According to the professions ethical standards, an auditor would be considered independent

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Are auditors independent?
Are auditors required to be independent?
What determines the independence of an auditor?
Which of the following must be independent in the performance of an audit?

According to the professions ethical standards, an auditor would be considered independent

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Read 'Chapter 1: Ethics And Ethical Reasoning' & answer the following question(s):
1.	Plato maintained that all “wrong-doing” is involuntary and arises from ignorance:
	TRUE
	FALSE
2.	Which of the following statements best explains why the accounting profession has found it essential to promulgate ethical standards and to establish means for ensuring their observance?
	Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts.
	Ethical standards that emphasize excellence in performance over material rewards establish a reputation for competence and character.
	Ethical standards that emphasize excellence in performance over material rewards establish a reputation for competence and character.
	A requirement for a profession is to establish ethical standards that stress primarily a responsibility to clients and colleagues.
3.	The concept of materiality is least important to an auditor when considering the:
	The concept of materiality is least important to an auditor when considering the
	Discovery of weaknesses in a client's internal control.
	Effects of a direct financial interest in the client on the CPA's independence.
	Decision whether to use positive or negative confirmations of accounts receivable.
4.	According to the profession's ethical standards, an auditor would be considered independent in which of the following instances?
	The auditor's checking account, which is fully insured by a federal agency, is held at a client financial institution.
	The auditor is also an attorney who advises the client as its general counsel.
	A member donates service as treasurer of a charitable organization that is a client during the period covered by the financial statements.
	The client owes the auditor fees for two consecutive annual audits.
5.	In which of the following circumstances would a CPA who audits XM Corporation lack independence?
	The CPA is a director of, but does not control, YN Corporation, which has a loan from XM.
	The CPA and XM's president each owns 25% of FOB Corporation, a closely held company.
	The CPA has an automobile loan from XM, a financial institution. The loan is collateralized by the automobile.
	The CPA reduced XM's usual audit fee by 40% prior to the audit because XM's financial condition was unfavorable.
6.	On June 1, 2004, a CPA obtained a $100,000 personal loan from a financial institution client for whom the CPA provided compilation services. The loan was fully secured and considered material to the CPA's net worth. The CPA paid the loan in full on December 31, 2004. On April 3, 2005, the client asked the CPA to audit the client's financial statements for the year ended December 31, 2005. Is the CPA considered independent with respect to the audit of the client's December 31, 2005, financial statements?
	Yes, because the loan was fully secured.
	Yes, because the CPA was not required to be independent at the time the loan was granted.
	No, because the CPA had a loan with the client during the period of a professional engagement.
	No, because the CPA had a loan with the client during the period covered by the financial statements.
7.	According to the profession's ethical standards, which of the following events may justify a departure from a Statement of Financial Accounting Standards? New Legislation Evolution of a New Form of Business Transaction
	No Yes
	Yes No
	Yes Yes
	No No
8.	Which of the following actions by a CPA most likely violates the profession's ethical standards?
	Arranging with a financial institution to collect notes issued by a client in payment of fees due.
	Compiling the financial statements of a client that employed the CPA's spouse as a bookkeeper.
	Retaining client records after the client has demanded their return.
	Purchasing a segment of an insurance company's business that performs actuarial services for a client's employee benefit plans.
9.	According to the profession's ethical standards, an auditor would be considered independent in which of the following instances?
	The auditor is the officially appointed stock transfer agent of a client.
	The auditor's checking account, which is fully insured by a federal agency, is held at a client financial institution.
	The client sponsors an employee benefit plan in which the auditor participates.
	The client is the only tenant in a commercial building owned by the auditor.
10.	Adams is the executive partner of Adams & Co., CPAs. One of its smaller clients is a large nonprofit charitable organization. The organization has asked Adams to be on its board of directors, which consists of a large number of the community's leaders. Membership on the board is honorary. Adams & Co. would be considered to be independent:
	Under no circumstances.
	As long as Adams's directorship was disclosed in the organization's financial statements.
	As long as Adams was not directly in charge of the audit.
	As long as Adams does not perform or give advice on management functions of the organization.
11.	Which of the following most completely describes how independence has been defined by the accounting profession?
	Performing an audit from the viewpoint of the public.
	Avoiding the appearance of significant interests in the affairs of an audit client.
	Possessing the ability to act with integrity and objectivity.
	Accepting responsibility to act professionally and in accordance with a professional code of ethics.
12.	In which of the following instances would the independence of the CPA most likely not be considered to be impaired? The CPA has been retained as the auditor of the financial statements of a-
	Charitable organization in which the spouse of the CPA serves as treasurer.
	Municipality in which the CPA owns $25,000 of the $2,500,000 indebtedness of the municipality.
	Credit union of which the CPA is a member.
	Company in which the CPA's investment club owns a 10% interest.
13.	A violation of the profession's ethical standards would most likely have occurred when a CPA in public practice:
	Used a records-retention agency to store the CPA's working papers and client records.
	Served as an expert witness in a damage suit and received compensation based on the amount awarded to the plaintiff.
	Referred life insurance assignments to the CPA's spouse, who is a life insurance agent.
	Serves on a municipal board of income tax appeals, discloses that status to concerned parties, participates as a board member in a tax appeal involving a client, but does not receive the client's consent for such action.
14.	Upon discovering irregularities in a client's tax return that the client would not correct, a CPA withdraws from the engagement. How should the CPA respond if asked by the successor CPA why the relationship was terminated?
	"It was a misunderstanding."
	"I suggest you get the client's permission for us to discuss all matters freely."
	"I suggest you ask the client."
	"I found irregularities in the tax return that the client would not correct."
15.	Which action is not considered a discreditable act?
	Negligently permitting another to sign a document containing materially false and misleading information.
	Being finally determined by a court of competent jurisdiction to have violated any of the federal antidiscrimination laws.
	Having a bank collect notes received from a client in payment of fees.
	Failing to follow standards and procedures established by governmental agencies in audits of grants by those agencies.
16.	According to the ethical standards of the profession, which of the following acts is generally prohibited?
	Issuing a modified report explaining a failure to follow a governmental regulatory agency's standards when conducting an attest service for a client.
	Revealing confidential client information during a quality review of a professional practice by a team from the state CPA society.
	Accepting a contingent fee for representing a client in an examination of the client's federal tax return by an IRS agent.
	Retaining client records after an engagement is terminated prior to completion and the client has demanded their return.
17.	The profession's ethical standards most likely are violated when a CPA represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representation that the:
	Actual fee would be substantially higher.
	Actual fee would be substantially lower than the fees charged by other CPAs for comparable services.
	CPA would not be independent.
	Fee was a competitive bid.
18.	According to the ethical standards of the profession, which of the following acts is generally prohibited?
	Purchasing a product from a third party and reselling it to a client.
	Writing a financial management newsletter promoted and sold by a publishing company.
	Accepting a commission for recommending a product to an audit client.
	Accepting engagements obtained through the efforts of third parties.
19.	A member of the AICPA who is engaged to prepare an income tax return has a duty to prepare it in such a manner that the tax is:
	The legal minimum.
	Computed in conformity with generally accepted accounting principles.
	Supported by the taxpayer’s audited financial statements.
	Not subject to change upon audit.
20.	In accordance with the AICPA’s Statements on Standards for Tax Services, when a reasonable basis exists for omission of an answer to an applicable question on a tax return:
	The preparer need not provide an explanation for the omission on the return.
	A brief explanation of the reason for the omission must be provided on the return.
	The question should be marked as nonapplicable.
	A note on the return should state that the answer will be provided if the information is requested.
Read 'Chapter 2: Ethical Reasoning and Accountants' & answer the following question(s):
Read 'Chapter 3: Conclusions and Implications' & answer the following question(s):
Read 'Chapter 4: Culture, Motivation, Power, and Business Ethics' & answer the following question(s):
Read 'Chapter 5: AICPA’s Code of Professional Conduct' & answer the following question(s):
Read 'Chapter 6: Interpretations and Rulings' & answer the following question(s):
Read 'Chapter 7: Corporate Responsibility law (Sarbanes-Oxley act)' & answer the following question(s):
Read 'Chapter 8: Standards of Ethical Conduct for Practitioners' & answer the following question(s):
Read 'Chapter 9: Mississippi Ethics' & answer the following question(s):
Read 'Chapter 10: Regulation of Accountants' & answer the following question(s):

Return to Syllabus

Are auditors independent?

An independent auditor either works for a public accounting firm or is self-employed. An auditor examines financial statements and related data, analyzes business operations and processes, and provides recommendations on achieving greater efficiency.

Are auditors required to be independent?

Change of Independent Auditors The auditor generally must be independent for the entire engagement period and the period covered by the financial statements being audited. Once this relationship is terminated, there is no continuing requirement for the auditor to remain independent.

What determines the independence of an auditor?

To be independent, the auditor must be intellectually honest; to be recognized as independent, he must be free from any obligation to or interest in the client, its management, or its owners.

Which of the following must be independent in the performance of an audit?

D. Under the Code's Independence Rule, which of the following must be independent in the performance of an audit? C. All individuals on the attest engagement team, except those performing routine clerical functions.

According to the professions ethical standards, an auditor would be considered independent

Are auditors independent?

Are auditors required to be independent?

What determines the independence of an auditor?

Which of the following must be independent in the performance of an audit?

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