Ethics, Governance & Business Law Flashcards

Under the AICPA's confidentiality rules, a CPA may disclose confidential client information without client consent in which of the following situations?

Answer: When required by a validly issued and enforceable subpoena or court order

A CPA may disclose confidential client information when legally compelled to do so by a validly issued subpoena, summons, or court order.

A 'piercing the corporate veil' claim is most likely to succeed when:

Answer: Shareholders use the corporation as an alter ego and commingle personal and corporate assets

Courts will pierce the corporate veil and hold shareholders personally liable when the corporation is used as a mere alter ego, with commingling of funds and disregard of corporate formalities.

Under the AICPA's ethical standards, the 'reasonable and informed third party' test is used to evaluate whether:

Answer: A CPA's behavior would be considered appropriate by someone knowledgeable about the profession

This test asks whether a knowledgeable, reasonable person, aware of all relevant facts and professional standards, would conclude the CPA's behavior is appropriate.

Under the Securities Act of 1933, a 'red herring' prospectus is:

Answer: A preliminary prospectus distributed during the waiting period before SEC registration becomes effective

A red herring prospectus is a preliminary prospectus distributed to potential investors during the waiting period; it contains a legend in red ink stating the registration is not yet effective.

An audit committee of a publicly traded company is primarily composed of which type of board members under SOX requirements?

Answer: Independent directors who are not company employees or affiliates

SOX requires that all audit committee members be independent directors—they cannot be officers or employees of the company or have any other material relationship with it.

Under the AICPA Code of Professional Conduct, a CPA who accepts a contingent fee for a tax return preparation service would violate which fundamental principle?

Answer: Objectivity and independence

Contingent fees for tax services create a self-interest threat to objectivity and independence because the CPA's compensation depends on the result of the work performed.

Under the Uniform Commercial Code, a 'merchant's firm offer' is irrevocable for up to how long without requiring consideration?

Answer: 3 months

Under UCC Section 2-205, a signed written offer by a merchant stating it will remain open is irrevocable for the stated period, but no longer than 3 months, without consideration.