler’s name in the firm name since the new firm is considered to be a successor firm.
B) The firm must remove Adler’s name from the firm since she is deceased.
C) The firm is allowed to designate itself as “Members of the American Institute of Certified Public Accountants” because a majority of the partners are members.
D) None of the above statements is true.
Patel, a member, is a sole practitioner CPA who provides bookkeeping, financial statement, and tax preparation services to his clients. To assist Patel with his workload, he has hired a third-party service provider to enter client bookkeeping information (coded checks, deposits) and to do bank reconciliations for some of his clients. In addition, Patel uses a different third-party service provider to provide cloud-based record storage, software application hosting, and e-file tax transmittal services.Which of the following statements is true regarding the disclosure(s), if any, that Patel is required to provide to his clients regarding the use of the aforementioned third-party service providers?
A) Patel is not required to disclose the use of either third-party service provider.
B) Regarding the third-party service provider performing bookkeeping services, Patel should inform the client(s) involved, prior to disclosing confidential client information and preferably in writing, that he may use a third-party service provider.
C) Regarding the third-party service provider hosting cloud-based services, Patel should inform the client(s) involved, prior to disclosing confidential client information and preferably in writing, that he may use a third-party service provider.
D) Patel is required to disclose the use of both third-party service providers.
Ryan & Ryan, CPA’s is a full-service accounting firm that provides attest and no attest services to a diverse group of clients. Willard, the managing partner, has decided that it would be a good financial move for the firm to buy a building, utilize a portion of the building for its own use, and lease the rest of the building to third parties. The other partners of the firm voted to accept Willard’s proposal and on February 25, 20X6 the firm purchased a building for the aforementioned purposes.In which of the following situations would the firm’s independence be impaired?
A) The firm leases a portion of the building to an audit client at a rate that is 50% of the current market rate and the rate that the firm charges to non-client tenants.
B) The firm uses an audit client in the construction industry to build out the various office spaces in the building. The client is charging the firm only 60% of what it would typically charge for jobs of a similar nature.
C) Both a. and b. would impair independence
D) Neither a. nor b. would impair independence
E) All business relationships with an audit client would impair
David, a member, is a sole practitioner CPA. Based on the work that David does for Jackson Spine, Inc., he is not independent with respect to the company.Jackson Spine, Inc. requires audited financial statements for its line of credit with Graymore Bank. The company has hired Hanson & Potter, CPA’s to perform the audit and issue the audited statements to the bank. Hanson & Potter, CPA’s would like to utilize David on the audit of Jackson Spine, Inc. because of his extensive experience with the client and his knowledge of the books and records.Would Hanson & Porter, CPA’s use of David on the audit impair their independence with respect to Jackson Spine, Inc.?
A) Hanson & Potter, CPA’s is barred by the Code of Professional Conduct from using David on the audit for any purpose.
B) As long as Hanson & Potter, CPA’s uses David’s work in a manner similar to an internal auditor and complies with AICPA Statements on Auditing Standards, their independence would not be impaired.
C) David’s lack of independence with respect to Jackson Spine, Inc. would not impair Hanson & Potter, CPA’s independence because David’s firm was not the firm engaged to perform the audit and issue the audited financial statements.
D) David’s lack of independence would automatically impair Hanson & Potter, CPA’s independence with respect to Jackson Spine, Inc.
Walters, a member, has been in public practice for nearly 20 years. Over the years, she has developed a number of specialties including tax dispute resolution, obtaining SBA financing, and evaluating tax sheltered investments. In an effort to expand her practice, Walters wants to promote her recently developed expertise in forensic accounting related to divorces. She had handled nearly a dozen such engagements during the past year and Walters wants to develop a marketing brochure for the specialty that includes the names of the clients she has represented. In this situation, would Walters be able to reveal the names of clients she has represented in divorce cases without obtaining the client’s consent?
A) Yes. It is not necessary to obtan a client’s consent to disclose their names in this situation.
B) No. Disclosure of client’s names in this situation would suggest that the client is having marital difficulties which may be confidential information.
C) No. Disclosing the names of clients is a violation of confidentiality in all cases unless specific client consent is obtained.
D) None of the above are correct.
Katey is a California CPA practicing in California. Katey has been licensed in California for 20 years, all of those years in active status. She is a partner in the firm of Perry & Sherry, CPA’s. Katey wants to renew her license in inactive status as she will be accepting a temporary position outside of public accounting. Which of the following apply to her renewal in inactive status?
A) Katey must have completed 80 hours of continuing education within the two years preceding her renewal in inactive status.
B) Katey may continue to receive a share of the net profits from Perry & Sherry, CPA’s while her license is in inactive status.
C) There is no renewal fee to be paid upon Katey’s renewal of her license in inactive status.
D) All of the above apply to her renewal in inactive status.
E) Both a. and b. apply to her renewal in inactive status.
Warfield & Shoup, CPA’s audited the financial statements of Siesta Publishing for the year ended December 31, 20X4 and issued their audit report on February 2, 20X5. After a dispute with the firm, Siesta Publishing decided to utilize the services of Danza & Zona, CPA’s to audit their financial statements for the year ended December 31, 20X5. In conjunction with their audit, Danza & Zona, CPA’s has requested copies of schedules supporting a number of adjusting entries related to the December 31, 20X4 audit. In addition, the request included the return of Siesta Publishing’s records that had been given to Warfield & Shoup, CPA’s but had yet to be returned. At the time of the request, Warfield & Shoup, CPA’s had not been paid for the audit engagement for December 31, 20X4 and the firm has refused to provide Danza & Zona, CPA’s with the requested supporting documentation or the client’s records until they are paid in fullIs the firm’s refusal to provide the requested documentation of adjusting entries, along with its refusal to return any of Siesta Publishing’s records in its possession, an act discreditable to the profession?
A) The refusal to return client records is an act discreditable to the profession, but the refusal to provide copies of schedules supporting adjusting entries is not an act discreditable to the profession.
B) Only the refusal to provide copies of schedules supporting adjusting entries is an act discreditable to the profession.
C) Both the refusal to provide copies of schedules supporting adjusting entries and the refusal to return client records are acts discreditable to the profession.
D) Neither the refusal to provide copies of schedules supporting adjusting entries and the refusal to return client records are acts discreditable to the profession.
Clayborne, a member, practices in public accounting and has her own CPA firm. Due to some cash flow issues, she has not paid her AICPA dues and is now 3 months overdue on such payment. For the same cash flow reason, she has neither complied with the AICPA’s practice monitoring program or the continuing education requirement for membership retention.Which of the following is correct concerning the action(s) the AICPA Board of Directors may take against Clayborne?
A) The Board may terminate Clayborne’s membership for the three-month delinquency in payment of her dues.
B) The Board may terminate Clayborne’s membership for failure to comply with the practice monitoring program for membership retention.
C) The Board has no power to terminate Clayborne’s membership for any of situations noted.
D) Both a. and b. are actions that the Board may take against Clayborne.
According to the California Accountancy Act, which of the following is acceptable as it relates to no licensee ownership of firms engaged in the practice of public accountancy?
A) Licensees shall in the aggregate, directly or beneficially, comprise a majority of owners, except that firms with two owners may have one owner who is a no licensee.
B) Nonlicensee owners do not have to materially participate in the business of the firm until they have been owners for more than one year.
C) Nonlicensee ownership is prohibited
D) None of the above
Diana Roth is a California CPA practicing in California. She is a sole proprietor with three professional employees and two paraprofessional employees. Diana has owned her own firm for five years.Which of the following names may Diana use for her practice without registration and approval from the Board of Accountancy?
A) Accurate City Bookkeeping
B) Diana Roth, CPA
C) Alpha Tax Preparation and Bookkeeping
D) All of the above
E) Both a. and b.
Donaldson & Moss, CPA’s provides various no attest services to its attest clients. The firm only wants to provide such no attest services that do not impair its independence with respect to the firm’s attest clientsWhich of the following no attest services would impair the firm’s independence with respect to an attest client?
A) Using payroll time records provided and approved by the client to process a client’s payroll and produce unsigned payroll checks for the client to sign.
B) Assist in developing corporate strategies.
C) Provide assistance in assessing the client’s business risks and control processes.
D) None of the above would impair the firm’s independence.
E) Both a. and c. would impair the firm’s independence.
Which of the following nonattest services would impair a firm’s independence with an attest client?
A) Prepare financial statements based on information in the trial balance.
B) Communicate benefit plan summary data to plan trustee.
C) Assist in developing corporate strategies.
D) Provide assistance in assessing the client’s business risk and control processes.
E) None of the above.
Swerdlow, a member, is a tax manager with the firm Cheskes & Memel, CPA’s. The firm performs an audit for a publicly traded manufacturing company and will be auditing the financial statements for the year ended December 31, 20X4. Swerdlow will be providing at least fifty hours of tax services to the audit client before and after the December 31, 20X4 year end. Swerdlow’s spouse inherited a small holding in the audit client’s stock on November 2, 20X3 and does not want to dispose of the stock. Which of the following statements is true with regard to the firm’s independence with the aforementioned audit client?
A) The firm’s independence with respect to the audit client is impaired.
B) Swerdlow’s spouse is not a covered member and as such the firm’s independence is not impaired.
C) As long as Swerdlow does not do any audit work for the client, independence is not impaired.
D) Since the stock is owned by Swerdlow’s spouse, the firm’s independence is not impaired.
Which of the following investments is considered to be a direct financial interest of a covered member?
A) Self-directed investments in a retirement plan
B) Investments held in a defined benefit plan where the member’s best friend is a trustee of the plan.
C) Rights to acquire equity interests where the right is not vested.
D) None of the above
E) Both a. and c. are direct financial interests of the covered member.
Lynn, a member, is looking to expand her firm by working with various referral sources to recommend clients to her. Lynn has identified a particular local insurance agent, Geoff, who is very willing to refer clients to Lynn. In turn, Lynn will refer clients to Geoff for insurance services. There is no arrangement between Lynn and Geoff for the payment of any referral fees.In talking with Geoff about how he obtains clients, Lynn discovers that Geoff uses telemarketers who say that “Geoff is the best insurance agent in the state and anybody he refers to you is also the best in the state at what they do.”What is Lynn’s responsibility as it relates to the statement being made by Geoff’s telemarketers?
A) Lynn has the responsibility to ascertain that Geoff’s promotional efforts are within the bounds of the Rules of Conduct.
B) Since Geoff is not bound by the Rules of Conduct, Lynn has no responsibility regarding the statements being made by Geoff’s telemarketers and whether they are within the bounds of the Rules of Conduct.
C) The telemarketers do not work for Lynn and she has no control over them. Thus she has no responsibility regarding whether their statements are within the bounds of the Rules of Conduct.
D) Both b. and c. are correct
Solomon & Saunders, CPA’s prepared the audited financial statements of Hamilton Services for the year ended December 31, 20X1 with the report thereon issued on February 5, 20X2. The firm is now in the process of performing the audit for the year ended December 31, 20X2 and anticipates that its report thereon will be issued on February 15, 20X3. Due to some financial difficulties, Solomon & Saunders, CPA’s allowed Hamilton Services to defer payment of billed fees for an extended period of time. In addition, the firm delayed the billing of some fees and had Hamilton Services sign a note for the oldest fees. The face value of the note is $50,000, the interest rate is 8%, and the due date is February 1, 20X3. The fees included in the note were for services provided between November 1, 20X1 and February 1, 20X2.Based on the above, which of the following situations would impair the firm’s independence with respect to Hamilton Services for the December 31, 20X2 audit engagement?
A) Fees for the preparation of the Hamilton Services tax returns for the year ended December 31, 20X1 were paid on February 10, 20X3. The work on the tax return began on February 7, 20X2 and ended on February 9, 20X2.
B) Fees for services provided by the firm for the period July 1, 20X2 through December 31, 20X2 were billed to Hamilton Services on March 1, 20X3.
C) The $50,000 note was paid in full, including interest, on February 14, 20X3.
D) All of the above would impair the firm’s independence
E) Neither a, b, nor c would impair the firm’s independence
Independence, per the Code of Professional Conduct, encompasses all of the following except:
A) Independence of spirit
B) Independence of mind
C) Independence in appearance
D) Independence in fact
Goldberg, a member, has been asked to audit the financial statements of Temple Zion for the year ended December 31, 20X5. Goldberg is a member of the temple.Is Goldberg’s independence impaired with respect to the audit of Temple Zion?
A) Yes. Being a temple member impairs Goldberg’s independence.
B) As long as Goldberg does not serve in temple management or as an employee of the temple, his independence is not impaired.
C) This type of situation is not addressed by the Code of Professional Conduct in any way.
D) None of the above is correct.
Reiner, a member, is a partner in the firm of Reiner & Weiner, CPA’s. The firm has performed an audit for City Largest Bank for the past three years and recently completed its audit of the financial statements for the year ended December 31, 20X3.Which of the following financial relationships with City Largest Bank would impair Reiner’s independence and/or the firm’s independence with respect to the bank?
A) Reiner has a certificate of deposit with City Largest Bank and the balance in the account is fully insured by the Federal Deposit Insurance Corporation
B) Reiner has several certificates of deposit with City Largest Bank and the balance in the accounts exceeds the federal deposit insurance limit by $1,000,000. The amount in excess of the federal deposit insurance limit is material to Reiner’s net worth.
C) Reiner & Weiner, CPA’s maintains several depository relationships with City Largest Bank. The likelihood that City Largest Bank will experience financial difficulties is considered very remote.
D) Reiner has a certificate of deposit with City Largest Bank and the balance in the account exceeds the federal deposit insurance limit by $100,000. The amount in excess of the federal deposit insurance limit is not material to Reiner’s net worth.
According to the Conceptual Framework for AICPA Independence Standards, safeguards are controls that mitigate or eliminate threats to independence. There are three broad categories of safeguards: safeguards created by the profession, legislation, or regulation, safeguards implemented by the attest client, and safeguards implemented by the firm.Which of the following is an example of a safeguard implemented by the firm?
A) Rotation of senior personnel who are part of the attest engagement team
B) Client acceptance and continuation policies that are designed to prevent association with clients that pose an unacceptable threat to the member’s independence
C) A consultation function that is staffed with experts in accounting, auditing, independence, and reporting matters who can help attest engagement teams (1) assess issues when guidance is unclear, or when the issues are highly technical or require a great deal of judgment and (2) resist undue pressure from a client when the engagement team disagrees with the client about such issues
D) All of the above
E) Neither a., b., or c.
Justin, a member, has been in public practice for 25 years. His firm does bookkeeping and financial statements for approximately 50 business clients and prepares approximately 75 business tax returns and 200 personal tax returns. Justin’s firm has never had a malpractice claim.Justin is contemplating retirement and wants to sell his accounting practice. He has hired a professional practice sales firm to help him identify potential buyers and assist in the practice sale. What is Justin’s firm required to do to protect its client’s confidential information in this type of situation?
A) Justin’s firm must receive written permission from each of his clients before disclosing any client confidential information to a prospective buyer.
B) Justin’s firm is not allowed to disclose any client confidential information to a prospective buyer and thus the potential buyer must rely exclusively on representations made by Justin’s firm.
C) A review of a member’s accounting practice pursuant to a potential sale is allowed if the member takes appropriate precautions (such as a written confidentiality agreement) so that the prospective buyer does not disclose any client confidential information obtained during his review of the practice.
D) None of the above
Shaun & McGinnes, CPA’s is a large local CPA firm that performs a number of different engagements for its clients including attest engagements. The firm has fifty professional staff, ten administrative staff, and six partners. While surveying its staff to determine if any threats to independence exist, the firm has come upon a number of issues that might threaten their independence with respect to their attest clients. Which of the following situations found through the survey would impair the firm’s independence?
A) Sandy is a director of a trade association that is an attest client of the firm. Sandy is the partner in charge of the attest engagement.
B) Marco serves on a citizens advisory committee that is studying changes to the form of a city government that the firm audits. Marco serves on the city government audit team.
C) Reesa is the executor of an estate that owns a majority of an attest client’s stock. Reesa serves on the attest engagement team.
D) All of the above would impair the firm’s independence
E) Both a. and c. would impair the firm�s independence
Klein & Marin, CPA’s has two offices located within 20 miles of each other. During the busy tax season period the firm hires a number of independent contractors to assist in tax preparation. Barbara is a controller at Gold Industries, an audit client of Klein & Marin, CPA’s. Before becoming the controller at Gold Industries, Barbara worked in public accounting and acquired a significant amount of tax preparation experience. Barbara has asked Seth, the tax partner at Klein & Marin, CPA’s, if she could assist with tax preparation at the firm during tax season and Seth, believing that this would be a great idea, agrees to hire Barbara as an independent contractor to work on weekends preparing tax returns during the busy tax season. Barbara will prepare tax returns exclusively for none attest clients of the firm. In addition, Barbara will not work in the office that handles the audit of Gold Industries.Does the hiring of Barbara impair the firm’s independence with respect to Gold Industries?
A) No. The firm’s independence is not impaired because Barbara is an independent contractor and not an employee.
B) No. The firm’s independence is not impaired because Barbara will not be working in the office that handles the Gold Industries audit.
C) No. The firm’s independence is not impaired because Barbara will only prepare tax returns for none attest clients.
D) None of the above are correct.
The Conceptual Framework for AICPA Independence Standards describes the ________-based approach to analyzing independence matters:
Kosma, a member, is a partner at Beltran & Freese, CPA’s and is the lead engagement partner for the audit of Cardinal Manufacturing. The firm has performed an audit of Cardinal Manufacturing for the past ten years and Kosma has been the lead engagement partner for all of that period.Wacha is the CFO for Cardinal Manufacturing and has been so during the entire time that Beltran & Freese, CPA’s has performed the audit for Cardinal Manufacturing. Wacha, knowing that Kosma enjoys drinking moderately priced red wines, buys Kosma a $15 bottle of Merlot as a holiday gift. Would the acceptance of this gift from Wacha by Kosma impair Beltran & Freese, CPA’s independence with respect to Cardinal Manufacturing?
A) Yes, the acceptance of the gift would impair the firm’s independence.
B) No, since the value of the gift is clearly insignificant to Kosma
C) Since Wacha is not an owner of Cardinal Manufacturing, any gift from him to Kosma, regardless of value, would not impair Beltran & Freese, CPA’s independence with respect to Cardinal Manufacturing
D) None of the above are correct.
According to the Code of Professional Conduct, a distinguishing mark of a profession is which of the following:
A) Educational requirements that exceed those of non-professional pursuits
B) Employment opportunities for its members that exceed those of the general public
C) Acceptance of its responsibility to the public
D) The existence of a Code of Professional Conduct
Kroer & Simmer, CPA’s performs a number of audits for its clients using GAGAS. As part of their GAGAS engagements, the firm often performs nonaudit services as defined by GAGAS.Which of the following is considered to be a nonaudit service under GAGAS and not a routine activity related to an audit?
A) Providing advice to the audited entity on routine business matters
B) Educating the audited entity on matters within the technical expertise of the auditors
C) Cash to accrual conversions
D) Providing information to the audited entity that is readily available to the auditors, such as best practices and benchmarking studies
Robert, a member, is a partner in the firm Cohen & Rowen, CPA’s. The firm provides a wide variety of services to its clients including appraisal, valuation, and actuarial services. The firm performs attest engagements for a number of clients for which they also provide appraisal, valuation, and actuarial services.Which of the following appraisal, valuation, or actuarial services would impair the firm’s independence if performed for an attest client?
A) A valuation of the client’s proposed business combination where the results are not material to the client’s financial statements
B) An appraisal of assets that are not material to the client’s financial statements
C) An actuarial valuation of the client’s pension liabilities if those liabilities are material to the client’s financial statements.
D) None of the above
Robin & Redbird, CPA’s audits the financial statements of Blue Jay Investments, Inc. As part of their engagement letter agreement, the firm and the client have agreed to use alternative dispute resolution techniques to resolve any disputes relating to the engagement. There are no disputes between the firm and the client at the present time.Would the agreement to use ADR techniques impair Robin & Redbird, CPA’s independence with respect to Blue Jay Investments, Inc.?
A) Yes, this would impair the firm’s independence in all cases.
B) Since this is a pre-dispute agreement, the firm’s independence would not be impaired.
C) ADR techniques are not allowed to be used in engagement letters between a firm and an attest client.
D) None of the above are correct.
Burton & Parks, CPA’s is a regional CPA firm that provides services to clients throughout the Pacific Northwest. The firm conducts a number of audits in accordance with GAGAS.According to the GAO, which of the following is not an ethical principle that guides the work of an auditor who conducts audits in accordance with GAGAS?
A) Due care
B) The public interest
D) Professional behavior
Riley, a member in industry, is the CFO of Deutsch Sales, Inc. The firm of Morgan & Francone, CPA’s is performing an audit of the company for the year ended June 30, 20X6. Morgan & Francone, CPA’s is about to conclude the audit engagement and issue their report on the June 30, 20X6 financial statements. Riley is aware that a number of irregularities exist in the company’s books and records that would materially and negatively affect the company’s financial position and results of operations for the audited year. However, the firm did not ask Riley specifically about these irregularities or request any information that would relate to them.What is Riley’s obligation to inform Morgan & Francone, CPA’s regarding these irregularities?
A) The concept of “don’t ask, don’t tell” applies here. If the firm did not ask, Riley has no obligation to inform them.
B) Yes, Riley must disclose the information to the firm.
C) Riley cannot disclose the information as it would be an act of insubordination against her employer.
D) Only if Riley signed the representation letter would she be obligated to disclose the information to the audit firm.
Which of the following activities is not typically a part of the consultation process?
A) Fact finding
B) Evaluation of alternatives
C) Communication of results
D) Tax preparation
There are various standards that a member should follow when recommending tax return positions or preparing or signing tax returns. Which of the following of those standards is the lowest standard?
A) Realistic possibility of success standard
B) Reasonable basis standard
C) Substantial authority standard
D) More likely than not standard
Upon completing the preparation of a U.S. individual tax return, a member/preparer must sign the return under the following declaration: “declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.” Which of the following is correct regarding a preparer’s responsibility based on this statement?
A) The declaration does not apply to return information furnished by third parties
B) The member is required to verify supporting data
C) A member may rely on all information provided by the taxpayer even if it appears to be incorrect
D) All of the above are correct
E) Neither a., b. nor c. is correct
The Sarbanes-Oxley Act of 2002, as well as SEC rules, define various non-audit services that would impair an auditor’s independence with respect to a publicly traded audit client. Which of the following non-audit services would impair such an auditor’s independence if provided at any point during the audit and professional engagement period?
A) Searching for or seeking out prospective candidates for managerial, executive, or director positions
B) Directly or indirectly operating, or supervising the operation of, the audit client’s information system or managing the audit client’s local area network
C) Provide any service or product to an audit client for a contingent fee or a commission
D) All of the above would impair independence
E) Neither a., b., nor c. would impair independence.
Tax advice is considered to be a valuable service provided by members. The advice may be communicated orally or in written form. In deciding on the form of advice provided to a taxpayer, a member should not
A) Exercise professional judgment
B) Consider the technical complexity involved.
C) The tax sophistication of the taxpayer
D) None of the above are correct.
Duska & Duska, CPA’s is a regional CPA firm that employs 100 professional staff and 20 support staff. In addition, the firm has 8 partners. Sam is the managing partner and has been a CPA for 25 years. His son Tommy is also a partner in the firm.The firm has various methods to charge fees to its clients. Of those methods, which of the following would be considered a contingent fee?
A) A protest of a property tax assessment where a fee will only be charged if the protest is successful.
B) Charging higher hourly rates for tax services than for bookkeeping services
C) Charging higher hourly rates for a manager’s time than for a senior staff person’s time.
D) None of the above are considered contingent fees.
Which of the following is not a body designated by Council Resolution to promulgate technical standards?
A) Public Company Accounting Oversight Board
B) Government Accounting Standards Board
C) International Financial Reporting Standards Board
D) Financial Accounting Standards Board
A conflict of interest may occur if a member performs a professional service for a client or employer and the member or his or her firm has a significant relationship with another person, entity, product, or service that could, in the member’s professional judgment, be viewed by the client, employer, or other appropriate parties as impairing the member’s objectivity.Which of the following situations could be viewed as impairing a member’s independence?
A) A member has a significant financial interest, is a member of management, or is in a position of influence in a company that is a major competitor of a client for which the member performs management consulting services.
B) A member has been asked to perform litigation services for the plaintiff in connection with a lawsuit filed against a client of the member’s firm.
C) A member provides tax or PFP services for several members of a family who have the same interests.
D) A member refers a PFP or tax client to an insurance broker or other service provider
E) Both a. and b.
F) Both c. and d.
Sabrina, a member, has been employed by Luca & Smith, CPA’s for the past 10 years. During that time, Sabrina has worked on many of the firm’s most complicated clients and projects. Sabrina is a member of the local Chamber of Commerce and the AICPA.Sabrina has decided to leave Luca & Smith, CPA’s to start her own CPA practice. While the firm was sorry to hear about Sabrina’s plans to leave, there is no animosity between the parties.As part of the formation of her new firm, Sabrina is considering various forms of advertising, marketing, and solicitation. Which of the following forms of advertising, marketing, and solicitation is acceptable in all cases?
A) Soliciting clients of her former firm by calling them three times a day for a month
B) Placing a yellow pages ad that states that Sabrina is a “tax expert” if she, in fact, can demonstrate that she has expertise in the area as a result of education, training, or experience.
C) Using a marketing brochure that states: “no other sole practitioner in the state has the tax knowledge that Sabrina has”
D) Both a. and c. are acceptable.
Molina, a California CPA practicing in California, was born on June 20, 19X6. She was originally licensed November 30, 20X1.When is Molina’s first license renewal date?
A) November 30, 20X3
B) November 30, 20X2
C) June 30, 20X2
D) June 20, 20X2
Pine, a member, is a partner at the firm of Oak & Spruce, CPA’s. The firm has 6 partners, 50 professional employees, and 12 administrative staff. The firm performed an attest engagement for Forest Worldwide for the year ended December 31, 20X5.Since Forest Worldwide is a relatively complex engagement, a number of people were involved. Of the following participants in the engagement, which one is not considered to be a member of the attest engagement team?
A) Pine performed the second partner review of the Forest Worldwide financial statements.
B) Wood, a tax associate, prepared the tax accrual and deferred tax computations for Forest Worldwide
C) Chip, an administrative employee, made copies and bound versions of the Forest Worldwide financial statements.
D) All of the above are members of the attest engagement team
Lindsay, a member, is an audit manager for Ngo & White, CPA’s. The firm has been engaged to audit the financial statements of Castle International for the year ended December 31, 20X4 and Lindsay is a key member of the engagement team.Fara, the CEO of Castle International, has been pursuing Lindsay for the past six months to convince her to become the CFO of Castle International. Up until now, Lindsay has maintained that she wants to stay with Ngo & White, CPA’s. However, Lindsay has decided to pursue Fara’s offer to become the CFO of Castle International. At the time that Lindsay decided to pursue the offer from Castle International, she was in the middle of the Castle International audit engagement. Which of the following statements is correct regarding Ngo & White, CPA’s independence with respect to Castle International as a result of Lindsay’s pursuit of the CFO position?
A) Since Lindsay has not received a specific offer of employment from Castle International, the firm’s independence is not impaired and she may continue on the audit engagement team.
B) If Lindsay promptly reports such consideration of employment to an appropriate person in the firm, she may continue on the audit engagement team and the firm’s independence is not impaired.
C) To maintain independence, Lindsay must promptly report her consideration of employment to an appropriate person in the firm and remove herself from the engagement until employment is no longer being sought
D) None of the above are correct statements.
Raymond & Raymond, CPA’s has offices in Kansas City and St. Louis. The Kansas City office of the firm performs an attest engagement for Luca Productions, Inc. which is located in Kansas City.Which of the following situations would impair the independence of Raymond & Raymond, CPA’s with respect to Luca Productions, Inc.?
A) Romero, the lead engagement partner who works in the Kansas City office, has a brother who is a camera operator for Luca Productions, Inc.
B) Sands, who works in the Kansas City office and is a participant on the engagement team, has a sister who is a receptionist for Luca Productions, Inc.
C) Moore, a partner in the St. Louis office who does not have any ability to influence the attest engagement, has a non-dependent daughter who works at Luca Productions, Inc. as a controller.
D) Young is a partner in the Kansas City office who does not do any work on the attest engagement. Her mother is the CFO for Luca Productions, Inc.
Which of the following, having been issued a license in California, is allowed to use the title of Certified Public Accountant, or the abbreviation CPA, without modification?
A) A Public Accountant
B) A retired Certified Public Accountant
C) An inactive Certified Public Accountant
D) All of the ab
E) Neither a, b, or c
Which of the following would not impair a member’s independence and is considered permitted employment?
A) The member’s mother, who is a dependent of the member, is an administrative assistant for the member’s attest client.
B) The member’s daughter, who is a dependent of the member, is the treasurer for the member’s attest client.
C) The member’s spouse is the controller for the member’s attest client.
D) All of the above would impair the member’s independence and are not considered permitted employment.
Jordyn, a member, recently hired a new administrative assistant. During the hiring process, she interviewed at least a dozen candidates for the position. Subsequent to hiring her new administrative person, a lawsuit was filed against Jordyn alleging discrimination in hiring which is a violation of state law. At what point has Jordyn committed an act discreditable to the profession?
A) When she allegedly committed the act.
B) When the lawsuit was filed.
C) If and when Jordyn is finally determined by a court of competent jurisdiction to have violated the state antidiscrimination law.
D) Since the act was not directly related to accounting itself, it is not an act discreditable to the profession.
Sherrie, a member, performs various bookkeeping functions for her very small closely held clients including posting cash receipts and disbursements to the client’s general ledger. The client provides Sherrie with copies of check stubs and deposit slips where the client has provided account codes that Sherrie merely records in the general ledger. In addition, on a monthly basis, Sherrie calculates adjusting journal entries for depreciation, amortization, and tax accruals and posts these entries to the client’s general ledger.Which of the following statements is true regarding Sherrie’s independence with regard to these bookkeeping clients?
A) Sherrie’s posting of client coded cash receipts and disbursements does not impair independence.
B) Sherrie’s posting of adjusting journal entries does not impair independence whether or not she discusses them with the client because these are routine accounting entries that small clients do not understand.
C) Neither of the described functions would impair independence under any circumstances.
D) None of the above statements is true.