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Certified Public Accountant Ethics (CPA) Exam
QUESTIONS AND CORRECT DETAILED SOLUTIONS
WITH RATIONALES LATEST UPDATED VERSION JUST
RELEASED RECENTLY
Question: A member wishes to take an action but is told that
it would be against the rules in the Code of Professional
Conduct. His secretary then offers to take
the action saying to the member, "I will do it since
I am not a member of the AI CPA and their rules do
not apply to me." The member makes no comment
and the secretary does carry out the action. Has the
member violated the Code of Professional Conduct?
(a) Yes.
(b) No. - ANSWER✔✔(a) is correct. (Interpretation addressing the Applicability of the AI CPA
Code of Professional Conduct) says a member shall not knowingly let a person whom the
member can control do something for the member that if the member did the same thing
would be a violation of the code.
Question: Which, if any, of the following is not classified as a
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loan?
(a) letter of credit
(b) guarantee of a loan
(c) line of credit
( d) loan commitment
(e) all are classified as loans - ANSWER✔✔(e) is correct. (Loan) says that loans includes
(a) letter of credit,
(b) guarantee of a loan,
(c) line of credit and
(d) loan commitment.
Question: Daman & Co. is a one-office public accounting firm. In each
of the following situations state whether the work Daman
& Co. is doing would be classified as an attest engagement:
Preparing a review report on the financial statements
of Blakely Mfg. Co. for the calendar year.
(a) This is an attest engagement
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(b) This is not an attest engagement - ANSWER✔✔(a) is correct. (Attest engagement) is an
engagement that requires independence. Since review reports require the member to be
independent, preparing the review report for Blakely Mfg. Co. is an attest engagement
Question: Daman & Co. is a one-office public accounting firm. In each
of the following situations state whether the work Daman
& Co. is doing would be classified as an attest engagement:
Reviewing prior year's tax returns of Heft & Co.
and reporting to Heft's board of directors the results
of such a review. The tax returns were prepared by
another accounting firm. This is the first work that
Daman & Co. will do for Heft & Co. Daman's partners
hope that this engagement will lead to annual audits or
reviews and preparation of tax returns for this company.
(a) This is an attest engagement
(b) This is not an attest engagement - ANSWER✔✔(b) is correct. (Attest engagement) is an
engagement that requires independence. Since reviewing tax returns does not require
independence, this is not an attest engagement.
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Question: Daman & Co. is a one-office public accounting firm. In each
of the following situations state whether the work Daman
& Co. is doing would be classified as an attest engagement:
Preparing income tax returns and a compilation
report for Bower's Restaurant for the calendar year.
The compilation report will not disclose a lack of
independence.
(a) This is an attest engagement
(b) This is not an attest engagement - ANSWER✔✔(a) is correct. (Attest engagement) is an
engagement that requires independence. Preparing tax returns does not require independence.
Preparing a compilation
report requires independence, unless the
report discloses a lack of independence, which this
one doesn't. This then is an attest engagement with
Bower's Restaurant.
Question: Carson is a partner in a one-office public accounting firm
that is located in Illinois. In each of the following cases
state whether the individual would be considered a close
Certified Public Accountant Ethics (CPA) Exam
QUESTIONS AND CORRECT DETAILED SOLUTIONS
WITH RATIONALES LATEST UPDATED VERSION JUST
RELEASED RECENTLY
Question: A member wishes to take an action but is told that
it would be against the rules in the Code of Professional
Conduct. His secretary then offers to take
the action saying to the member, "I will do it since
I am not a member of the AI CPA and their rules do
not apply to me." The member makes no comment
and the secretary does carry out the action. Has the
member violated the Code of Professional Conduct?
(a) Yes.
(b) No. - ANSWER✔✔(a) is correct. (Interpretation addressing the Applicability of the AI CPA
Code of Professional Conduct) says a member shall not knowingly let a person whom the
member can control do something for the member that if the member did the same thing
would be a violation of the code.
Question: Which, if any, of the following is not classified as a
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loan?
(a) letter of credit
(b) guarantee of a loan
(c) line of credit
( d) loan commitment
(e) all are classified as loans - ANSWER✔✔(e) is correct. (Loan) says that loans includes
(a) letter of credit,
(b) guarantee of a loan,
(c) line of credit and
(d) loan commitment.
Question: Daman & Co. is a one-office public accounting firm. In each
of the following situations state whether the work Daman
& Co. is doing would be classified as an attest engagement:
Preparing a review report on the financial statements
of Blakely Mfg. Co. for the calendar year.
(a) This is an attest engagement
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(b) This is not an attest engagement - ANSWER✔✔(a) is correct. (Attest engagement) is an
engagement that requires independence. Since review reports require the member to be
independent, preparing the review report for Blakely Mfg. Co. is an attest engagement
Question: Daman & Co. is a one-office public accounting firm. In each
of the following situations state whether the work Daman
& Co. is doing would be classified as an attest engagement:
Reviewing prior year's tax returns of Heft & Co.
and reporting to Heft's board of directors the results
of such a review. The tax returns were prepared by
another accounting firm. This is the first work that
Daman & Co. will do for Heft & Co. Daman's partners
hope that this engagement will lead to annual audits or
reviews and preparation of tax returns for this company.
(a) This is an attest engagement
(b) This is not an attest engagement - ANSWER✔✔(b) is correct. (Attest engagement) is an
engagement that requires independence. Since reviewing tax returns does not require
independence, this is not an attest engagement.
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Question: Daman & Co. is a one-office public accounting firm. In each
of the following situations state whether the work Daman
& Co. is doing would be classified as an attest engagement:
Preparing income tax returns and a compilation
report for Bower's Restaurant for the calendar year.
The compilation report will not disclose a lack of
independence.
(a) This is an attest engagement
(b) This is not an attest engagement - ANSWER✔✔(a) is correct. (Attest engagement) is an
engagement that requires independence. Preparing tax returns does not require independence.
Preparing a compilation
report requires independence, unless the
report discloses a lack of independence, which this
one doesn't. This then is an attest engagement with
Bower's Restaurant.
Question: Carson is a partner in a one-office public accounting firm
that is located in Illinois. In each of the following cases
state whether the individual would be considered a close
