CPA CFE Ethics and Professional Responsibility 2 — Questions and Answers
Question 1: Under Canada's Proceeds of Crime (Money Laundering) and Terrorist Financing Act, CPAs in certain roles are considered 'reporting entities.' Which of the following obligations does this impose on them?
- Report all client tax information to FINTRAC annually
- Report suspicious transactions and large cash transactions to FINTRAC (Correct answer)
- Obtain anti-money laundering approval before accepting any client
- Disclose all client financial data to the Canada Revenue Agency
Correct answer: Report suspicious transactions and large cash transactions to FINTRAC
Reporting entities must report suspicious transactions and cash transactions of $10,000 or more to FINTRAC, Canada's financial intelligence unit.
Question 2: A CPA identifies a threat to their independence but concludes that safeguards can reduce it to an acceptable level. Which of the following is an example of a firm-level safeguard?
- The client agrees to the engagement without conditions
- Quality control policies requiring partner review of independence assessments (Correct answer)
- The CPA personally decides the threat is immaterial
- Reducing the engagement fee to demonstrate goodwill
Correct answer: Quality control policies requiring partner review of independence assessments
Firm-level safeguards include quality control policies and procedures, such as independent partner reviews of independence and ethics compliance.
Question 3: The principle of objectivity requires that a CPA's professional judgment must not be compromised by:
- Client requests for timely delivery of work
- Bias, conflict of interest, or undue influence of others (Correct answer)
- Complexity of the applicable accounting standards
- The need to meet regulatory filing deadlines
Correct answer: Bias, conflict of interest, or undue influence of others
Objectivity means that a CPA's professional judgment must be free from bias, conflict of interest, or undue influence that could override their professional or business judgments.
Question 4: The principle of integrity under the CPA Code of Professional Conduct primarily means that a CPA must be:
- Technically proficient in all areas of accounting
- Straightforward and honest in all professional and business relationships (Correct answer)
- Efficient in completing client work within budget
- Compliant with all provincial tax regulations
Correct answer: Straightforward and honest in all professional and business relationships
Integrity requires that CPAs be straightforward and honest in all professional and business relationships, avoiding misleading statements or omissions.
Question 5: A CPA discovers that their employer is engaged in material financial fraud. The CPA has raised the concern internally and been ignored. Under the CPA Code's guidance on responding to non-compliance with laws and regulations (NOCLAR), the CPA should:
- Continue working and document all concerns in a personal file
- Consider escalating the matter or, if necessary, reporting to an appropriate external authority (Correct answer)
- Immediately resign and take no further action to preserve confidentiality
- File an anonymous complaint with the CRA without disclosing their identity
Correct answer: Consider escalating the matter or, if necessary, reporting to an appropriate external authority
Under NOCLAR guidance, when internal escalation fails, the CPA should consider whether to report the non-compliance to an appropriate external authority to protect the public interest.
Question 6: A CPA in public practice holds client funds in trust. The most fundamental rule governing trust accounts under the CPA Code of Professional Conduct is:
- Trust funds may be commingled with the firm's operating funds if kept in separate ledgers
- Client funds must be kept separate from the firm's own funds at all times (Correct answer)
- Trust funds can be used temporarily if replenished before month-end
- The CPA must invest trust funds in interest-bearing accounts for the client's benefit
Correct answer: Client funds must be kept separate from the firm's own funds at all times
The fundamental rule is that client money held in trust must be kept completely separate from the firm's own money to protect client interests and maintain the integrity of the trust relationship.
Question 7: Under the CPA Code of Professional Conduct, restrictions on advertising by CPAs are primarily designed to ensure that advertising:
- Is limited to print media only
- Is not false or misleading and does not bring the profession into disrepute (Correct answer)
- Is pre-approved by the provincial CPA body before publication
- Discloses the CPA's fee schedule to prospective clients
Correct answer: Is not false or misleading and does not bring the profession into disrepute
Advertising by CPAs is permitted as long as it is not false, misleading, or deceptive, and does not discredit the profession — the goal is truthful communication rather than a blanket prohibition.
CPA CFE Ethics and Professional Responsibility 2
Under Canada's Proceeds of Crime (Money Laundering) and Terrorist Financing Act, CPAs in certain roles are considered 'reporting entities.' Which of the following obligations does this impose on them?