FinalExam Ethics & Professional Conduct for CPAs

7/27/2019 FinalExam Ethics & Professional Conduct for CPAs

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Final ExaminationEthics & Professional Conduct for CPAs

Course # 4100547, Version 1003

Course Expiration Date

AICPA and NASBA Standards require all Self-Study courses to be completed and the final examsubmitted within 1 year from the date of purchase as shown on your invoice . No extensionsare allowed under AICPA/NASBA rules. On rare occasion, in response to customer feedback,Western CPE deems it necessary to change one or more of the final exam questions. Thank youfor choosing Western CPE for your continuing professional education needs.

1. Which of the following is not included in Webster’s definition of ethics:

a) the discipline dealing with moral duty and obligation b) a set of moral principles or valuesc) doing that which one is legally obligated to dod) the discipline dealing with what is good and bad

2. According to philosopher John Austin, the AICPA Code of Professional Conduct would beclassified as:

a) a categorical imperative b) a natural lawc) a positive lawd) a philosophical model

3. Professional codes of ethics have been developed in order to:

a) protect consumers b) promote the professionc) both of the aboved) none of the above

4. The fundamental theme of the Principles of the Code of Professional Conduct is to be:

a) committed to honorable behavior b) accurate in the performance of responsibilitiesc) fair in the fees charged for servicesd) timely in the return of documents

5. Which of the following is not one of the bodies designated by the AICPA Council to promulgateaccounting principles:

a) FASB b) IASBc) IRSd) GASB



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6. Rule 302 prohibits certain contingent fees. Which of the following is not considered acontingent fee:

a) performing a review where the CPA receives a fee based on 1% of gross sales

b) performing an audit under a five-year contract where the CPA receives an audit fee of 10%of net incomec) charging $5,000 for a review of a new client’s financial statements when existing clients are

charged only $3,000 for a similar review, since a first time review is generally more timeconsuming than a review in subsequent years

d) preparing an original income tax return for 20% of the refund, if any

7. Which of the following AICPA members can accept a commission from a client during the period the services identified are performed:

a) if the member did not personally participate in the audit of the client associated with the

member’s firm b) if the member performed a review of the financial statements of the client, but disclosed thelack of independence

c) if the member performed a compilation of the financial statements of the client, butdisclosed the lack of independence

d) if the member performed an examination of prospective financial information, but disclosedthe lack of independence

8. Nash, Smith and Jones is a CPA firm. What percentage of the CPA owners of Nash, Smith andJones must be members of the AICPA in order for the firm to designate itself “Members of theAmerican Institute of Certified Public Accountants” (Rule 505-Form of Organization and Name):

a) 100% b) 51%c) 50%d) 25%

9. The AICPA allows a CPA firm to be owned by a non-CPA if several guidelines are met;including which of the following (Rule 505):

a) 51% of the ownership must be held by CPAs b) a non-CPA owner must be actively engaged in providing services to the firm’s clientsc) a non-CPA owner may not hold him or herself out as a CPAd) all of the above

10. In which of the following circumstances is independence considered impaired (Interpretation101-1):



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a) during the period of professional engagement, a professional employee of the firm ownedmore than 5 percent of a client’s outstanding equity securities

b) during the period of engagement, a covered member of the CPA firm had a materialindirect financial interest in the client

c) during the period of the engagement, a professional employee of the CPA firm was a

trustee of the client’s pension plan

d) all of the above

11. A potential audit client is owned by the CPA’s stepbrother. Would the CPA be considered“independent” under Rule 101 and Interpretation 101-1:

a) yes, a stepbrother is not listed in Rule 101 as a “non permitted” relative. Therefore,independence is not impaired

b) no, a stepbrother is, by definition, a “non-permitted” relativec) maybe, a stepbrother is not considered a close relative under the independence rules.

However, independence could be impaired if the relationship between the CPA and the

stepbrother was very closed) none of the above

12. Nash, CPA has been the auditor for XYZ Industries for several years. The client subsequentlydiscovered a defalcation that has been going on for most of that time. The client has indicatedthat Nash, CPA may be named by XYZ Industries in a lawsuit resulting from the deficiencies inaudit work. Nash, CPA believes that the present management of XYZ Industries will file suitwithin the next month. Which of the following is true (Interpretation 101-6):

a) threatened or actual litigation alleging deficiencies in audit work are considered to impairindependence

b) independence would be impaired only if/when the suit is filedc) independence would be impaired only if the suit were filed and the damages claimed

exceeded the firm’s annual gross billingsd) the workings of the legal system are a fact of life for the CPA today. Accordingly, Nash,

CPA would not have to alter or adjust his services in any manner

13. Integrity and objectivity are essential to the CPA profession. Which of the following is trueregarding integrity and objectivity (Rule 102):

a) integrity is easy to judge because any particular error is easily classifiable as either anhonest error or due to lack of integrity

b) it would be easy to enumerate a comprehensive list of all situations that would impairobjectivity

c) it would be easy to enumerate a comprehensive list of all situations that would impairintegrity

d) it would be impractical to define all situations that would lead to an impairment ofobjectivity or integrity



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14. The IRS informally requested that a CPA provide copies of documents relating to a priorclient of the CPA. The CPA is not able to locate the client to obtain permission to release thedocuments. Which of the following is true regarding the CPA handing over the documents(Interpretation 301-3):

a) since only copies of the documents and not the originals were requested, the CPA shouldturn over the requested copies b) the CPA should hand over the documents or the IRS may audit other clients of the CPAc) a CPA cannot release confidential client information without the specific consent of the

client unless the CPA receives a subpoena or summonsd) the CPA should destroy the original documents

15. Rule 302 generally prohibits contingent fees. Which of the following is a prohibited contingentfee (Interpretation 302-1):

a) filing an amended return for a client whereby a tax refund is claimed based on an issue that

is the subject of a test case (not involving the client) b) charging a contingent fee for preparing an amended return that is based on an obviousomission of a deduction

c) offering a new client the choice of one hour free tax consultation or a 10% discount on taxreturn preparation

d) representing the client before the IRS where the IRS is auditing the client’s return

16. According to the AICPA, a CPA or CPA firm in public practice may use which of the followingforms of practice (Rule 505):

a) any form of organization permitted by law or regulation whose characteristics conform toresolutions of council

b) only a sole proprietorship, general partnership, or limited liability partnershipc) only a sole proprietorship, general partnership or professional corporationd) only a sole proprietorship or general partnership

17. Circular 230 prescribes regulations governing the practice before the Internal Revenue Service.Which of the following is considered “practicing before the IRS”:

a) representing a member of your immediate family b) a general partner representing the partnershipc) participating in rulemaking by submitting comments on the fairness of proposed regulationsd) none of the above

18. According to Circular 230, a practitioner may generally determine the rate and fee structure tocharge clients. Which of the following methods is not permitted under Circular 230:

a) fixed fees for specific routine services (e.g., $150 for a Form 1040A) b) a flat percentage fee based on the amount of refund on a Form 1040c) hourly rates



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d) a range of fees for particular services with a higher fee charged for more complex situations

19. According to Circular 230, a practitioner who prepares tax returns may do which of thefollowing related to a check issued to a client by the government in respect of a federal taxliability:

a) receive and endorse the check under any circumstances b) receive and endorse the check if the taxpayer completes Form 2848, Power of Attorney and

Declaration of Representativec) receive, but not endorse the check if the taxpayer completes Form 2848, Power of Attorney

and Declaration of Representatived) neither receive nor endorse the check, even if the taxpayer completes Form 2848, Power of

Attorney and Declaration of Representative

20. In preparing the tax return for Nash Plumbing, Inc., you notice a large deduction for “consultingservices.” You ask your client to explain this deduction, and he explains it represents tuition

paid for his son to attend college. You know that no 1099 or W-2 was issued for these servicesnor is any of this income reflected on your client’s personal tax return or his son’s. Your clientstates that “everyone” in this industry does this. This deduction is equivalent to 20% of the netincome. Which of the following is correct regarding your ability to sign the tax return for NashPlumbing, Inc. per Circular 230 (Section 10.34):

a) you may sign the return since the return meets the “nonfrivolous standard” b) the client’s assertion that the deduction is industry practice is frivolous. Accordingly, the

position does not meet Section 10.34, and you may not sign the returnc) you may sign the return only if the deduction is clearly identified on the return as

“consulting expense paid to son” or some similar disclosured) you may sign the return since everything on the return is the representation of the client

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FinalExam Ethics & Professional Conduct for CPAs