3. Multiple Choice: (30pts)

_______ 1-The professions ethical standards would most likely be considered to have been violated

when a CPA:

1. Continued an audit engagement after the commencement of litigation against the CPA alleging excessive fees filed in a stockholders derivative action
2. Represented to a potential client that the CPAs fees were substantially lower than the fees charged by another CPAs for comparable services.
3. Issued a report on a financial forecast that omitted a caution regarding achievability.
4. Accepted a consultation engagement concerning data processing services for which the auditor lacked independence

_______ 2- The concept of materiality would be the least important to an auditor when considering the

1. Adequacy of disclosure of a clients illegal act
2. Discovery of weaknesses in a clients internal control structure
3. Effects of direct financial interest in the client on the CPAs independence
4. Decision whether to use positive or negative confirmations of receivables

_______ 3- A CPAs license to practice will ordinarily be suspended or revoked automatically for

1. Committing an act discreditable to the profession
2. Conviction of willful failure to file personal income tax returns
3. Refusing to respond to an inquiry by the AICPA practice review committee
4. Accepting compensation while honoring a subpoena to appear as an expert witness.

_______ 4- Which of the following is not an acceptable form of organization for a CPAs practice

1. Proprietorship
2. LLP or LLC
3. Professional Corporation
4. General Corporation
5. Partnership

______ 5- Which of these would be an Act Discreditable to the profession by you under the Code of

Professional Conduct?

1. Withholding audit work papers which contain data , to which the client has no other access, from a successor auditor where you have not been paid for the prior years audit
2. Being sued for ordinary negligence by your audit client and losing
3. Making a clerical error on your tax clients tax return and not informing the corresponding government agency
4. Calling the President a limelight seeking coward
5. None of these

______ 6-Which two of the following elements are member-adopted sections of the Code:

1. Principles
2. Ethical Rulings
3. Interpretations
4. Rules of Conduct

_____ 7- Which ethical principle states that members should honor the public trust and Integrity

Demonstrate a commitment to professionalism?

1. Integrity
2. Public Interest
3. Due Care
4. Responsibilities

______ 8- Which of the following is subject to enforcement under the Rules of Conduct?

1. Independence in Fact
2. Independence in Appearance

______ 9- Under the joint trial board procedures, which of the following is not a possible disciplinary action that could

be taken:

1. Admonishment
2. Suspension for five years
3. Expulsion
4. Suspension for two years or less

______ 10- Failure to exercise even slight care is considered to be:

1. Ordinary Negligence
2. Gross Negligence
3. Fraud
4. Deception

______11- The ethical standards of the profession would most likely be considered to be violated if a CPA

1. Jointly owns a building with an audit clients President and the investment is material to the CPA
2. Has an insured account with a brokerage firm that is an audit client and the account is used for occasional cash transactions.
3. Is asked by an audit client to act as a finder in the acquisition of another company on a per diem basis
4. Searches for and initially screens candidates for the vacant controllership of an audit client

______ 12- Under common law, all of the following would be included as a foreseeable party except:

a-The audit client

b-The clients creditors

c-The clients present investors

d-The clients future investors

_______ 13 - Which common law defense centers on the inherent limitations of the audit process?

1. Due care defense
2. Contributory negligence

______ 14- Under which Securities Act is the auditor liable for ordinary negligence?

1. Securities Act of 1933
2. Securities Act of 1934

______ 15- In minimizing the risk of litigation, which precaution can help minimize the risk of misunderstanding about the contractual obligations?

1. Thoroughly investigate clients
2. Comply with professional pronouncements
3. Use engagement letters
4. Emphasize quality rather than growth