CPA Professional Code Of Conduct Quiz - 2

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| By Ozlemfritz
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Ozlemfritz
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Quizzes Created: 1 | Total Attempts: 264
| Attempts: 264
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  • 1/8 Questions

    A partner in a multioffice CPA firm owns 2% of a potential audit client. The engagement wouldbe performed by an office with which he is not associated. The partner would not provide any services to the client nor be in a position to influence the engagement team. Is the firm independent to perform the audit?

    • Yes
    • No
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About This Quiz

It's second quiz of CPA (professional code of conduct rule 101), Let's take this second quiz and learn about it!

CPA Professional Code Of Conduct Quiz - 2 - Quiz

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  • 2. 

    A manager in a multioffice CPA firm serves on the board of directors of a potential reviewclient. The manager would not be assigned to provide services to the client nor located in the office that would perform the engagement. Is the firm independent to perform the review?

    • Yes

    • No

    Correct Answer
    A. No
    Explanation
    The manager serving on the board of directors of a potential review client creates a conflict of interest. Even though the manager would not be directly involved in providing services to the client and would not be located in the office performing the engagement, their position on the board could still compromise the firm's independence. This is because the manager may have access to confidential information or exert influence over the client's financial reporting. Therefore, the firm would not be considered independent to perform the review.

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  • 3. 

     A multioffice CPA firm has been asked to perform an audit of a company, and the engagement will be handled by the Jersey City, New Jersey, office. Three firm managers, who work in a separate office, pooled their money to purchase the company’s stock. After the purchase, each owns 2% of that company’s outstanding common stock. The audit would not involve any members of the managers’ office. Is the firm independent to perform the engagement?

    • Yes

    • No

    Correct Answer
    A. No
    Explanation
    No, the firm is not independent to perform the engagement because three firm managers, who work in a separate office, have a financial interest in the company being audited. They own 2% of the company's outstanding common stock. This financial interest could compromise the objectivity and impartiality of the audit process, as the managers may have a vested interest in the outcome of the audit. Independence is a fundamental principle in auditing to ensure the integrity and credibility of the audit opinion.

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  • 4. 

    A partner’s dependent son works as an inventory clerk during the summer months for an auditclient of the firm. The partner is located in the office in which the lead audit engagement partner practices. Is the firm independent?

    • Yes

    • No

    Correct Answer
    A. Yes
    Explanation
    The firm is independent because there is no direct financial relationship between the partner and the audit client. The partner's dependent son working as an inventory clerk for the client during the summer months does not create a conflict of interest or impair the firm's independence.

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  • 5. 

    A bank retains a CPA firm to perform an audit. During the period of the professionalengagement, a manager in the CPA firm obtains a mortgage from the bank. He works in the same office as the lead partner on the audit but does not provide any services to the bank. Is the firm’s independence impaired?

    • Yes

    • No

    Correct Answer
    A. Yes
    Explanation
    The firm's independence is impaired because a manager in the CPA firm obtained a mortgage from the bank during the period of the professional engagement. Even though the manager did not provide any services to the bank, the personal financial relationship between the manager and the bank creates a threat to the firm's independence. This could potentially compromise the objectivity and impartiality of the audit process, as the firm may be influenced to favor the bank due to the personal relationship.

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  • 6. 

    A CPA firm is considering hiring the controller of one of its audit clients as a part-timeindependent contractor during tax season. She would help prepare tax returns for other clients of the CPA firm, all of which are nonattest clients. The firm has two offices and she would be working out of the one that does not provide any services to her primary employer. If she is hired, would the CPA firm’s independence be impaired with respect to that client?

    • Yes

    • No

    Correct Answer
    A. Yes
    Explanation
    Yes, the CPA firm's independence would be impaired with respect to that client because the controller, who is an employee of the audit client, would be working for the CPA firm as an independent contractor. This creates a conflict of interest and could compromise the objectivity and independence of the CPA firm in conducting audits for the client.

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  • 7. 

    A CPA firm performs an audit of a large manufacturing company. One of the firm’s managers,who plans to provide a significant amount of tax services to the company, has a spouse who inheriteda small amount of stock in it. The manager does not work in the same office as the lead audit partner.Is the firm’s independence impaired?

    • Yes

    • No

    Correct Answer
    A. No
    Explanation
    The firm's independence is not impaired because the manager does not work in the same office as the lead audit partner. The fact that the manager's spouse inherited a small amount of stock in the manufacturing company does not directly affect the independence of the audit process. As long as the manager does not have any direct involvement in the audit and the lead audit partner remains unbiased and independent, the firm's independence is not compromised.

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  • 8. 

    A small manufacturing company has asked a CPA firm to perform an audit. The company’scontroller is the engagement partner’s mother-in-law. Would the firm be considered independent for purposes of accepting the audit engagement?

    • Yes

    • No

    Correct Answer
    A. Yes
    Explanation
    The CPA firm would be considered independent for accepting the audit engagement because the controller being the engagement partner's mother-in-law does not create a direct financial or personal relationship that would impair the firm's objectivity or integrity. As long as the firm can demonstrate that it will conduct the audit objectively and without any conflicts of interest, it can proceed with the engagement.

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  • Current Version
  • Mar 21, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Oct 16, 2009
    Quiz Created by
    Ozlemfritz
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