CPA CPA Ethics & Professional Responsibilities 2 — Questions and Answers
Question 1: Under Circular 230, which practitioner action is considered a 'best practice'?
- Charging the highest fee the market will bear
- Communicating clearly with clients about the terms of the engagement (Correct answer)
- Guaranteeing favorable tax outcomes
- Avoiding documentation to protect client confidentiality
Correct answer: Communicating clearly with clients about the terms of the engagement
Circular 230 best practices include clearly communicating engagement terms, procedures, and limitations to clients.
Question 2: Which body has the authority to suspend or disbar a CPA from practicing before the IRS?
- AICPA Ethics Committee
- State Board of Accountancy
- Office of Professional Responsibility (OPR) (Correct answer)
- PCAOB
Correct answer: Office of Professional Responsibility (OPR)
The IRS Office of Professional Responsibility (OPR) enforces Circular 230 and has authority to sanction, suspend, or disbar tax practitioners.
Question 3: A CPA who provides investment advisory services must register with:
- The AICPA Personal Financial Planning Division
- The SEC or appropriate state securities regulator as an investment adviser (Correct answer)
- FINRA as a broker-dealer
- The CFPB for consumer financial services
Correct answer: The SEC or appropriate state securities regulator as an investment adviser
CPAs providing investment advisory services for compensation must register under the Investment Advisers Act with the SEC or state securities regulators.
Question 4: Under the AICPA Code of Professional Conduct, a CPA must maintain client confidentiality EXCEPT when:
- Responding to a peer review (Correct answer)
- A client asks for their own records
- The client is suspected of tax fraud by the CPA
- Another CPA requests the information as a professional courtesy
Correct answer: Responding to a peer review
CPAs are required to cooperate with peer review processes, which is a recognized exception to the general client confidentiality rule.
Question 5: Which statement best describes a CPA's responsibility when a client asks them to act as an expert witness?
- The CPA must advocate solely for the client's position
- The CPA must provide objective testimony based on professional expertise (Correct answer)
- The CPA should decline to avoid an advocacy conflict
- The CPA is exempt from objectivity rules in litigation settings
Correct answer: The CPA must provide objective testimony based on professional expertise
When serving as an expert witness, a CPA must provide objective, unbiased testimony based on professional expertise rather than advocate for the client.
Question 6: The Sarbanes-Oxley Act (SOX) prohibits a public company audit firm from providing which non-audit service to an audit client?
- Tax return preparation for senior executives with audit committee approval
- Bookkeeping or other accounting services related to financial statements (Correct answer)
- Actuarial consulting unrelated to the audit
- Internal audit co-sourcing with management oversight
Correct answer: Bookkeeping or other accounting services related to financial statements
SOX Section 201 explicitly prohibits audit firms from providing bookkeeping and accounting services for the financial statements they audit.
CPA CPA Ethics & Professional Responsibilities 2
Under Circular 230, which practitioner action is considered a 'best practice'?