CA Ethics and Governance 2

Question 1

A CPA discovers that a client has overstated revenue to meet loan covenants. The client refuses to correct the financials. What should the CPA do?

Accepted Answer

Withdraw from the engagement and consider reporting obligations

Answer

When a client refuses to correct material misstatements, the CPA must withdraw and evaluate reporting obligations under professional standards.

Question 2

Under the AICPA Code of Professional Conduct, which threat arises when a CPA audits financial statements they personally prepared?

Accepted Answer

Self-review threat

Answer

A self-review threat occurs when a CPA reviews their own prior work, compromising objectivity.

Question 3

Which governance body is primarily responsible for overseeing the external auditor in a publicly traded U.S. company?

Accepted Answer

Audit committee

Answer

The audit committee, composed of independent directors, is responsible for overseeing the external audit process under SEC and SOX requirements.

Question 4

A CPA's client pressures them to change an audit conclusion under threat of losing the engagement. This is an example of which threat to independence?

Accepted Answer

Intimidation threat

Answer

An intimidation threat occurs when a CPA is deterred from acting objectively by actual or perceived coercion from a client.

Question 5

Which principle of the AICPA Code of Professional Conduct requires CPAs to be straightforward and honest in professional and business relationships?

Accepted Answer

Integrity

Answer

Integrity requires CPAs to be honest and straightforward, avoiding subordination of judgment and misrepresentation.

(CA) Certified Accountant Practice Test

(CA) Certified Accountant Practice Test

CA Ethics and Governance 2