CPA CPA Ethics & Professional Responsibility 1 — Questions and Answers
Question 1: Under the AICPA Code of Professional Conduct, which principle requires a CPA to be straightforward and honest in all professional relationships?
- Objectivity
- Integrity (Correct answer)
- Due care
- Scope and nature of services
Correct answer: Integrity
The integrity principle requires CPAs to be honest, candid, and free from deception in all professional and business relationships.
Question 2: A CPA discovers during an audit that a client has committed an immaterial illegal act. What is the CPA's primary obligation?
- Immediately report to the SEC
- Withdraw from the engagement without notification
- Inform the client's management or those charged with governance (Correct answer)
- Issue an adverse opinion
Correct answer: Inform the client's management or those charged with governance
For immaterial illegal acts, the CPA should inform the appropriate level of client management or those charged with governance so corrective action can be taken.
Question 3: Which threat to CPA independence occurs when a CPA audits their own firm's previous work?
- Advocacy threat
- Familiarity threat
- Self-review threat (Correct answer)
- Intimidation threat
Correct answer: Self-review threat
A self-review threat arises when a CPA audits or evaluates work that they or their firm previously performed, compromising objectivity.
Question 4: Under the AICPA rules, which of the following would NOT impair auditor independence?
- Owning a direct financial interest in a client
- Having an overdue fee from a prior year audit
- Performing bookkeeping services for a non-attest client (Correct answer)
- Serving on the board of directors of an attest client
Correct answer: Performing bookkeeping services for a non-attest client
Providing bookkeeping services for a non-attest client does not impair independence since independence is only required for attest engagements.
Question 5: The concept of 'due professional care' in auditing requires auditors to:
- Guarantee the detection of all fraud
- Exercise the skill and diligence of a competent auditor (Correct answer)
- Provide absolute assurance on financial statements
- Complete audits within a fixed time frame
Correct answer: Exercise the skill and diligence of a competent auditor
Due professional care requires auditors to apply the competence and diligence expected of a reasonably skilled professional, without guaranteeing perfection.
Question 6: Which AICPA standard requires CPAs to maintain confidentiality of client information obtained during a professional engagement?
- Rule 102 — Integrity and Objectivity
- Rule 301 — Confidential Client Information (Correct answer)
- Rule 201 — General Standards
- Rule 501 — Acts Discreditable
Correct answer: Rule 301 — Confidential Client Information
AICPA Rule 301 prohibits CPAs from disclosing confidential client information without client consent, with limited exceptions such as legal subpoenas.
CPA CPA Ethics & Professional Responsibility 1
Under the AICPA Code of Professional Conduct, which principle requires a CPA to be straightforward and honest in all professional relationships?