Chapter 19 – Professional Conduct, Independence, and Quality Control
1. The term “ethics” refers to a person’s propensity to follow the laws of the land.
2. Professionalism refers to the conduct, aims, or qualities that characterize or mark a given
profession.
3. When auditing a public company, a CPA must follow the auditing standards and Code of
Professional Conduct of the PCAOB.
Chapter 19 – Professional Conduct, Independence, and Quality Control
4. The AICPA Code of Professional Conduct deals mainly with behavior and actions of
individual auditors.
5. The Principles of Professional Conduct set forth the minimum standards.
6. Rules of Conduct are enforceable.
7. Ethical rulings are enforceable.
Chapter 19 – Professional Conduct, Independence, and Quality Control
8. Principles are stated at a conceptual level, not a detailed level.
9. The rules contained in Section 100 cover issues relating to independence, integrity, and
auditing standards.
10. If an auditor is not independent of the client, it is unlikely that a user of financial statements
will place much reliance on the CPA’s work.
Chapter 19 – Professional Conduct, Independence, and Quality Control
11. As per the Conceptual Framework for AICPA Independence Standards made effective in
2006, a CPA is required to identify and assess the extent to which a threat to independence
12. An indirect financial interest is defined as a financial interest that is owned or is under the
control of an individual or entity.
13. A financial interest is “beneficially owned” when an individual or entity is NOT the
recorded owner of the interest but has a right to some or all of the underlying benefits of
ownership.
Chapter 19 – Professional Conduct, Independence, and Quality Control
14. If a CPA owns an insurance policy issued by an attest client, independence would be
considered impaired, even if the policy was purchased under the insurance company’s normal
terms and procedures and does not offer an investment option.
15. The independence standards issued by the PCAOB do not prohibit the provision of tax
services to an attest client.
16. PCAOB rules require tax services provided by a public company auditor to be considered
and approved by the company’s audit committee.
Chapter 19 – Professional Conduct, Independence, and Quality Control
17. With respect to ethics, the rights-based approach
18. With respect to ethics, the utilitarian theory
19. With respect to ethics, the justice-based approach
Chapter 19 – Professional Conduct, Independence, and Quality Control
20. In auditing a privately held entity, an auditor must follow the professional standards
established by all of the following except:
21. Which of the following is not a Principle of Professional Conduct as defined by the Code of
Professional Conduct?
22. What is meant by the Code of Professional Conduct’s definition of “holding out”?
Chapter 19 – Professional Conduct, Independence, and Quality Control
23. For private companies, accounting firms are prohibited from providing
24. A violation of the profession’s ethical standards would most likely have occurred when a
CPA
Chapter 19 – Professional Conduct, Independence, and Quality Control
25. Which of the following is required for a firm to designate itself as a “Member of the
American Institute of Certified Public Accountants” on its letterhead?
26. A violation of the profession’s ethical standards would least likely have occurred when a
CPA in public practice
Chapter 19 – Professional Conduct, Independence, and Quality Control
27. According to the Code of Professional Conduct, which of the following individuals is not in
a position to influence an attest engagement (i.e., not a covered member)?
28. A CPA, while performing an audit, strives to achieve independence in appearance in order
Chapter 19 – Professional Conduct, Independence, and Quality Control
19–11
29. In which of the following instances would the independence of the CPA not be considered
to be impaired? The CPA has been retained as the auditor of a brokerage firm
30. The SEC has issued independence rules that differ from the AICPA’s in all of the following
areas except:
Chapter 19 – Professional Conduct, Independence, and Quality Control
31. Which of the following is not an element of quality control as defined by Statement of
Quality Control Standards No. 8?
32. A basic objective of a CPA firm is to provide professional services that conform to
professional standards. Reasonable assurance of achieving this basic objective is provided
through
Chapter 19 – Professional Conduct, Independence, and Quality Control
19–13
33. The quality control standards are concerned primarily with
34. Which of the following bodies ordinarily would have the authority to suspend or revoke a
CPA’s license to practice public accounting?
Chapter 19 – Professional Conduct, Independence, and Quality Control
19–14
35. Which of the following statements best describes why the profession of certified public
accountants has deemed it essential to promulgate a code of conduct and to establish a
mechanism for enforcing observance of the code?
Chapter 19 – Professional Conduct, Independence, and Quality Control
37. A CPA’s retention of client records as a means of enforcing payment of an overdue audit fee
is an action that is
38. Which of the following is allowable for a CPA?
Chapter 19 – Professional Conduct, Independence, and Quality Control
19–16
39. In performing an audit, Jackson, CPA, discovers that the professional competence
necessary for the engagement is lacking. Jackson informs management of the situation and
recommends another local CPA firm and management engages this other firm. Under these
circumstances
40. In which one of the following situations would a CPA be in violation of the AICPA Code of
Professional Conduct in determining a fee?
Chapter 19 – Professional Conduct, Independence, and Quality Control
41. In connection with a lawsuit, a third party attempts to gain access to the auditor’s working
papers. The client’s defense of privileged communication will be successful only to the extent it
is protected by the
42. The profession’s ethical standards would most likely be considered to have been violated
when the CPA represents that specific consulting services will be performed for a stated fee and
it is apparent at the time of the representation that the