CPA Ethics EXAM 2024-
z z z
2025 QUESTIONS AND ANSWERS 100 % PASS SOLUTION A+ GRADE
z z z z z z z z z
EthicszruleszpromulgatedzbyzthezPCAOBzmustzbezapprovedz
by:
(a) ThezGAO
(b) ThezSEC
(c) ThezIRS
(zd)zTheyzdoznotzneedzthezapprovalzofzanyzotherzgovernmentalzagency.z-
zanswer>>(b)ziszcorrect.zThezSECzmustzapprovezPCAOBzethics
rules.
Whichzcategoryzcontainszthezethicalzstandards,zazviolationzofzwhichzmakeszazmemberzliableztozdisciplinaryz
action?
(a) EthicszRulings.
(b) InterpretationszofzthezRules.
(c) Rules.z-zanswer>>(c)ziszthezconectzanswer.zCodezofzProfessional
AzCPAzandzhiszfirmzhavezbeenzthreatened,zinzwriting,zwithzazlawsuitzbyzanzauditzclientzwhozclaimszthatzhis
priorzyear'szinventoryzwaszunderstatedzandzaszazresultzhiszfirmzwasznotzableztozobtainzthezfinancingzitzneede
dztozexpandzoperations.zHiszletterzstateszthatzhezbelieves
faultyzauditingzprocedureszwerezresponsiblezforztheallegedzunderstatementzofzinventory.zThezamountzofzu
nderstatedzinventoryzatzissuezisz$50,000.zInzthiszsituationzthezCPAzwouldzbe
(a) independentzwithzrespectztozhiszclientzsincezitzh
asznotzbeenzprovenzthatzthezauditingzprocedureszw
erezatzfault.
(b) notzindependentzwithzrespectztozhiszclientzsince
thezallegation,zthoughznotzproven,zhaszbeenzmade
thatzhiszauditzwasznotzadequate.z-
zanswer>>(b)ziszcorrect.zIndependenceziszimpairedzbecausezofzthezthreatzofzfaultyzauditingz(Interpretationz
101-6,
,Litigationzbetweenzclientzandzmemberz3).
AzCPA'szclientzhaszthreatenedzsuitzagainstzthezCPAzandzhiszfurnzforz$2,000zclaimingzthatzdueztozfaulty
administrativezprocedureszofzthezCPA'szfurn,ztheirztaxzreturnzwaszfiledzlate.zThez$2,000zrepresentszinterestz
andzlatezpenaltieszimposedzbyzthezgovernmentzpluszanzamountzforzlegalzfeeszincurredzinzbringingzthezaction
.zTotalzannualzauditzandztaxzfeeszfromzthiszclientzarezapproximatelyz$45,000zazyear.zThiszthreatenedzactionz
byzthezclientzwill
(a) impairzindependencezwithzthezclient.
(b) notzimpairzindependencezwithzthezclient.z-
zanswer>>(b)ziszcorrect.zIndependenceznotzimpairedzbecause
ofzthezimmaterialzamountzinvolvedzandzthezlitigationzwouldznotzinvolvezanzattestzengagementz(Interpretati
onz101-6,zlitigationzbetweenzclientzandzmemberz4)
Anzinsurancezcompany,zunderzsubrogationzrights,zhaszsuedzazCPAzandzherzfirmzforz$100,000.zThezinsurance
zcompanyzpaidz$z100,000ztozazclientzofzthezfurnzbecauseofzanzembezzlementzofzthatzamountzbyzonezofzthezc
lient'szformerzemployees.zThezformerzemployeezhaszadmittedztheztheft,zdeclaredzpersonalzbankruptcy,zan
dziszservingzazthree-
yearztermzinzazfederalzprisonzuponzbeingzconvictedz ofzthisztheft.zThezclient'szmanagement,zitszboardzofzdire
ctors,zandzitszlegalzcounselzhavezinvestigatedzthezmatterzandzdecidedzthatzsincezthezfraudzinvolvedzcollusio
nzwithzoutsidezpartieszbyzthezformerzemployee,zthezCPAzusingznormalzauditzprocedureszwouldznotzhavezbe
enzexpectedztozdiscoverztheztheft.zInzthesezcircumstances
(a) thezCPAzandzherzfurnzarezindependentzofzthezclient.
(b) thezCPAzandzherzfurnzareznotzindependentzofzthe
client.z-
zanswer>>(a)ziszcorrect.zIndependencezisznotzimpairedzbecausezmanagementzisznotzaccusingzthezauditingzfi
rmzofzfaultyzproceduresz(Interpretationz101-6,zOtherzthirdzpartyzlitigation.).
AzpartnerzinzazCPAzfirmzpurchaseszazlimitedzpartnershipzinterestzinzanzoilztaxzshelter.zThezamountziszmateri
alztozherznetzworth.zShezlaterzfindszoutzthatzthezpresidentzofzonezofzherzauditzclientszandztheztreasurerzofza
notherzauditzclientzhavezalsozeachzpurchasedzlimitedzpartnershipzinterests.zThezgeneralzpartnerzwhozcont
rolszthezpartnershipziszaznon-
client.zThezinterestszarezmaterialztoztheznetzworthzofzthezpresidentzandztreasurer.zEachzofzthezthreezheardz
aboutzthisztaxzshelterzfromztheirzbroker.zInzthiszsituation
(a) independenceziszimpairedzwithzrespectztozthesez
twozclients.
,(b) independencezisznotzimpairedzwithzrespectzto
theseztwozclients.z-
zanswer>>(b)ziszcorrect.zSincezthezlimitedzpartnerszdoznotzcontrolzthezpartnership,ztheyzareznotzinzazjointzcl
oselyzheldzinvestment,zandzthereforezindependencezisznotzimpaired.zThezgeneralzpartnerzcontrolszthezpart
nershipzandzthezlimitedzpartnerszarezmerelyzinvestorsz(Chapterz3,zDefinitions,zJointzcloselyzheldzinvestme
ntzandzInterpretationz101-1A.3).
Azpartnerzwhozhaszbeenzretiredzforztwozyearszcontinuesztozservezonzthezgoverningzboardzofzthezaccou
ntingfirm.zThiszgroupzmeetszmonthlyzandzfulfillszthezrolezofzazboardzofzdirectors.zThezretiredzpartnerzh
asznozclientzresponsibilitieszandzthusznozchargeableztime.zThezretiredzpartnerziszaskedztozbecomezazdir
ectorzofzanzauditzclient.zAcceptancezofzthezdirector'szpositionzwould
(a) impairzindependencezwithzthiszclient.
(b) notzimpairzindependencezwithzthiszclient.z-
zanswer>>(a)ziszcorrect.zThezpartnerziszstillzactivezinzthezfirmzandzthuszindependencezwouldzbezimpaire
dz(Interpretationz101-2,z3).
AzmemberzhaszbeenzaskedztozcosignzcheckszwithzanzemployeezofzazclientzduringzthezmonthzofzJanuaryzwhe
nzthezpresidentziszonzvacation.zThezpresidentzhaszstatedzthatzwithzthezCPAzcosigningzchecks,zshezwillzbezcon
fidentzthatzdisbursementszarezbeingzhandledzproperly.zSince
(a) thezmemberzwillzmerelyzbezcountersigning,zandz
thusznotzmakingzthezoriginalzdecisionztozdrawzthezc
heck,zindependencezwithzthezclientzwillznotzbezimp
aired.
(b) thezmemberziszonlyzazco-
signerzandzforzonlyzoneztwelfthzofzthezyear,zindependencezisz
notzimpaired.
(zc)zcheckzsigningziszazmanagementzfunction,zindependence
iszimpaired.z-
answer>>(c)ziszcorrect.zCheckzsigningzimpairszindependence.z(Interpretationz101
z
-3,zTable,zNonztaxzdisbursement).
Inzazone-
officezfirmzazpartner'szwifezworkszaszazcashierzforzonezofzthezfirmz'szauditzclients.zThezpartnerzdoesznotzwork
zonzthezengagementzforzthiszclient.zThezwife'szpositionzaszcashierzimpairzthezfirm's
independencezwithzthiszclient.
, (a) does
z z z
2025 QUESTIONS AND ANSWERS 100 % PASS SOLUTION A+ GRADE
z z z z z z z z z
EthicszruleszpromulgatedzbyzthezPCAOBzmustzbezapprovedz
by:
(a) ThezGAO
(b) ThezSEC
(c) ThezIRS
(zd)zTheyzdoznotzneedzthezapprovalzofzanyzotherzgovernmentalzagency.z-
zanswer>>(b)ziszcorrect.zThezSECzmustzapprovezPCAOBzethics
rules.
Whichzcategoryzcontainszthezethicalzstandards,zazviolationzofzwhichzmakeszazmemberzliableztozdisciplinaryz
action?
(a) EthicszRulings.
(b) InterpretationszofzthezRules.
(c) Rules.z-zanswer>>(c)ziszthezconectzanswer.zCodezofzProfessional
AzCPAzandzhiszfirmzhavezbeenzthreatened,zinzwriting,zwithzazlawsuitzbyzanzauditzclientzwhozclaimszthatzhis
priorzyear'szinventoryzwaszunderstatedzandzaszazresultzhiszfirmzwasznotzableztozobtainzthezfinancingzitzneede
dztozexpandzoperations.zHiszletterzstateszthatzhezbelieves
faultyzauditingzprocedureszwerezresponsiblezforztheallegedzunderstatementzofzinventory.zThezamountzofzu
nderstatedzinventoryzatzissuezisz$50,000.zInzthiszsituationzthezCPAzwouldzbe
(a) independentzwithzrespectztozhiszclientzsincezitzh
asznotzbeenzprovenzthatzthezauditingzprocedureszw
erezatzfault.
(b) notzindependentzwithzrespectztozhiszclientzsince
thezallegation,zthoughznotzproven,zhaszbeenzmade
thatzhiszauditzwasznotzadequate.z-
zanswer>>(b)ziszcorrect.zIndependenceziszimpairedzbecausezofzthezthreatzofzfaultyzauditingz(Interpretationz
101-6,
,Litigationzbetweenzclientzandzmemberz3).
AzCPA'szclientzhaszthreatenedzsuitzagainstzthezCPAzandzhiszfurnzforz$2,000zclaimingzthatzdueztozfaulty
administrativezprocedureszofzthezCPA'szfurn,ztheirztaxzreturnzwaszfiledzlate.zThez$2,000zrepresentszinterestz
andzlatezpenaltieszimposedzbyzthezgovernmentzpluszanzamountzforzlegalzfeeszincurredzinzbringingzthezaction
.zTotalzannualzauditzandztaxzfeeszfromzthiszclientzarezapproximatelyz$45,000zazyear.zThiszthreatenedzactionz
byzthezclientzwill
(a) impairzindependencezwithzthezclient.
(b) notzimpairzindependencezwithzthezclient.z-
zanswer>>(b)ziszcorrect.zIndependenceznotzimpairedzbecause
ofzthezimmaterialzamountzinvolvedzandzthezlitigationzwouldznotzinvolvezanzattestzengagementz(Interpretati
onz101-6,zlitigationzbetweenzclientzandzmemberz4)
Anzinsurancezcompany,zunderzsubrogationzrights,zhaszsuedzazCPAzandzherzfirmzforz$100,000.zThezinsurance
zcompanyzpaidz$z100,000ztozazclientzofzthezfurnzbecauseofzanzembezzlementzofzthatzamountzbyzonezofzthezc
lient'szformerzemployees.zThezformerzemployeezhaszadmittedztheztheft,zdeclaredzpersonalzbankruptcy,zan
dziszservingzazthree-
yearztermzinzazfederalzprisonzuponzbeingzconvictedz ofzthisztheft.zThezclient'szmanagement,zitszboardzofzdire
ctors,zandzitszlegalzcounselzhavezinvestigatedzthezmatterzandzdecidedzthatzsincezthezfraudzinvolvedzcollusio
nzwithzoutsidezpartieszbyzthezformerzemployee,zthezCPAzusingznormalzauditzprocedureszwouldznotzhavezbe
enzexpectedztozdiscoverztheztheft.zInzthesezcircumstances
(a) thezCPAzandzherzfurnzarezindependentzofzthezclient.
(b) thezCPAzandzherzfurnzareznotzindependentzofzthe
client.z-
zanswer>>(a)ziszcorrect.zIndependencezisznotzimpairedzbecausezmanagementzisznotzaccusingzthezauditingzfi
rmzofzfaultyzproceduresz(Interpretationz101-6,zOtherzthirdzpartyzlitigation.).
AzpartnerzinzazCPAzfirmzpurchaseszazlimitedzpartnershipzinterestzinzanzoilztaxzshelter.zThezamountziszmateri
alztozherznetzworth.zShezlaterzfindszoutzthatzthezpresidentzofzonezofzherzauditzclientszandztheztreasurerzofza
notherzauditzclientzhavezalsozeachzpurchasedzlimitedzpartnershipzinterests.zThezgeneralzpartnerzwhozcont
rolszthezpartnershipziszaznon-
client.zThezinterestszarezmaterialztoztheznetzworthzofzthezpresidentzandztreasurer.zEachzofzthezthreezheardz
aboutzthisztaxzshelterzfromztheirzbroker.zInzthiszsituation
(a) independenceziszimpairedzwithzrespectztozthesez
twozclients.
,(b) independencezisznotzimpairedzwithzrespectzto
theseztwozclients.z-
zanswer>>(b)ziszcorrect.zSincezthezlimitedzpartnerszdoznotzcontrolzthezpartnership,ztheyzareznotzinzazjointzcl
oselyzheldzinvestment,zandzthereforezindependencezisznotzimpaired.zThezgeneralzpartnerzcontrolszthezpart
nershipzandzthezlimitedzpartnerszarezmerelyzinvestorsz(Chapterz3,zDefinitions,zJointzcloselyzheldzinvestme
ntzandzInterpretationz101-1A.3).
Azpartnerzwhozhaszbeenzretiredzforztwozyearszcontinuesztozservezonzthezgoverningzboardzofzthezaccou
ntingfirm.zThiszgroupzmeetszmonthlyzandzfulfillszthezrolezofzazboardzofzdirectors.zThezretiredzpartnerzh
asznozclientzresponsibilitieszandzthusznozchargeableztime.zThezretiredzpartnerziszaskedztozbecomezazdir
ectorzofzanzauditzclient.zAcceptancezofzthezdirector'szpositionzwould
(a) impairzindependencezwithzthiszclient.
(b) notzimpairzindependencezwithzthiszclient.z-
zanswer>>(a)ziszcorrect.zThezpartnerziszstillzactivezinzthezfirmzandzthuszindependencezwouldzbezimpaire
dz(Interpretationz101-2,z3).
AzmemberzhaszbeenzaskedztozcosignzcheckszwithzanzemployeezofzazclientzduringzthezmonthzofzJanuaryzwhe
nzthezpresidentziszonzvacation.zThezpresidentzhaszstatedzthatzwithzthezCPAzcosigningzchecks,zshezwillzbezcon
fidentzthatzdisbursementszarezbeingzhandledzproperly.zSince
(a) thezmemberzwillzmerelyzbezcountersigning,zandz
thusznotzmakingzthezoriginalzdecisionztozdrawzthezc
heck,zindependencezwithzthezclientzwillznotzbezimp
aired.
(b) thezmemberziszonlyzazco-
signerzandzforzonlyzoneztwelfthzofzthezyear,zindependencezisz
notzimpaired.
(zc)zcheckzsigningziszazmanagementzfunction,zindependence
iszimpaired.z-
answer>>(c)ziszcorrect.zCheckzsigningzimpairszindependence.z(Interpretationz101
z
-3,zTable,zNonztaxzdisbursement).
Inzazone-
officezfirmzazpartner'szwifezworkszaszazcashierzforzonezofzthezfirmz'szauditzclients.zThezpartnerzdoesznotzwork
zonzthezengagementzforzthiszclient.zThezwife'szpositionzaszcashierzimpairzthezfirm's
independencezwithzthiszclient.
, (a) does
