CA Regulatory Compliance & Ethics 3 — Questions and Answers
Question 1: The Foreign Corrupt Practices Act (FCPA) prohibits U.S. companies and persons from doing which of the following?
- Paying taxes in foreign jurisdictions
- Bribing foreign government officials to obtain or retain business (Correct answer)
- Hiring foreign nationals for domestic operations
- Repatriating profits from foreign subsidiaries
Correct answer: Bribing foreign government officials to obtain or retain business
The FCPA prohibits U.S. entities and individuals from paying bribes to foreign officials to gain or maintain business advantages.
Question 2: Which of the following is considered a 'safeguard created by the profession' under the AICPA conceptual framework?
- Client's audit committee oversight
- CPA's personal code of conduct
- Mandatory peer review programs (Correct answer)
- Internal control procedures
Correct answer: Mandatory peer review programs
Mandatory peer review programs are profession-level safeguards established by professional bodies to reduce threats to compliance with ethical principles.
Question 3: Under the Dodd-Frank Act, which of the following whistleblower protections applies to employees who report securities violations?
- Immunity from all civil lawsuits
- Protection from employer retaliation and potential financial awards (Correct answer)
- Mandatory anonymity in all proceedings
- Exemption from SEC investigations
Correct answer: Protection from employer retaliation and potential financial awards
Dodd-Frank protects whistleblowers from employer retaliation and provides financial awards of 10-30% of sanctions over $1 million for valid tips.
Question 4: An auditor's independence would be considered impaired if they own which of the following interests in an audit client?
- A mutual fund that holds less than 5% of the client's stock
- Immaterial indirect financial interest through a diversified fund
- Any direct financial interest in the client (Correct answer)
- A retirement plan that previously held client shares
Correct 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.
Question 5: Which type of audit opinion is issued when financial statements contain a material misstatement that is pervasive?
- Qualified opinion
- Adverse opinion (Correct answer)
- Disclaimer of opinion
- Unmodified opinion with emphasis paragraph
Correct answer: Adverse opinion
An adverse opinion is issued when misstatements are both material and pervasive, indicating the statements do not fairly present financial position.
Question 6: Under the Bank Secrecy Act, financial institutions must file a Currency Transaction Report (CTR) for cash transactions exceeding what amount?
- $5,000
- $10,000 (Correct answer)
- $25,000
- $50,000
Correct answer: $10,000
The BSA requires CTR filing for currency transactions exceeding $10,000 in a single business day.
Question 7: A CPA working in industry discovers their employer has committed an illegal act. After internal escalation fails, what should the CPA do next according to professional standards?
- Immediately resign without further action
- Consult legal counsel and consider further reporting obligations (Correct answer)
- Report directly to the SEC
- Issue a press release to inform the public
Correct answer: Consult legal counsel and consider further reporting obligations
After failed internal escalation, the CPA should seek legal counsel to understand their reporting obligations and potential whistleblower protections before taking further action.
CA Regulatory Compliance & Ethics 3
The Foreign Corrupt Practices Act (FCPA) prohibits U.S. companies and persons from doing which of the following?