Mixed Deck — All CA Topics Flashcards

A self-employed individual earned $120,000 in net profit. What is the deductible portion of self-employment tax they can claim on their federal return?

Answer: 50% of SE tax paid

Self-employed individuals may deduct 50% of self-employment tax as an above-the-line deduction on Form 1040.

What is the main function of an audit in tax compliance?

Answer: To ensure accurate tax reporting

The main function of an audit in tax compliance is to independently verify that an organization's financial statements and tax returns accurately reflect its financial position and transactions. Auditors examine records to confirm adherence to tax laws and regulations, identifying any discrepancies or misstatements. This process helps maintain the integrity of the tax system and ensures fair contributions.

An auditor's independence would be considered impaired if they own which of the following interests in an audit client?

Answer: Any direct financial interest in the client

Any direct financial interest in an audit client impairs independence, regardless of the amount, under both AICPA and SEC rules.

Under Sarbanes-Oxley (SOX) Section 404, management is required to:

Answer: Assess and report on the effectiveness of internal controls over financial reporting

SOX Section 404 requires management to assess the design and operating effectiveness of internal controls over financial reporting and have that assessment attested by the external auditor.

A CPA firm discovers that a client has materially misstated revenue in previously issued financial statements. What is the firm's primary obligation?

Answer: Advise the client to restate the financials and withdraw the audit report if the client refuses

The CPA must advise the client to restate the financials; if the client refuses, the auditor should withdraw the report and notify appropriate parties.

Which of the following is a characteristic of a 'relevant cost' in decision-making?

Answer: It is a future cost that differs between alternatives

Relevant costs must be future-oriented and differ between the options being evaluated; sunk costs are irrelevant regardless of the decision.

In Chartered Certified Accountant, what does contingency planning involve?

Answer: Preparing backup plans for potential problems or changes

Contingency planning involves preparing alternative courses of action in case things do not go as planned.

Which procedure is classified as a substantive analytical procedure rather than a test of details?

Answer: Comparing the current year's gross margin percentage to prior years and industry averages

Substantive analytical procedures involve evaluating financial information through plausible relationships among data, such as trend and ratio analysis, rather than examining individual transactions.

Which short-term investment is most appropriate for a company's temporary excess cash that must remain highly liquid?

Answer: Treasury bills or money market funds

Treasury bills and money market funds offer high liquidity, capital preservation, and low risk — ideal for temporary surplus cash management.

The Dodd-Frank Act enhanced whistleblower protections in the United States by:

Answer: Offering financial awards to individuals who report securities law violations resulting in SEC enforcement actions over $1 million

Dodd-Frank established an SEC whistleblower program that pays eligible individuals 10–30% of sanctions collected in successful enforcement actions exceeding $1 million, significantly incentivizing reporting.

Environmental management accounting (EMA) differs from traditional management accounting primarily by:

Answer: Separately identifying and tracking environment-related costs often hidden in overheads

EMA makes environmental costs visible by extracting them from general overhead pools, enabling better decisions about pollution control, waste reduction, and resource use.

Which depreciation method must be used for residential rental property placed in service after 1986 under MACRS?

Answer: Straight-line over 27.5 years

Residential rental property uses the straight-line method over a 27.5-year recovery period under the GDS of MACRS.

Under IRC Section 125, a cafeteria plan allows employees to pay for qualified benefits with pre-tax dollars. Which of the following is NOT a qualified benefit under a Section 125 plan?

Answer: Vacation pay cash-out

Vacation pay cash-outs are not a qualified benefit under Section 125 and cannot be paid with pre-tax dollars through a cafeteria plan.

Under the Affordable Care Act, employers with 50 or more full-time equivalent employees must offer health coverage or face penalties. This is known as:

Answer: The employer shared responsibility provision (Pay or Play)

The ACA's employer shared responsibility provision (commonly called 'Pay or Play') requires applicable large employers to offer affordable minimum essential coverage or pay penalties.

Which type of audit opinion is issued when financial statements are fairly presented except for a specific material matter?

Answer: Qualified opinion

A qualified opinion uses 'except for' language to indicate the financial statements are fairly presented except for the specified matter.

Under the fraud triangle model, which three conditions are necessary for fraud to occur?

Answer: Pressure, opportunity, and rationalization

The fraud triangle, developed by Donald Cressey, identifies pressure (incentive), opportunity (weak controls), and rationalization (justification) as the three conditions that together enable fraud.

A key indicator of a significant deficiency in internal controls (as opposed to a material weakness) is:

Answer: A control deficiency that is less severe than a material weakness yet important enough to merit attention by those charged with governance

A significant deficiency is a control deficiency, or combination of deficiencies, that is less severe than a material weakness but still warrants the attention of those charged with governance.

A garnishment order requires withholding 25% of an employee's disposable earnings. The employee's weekly disposable earnings are $480. Federal minimum wage is $7.25/hour (30× = $217.50). What is the maximum allowable garnishment?

Answer: $120.00

The CCPA limits garnishment to the lesser of 25% of disposable earnings ($120) or the amount exceeding 30× minimum wage ($262.50), so $120 applies.

Which of the following best exemplifies a 'related diversification' strategy?

Answer: An airline launching a hotel booking service

Related diversification leverages existing competencies or value chain links; an airline entering hotel bookings shares distribution, customers, and travel industry expertise.

Which of the following best illustrates the concept of 'substantive testing'?

Answer: Reperforming a client's bank reconciliation to verify its accuracy

Reperforming the bank reconciliation directly tests the accuracy and completeness of a specific financial statement balance — a substantive procedure.