Ethics and Professional Responsibility Flashcards

According to the CPA Canada Code of Professional Conduct, which of the following is NOT one of the five fundamental principles that all CPAs must uphold?

Answer: Profitability

The five fundamental principles are Integrity, Objectivity, Professional Competence and Due Care, Confidentiality, and Professional Behaviour — profitability is not among them.

A CPA firm is auditing a client and discovers that the audit partner owns 200 shares in that client company. Under the CPA Code of Professional Conduct, this situation primarily creates which type of threat to independence?

Answer: Self-interest threat

A financial interest in an audit client creates a self-interest threat because the auditor may be influenced by a desire to protect or enhance that personal financial position.

A CPA is asked by a law enforcement agency to provide a client's financial records without the client's consent. Under the principle of confidentiality, the CPA should:

Answer: Comply if legally compelled to disclose by a court order or legislation

Confidentiality does not prevent disclosure when required by law or a court order — legal compulsion is a recognized exception to the duty of confidentiality.

Under the CPA Code of Professional Conduct, a conflict of interest arises when a CPA's duty to one client conflicts with their duty to another client. The primary obligation of the CPA in this situation is to:

Answer: Disclose the conflict and obtain informed consent from all affected parties or withdraw

The CPA must disclose the conflict to all affected parties and obtain their informed consent, or withdraw from acting for one or both parties if consent cannot be obtained.

The principle of professional competence and due care requires a CPA to:

Answer: Maintain knowledge and skill at the level of a competent professional and act diligently

Professional competence and due care require maintaining relevant knowledge and skill and applying that competence diligently, carefully, and in accordance with applicable standards.

A CPA sets their fees as a percentage of the amount of a tax refund obtained for a client. Under the CPA Code of Professional Conduct, this contingency fee arrangement for tax services is:

Answer: Generally prohibited as it creates a self-interest threat to objectivity

Contingency fees for tax services are generally prohibited because they create a self-interest threat that may impair the CPA's objectivity and professional judgment.

When facing an ethical dilemma, the CPA Canada ethical decision-making framework recommends that a CPA first:

Answer: Identify the relevant facts, parties involved, and ethical issues at stake

The first step in an ethical decision-making framework is to identify and understand the facts, stakeholders, and ethical issues before evaluating options or taking action.

A CPA who audited a client's financial statements for three years is now asked to perform a tax reorganization review of the same client's prior-year financial results. This situation most likely creates a:

Answer: Self-review threat

A self-review threat arises when a CPA reviews work they previously performed, as they may be reluctant to identify deficiencies in their own prior work.

A CPA is asked by a client to actively promote the client's position in a dispute before a tax tribunal. This situation most likely creates which type of threat to independence?

Answer: Advocacy threat

An advocacy threat arises when a CPA promotes a client's position or opinion to the point where their objectivity may be compromised.

A CPA firm has provided bookkeeping services to an audit client for 15 years and the lead audit partner has developed a close personal friendship with the client's CFO. This situation most likely creates a:

Answer: Familiarity threat

A familiarity threat arises when a CPA becomes too sympathetic or trusting of a client due to a close relationship over time, which may compromise their professional skepticism.

A client threatens to report a CPA to their provincial regulator unless the CPA provides a favourable audit opinion. This is an example of which threat to independence?

Answer: Intimidation threat

An intimidation threat arises when a CPA is deterred from acting objectively by actual or perceived threats or pressure from a client or other party.

A CPA member has been found guilty of conduct unbecoming a CPA. Under the CPA Canada disciplinary process, which of the following penalties can the disciplinary body impose?

Answer: Reprimand, fine, suspension, or cancellation of CPA membership

The CPA disciplinary process can impose a range of penalties including reprimands, fines, conditions on practice, suspension, or cancellation of membership depending on the severity of the misconduct.

The CPA Canada Code of Professional Conduct states that CPAs owe their primary duty to the public interest. This means that when a client's interests conflict with the public interest, the CPA must:

Answer: Prioritize the public interest and refuse to subordinate their professional judgment to the client

The CPA profession exists to serve the public interest, and when this conflicts with a client's wishes, the CPA must not subordinate their professional judgment and must uphold the public interest.

Professional skepticism, which is particularly important during an audit engagement, is best described as:

Answer: An attitude that includes a questioning mind and critical assessment of audit evidence

Professional skepticism is an attitude of questioning mind, alert to conditions indicating possible misstatement, and critically assessing audit evidence — it is neither unconditional suspicion nor unconditional trust.