Which of the following is not a body designated by Council Resolution to promulgate technical standards?

Question 1

Which of the following is not
considered to be a “cooperative arrangement” between a member firm and a
client that would impair independence?

A) A joint venture to
develop or market products or services where the arrangement is material
to the client but not the member firm.

B) An arrangement
to combine one or more services or products of the member firm with one
or more services or products of the client and market the package with
references to both parties. The arrangement is material to the member
firm but not to the client.

C) A prime/subcontractor
arrangement to provide services or products to a third party where the
arrangement is not material to the firm or to the client.

D) All of the above are cooperative arrangements that would impair the member firm’s independence.

Question 2

Crohn
& Saba, CPA’s performed an audit engagement for Starr Publishing
for the year ended December 31, 20X4. In addition to the audit
engagement, the firm provides various other services for the company
including tax preparation and consulting.Which of the following
situations would impair Crohn & Saba, CPA’s independence with
respect to the audit engagement with Starr Publishing?

A) The commencement of litigation by the management of Starr Publishing alleging deficiencies in audit work for the company.

B)
The commencement of litigation by Crohn & Saba, CPA’s against the
present management of Starr Publishing alleging management fraud or
deceit

C) Threatened litigation by Starr Publishing
against Crohn & Saba, CPA’s regarding a fee dispute not related to
the audit engagement. The amount in dispute is neither material to Crohn
& Saba, CPA’s nor to Starr Publishing.

D) All of the above

E) Both a. and b

Question 3

Adler,
Grimes & Hastings, CPA’s has been in business for over 30 years.
Barbara Adler, a long-time partner of the firm, died last year. The firm
wants to admit Jones as a partner and go by the name Adler, Grimes,
Jones & Hastings, CPA’s. Jones is a member of the State CPA Society
but is not a member of the AICPA. Adler was a member of the AICPA and
both Grimes and Hastings, the only other partners, are also members of
the AICPA. Which of the following statements is true?

A) The firm may continue to use Adler’s name in the firm name since the new firm is considered to be a successor firm.

B) The firm must remove Adler’s name from the firm since she is deceased.

C)
The firm is allowed to designate itself as “Members of the American
Institute of Certified Public Accountants” because a majority of the
partners are members.

D) None of the above statements is true.

Question 4

Patel,
a member, is a sole practitioner CPA who provides bookkeeping,
financial statement, and tax preparation services to his clients. To
assist Patel with his workload, he has hired a third-party service
provider to enter client bookkeeping information (coded checks,
deposits) and to do bank reconciliations for some of his clients. In
addition, Patel uses a different third-party service provider to provide
cloud-based record storage, software application hosting, and e-file
tax transmittal services.Which of the following statements is true
regarding the disclosure(s), if any, that Patel is required to provide
to his clients regarding the use of the aforementioned third-party
service providers?

A) Patel is not required to disclose the use of either third-party service provider.

B)
Regarding the third-party service provider performing bookkeeping
services, Patel should inform the client(s) involved, prior to
disclosing confidential client information and preferably in writing,
that he may use a third-party service provider.

C)
Regarding the third-party service provider hosting cloud-based services,
Patel should inform the client(s) involved, prior to disclosing
confidential client information and preferably in writing, that he may
use a third-party service provider.

D) Patel is required to disclose the use of both third-party service providers.

Question 5

Ryan
& Ryan, CPA’s is a full-service accounting firm that provides
attest and no attest services to a diverse group of clients. Willard,
the managing partner, has decided that it would be a good financial move
for the firm to buy a building, utilize a portion of the building for
its own use, and lease the rest of the building to third parties. The
other partners of the firm voted to accept Willard’s proposal and on
February 25, 20X6 the firm purchased a building for the aforementioned
purposes.In which of the following situations would the firm’s
independence be impaired?

A) The firm leases a portion of the
building to an audit client at a rate that is 50% of the current market
rate and the rate that the firm charges to non-client tenants.

B)
The firm uses an audit client in the construction industry to build out
the various office spaces in the building. The client is charging the
firm only 60% of what it would typically charge for jobs of a similar
nature.

C) Both a. and b. would impair independence

D) Neither a. nor b. would impair independence

E) All business relationships with an audit client would impair

Question 6

David,
a member, is a sole practitioner CPA. Based on the work that David does
for Jackson Spine, Inc., he is not independent with respect to the
company.Jackson Spine, Inc. requires audited financial statements for
its line of credit with Graymore Bank. The company has hired Hanson
& Potter, CPA’s to perform the audit and issue the audited
statements to the bank. Hanson & Potter, CPA’s would like to utilize
David on the audit of Jackson Spine, Inc. because of his extensive
experience with the client and his knowledge of the books and
records.Would Hanson & Porter, CPA’s use of David on the audit
impair their independence with respect to Jackson Spine, Inc.?

A) Hanson & Potter, CPA’s is barred by the Code of Professional Conduct from using David on the audit for any purpose.

B)
As long as Hanson & Potter, CPA’s uses David’s work in a manner
similar to an internal auditor and complies with AICPA Statements on
Auditing Standards, their independence would not be impaired.

C)
David’s lack of independence with respect to Jackson Spine, Inc. would
not impair Hanson & Potter, CPA’s independence because David’s firm
was not the firm engaged to perform the audit and issue the audited
financial statements.

D) David’s lack of independence
would automatically impair Hanson & Potter, CPA’s independence with
respect to Jackson Spine, Inc.

Question 7

Walters,
a member, has been in public practice for nearly 20 years. Over the
years, she has developed a number of specialties including tax dispute
resolution, obtaining SBA financing, and evaluating tax sheltered
investments. In an effort to expand her practice, Walters wants to
promote her recently developed expertise in forensic accounting related
to divorces. She had handled nearly a dozen such engagements during the
past year and Walters wants to develop a marketing brochure for the
specialty that includes the names of the clients she has represented. In
this situation, would Walters be able to reveal the names of clients
she has represented in divorce cases without obtaining the client’s
consent?

A) Yes. It is not necessary to obtan a client’s consent to disclose their names in this situation.

B)
No. Disclosure of client’s names in this situation would suggest that
the client is having marital difficulties which may be confidential
information.

C) No. Disclosing the names of clients is a
violation of confidentiality in all cases unless specific client consent
is obtained.

D) None of the above are correct.

Question 8

Katey
is a California CPA practicing in California. Katey has been licensed
in California for 20 years, all of those years in active status. She is a
partner in the firm of Perry & Sherry, CPA’s. Katey wants to renew
her license in inactive status as she will be accepting a temporary
position outside of public accounting. Which of the following apply to
her renewal in inactive status?

A) Katey must have completed 80 hours of continuing education within the two years preceding her renewal in inactive status.

B)
Katey may continue to receive a share of the net profits from Perry
& Sherry, CPA’s while her license is in inactive status.

C) There is no renewal fee to be paid upon Katey’s renewal of her license in inactive status.

D) All of the above apply to her renewal in inactive status.

E) Both a. and b. apply to her renewal in inactive status.

Question 9

Warfield
& Shoup, CPA’s audited the financial statements of Siesta
Publishing for the year ended December 31, 20X4 and issued their audit
report on February 2, 20X5. After a dispute with the firm, Siesta
Publishing decided to utilize the services of Danza & Zona, CPA’s to
audit their financial statements for the year ended December 31, 20X5.
In conjunction with their audit, Danza & Zona, CPA’s has requested
copies of schedules supporting a number of adjusting entries related to
the December 31, 20X4 audit. In addition, the request included the
return of Siesta Publishing’s records that had been given to Warfield
& Shoup, CPA’s but had yet to be returned. At the time of the
request, Warfield & Shoup, CPA’s had not been paid for the audit
engagement for December 31, 20X4 and the firm has refused to provide
Danza & Zona, CPA’s with the requested supporting documentation or
the client’s records until they are paid in fullIs the firm’s refusal to
provide the requested documentation of adjusting entries, along with
its refusal to return any of Siesta Publishing’s records in its
possession, an act discreditable to the profession?

A) The refusal
to return client records is an act discreditable to the profession, but
the refusal to provide copies of schedules supporting adjusting entries
is not an act discreditable to the profession.

B) Only the refusal to provide copies of schedules supporting adjusting entries is an act discreditable to the profession.

C)
Both the refusal to provide copies of schedules supporting adjusting
entries and the refusal to return client records are acts discreditable
to the profession.

D) Neither the refusal to provide copies of schedules supporting adjusting entries and the refusal to return client records are acts discreditable to the profession.

“Which of the following is not a body designated by Council Resolution to promulgate technical standards?”

Question 10

Clayborne,
a member, practices in public accounting and has her own CPA firm. Due
to some cash flow issues, she has not paid her AICPA dues and is now 3
months overdue on such payment. For the same cash flow reason, she has
neither complied with the AICPA’s practice monitoring program or the
continuing education requirement for membership retention.Which of the
following is correct concerning the action(s) the AICPA Board of
Directors may take against Clayborne?

A) The Board may terminate Clayborne’s membership for the three-month delinquency in payment of her dues.

B)
The Board may terminate Clayborne’s membership for failure to comply
with the practice monitoring program for membership retention.

C) The Board has no power to terminate Clayborne’s membership for any of situations noted.

D) Both a. and b. are actions that the Board may take against Clayborne.

Question 11

According
to the California Accountancy Act, which of the following is acceptable
as it relates to no licensee ownership of firms engaged in the practice
of public accountancy?

A) Licensees shall in the aggregate,
directly or beneficially, comprise a majority of owners, except that
firms with two owners may have one owner who is a no licensee.

B)
Nonlicensee owners do not have to materially participate in the
business of the firm until they have been owners for more than one year.

C) Nonlicensee ownership is prohibited

D) None of the above

Question 12

Diana
Roth is a California CPA practicing in California. She is a sole
proprietor with three professional employees and two paraprofessional
employees. Diana has owned her own firm for five years.Which of the
following names may Diana use for her practice without registration and
approval from the Board of Accountancy?

A) Accurate City Bookkeeping

B) Diana Roth, CPA

C) Alpha Tax Preparation and Bookkeeping

D) All of the above

E) Both a. and b.

Question 13

Donaldson
& Moss, CPA’s provides various no attest services to its attest
clients. The firm only wants to provide such no attest services that do
not impair its independence with respect to the firm’s attest
clientsWhich of the following no attest services would impair the firm’s
independence with respect to an attest client?

A) Using payroll
time records provided and approved by the client to process a client’s
payroll and produce unsigned payroll checks for the client to sign.

B) Assist in developing corporate strategies.

C) Provide assistance in assessing the client’s business risks and control processes.

D) None of the above would impair the firm’s independence.

E) Both a. and c. would impair the firm’s independence.

Question 14

Which of the following nonattest services would impair a firm’s independence with an attest client?

A) Prepare financial statements based on information in the trial balance.

B) Communicate benefit plan summary data to plan trustee.

C) Assist in developing corporate strategies.

D) Provide assistance in assessing the client’s business risk and control processes.

E) None of the above.

Question 15

Swerdlow,
a member, is a tax manager with the firm Cheskes & Memel, CPA’s.
The firm performs an audit for a publicly traded manufacturing company
and will be auditing the financial statements for the year ended
December 31, 20X4. Swerdlow will be providing at least fifty hours of
tax services to the audit client before and after the December 31, 20X4
year end. Swerdlow’s spouse inherited a small holding in the audit
client’s stock on November 2, 20X3 and does not want to dispose of the
stock. Which of the following statements is true with regard to the
firm’s independence with the aforementioned audit client?

A) The firm’s independence with respect to the audit client is impaired.

B) Swerdlow’s spouse is not a covered member and as such the firm’s independence is not impaired.

C) As long as Swerdlow does not do any audit work for the client, independence is not impaired.

D) Since the stock is owned by Swerdlow’s spouse, the firm’s independence is not impaired.

Question 16

Which of the following investments is considered to be a direct financial interest of a covered member?

A) Self-directed investments in a retirement plan

B) Investments held in a defined benefit plan where the member’s best friend is a trustee of the plan.

C) Rights to acquire equity interests where the right is not vested.

D) None of the above

E) Both a. and c. are direct financial interests of the covered member.

Question 17

Lynn,
a member, is looking to expand her firm by working with various
referral sources to recommend clients to her. Lynn has identified a
particular local insurance agent, Geoff, who is very willing to refer
clients to Lynn. In turn, Lynn will refer clients to Geoff for insurance
services. There is no arrangement between Lynn and Geoff for the
payment of any referral fees.In talking with Geoff about how he obtains
clients, Lynn discovers that Geoff uses telemarketers who say that
“Geoff is the best insurance agent in the state and anybody he refers to
you is also the best in the state at what they do.”What is Lynn’s
responsibility as it relates to the statement being made by Geoff’s
telemarketers?

A) Lynn has the responsibility to ascertain that Geoff’s promotional efforts are within the bounds of the Rules of Conduct.

B)
Since Geoff is not bound by the Rules of Conduct, Lynn has no
responsibility regarding the statements being made by Geoff’s
telemarketers and whether they are within the bounds of the Rules of
Conduct.

C) The telemarketers do not work for Lynn and she
has no control over them. Thus she has no responsibility regarding
whether their statements are within the bounds of the Rules of Conduct.

D) Both b. and c. are correct

Question 18

Solomon
& Saunders, CPA’s prepared the audited financial statements of
Hamilton Services for the year ended December 31, 20X1 with the report
thereon issued on February 5, 20X2. The firm is now in the process of
performing the audit for the year ended December 31, 20X2 and
anticipates that its report thereon will be issued on February 15, 20X3.
Due to some financial difficulties, Solomon & Saunders, CPA’s
allowed Hamilton Services to defer payment of billed fees for an
extended period of time. In addition, the firm delayed the billing of
some fees and had Hamilton Services sign a note for the oldest fees. The
face value of the note is $50,000, the interest rate is 8%, and the due
date is February 1, 20X3. The fees included in the note were for
services provided between November 1, 20X1 and February 1, 20X2.Based on
the above, which of the following situations would impair the firm’s
independence with respect to Hamilton Services for the December 31, 20X2
audit engagement?

A) Fees for the preparation of the Hamilton
Services tax returns for the year ended December 31, 20X1 were paid on
February 10, 20X3. The work on the tax return began on February 7, 20X2
and ended on February 9, 20X2.

B) Fees for services
provided by the firm for the period July 1, 20X2 through December 31,
20X2 were billed to Hamilton Services on March 1, 20X3.

C) The $50,000 note was paid in full, including interest, on February 14, 20X3.

D) All of the above would impair the firm’s independence

E) Neither a, b, nor c would impair the firm’s independence

Question 19

Independence, per the Code of Professional Conduct, encompasses all of the following except:

A) Independence of spirit

B) Independence of mind

C) Independence in appearance

D) Independence in fact

Question 20

Goldberg,
a member, has been asked to audit the financial statements of Temple
Zion for the year ended December 31, 20X5. Goldberg is a member of the
temple.Is Goldberg’s independence impaired with respect to the audit of
Temple Zion?

A) Yes. Being a temple member impairs Goldberg’s independence.

B) As long as Goldberg does not serve in temple management or as an employee of the temple, his independence is not impaired.

C) This type of situation is not addressed by the Code of Professional Conduct in any way.

D) None of the above is correct.

Question 21

Reiner,
a member, is a partner in the firm of Reiner & Weiner, CPA’s. The
firm has performed an audit for City Largest Bank for the past three
years and recently completed its audit of the financial statements for
the year ended December 31, 20X3.Which of the following financial
relationships with City Largest Bank would impair Reiner’s independence
and/or the firm’s independence with respect to the bank?

A) Reiner
has a certificate of deposit with City Largest Bank and the balance in
the account is fully insured by the Federal Deposit Insurance
Corporation

B) Reiner has several certificates of deposit
with City Largest Bank and the balance in the accounts exceeds the
federal deposit insurance limit by $1,000,000. The amount in excess of
the federal deposit insurance limit is material to Reiner’s net worth.

C)
Reiner & Weiner, CPA’s maintains several depository relationships
with City Largest Bank. The likelihood that City Largest Bank will
experience financial difficulties is considered very remote.

D)
Reiner has a certificate of deposit with City Largest Bank and the
balance in the account exceeds the federal deposit insurance limit by
$100,000. The amount in excess of the federal deposit insurance limit is
not material to Reiner’s net worth.

Question 22

According
to the Conceptual Framework for AICPA Independence Standards,
safeguards are controls that mitigate or eliminate threats to
independence. There are three broad categories of safeguards: safeguards
created by the profession, legislation, or regulation, safeguards
implemented by the attest client, and safeguards implemented by the
firm.Which of the following is an example of a safeguard implemented by
the firm?

A) Rotation of senior personnel who are part of the attest engagement team

B)
Client acceptance and continuation policies that are designed to
prevent association with clients that pose an unacceptable threat to the
member’s independence

C) A consultation function that is staffed
with experts in accounting, auditing, independence, and reporting
matters who can help attest engagement teams (1) assess issues when
guidance is unclear, or when the issues are highly technical or require a
great deal of judgment and (2) resist undue pressure from a client when
the engagement team disagrees with the client about such issues

D) All of the above

E) Neither a., b., or c.

Question 23

Justin,
a member, has been in public practice for 25 years. His firm does
bookkeeping and financial statements for approximately 50 business
clients and prepares approximately 75 business tax returns and 200
personal tax returns. Justin’s firm has never had a malpractice
claim.Justin is contemplating retirement and wants to sell his
accounting practice. He has hired a professional practice sales firm to
help him identify potential buyers and assist in the practice sale. What
is Justin’s firm required to do to protect its client’s confidential
information in this type of situation?

A) Justin’s firm must
receive written permission from each of his clients before disclosing
any client confidential information to a prospective buyer.

B)
Justin’s firm is not allowed to disclose any client confidential
information to a prospective buyer and thus the potential buyer must
rely exclusively on representations made by Justin’s firm.

C)
A review of a member’s accounting practice pursuant to a potential sale
is allowed if the member takes appropriate precautions (such as a
written confidentiality agreement) so that the prospective buyer does
not disclose any client confidential information obtained during his
review of the practice.

D) None of the above

Question 24

Shaun
& McGinnes, CPA’s is a large local CPA firm that performs a number
of different engagements for its clients including attest engagements.
The firm has fifty professional staff, ten administrative staff, and six
partners. While surveying its staff to determine if any threats to
independence exist, the firm has come upon a number of issues that might
threaten their independence with respect to their attest clients. Which
of the following situations found through the survey would impair the
firm’s independence?

A) Sandy is a director of a trade association
that is an attest client of the firm. Sandy is the partner in charge of
the attest engagement.

B) Marco serves on a citizens
advisory committee that is studying changes to the form of a city
government that the firm audits. Marco serves on the city government
audit team.

C) Reesa is the executor of an estate that
owns a majority of an attest client’s stock. Reesa serves on the attest
engagement team.

D) All of the above would impair the firm’s independence

E) Both a. and c. would impair the firm�s independence

Question 25

Klein
& Marin, CPA’s has two offices located within 20 miles of each
other. During the busy tax season period the firm hires a number of
independent contractors to assist in tax preparation. Barbara is a
controller at Gold Industries, an audit client of Klein & Marin,
CPA’s. Before becoming the controller at Gold Industries, Barbara worked
in public accounting and acquired a significant amount of tax
preparation experience. Barbara has asked Seth, the tax partner at Klein
& Marin, CPA’s, if she could assist with tax preparation at the
firm during tax season and Seth, believing that this would be a great
idea, agrees to hire Barbara as an independent contractor to work on
weekends preparing tax returns during the busy tax season. Barbara will
prepare tax returns exclusively for none attest clients of the firm. In
addition, Barbara will not work in the office that handles the audit of
Gold Industries.Does the hiring of Barbara impair the firm’s
independence with respect to Gold Industries?

A) No. The firm’s independence is not impaired because Barbara is an independent contractor and not an employee.

B)
No. The firm’s independence is not impaired because Barbara will not be
working in the office that handles the Gold Industries audit.

C) No. The firm’s independence is not impaired because Barbara will only prepare tax returns for none attest clients.

D) None of the above are correct.

Question 26

The
Conceptual Framework for AICPA Independence Standards describes the
________-based approach to analyzing independence matters:

A) Materiality

B) Risk

C) Threat

D) Cost-benefit

Question 27

Kosma,
a member, is a partner at Beltran & Freese, CPA’s and is the lead
engagement partner for the audit of Cardinal Manufacturing. The firm has
performed an audit of Cardinal Manufacturing for the past ten years and
Kosma has been the lead engagement partner for all of that period.Wacha
is the CFO for Cardinal Manufacturing and has been so during the entire
time that Beltran & Freese, CPA’s has performed the audit for
Cardinal Manufacturing. Wacha, knowing that Kosma enjoys drinking
moderately priced red wines, buys Kosma a $15 bottle of Merlot as a
holiday gift. Would the acceptance of this gift from Wacha by Kosma
impair Beltran & Freese, CPA’s independence with respect to Cardinal
Manufacturing?

A) Yes, the acceptance of the gift would impair the firm’s independence.

B) No, since the value of the gift is clearly insignificant to Kosma

C)
Since Wacha is not an owner of Cardinal Manufacturing, any gift from
him to Kosma, regardless of value, would not impair Beltran &
Freese, CPA’s independence with respect to Cardinal Manufacturing

D) None of the above are correct.

Question 28

According to the Code of Professional Conduct, a distinguishing mark of a profession is which of the following:

A) Educational requirements that exceed those of non-professional pursuits

B) Employment opportunities for its members that exceed those of the general public

C) Acceptance of its responsibility to the public

D) The existence of a Code of Professional Conduct

Question 29

Kroer
& Simmer, CPA’s performs a number of audits for its clients using
GAGAS. As part of their GAGAS engagements, the firm often performs
nonaudit services as defined by GAGAS.Which of the following is
considered to be a nonaudit service under GAGAS and not a routine
activity related to an audit?

A) Providing advice to the audited entity on routine business matters

B) Educating the audited entity on matters within the technical expertise of the auditors

C) Cash to accrual conversions

D)
Providing information to the audited entity that is readily available
to the auditors, such as best practices and benchmarking studies

Question 30

Robert,
a member, is a partner in the firm Cohen & Rowen, CPA’s. The firm
provides a wide variety of services to its clients including appraisal,
valuation, and actuarial services. The firm performs attest engagements
for a number of clients for which they also provide appraisal,
valuation, and actuarial services.Which of the following appraisal,
valuation, or actuarial services would impair the firm’s independence if
performed for an attest client?

A) A valuation of the client’s
proposed business combination where the results are not material to the
client’s financial statements

B) An appraisal of assets that are not material to the client’s financial statements

C)
An actuarial valuation of the client’s pension liabilities if those
liabilities are material to the client’s financial statements.

D) None of the above

Question 31

Robin
& Redbird, CPA’s audits the financial statements of Blue Jay
Investments, Inc. As part of their engagement letter agreement, the firm
and the client have agreed to use alternative dispute resolution
techniques to resolve any disputes relating to the engagement. There are
no disputes between the firm and the client at the present time.Would
the agreement to use ADR techniques impair Robin & Redbird, CPA’s
independence with respect to Blue Jay Investments, Inc.?

A) Yes, this would impair the firm’s independence in all cases.

B) Since this is a pre-dispute agreement, the firm’s independence would not be impaired.

C) ADR techniques are not allowed to be used in engagement letters between a firm and an attest client.

D) None of the above are correct.

Question 32

Burton
& Parks, CPA’s is a regional CPA firm that provides services to
clients throughout the Pacific Northwest. The firm conducts a number of
audits in accordance with GAGAS.According to the GAO, which of the
following is not an ethical principle that guides the work of an auditor
who conducts audits in accordance with GAGAS?

A) Due care

B) The public interest

C) Integrity

D) Professional behavior

Question 33

Riley,
a member in industry, is the CFO of Deutsch Sales, Inc. The firm of
Morgan & Francone, CPA’s is performing an audit of the company for
the year ended June 30, 20X6. Morgan & Francone, CPA’s is about to
conclude the audit engagement and issue their report on the June 30,
20X6 financial statements. Riley is aware that a number of
irregularities exist in the company’s books and records that would
materially and negatively affect the company’s financial position and
results of operations for the audited year. However, the firm did not
ask Riley specifically about these irregularities or request any
information that would relate to them.What is Riley’s obligation to
inform Morgan & Francone, CPA’s regarding these irregularities?

A) The concept of “don’t ask, don’t tell” applies here. If the firm did not ask, Riley has no obligation to inform them.

B) Yes, Riley must disclose the information to the firm.

C) Riley cannot disclose the information as it would be an act of insubordination against her employer.

D) Only if Riley signed the representation letter would she be obligated to disclose the information to the audit firm.

Question 34

Which of the following activities is not typically a part of the consultation process?

A) Fact finding

B) Evaluation of alternatives

C) Communication of results

D) Tax preparation

Question 35

There
are various standards that a member should follow when recommending tax
return positions or preparing or signing tax returns. Which of the
following of those standards is the lowest standard?

A) Realistic possibility of success standard

B) Reasonable basis standard

C) Substantial authority standard

D) More likely than not standard

Question 36

Upon
completing the preparation of a U.S. individual tax return, a
member/preparer must sign the return under the following declaration:
“declaration of preparer (other than taxpayer) is based on all
information of which preparer has any knowledge.” Which of the following
is correct regarding a preparer’s responsibility based on this
statement?

A) The declaration does not apply to return information furnished by third parties

B) The member is required to verify supporting data

C) A member may rely on all information provided by the taxpayer even if it appears to be incorrect

D) All of the above are correct

E) Neither a., b. nor c. is correct

Question 37

The
Sarbanes-Oxley Act of 2002, as well as SEC rules, define various
non-audit services that would impair an auditor’s independence with
respect to a publicly traded audit client. Which of the following
non-audit services would impair such an auditor’s independence if
provided at any point during the audit and professional engagement
period?

A) Searching for or seeking out prospective candidates for managerial, executive, or director positions

B)
Directly or indirectly operating, or supervising the operation of, the
audit client’s information system or managing the audit client’s local
area network

C) Provide any service or product to an audit client for a contingent fee or a commission

D) All of the above would impair independence

E) Neither a., b., nor c. would impair independence.

Question 38

Tax
advice is considered to be a valuable service provided by members. The
advice may be communicated orally or in written form. In deciding on the
form of advice provided to a taxpayer, a member should not

A) Exercise professional judgment

B) Consider the technical complexity involved.

C) The tax sophistication of the taxpayer

D) None of the above are correct.

Question 39

Duska
& Duska, CPA’s is a regional CPA firm that employs 100 professional
staff and 20 support staff. In addition, the firm has 8 partners. Sam
is the managing partner and has been a CPA for 25 years. His son Tommy
is also a partner in the firm.The firm has various methods to charge
fees to its clients. Of those methods, which of the following would be
considered a contingent fee?

A) A protest of a property tax assessment where a fee will only be charged if the protest is successful.

B) Charging higher hourly rates for tax services than for bookkeeping services

C) Charging higher hourly rates for a manager’s time than for a senior staff person’s time.

D) None of the above are considered contingent fees.

Question 40

Which of the following is not a body designated by Council Resolution to promulgate technical standards?

A) Public Company Accounting Oversight Board

B) Government Accounting Standards Board

C) International Financial Reporting Standards Board

D) Financial Accounting Standards Board

Question 41

A
conflict of interest may occur if a member performs a professional
service for a client or employer and the member or his or her firm has a
significant relationship with another person, entity, product, or
service that could, in the member’s professional judgment, be viewed by
the client, employer, or other appropriate parties as impairing the
member’s objectivity.Which of the following situations could be viewed
as impairing a member’s independence?

A) A member has a
significant financial interest, is a member of management, or is in a
position of influence in a company that is a major competitor of a
client for which the member performs management consulting services.

B)
A member has been asked to perform litigation services for the
plaintiff in connection with a lawsuit filed against a client of the
member’s firm.

C) A member provides tax or PFP services for several members of a family who have the same interests.

D) A member refers a PFP or tax client to an insurance broker or other service provider

E) Both a. and b.

F) Both c. and d.

Question 42

Sabrina,
a member, has been employed by Luca & Smith, CPA’s for the past 10
years. During that time, Sabrina has worked on many of the firm’s most
complicated clients and projects. Sabrina is a member of the local
Chamber of Commerce and the AICPA.Sabrina has decided to leave Luca
& Smith, CPA’s to start her own CPA practice. While the firm was
sorry to hear about Sabrina’s plans to leave, there is no animosity
between the parties.As part of the formation of her new firm, Sabrina is
considering various forms of advertising, marketing, and solicitation.
Which of the following forms of advertising, marketing, and solicitation
is acceptable in all cases?

A) Soliciting clients of her former firm by calling them three times a day for a month

B)
Placing a yellow pages ad that states that Sabrina is a “tax expert” if
she, in fact, can demonstrate that she has expertise in the area as a
result of education, training, or experience.

C) Using a marketing brochure that states: “no other sole practitioner in the state has the tax knowledge that Sabrina has”

D) Both a. and c. are acceptable.

Question 43

Molina,
a California CPA practicing in California, was born on June 20, 19X6.
She was originally licensed November 30, 20X1.When is Molina’s first
license renewal date?

A) November 30, 20X3

B) November 30, 20X2

C) June 30, 20X2

D) June 20, 20X2

Question 44

Pine,
a member, is a partner at the firm of Oak & Spruce, CPA’s. The firm
has 6 partners, 50 professional employees, and 12 administrative staff.
The firm performed an attest engagement for Forest Worldwide for the
year ended December 31, 20X5.Since Forest Worldwide is a relatively
complex engagement, a number of people were involved. Of the following
participants in the engagement, which one is not considered to be a
member of the attest engagement team?

A) Pine performed the second partner review of the Forest Worldwide financial statements.

B) Wood, a tax associate, prepared the tax accrual and deferred tax computations for Forest Worldwide

C) Chip, an administrative employee, made copies and bound versions of the Forest Worldwide financial statements.

D) All of the above are members of the attest engagement team

Question 45

Lindsay,
a member, is an audit manager for Ngo & White, CPA’s. The firm has
been engaged to audit the financial statements of Castle International
for the year ended December 31, 20X4 and Lindsay is a key member of the
engagement team.Fara, the CEO of Castle International, has been pursuing
Lindsay for the past six months to convince her to become the CFO of
Castle International. Up until now, Lindsay has maintained that she
wants to stay with Ngo & White, CPA’s. However, Lindsay has decided
to pursue Fara’s offer to become the CFO of Castle International. At the
time that Lindsay decided to pursue the offer from Castle
International, she was in the middle of the Castle International audit
engagement. Which of the following statements is correct regarding Ngo
& White, CPA’s independence with respect to Castle International as a
result of Lindsay’s pursuit of the CFO position?

A) Since Lindsay
has not received a specific offer of employment from Castle
International, the firm’s independence is not impaired and she may
continue on the audit engagement team.

B) If Lindsay
promptly reports such consideration of employment to an appropriate
person in the firm, she may continue on the audit engagement team and
the firm’s independence is not impaired.

C) To maintain
independence, Lindsay must promptly report her consideration of
employment to an appropriate person in the firm and remove herself from
the engagement until employment is no longer being sought

D) None of the above are correct statements.

Question 46

Raymond
& Raymond, CPA’s has offices in Kansas City and St. Louis. The
Kansas City office of the firm performs an attest engagement for Luca
Productions, Inc. which is located in Kansas City.Which of the following
situations would impair the independence of Raymond & Raymond,
CPA’s with respect to Luca Productions, Inc.?

A) Romero, the lead
engagement partner who works in the Kansas City office, has a brother
who is a camera operator for Luca Productions, Inc.

B)
Sands, who works in the Kansas City office and is a participant on the
engagement team, has a sister who is a receptionist for Luca
Productions, Inc.

C) Moore, a partner in the St. Louis
office who does not have any ability to influence the attest engagement,
has a non-dependent daughter who works at Luca Productions, Inc. as a
controller.

D) Young is a partner in the Kansas City
office who does not do any work on the attest engagement. Her mother is
the CFO for Luca Productions, Inc.

Question 47

Which
of the following, having been issued a license in California, is
allowed to use the title of Certified Public Accountant, or the
abbreviation CPA, without modification?

A) A Public Accountant

B) A retired Certified Public Accountant

C) An inactive Certified Public Accountant

D) All of the ab

E) Neither a, b, or c

Question 48

Which of the following would not impair a member’s independence and is considered permitted employment?

A) The member’s mother, who is a dependent of the member, is an administrative assistant for the member’s attest client.

B) The member’s daughter, who is a dependent of the member, is the treasurer for the member’s attest client.

C) The member’s spouse is the controller for the member’s attest client.

D) All of the above would impair the member’s independence and are not considered permitted employment.

Question 49

Jordyn,
a member, recently hired a new administrative assistant. During the
hiring process, she interviewed at least a dozen candidates for the
position. Subsequent to hiring her new administrative person, a lawsuit
was filed against Jordyn alleging discrimination in hiring which is a
violation of state law. At what point has Jordyn committed an act
discreditable to the profession?

A) When she allegedly committed the act.

B) When the lawsuit was filed.

C)
If and when Jordyn is finally determined by a court of competent
jurisdiction to have violated the state antidiscrimination law.

D) Since the act was not directly related to accounting itself, it is not an act discreditable to the profession.

Question 50

Sherrie,
a member, performs various bookkeeping functions for her very small
closely held clients including posting cash receipts and disbursements
to the client’s general ledger. The client provides Sherrie with copies
of check stubs and deposit slips where the client has provided account
codes that Sherrie merely records in the general ledger. In addition, on
a monthly basis, Sherrie calculates adjusting journal entries for
depreciation, amortization, and tax accruals and posts these entries to
the client’s general ledger.Which of the following statements is true
regarding Sherrie’s independence with regard to these bookkeeping
clients?

A) Sherrie’s posting of client coded cash receipts and disbursements does not impair independence.

B)
Sherrie’s posting of adjusting journal entries does not impair
independence whether or not she discusses them with the client because
these are routine accounting entries that small clients do not
understand.

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