Quiz Of The Week: Ethics And Professional Conduct

1. Regarding the ACAT Code of Ethics, which one of the following characteristics cannot co-exist with ethical conduct?

Personal integrity

Honesty and candor without personal gain or advantage

An innocent error or legitimate difference of opinion

Deceit or subordination of one’s principles

The correct answer is D. Principle 1 states that “integrity cannot co-exist with deceit or subordination of one’s principles.” Personal integrity is the ultimate source of public trust. Integrity demands both honesty and candor. Within the characteristic of integrity, allowance can be made for innocent error and legitimate difference of opinion.

Explanation

The correct answer is D. Principle 1 states that “integrity cannot co-exist with deceit or subordination of one’s principles.” Personal integrity is the ultimate source of public trust. Integrity demands both honesty and candor. Within the characteristic of integrity, allowance can be made for innocent error and legitimate difference of opinion.

2. A covered opinion must prominently disclose all of the following except:

Why the taxpayer should hire the tax professional

The relationship between the promoter and the practitioner

Any compensation agreement

Any referral agreement

The correct answer is A. A covered opinion would not include the benefits of hiring a particular tax professional. B is incorrect as Circular 230 states a covered opinion must disclose the relationship between the promoter and the practitioner. C is incorrect as Circular 230 states a covered opinion must disclose any compensation agreement. D is incorrect as Circular 230 states a covered opinion must disclose any referral agreement.

Explanation

The correct answer is A. A covered opinion would not include the benefits of hiring a particular tax professional. B is incorrect as Circular 230 states a covered opinion must disclose the relationship between the promoter and the practitioner. C is incorrect as Circular 230 states a covered opinion must disclose any compensation agreement. D is incorrect as Circular 230 states a covered opinion must disclose any referral agreement.

3. Under Section 10.34 of Circular 230 – Standards for advising with respect to tax return positions and for preparing or signing returns – what is the definition of the realistic possibility standard?

In a reasonable consideration, the position taken on the tax return could be sustained

Based upon industry standards, the deduction is sustainable

The correct answer is C. Section 10.34-d. Definitions. For purposes of this section – 1. Realistic possibility. A position is considered to have a realistic possibility of being sustained on its merits if a reasonable and well informed analysis of the law and the facts by a person knowledgeable in the tax law would lead such a person to conclude that the position has approximately a one in three, or greater, likelihood of being sustained on its merits. No other definition is offered, making C the only acceptable answer.

Explanation

The correct answer is C. Section 10.34-d. Definitions. For purposes of this section – 1. Realistic possibility. A position is considered to have a realistic possibility of being sustained on its merits if a reasonable and well informed analysis of the law and the facts by a person knowledgeable in the tax law would lead such a person to conclude that the position has approximately a one in three, or greater, likelihood of being sustained on its merits. No other definition is offered, making C the only acceptable answer.

4. When independence of the accountant is impaired, an accountant is precluded from issuing a review report on the financial statement; however, a compilation report may be issued with the disclosure of the lack of independence. In the compilation report, the reason for the lack of independence should not:

Be purely personal in nature

Be subjective

Be described

Be prejudiced

The correct answer is C. The reason for the lack of independence should not be described. It is sufficient that the review report on the financial statement is precluded and only a compilation report issued based upon lack of independence. The reason for the lack of independence should not be disclosed. Lack of independence can be affected by issues of subjectivity, prejudice, or other items purely of personal nature, but they would not affect the presentation of the compilation report.

Explanation

The correct answer is C. The reason for the lack of independence should not be described. It is sufficient that the review report on the financial statement is precluded and only a compilation report issued based upon lack of independence. The reason for the lack of independence should not be disclosed. Lack of independence can be affected by issues of subjectivity, prejudice, or other items purely of personal nature, but they would not affect the presentation of the compilation report.