CPA CPA Ethics & Professional Responsibility 2 — Questions and Answers
Question 1: A CPA who knowingly misrepresents facts to obtain a client contract has violated which AICPA principle?
- Due care
- Scope and nature of services
- Integrity (Correct answer)
- Responsibilities
Correct answer: Integrity
Knowingly misrepresenting facts violates the integrity principle, which demands honesty and freedom from deception in all professional dealings.
Question 2: Under the Sarbanes-Oxley Act, it is unlawful for a public company to extend credit to which individuals?
- Customers with poor credit histories
- Executive officers and directors (Correct answer)
- Shareholders owning more than 5% of stock
- Employees in financial reporting roles
Correct answer: Executive officers and directors
SOX Section 402 prohibits public companies from making or arranging personal loans to their executive officers and directors.
Question 3: Which ethical framework holds that the morality of an action is determined solely by its consequences or outcomes?
- Deontological ethics
- Virtue ethics
- Consequentialism (Utilitarianism) (Correct answer)
- Contractarianism
Correct answer: Consequentialism (Utilitarianism)
Consequentialism judges actions as right or wrong based on their outcomes, with utilitarianism seeking the greatest good for the greatest number.
Question 4: When a CPA firm rotates the lead audit partner on a public company engagement, SOX requires rotation at a minimum of every:
- 3 years
- 5 years (Correct answer)
- 7 years
- 10 years
Correct answer: 5 years
SOX requires mandatory rotation of the lead audit partner on public company engagements at least every five years to maintain independence.
Question 5: A CPA who prepares a tax return using information provided by the client without independent verification is applying the concept of:
- Absolute assurance
- Reasonable reliance on client representations (Correct answer)
- Willful neglect
- Constructive fraud
Correct answer: Reasonable reliance on client representations
CPAs may reasonably rely on client-provided information for tax returns without verification, but must not ignore obvious errors or inconsistencies.
Question 6: Which body has the authority to set auditing standards for audits of public company financial statements in the United States?
- AICPA
- FASB
- PCAOB (Correct answer)
- SEC
Correct answer: PCAOB
The Public Company Accounting Oversight Board (PCAOB) sets auditing standards for registered public accounting firms auditing SEC-registered companies.
CPA CPA Ethics & Professional Responsibility 2
A CPA who knowingly misrepresents facts to obtain a client contract has violated which AICPA principle?