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CHAPTER 3
The CPA's
Professional
Responsibilities
1. Professional Behavior
- A professional accountant should comply with relevant
laws and regulations and should avoid any action that
discredits the profession.
2. Integrity
- A professional accountant should be straightforward
and honest in all professional and business relation·
ships.
CHAPTER 3 The CPA's Professional Responsibilities 121
3. Confidentiality
- A professional accountant should respect the confiden-
tiality of information acquired as a result of profes-
s'ional and business relationships. Such information
should not be disclosed to third parties without proper
and specific authority unless there is a legal or profes-
sional right or duty to disclose. Also, it should not be
used for the personal advantage of the professional ac-
countant or third parties.
4. Objectivity
- A professional accountant should not allow bias, con-
flict of interest or undue influence of others to over-
ride professional or business judgments.
A B c D
Integrity implies fair dealing and
truthfulness. True True False False
The priQciple of objectivity imposes
an obligation on all professional
accountants to maintain professional
knowledge and skill at the level
required. True False True False
122 CPA EXAMINATION REVIEWER:. AUDITING THEORY
1. Sel~interestthreat
- the threat that a financial or other interest will inap-
propriately influence the professional· accountant's
judgment or behavior.
2. Self-review threat
- the threat that a professional accountant will not ap-
propriately evaluate the results of a previous judgment
made or service performed by the professional ac- ·
countant, or by another individual within the profes-
sional accountant's firm or employing organization, on
which the accountant will rely when forming a judg-
ment as part of providing a current service.
3. Advocacy threat
- the threat that a proff;ssional accountant will promote
a client's or employer's position to the point th~t {he
professional accountant's objectivity is compromised.
4. Familiarity threat
- the threat that due to a long or close relationship with
a client or employer, a professional accountant will be
too sympathetic to their interests or too accepting of
their work.
126 CPA EXAMINATION REVIEWER: AUDITING THEORY
5. Intimidation threat
- the threat that a professional accountant will be de-
terred from acting objectively because of actual or
perceived pressures, including attempts to exercise
undue influence over the professional accountant.
27. !he_ Code of Ethics ~rovides that where the larger structure
1s aimed at cooperation and the entities within the structure
share a significant part of professional resources it is con·
sidered to be a network. Professional resources lnclude the
following, except
A. Audit methodology or audit manuals
B. Training courses and facilities
CHAPTER 3 The CPA's Professional Responsibilities 141
C. Brand name
D. Partners and staff
C. Neither I nor II
D. Bo~h I and II
The Code states, "If the valuation services involves the valu-
ation of matters material to the financial statements and the
valuation involves a significant degree of subjectivity, the
self-review threat could not be reduced to an acceptable
level by the application of any safeguard. Accordingly, such
valuation services should not be. provided or, alternatively,
the only course of action could be to withdraw from the au-
dit engagement."
69. A client company has not paid its 20X5 audit fees. According
to the Code of Professional Ethics, in order for the auditor to
be considered independent with respect to the 20X6 audit,
the 20X5 audit fees must be paid before the:
A. 20X5 report is issued.
B. 20X6 fieldwork is started.
C. 20X6 report is issued.
D. 20X7 fieldwork is started.
A. 5 c. 20
B. 10 D. 25
QUALITY CONTROL
f) Monitoring.
A. Engagement performance
B. Leadership responsibilities for quality within the firm
C. Monitoring
D. Relevant ethical requirements
A. At least annually
B. At least monthly
C. At least semi-annually
D. At the completion of each engagement
92. The nature, timing, and extent of an audit firm's quality con·
trol policies and procedures depend on
98. Who should take responsibility for the overall quality on each
audit engagement?
A. Engagement quality control reviewer
B. Eng.agement ·partner
C. Engagement team
D. CPA firm
A. Output theft
B. Data theft
C. Disbursement fraud
D. Cash receipt fraud
124. When planning the audit, the auditor should make inquiries
of management. Such inquiries should address the follow-
ing, except
186 CPA EXAMINATION REVIEWER: AUDITING TH~ORY
137. PSA 250 states that in order to plan the audit, the auditor
should obtain a general understanding of the legal and regu-
latory framework applicable to the entity and the industry
and how the entity is complying with that framework. To
obtain this understanding, the following procedures would
ordinarily be considered by the auditor, except
A. Use the existing understanding of the entity's industry,
regulatory, and other external factors.
B. Inquire of management concerning the entity's policies
and procedures regarding compliance with laws and reg-
ulations.
C. Inquire of management as to the laws and regulations
that may be expected to have a fundamental effect on
the operations of the entity.
D. Inspect correspondence with relevant licensing or regula-
tory authorities.
141. 1: the auditor .is precluded by the entity from obtaining $Uffi~
cient ~ppropnate audit evidence to evaluate whether non
compha~c~ that may be material to the financial statements,
has, or is ~ikely to have, occurred the auditor should express
:· A qual~fied op~n~on or an adv~rse opinion .
· A qualified opinion or a disclaimer of opinion
CHAPTER 3 The CPA's Professional Responsibilities 195
C. An unmodified opinion
D. An adverse opinion or a disclaimer of opinion
143. Under PSA 260, this term is used to describe the role of per-
sons entrusted with the supervision, control, and direction of
an entity.
A. Oversight
B. Governance
C. Direction
D. Control
196 CPA EXAMINATION REVIEWER: AUDITING THEORY
144. According to PSA 260, those matters that arise from the au-
dit of financial statements and, in the opinion of the auditor,
are both important and relevant to those charged with gov-
ernance in overseeing the financial report.ing and disclosure
process are called
A. Audit matters of governance interest
B. Significant audit matters
C. Auditor's findings
D. Material misstatements in the financial statements
147. PSA 260 requires the auditor to determine the relevant per·
sons who·are charged with governance and with whom audit
matters of governance interest are communicated. For cor·
porations covered by the SEC Code of Corporate Govern·
ance, which of the following is primarily responsible for cor·
porate governance?
A. President
B. . Controller
C. Board of Directors
'P. Management
The Code of Corporate Governance promuigated by the Sed
curities and Exchange Commission (SEC) states, "The soar
CHAPTER 3 The CPA's Professional Responsibilities 19,9
148. The audit~r -shall communicate with those charged with gov-
ernance his/her responsibilities in relation to the audit of the
entity's financial statements, including that
I. The auditor is responsible for forming and expressing an
opinion on the financial statements.
II. The audit of the financial statements does not relieve
management or those charged with governance of their
responsibi Iities.
A. I only
B. II only
C. Neither I nor II
O. Both I and II
TRUE OR FALSE
KEY ANSWERS
TRUE OR FALSE