CPA CPA Ethics & Professional Responsibilities 1 — Questions and Answers
Question 1: Which AICPA Code of Professional Conduct principle requires CPAs to act in a manner that will serve the public interest?
- Public Interest (Correct answer)
- Integrity
- Objectivity
- Due Care
Correct answer: Public Interest
The Public Interest principle requires CPAs to act in a way that serves clients, employers, the public, and the profession.
Question 2: Under the AICPA independence rules, which of the following would impair a CPA's independence when performing an audit?
- Owning an immaterial financial interest in the client
- Having a sibling employed by the client in a non-key position
- Receiving a referral fee disclosed to the client
- Owning a direct financial interest in the client (Correct answer)
Correct answer: Owning a direct financial interest in the client
Any direct financial interest in an audit client impairs independence regardless of materiality.
Question 3: A CPA discovers a material error in a previously issued tax return. What is the CPA's primary obligation?
- File an amended return immediately without client consent
- Inform the client and recommend corrective action (Correct answer)
- Notify the IRS directly
- Withdraw from the engagement immediately
Correct answer: Inform the client and recommend corrective action
The CPA must promptly inform the client of the error and recommend filing an amended return, but cannot act without client consent.
Question 4: Which of the following is NOT a threat to CPA independence identified by the AICPA?
- Self-interest threat
- Familiarity threat
- Advocacy threat
- Competence threat (Correct answer)
Correct answer: Competence threat
The AICPA identifies self-interest, self-review, advocacy, familiarity, and intimidation as the five main threats to independence; competence is not one of them.
Question 5: The AICPA's concept of 'due professional care' requires a CPA to perform services with the:
- Highest possible level of technical expertise
- Competence and diligence of a reasonable CPA (Correct answer)
- Same skill level as a specialist in the field
- Speed necessary to meet client deadlines
Correct answer: Competence and diligence of a reasonable CPA
Due professional care requires the competence and diligence that a reasonable and prudent CPA would exercise in similar circumstances.
Question 6: A CPA in public practice may NOT receive a contingent fee for:
- Services in tax matters before a tax court
- Preparation of an original tax return (Correct answer)
- Representation in an IRS examination
- Filing a refund claim after audit assessment
Correct answer: Preparation of an original tax return
The AICPA prohibits contingent fees for preparing an original tax return because it impairs objectivity.
CPA CPA Ethics & Professional Responsibilities 1
Which AICPA Code of Professional Conduct principle requires CPAs to act in a manner that will serve the public interest?