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1. A two-office firm, one in Chippewa Falls and another in Fargo, has an audit client that is a medical equipment supplier. The lead audit partner for this client practices in the Fargo office, which is where the engagement is conducted. Which of the following stockholdings in the client will not impair the firm’s independence?
a – Holdings by managers in Chippewa Falls providing ten or more hours of non-attest services to the client.
b – Holdings by Chippewa Falls professional staff who provide no services to the client.
c – Holdings by Fargo partners.
d – Holdings by Fargo professional staff working on this engagement.
2. Becker & Smith, CPAs, and its client, Troper Lighting, are discussing a possible advisory engagement in which the firm would review Troper’s account receiveable (A/R) system and recommend changes that would improve the company’s collection process and speed collections. Troper proposes to pay Becker & Smith a fee based on improved performance in A/R collections. Would such an arrangement raise any ethical concerns?
a – No, but only if Troper is a publicly traded company subject to SEC and PCAOB rules.
b – No, provided Becker & Smith documents the arrangement clearly in the engagement letter.
c – Yes, but only if Becker & Smith was also Troper’s auditor.
d – Yes, if Becker & Smith also performed a review engagement for Troper.
3. Under the SEC rules, a one-year “cooling-off” period applies to which of the following professionals?
a – A tax manager participating in the client’s tax engagement who assumes an operational role with the client.
b – A lead audit partner who assumes a financial reporting oversight role with the client.
c – Professionals providing technology consulting services to the client who assume an executive role with the client.
d – Professionals providing consulting services to the client who assume a financial accounting role with the client.
4. Which of the following best describes a significant similarity between the AICPA and IESBA Codes?
a – Both Codes include a conceptual framework for evaluating independence when specific rules on a matter do not exist.
b – Both Codes contain specific ethics and independence provisions related to public interest entities.
c – The Codes are structured similarly.
d – The Codes contain the exact same provisions for corporate accountants.
5. Josie, an accounting supervisor in Monk & Sons Realty, instructs Maria, her employee, to make certain accounting entries in the company’s books that will affect revenue. Maria researches the matter and informs Josie that recognizing revenue is premature but Josie insists that she record the entries. The amount of revenue is material to Monk’s financial statements. Which of the following steps should Maria take first according to the AICPA rules?
a – Resign her position quietly.
b – Report the matter to the senior partner in the firm.
c – Take out a professional liability policy.
d – Discuss the matter with Josie’s boss.
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