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Ethics in Accounting A Decision Making Approach 1st Edition Klein Test Bank
Ethics in Accounting A Decision Making Approach 1st Edition Klein Test Bank
MULTIPLE CHOICE
Copyright ©2016 John Wiley & Sons, Inc. Klein, Ethics in Accounting, 1/e (For Instructor Use Only) 8-1
5. In some jurisdictions, laborers, including accountants, are given a lien over client
records. (A lien is a priority legal and economic right that is created when a client
fails to pay agreed-upon fees.) This lien customarily entitles an accountant to
retain possession of client records until outstanding fees are paid in full. When
such a lien right arises, the AICPA Code of Professional Conduct states that:
a. State law is given priority over the CPA profession’s rules of ethical conduct
b. The CPA profession’s rules of ethical conduct are given priority over state law
c. The CPA is allowed to select the set of rules that are most favorable to the
CPA
d. The CPA is obligated to abide by the set of rules that is most favorable to the
client
SOLUTION: D
SOLUTION: B
SOLUTION: D
Copyright ©2016 John Wiley & Sons, Inc. Klein, Ethics in Accounting, 1/e (For Instructor Use Only) 8-2
8. Winkelberg, a CPA, has been retained to prepare unaudited financial statements
for a company, on an income tax reporting basis, for a privately-held company
owned by her best friend, Stinkelberg. WInkelberg has a professional obligation
to:
a. Withdraw from this engagement because of her friendship with Stinkelberg
b. Withdraw from this engagement because of the basis on which these financial
statements are presented
c. Use due care in preparing these statements
d. Inform her client that this basis of reporting violates SEC filing requirements,
but she does not necessarily have a duty to withdraw from this engagement
SOLUTION: C
9. When unaudited financial statements prepared on a basis that does not conform
to GAAP are disseminated by a CPA, the CPA should:
a. Directly contact intended recipients of these statements to inform them about
the nonconformity with GAAP
b. Mark the statements as “Unaudited” and state that they are “Not prepared in
accordance with GAAP”
c. Not be involved in the physical or digital transmission of these statements
d. Not sign any reports or statements indicating her status as a CPA
SOLUTION: B
10. Which of the following acts is clearly discreditable?
a. Creating and posting a youtube video in which a CPA berates the IRS for
incompetence
b. Refusing to return client records, even if a CPA is owed unpaid fees, if these
records are needed by the client to prepare its tax return
c. Commenting on “how graceful” an administrative assistant is when she wears
high-heeled shoes
d. Mentioning on your CPA firm’s website that you formerly worked for the IRS,
if a reader might conclude from this statement that you are better able to
negotiate favorable settlements with the IRS for clients
SOLUTION: B
11. A CPA prepared financial statements that reflect a company’s expected financial
position, operating results, and cash flows and were based on one or more
hypothetical assumptions: This CPA has:
a. Violated the ethical standards of the accounting profession, as reflected in the
IFAC Code of Conduct
b. Violated the ethical standards of the accounting profession, as reflected in
both the AICPA’s and IFAC’s standards of conduct
c. Prepared financial projections, which is not an ethical violation
d. Prepared financial forecasts, which is not an ethical violation
SOLUTION: C
Copyright ©2016 John Wiley & Sons, Inc. Klein, Ethics in Accounting, 1/e (For Instructor Use Only) 8-3
12. Financial statements prepared on the cash basis:
a. Comply with GAAP but are complex to prepare
b. Comply with GAAP and are relatively easy to prepare
c. Do not comply with GAAP and are relatively easy to prepare
d. Do not comply with GAAP and, therefore, are not subject to being audited
SOLUTION: C
13. A CPA is in partnership with three non-CPAs. The CPA wants to sign a report.
Her signature will appear at the bottom of the report and the signature block will
mention that she is a CPA and is affiliated with this partnership. This CPA:
a. May do so as long as the non-CPAs comply with the standards set forth in the
AICPA’s Code of Professional Conduct
b. May do so as long as the report would not lead a reasonable reader to
believe that the entire partnership is comprised solely of CPAs
c. May not do so because the use of the entire firm’s name would imply to a
reasonable reader that all partners in the firm participated in the submission
and preparation of the report
d. May not do so because a CPA who is in partnership with non-CPAs may not
use the entire partnership’s name in connection with reports submitted to
clients or third parties
SOLUTION: B
SOLUTION: D
SOLUTION: B
Copyright ©2016 John Wiley & Sons, Inc. Klein, Ethics in Accounting, 1/e (For Instructor Use Only) 8-4
16. The “Continental Vending Machine” court decision was a landmark ruling
because:
a. It authorized CPA firms to both prepare a client’s financial statements and then
audit these same financial statements
b. It held that, for consistency, all financial statements must comply with GAAP,
regardless of the industry in which a company operates
c. Auditors can be held liable for misconduct, even if financial statements comply
with GAAP
d. Auditors may recoup from an audit client all of the litigation losses that the
auditor sustains from certifying misleading financial statements if the audit client
solely was responsible for the statement presentation being misleading
SOLUTION: C
SOLUTION: D
18. A CPA has been hired to audit a bank that is regulated by the federal banking
authorities. This audit will be submitted by the bank to numerous readers,
including federal regulators. The CPA’s audit agreement with the bank provides
that the bank will “reimburse and indemnify it for all losses it incurs if the bank’s
financial statements were prepared by the bank in a manner that was misleading
or fraudulent.” This provision:
SOLUTION: D
Copyright ©2016 John Wiley & Sons, Inc. Klein, Ethics in Accounting, 1/e (For Instructor Use Only) 8-5
19. The “moral character” requirement, as expressed in the Uniform Accountancy
Act’s Model Rules:
a. Is limited to acts of dishonesty or deceit that evidence unfitness to carry out
the duties of the accounting profession
b. Is limited to acts of misconduct that constitute misdemeanors
c. Is limited to acts of misconduct that constitute felonies
d. Includes all acts of dishonesty or deceit that evidence unfitness to practice
accounting and any felony, whether or not it relates to the practice of
accounting
SOLUTION: A
20. Which of the following is most likely to be considered “material,” even if the
amounts involved are small?
a. Amounts that cause an upward earnings trend to become even larger
b. Amounts that cause an earnings trend to swing from slightly positive to
slightly negative
c. Amounts that cause reported Gross Profit to be larger than Net Income
d. Amounts that mask a retailer’s inability to control its Cost of Goods Sold
SOLUTION: B
Copyright ©2016 John Wiley & Sons, Inc. Klein, Ethics in Accounting, 1/e (For Instructor Use Only) 8-6
ESSAYS/SHORT ANSWER
2. What acts, if any, are expressly identified as discreditable by the IFAC Code of
Conduct?
SOLUTION: None
SOLUTION: The CPA must return access to the general ledger because it is a “client
record.” It does not have to relinquish the tax strategy plan, which is “workproduct.”
7. A CPA was convicted of a crime and sentenced to jail for intentionally harming an
animal. In most states, does this CPA satisfy the “moral character” standard for
continuing to practice as a CPA? Should this CPA be allowed to continue to
practice accounting?
Copyright ©2016 John Wiley & Sons, Inc. Klein, Ethics in Accounting, 1/e (For Instructor Use Only) 8-7