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Professional Ethics for CPAs (Exam for
Candidates and Reissuance) | PETHOL13
Question 1
Robin is a sole practitioner. Her spouse is an insurance agent. His insurance of ce is ve miles from her accounting of ce. Neither
one is active in the other's business. In March 20X3 her husband sold a life insurance policy on the life of the president of Bluebird
Holdings to that company. He received a relatively small commission for the sale and will continue to receive commissions on
future years' renewal premiums. In December 20X3, Robin was asked by the board of directors of Bluebird Holdings to be the
company's auditor for 20X3 and for future years. She has considered and believes that there is no con ict of interest created by
his sale of the policy and her doing the audit.Which of the following statements is correct?
A) Due solely to the commission being received prior to her being engaged to do the audit; she may do the audit for this year
and future years without violating the Code of Professional Conduct.
B) Since her spouse received a commission this year and will receive commissions in future years, she cannot perform the
audits for this year or future years without violating the Code of Professional Conduct.
C) She can perform the audits for this year and future years without violating the Code of Professional Conduct.
D) The commission is deemed to be received only in the year the insurance policy is sold, even though commissions will
continue to be paid in future years. Therefore she cannot perform the audit for this year, but she can perform the audits in future
years without violating the Code of Professional Conduct.
Question 2
According to the AICPA bylaws, which of the following actions against a member is subject to required publication:
A) A malpractice claim
B) A lawsuit led against a member by a client
C) A negative review posted online by a client
D) A trial board conviction against the member
Question 3
Which, if any, of the following services would impair independence with a client?
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, A) Design or develop a client's information system that is unrelated to the client's nancial statements or accounting records.
B) Provide training and instruction to client employees on an information and control system.
C) Design or develop a client's nancial information system.
D) Assist in setting up the client's chart of accounts and nancial statement format with respect to the client's nancial
information system.
Question 4
When a member performs nonattest services for an attest client, certain things are required from the client with respect to such
nonattest services. Which, if any, of the following is not one of the general requirements from the client?
A) Accept responsibility for the results of the services.
B) Evaluate the results of the services
C) Designate an individual who possesses suitable skill, knowledge, and/or experience, preferably with senior management to
oversee the services.
D) All of the above are required.
Question 5
In California, which of the following licensees would be required to take 24 hours of accounting and auditing CPE?
A) Kashani, CPA a personal nancial planner, who occasionally prepares reviews of his business clients' nancial statements
B) Jones, CPA, a tax practitioner, who occasionally prepares compiled nancial statements for her clients.
C) Hernandez, CPA an audit partner in a regional accounting rm.
D) All of the above
Question 6
Howland & Howland, CPAs, a public accounting rm has of ces in Las Vegas and Reno. The Las Vegas of ce acquired a new attest
client, Bruin Company. The Las Vegas of ce using Las Vegas of ce personnel will do all the work for this client. Bruin Company has
2,500,000 shares of common stock outstanding. Latest market value was $30 a share.Howland & Howland, CPAs personnel
report the following stock ownership by them or their kin. Which, if any, of them will impair Howland & Howland, CPAs'
independence with Bruin Company?
A) A partner in the Reno of ce owns 100 shares. This $3,000 investment is not material to the partner.
B) A Las Vegas staff person's spouse owns 10 shares. The staff person will work about 20 hours on the Bruin audit.
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C) Both of these investments will impair Howland & Howland, CPAs' independence with the Bruin Company
, C) Both of these investments will impair Howland & Howland, CPAs' independence with the Bruin Company
D) Neither of these investments will impair Howland & Howland, CPAs' independence with the Bruin Company.
Question 7
Before performing nonattest services for an attest client, a member should establish and document in writing his or her
understanding with the client about such services. Which, if any, of the following is not required in such documentation?
A) Services to be performed
B) Client's acceptance of its responsibilities
C) Objective of the engagement
D) Any limitations of the engagement
E) All of the above are required
Question 8
Butler, a partner in a one-of ce rm, inherits 15 shares of Jeeves Services stock. The stock has a market value of $25 per share,
and there is a ready market for the shares. There are 300,000 shares outstanding. Jeeves Services is an audit client of the rm.
Butler does no work or consulting on the Jeeves Services engagements. With respect to the receipt of this stock and maintaining
the rm's independence with Jeeves Services company which of the following statements is correct?
A) As long as Butler does not work on the engagements for Jeeves Services nothing need be done. If he works on the
engagements for Jeeves Services then the shares must be promptly sold to preserve the rm's independence.
B) Since the shares are worth only $375 and they were inherited, nothing need be done.
C) If Butler transfers the shares to a blind trust where he is the bene ciary, independence with Jeeves Services will not be
impaired.
D) The shares must be sold within thirty days of their receipt
Question 9
Ms. Babbitt, the president of Prism Co., is considering hiring Suh & Sons, CPAs, a one-of ce rm, to be Prism Co.'s auditors. She
asks Yee, a partner in the rm, if in addition to the annual audit, Suh & Sons, CPAs could do either or both of the following. Be the
second signature on all checks issued by Prism Co. while she is out of town on her two-week vacation. Yee being named in her will
as executor of her estate. Yee should tell Babbitt that in addition to the audit, the Suh rm could ________ without violating the
Code of Professional Conduct.
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(/)
Professional Ethics for CPAs (Exam for
Candidates and Reissuance) | PETHOL13
Question 1
Robin is a sole practitioner. Her spouse is an insurance agent. His insurance of ce is ve miles from her accounting of ce. Neither
one is active in the other's business. In March 20X3 her husband sold a life insurance policy on the life of the president of Bluebird
Holdings to that company. He received a relatively small commission for the sale and will continue to receive commissions on
future years' renewal premiums. In December 20X3, Robin was asked by the board of directors of Bluebird Holdings to be the
company's auditor for 20X3 and for future years. She has considered and believes that there is no con ict of interest created by
his sale of the policy and her doing the audit.Which of the following statements is correct?
A) Due solely to the commission being received prior to her being engaged to do the audit; she may do the audit for this year
and future years without violating the Code of Professional Conduct.
B) Since her spouse received a commission this year and will receive commissions in future years, she cannot perform the
audits for this year or future years without violating the Code of Professional Conduct.
C) She can perform the audits for this year and future years without violating the Code of Professional Conduct.
D) The commission is deemed to be received only in the year the insurance policy is sold, even though commissions will
continue to be paid in future years. Therefore she cannot perform the audit for this year, but she can perform the audits in future
years without violating the Code of Professional Conduct.
Question 2
According to the AICPA bylaws, which of the following actions against a member is subject to required publication:
A) A malpractice claim
B) A lawsuit led against a member by a client
C) A negative review posted online by a client
D) A trial board conviction against the member
Question 3
Which, if any, of the following services would impair independence with a client?
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, A) Design or develop a client's information system that is unrelated to the client's nancial statements or accounting records.
B) Provide training and instruction to client employees on an information and control system.
C) Design or develop a client's nancial information system.
D) Assist in setting up the client's chart of accounts and nancial statement format with respect to the client's nancial
information system.
Question 4
When a member performs nonattest services for an attest client, certain things are required from the client with respect to such
nonattest services. Which, if any, of the following is not one of the general requirements from the client?
A) Accept responsibility for the results of the services.
B) Evaluate the results of the services
C) Designate an individual who possesses suitable skill, knowledge, and/or experience, preferably with senior management to
oversee the services.
D) All of the above are required.
Question 5
In California, which of the following licensees would be required to take 24 hours of accounting and auditing CPE?
A) Kashani, CPA a personal nancial planner, who occasionally prepares reviews of his business clients' nancial statements
B) Jones, CPA, a tax practitioner, who occasionally prepares compiled nancial statements for her clients.
C) Hernandez, CPA an audit partner in a regional accounting rm.
D) All of the above
Question 6
Howland & Howland, CPAs, a public accounting rm has of ces in Las Vegas and Reno. The Las Vegas of ce acquired a new attest
client, Bruin Company. The Las Vegas of ce using Las Vegas of ce personnel will do all the work for this client. Bruin Company has
2,500,000 shares of common stock outstanding. Latest market value was $30 a share.Howland & Howland, CPAs personnel
report the following stock ownership by them or their kin. Which, if any, of them will impair Howland & Howland, CPAs'
independence with Bruin Company?
A) A partner in the Reno of ce owns 100 shares. This $3,000 investment is not material to the partner.
B) A Las Vegas staff person's spouse owns 10 shares. The staff person will work about 20 hours on the Bruin audit.
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C) Both of these investments will impair Howland & Howland, CPAs' independence with the Bruin Company
, C) Both of these investments will impair Howland & Howland, CPAs' independence with the Bruin Company
D) Neither of these investments will impair Howland & Howland, CPAs' independence with the Bruin Company.
Question 7
Before performing nonattest services for an attest client, a member should establish and document in writing his or her
understanding with the client about such services. Which, if any, of the following is not required in such documentation?
A) Services to be performed
B) Client's acceptance of its responsibilities
C) Objective of the engagement
D) Any limitations of the engagement
E) All of the above are required
Question 8
Butler, a partner in a one-of ce rm, inherits 15 shares of Jeeves Services stock. The stock has a market value of $25 per share,
and there is a ready market for the shares. There are 300,000 shares outstanding. Jeeves Services is an audit client of the rm.
Butler does no work or consulting on the Jeeves Services engagements. With respect to the receipt of this stock and maintaining
the rm's independence with Jeeves Services company which of the following statements is correct?
A) As long as Butler does not work on the engagements for Jeeves Services nothing need be done. If he works on the
engagements for Jeeves Services then the shares must be promptly sold to preserve the rm's independence.
B) Since the shares are worth only $375 and they were inherited, nothing need be done.
C) If Butler transfers the shares to a blind trust where he is the bene ciary, independence with Jeeves Services will not be
impaired.
D) The shares must be sold within thirty days of their receipt
Question 9
Ms. Babbitt, the president of Prism Co., is considering hiring Suh & Sons, CPAs, a one-of ce rm, to be Prism Co.'s auditors. She
asks Yee, a partner in the rm, if in addition to the annual audit, Suh & Sons, CPAs could do either or both of the following. Be the
second signature on all checks issued by Prism Co. while she is out of town on her two-week vacation. Yee being named in her will
as executor of her estate. Yee should tell Babbitt that in addition to the audit, the Suh rm could ________ without violating the
Code of Professional Conduct.
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