CPA CFE Ethics and Professional Responsibility — Questions and Answers
Question 1: 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?
- Integrity
- Objectivity
- Profitability (Correct answer)
- Confidentiality
Correct answer: Profitability
The five fundamental principles are Integrity, Objectivity, Professional Competence and Due Care, Confidentiality, and Professional Behaviour — profitability is not among them.
Question 2: 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?
- Advocacy threat
- Self-interest threat (Correct answer)
- Familiarity threat
- Intimidation threat
Correct 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.
Question 3: 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:
- Refuse in all circumstances to protect client confidentiality
- Comply if legally compelled to disclose by a court order or legislation (Correct answer)
- Disclose only after obtaining approval from CPA Canada
- Provide only summarized information rather than original records
Correct 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.
Question 4: 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:
- Serve the client who pays higher fees
- Disclose the conflict and obtain informed consent from all affected parties or withdraw (Correct answer)
- Keep the conflict confidential to maintain client trust
- Refer both clients to separate CPA firms immediately
Correct 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.
Question 5: The principle of professional competence and due care requires a CPA to:
- Accept all client engagements regardless of complexity
- Maintain knowledge and skill at the level of a competent professional and act diligently (Correct answer)
- Guarantee error-free work on all engagements
- Outsource complex tasks to non-CPA specialists without supervision
Correct 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.
Question 6: 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:
- Permitted if the client provides written consent
- Generally prohibited as it creates a self-interest threat to objectivity (Correct answer)
- Permitted as long as the percentage is reasonable and disclosed
- Permitted only for non-public company clients
Correct 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.
Question 7: When facing an ethical dilemma, the CPA Canada ethical decision-making framework recommends that a CPA first:
- Consult a lawyer before taking any action
- Identify the relevant facts, parties involved, and ethical issues at stake (Correct answer)
- Report the matter immediately to the relevant regulatory body
- Withdraw from the engagement without further analysis
Correct 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.
Question 8: 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:
- Self-interest threat
- Self-review threat (Correct answer)
- Advocacy threat
- Intimidation threat
Correct 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.
Question 9: 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?
- Familiarity threat
- Self-interest threat
- Advocacy threat (Correct answer)
- Self-review threat
Correct 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.
Question 10: 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:
- Intimidation threat
- Familiarity threat (Correct answer)
- Self-review threat
- Advocacy threat
Correct 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.
Question 11: 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?
- Self-interest threat
- Advocacy threat
- Familiarity threat
- Intimidation threat (Correct answer)
Correct 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.
Question 12: 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?
- Revocation of the member's university degree in accounting
- Reprimand, fine, suspension, or cancellation of CPA membership (Correct answer)
- Mandatory referral to law enforcement in all cases
- Automatic civil liability to affected third parties
Correct 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.
Question 13: 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:
- Always prioritize the paying client's interests to maintain the business relationship
- Prioritize the public interest and refuse to subordinate their professional judgment to the client (Correct answer)
- Seek a compromise that partially satisfies both the client and public interest requirements
- Defer to the client's legal counsel on how to balance these competing interests
Correct 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.
Question 14: Professional skepticism, which is particularly important during an audit engagement, is best described as:
- Assuming all client representations are false until proven otherwise
- An attitude that includes a questioning mind and critical assessment of audit evidence (Correct answer)
- Refusing to rely on any client-provided documentation
- Conducting all audit procedures at the highest level of assurance possible
Correct 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.
