Auditing and Assurance Training Professional Standards and Ethics in Auditing 2 — Questions and Answers
Question 1: Under the AICPA Code, a CPA must maintain objectivity, which means:
- Performing only one type of engagement per client
- Avoiding conflicts of interest and not allowing bias or undue influence to override professional judgment (Correct answer)
- Refusing all advisory engagements to avoid appearance issues
- Only working for non-profit clients
Correct answer: Avoiding conflicts of interest and not allowing bias or undue influence to override professional judgment
Objectivity requires CPAs to act without personal bias, conflict of interest, or undue influence from others when performing professional services.
Question 2: Non-audit services provided by an audit firm to its SEC audit client are restricted under the Sarbanes-Oxley Act. Which of the following services is PROHIBITED?
- Attest services on SEC filings
- Bookkeeping services for the audit client (Correct answer)
- Tax compliance reviews unrelated to the audit
- Agreed-upon procedures engagements
Correct answer: Bookkeeping services for the audit client
SOX Section 201 prohibits audit firms from providing bookkeeping and several other non-audit services to their SEC audit clients, to prevent conflicts of interest.
Question 3: The AICPA's 'conceptual framework' approach for independence requires CPAs to evaluate threats to independence and apply:
- Only the rules listed in the code regardless of circumstances
- Safeguards sufficient to eliminate or reduce threats to an acceptable level (Correct answer)
- An automatic waiver if the client approves the relationship
- A complaint to the state board before proceeding
Correct answer: Safeguards sufficient to eliminate or reduce threats to an acceptable level
When a specific rule doesn't address a situation, CPAs must use the conceptual framework to identify threats and determine whether available safeguards adequately mitigate them.
Question 4: Confidentiality under the AICPA Code means a CPA should NOT disclose client information without consent EXCEPT when:
- A competitor asks for it
- Required by a court subpoena or compliance with professional standards (Correct answer)
- A journalist requests it for a story
- The CPA believes it would benefit the public
Correct answer: Required by a court subpoena or compliance with professional standards
Confidentiality can be overridden by legal obligations such as court orders, regulatory requirements, or professional standards that mandate disclosure.
Question 5: Audit committee communication requirements under AU-C Section 260 require the auditor to discuss all of the following EXCEPT:
- Significant accounting policies and estimates
- The auditor's responsibility under GAAS
- The detailed billing rates for each audit team member (Correct answer)
- Significant difficulties encountered during the audit
Correct answer: The detailed billing rates for each audit team member
AU-C 260 specifies a range of substantive matters to communicate to the audit committee but does not require disclosure of the firm's internal fee structure or billing rates.
Question 6: The 'due professional care' standard requires that an auditor:
- Guarantee that no material misstatements exist
- Apply the skill and diligence that a competent auditor would exercise in similar circumstances (Correct answer)
- Verify 100% of all transactions for high-risk clients
- Only use automated audit tools approved by the PCAOB
Correct answer: Apply the skill and diligence that a competent auditor would exercise in similar circumstances
Due professional care is a standard of reasonable competence and diligence — not a guarantee of perfect results, but the effort a reasonably skilled auditor would apply.
Auditing and Assurance Training Professional Standards and Ethics in Auditing 2
Under the AICPA Code, a CPA must maintain objectivity, which means: