Reference no: EM132649227

Problem 1
Donaldson & Moss, CPA's provides various nonattest services to its attest clients. The firm only wants to provide such nonattest services that do not impair its independence with respect to the firm's attest clients. Which of the following nonattest 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 risk control processes. d) None of the above would impair the firm's independence. e) Both a. and c. would impair the firm's independence.

Problem 2
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 full Is 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.

Problem 3
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

Problem 4
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.

Problem 5
Aschli, a member, prepares individual tax returns for about 300 clients during the year. In addition, she prepares approximately 50 business returns. Aschli uses three full-time and two per-diem tax preparers during the busy season to assist her in the preparation of the aforementioned tax returns. Sean Williams has been going to Aschli for the past five years to have joint tax returns prepared for himself and his wife Madison. Their tax returns for the year 20X6 were completed and filed on April 12, 20X7. Sean and Madison have decided to get a divorce and on June 16, 20X7 Aschli receives a request from Sean for copies of previously filed tax returns and supporting schedules. On July 12, 20X7 Aschli receives a request from Madison for copies of the same returns and supporting schedules. Aschli has never met nor spoken to Madison Williams at any time during Aschli's engagement to prepare the joint tax returns for Sean and Madison Williams. In addition, Sean Williams has requested that information not be provided to Madison Williams. Which of the following statements is true regarding Aschli's obligation to provide copies to both Sean and Madison Williams as it relates to the rules regarding client confidential information?

a) Since Aschli has never met nor spoken to Madison Williams, Aschli is not obligated to provide copies of returns to her and such disclosure would violate confidentiality rules. b) Madison Williams must provide Aschli with a legally enforceable subpoena before Aschli can provide Madison with copies of tax returns. c) Since Aschli has worked exclusively with Sean Williams over the years, Aschli has no obligation to provide copies of returns to Madison Williams and such disclosure would violate confidentiality rules. d) None of the above

Problem 6
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

Problem 7
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.

Problem 8
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) None of the above

Problem 9
When a member provides bookkeeping, payroll, and other disbursement services to an attest client, self- review and management participation threats to the covered member's compliance with the Independence Rule may exist. Which of the following procedures would maintain threats at an acceptable level and not impair independence?

a) record transactions to an attest client's general ledger when the member has determined or approved the account classifications for the transaction. b) post member-coded transactions to an attest client's general ledger. c) prepare financial statements based on information in the attest client's trial balance. d) post member-approved journal or other entries to an attest client's trial balance.

Problem 10
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. c) Neither of the described functions would impair independence under any circumstances. d) None of the above statements is true.

Problem 11
Kale, a California CPA, is a sole practitioner who prepared 500 tax returns in 20X6. At the end of 20X6 she took over a tax practice from a close friend who died suddenly and will now prepare nearly 900 returns during 20X7. Due to the increased work load and her inability to hire qualified help, Kale because so busy that she forgot to complete all of her required continuing professional education. When it became time to renew her license in May 20X7 she realized that she was 30 hours short of the total hours required, she had not taken enough accounting and auditing hours, and it was the renewal period in which she was required to take her California Regulatory Review course which she had not completed within the previous six years. Given the situation, what must Kale do?

a) Kale should apply for a time extension. Until the extension arrives she may continue to practice public accounting b) Kale should apply to have her license put on inactive status while she completes her CPE requirements. During that period of time she may not engage in the practice of public accounting c) Kale has an automatic extension of 30 days to complete her CPE. d) Kale has an automatic extension of 10 days to complete her CPE

Problem 12
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

Problem 13
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.

Problem 14
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.

Problem 15
Which of the following terms is defined for use in applying the conceptual framework?:

a) Acceptable level b) Safeguards c) Threats d) All of the above

Problem 16
Ben, a member in business, works for Hirsch Electrical, Inc. as a controller. He has been told by the CFO that the company has extremely important profit margins to maintain and he has directed Ben to make several accounting entries that materially overstate the company's profit margins for the year 20X7. If Ben does not make the entries he will be terminated and since he depends on his salary to support his family, he reluctantly makes the entries knowing they are wrong and after unsuccessfully trying to convince the CFO that this is an unethical practice. The external audit for Hirsch Electrical, Inc. is meeting with Ben this afternoon to discuss the audit. Which of the following is a correct statement regarding Ben's meeting with the extremal auditor for Hirsch Electrical, Inc.?

a) Confidentiality rules prohibit Ben from saying anything about the incorrect entries b) Ben must be candid and not knowingly misrepresent facts or knowingly fail to disclose material facts to the external auditor. Therefore, he must inform the external auditor of the incorrect entries. c) Since Ben does not work for the external auditor, he has no obligation to tell them anything about the incorrect entries d) None of the above

Problem 17
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 and/or temporary employees 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 a temporary employee to work on weekends preparing tax returns during the busy tax season. Barbara will prepare tax returns exclusively for nonattest 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 a temporary employee and not a permanent 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 nonattest clients. d) None of the above are correct.

Problem 18
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

Problem 19
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.

Problem 20
Lazar, a member, is preparing a tax return for Polanski for 20X9. Lazar has prepared tax returns for Polanski for twenty years and a number of those returns have been audited, most recently for the year 20X7. There is a position on the 20X9 tax return that is at odds with a tax treatment consented to in an administrative proceeding conducted on Johnson's 20X7 tax return. Is Polanski bound to follow the tax treatment of an item as consented to in an earlier administrative proceeding?

a) Polanski is bound by the previous consent. b) Polanski is not bound by the previous consent. c) Polanski is not bound by the previous consent only if he receives permission from the IRS d) None of the above.

Problem 21
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.

Problem 22
The Sarbanes-Oxley Act of 2002 gives the Public Company Accounting Oversight Board, under the oversight of the Securities and Exchange Commission, broad powers to do which of the following:

a) Register public accounting firms b) Conduct inspections of public accounting firms c) Establish auditing standards d) All of the above e) Both a. and b. but not c.

Problem 23
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.

Problem 24
Hanah, a member, is a sole practitioner who operates a practice that primarily handles bookkeeping for small business clients. Hanah uses a third-party service provider to assist with input of client data. Which of the following should Hanah do before disclosing confidential client information to the provider?

a) Obtain specific consent from the third-party service provider before disclosing confidential client information to the third-party service provider b) Obtain specific consent from the client after disclosing confidential client information to the third- party service provider c) The member does not need to do anything. There is no need to let a client know about a third-party service provider as it relates to confidential client information. d) None of above

Problem 25
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

Problem 26
Wu, a member, is an audit manager at the firm of Winn & White, CPA's. Wu teaches intermediate accounting at North State University, an audit client of Winn & White, CPA's. Wu is employed by North State University on a part-time non-tenured basis. Wu does not participate in the audit of North State University nor is he in a position to influence the audit in any way. Wu is required to participate in an employee benefit plan sponsored by North State University but does not make any contributions beyond what is required of him. Which of the following statements is true regarding the firm's independence with respect to the audit of North State University as it relates to Wu's teaching position as described?

a) Wu's teaching position as described does not impair the firm's independence. b) Wu's participation in the employee benefit plan will impair the firm's independence. c) Wu's teaching position is not allowed in any capacity if the firm wants to maintain its independence with respect to the audit of North State University. d) None of the above statements is true.

Problem 27
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.

Problem 28
Goldberg, a member, has been asked to audit the financial statements of Zion Credit Union for the year ended December 31, 20X5. Goldberg is a member of the credit union and individually qualifies to be a member other than by virtue of the professional services provided to the client. Is Goldberg's independence impaired with respect to the audit of Zion Credit Union solely by virtue of his membership?

a) Yes. Being a credit union member impairs Goldberg's independence. b) As long as Goldberg individually qualifies to be a member of the credit union other than by virtue of the professional services provided to the client, his independence is not impaired solely by virtue of his membership. c) This type of situation is not addressed by the Code of Professional Conduct in any way. d) None of the above is correct.

Problem 29
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 obtain 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.

Problem 30
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.

Problem 31
Goodman, a member, is retired after working as the CFO of Furey, Inc. for twenty years. During his time at Furey, Inc. he also did some tax preparation work on the side. In addition, Goodman taught accounting classes at the local university but will no longer do that in retirement. Which of the following actions would be considered an Act Discreditable according to the Code?

a) Making a decision not to maintain his continuing education nor his CPA license beyond the end of the current license period and therefore ending his membership in the AICPA b) Deciding to put his personal tax return on extension c) Deciding to teach for a CPA review course d) None of the above

Problem 32
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.

Problem 33
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.

Problem 34
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.

Problem 35
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

Problem 36
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

Problem 37
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.

Problem 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) Consider the tax sophistication of the taxpayer d) None of the above are correct.

Problem 39
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

Problem 40
Chip, a covered member, performs an attest engagement for Jo Jo, Inc. Chip leases office space from Jo Jo, Inc. and the lease was entered into during the term of the professional engagement. Which of the following safeguards must be met for the self-interest threat to be at an acceptable level and for independence not to be impaired:

a) the lease meets the criteria of a capital lease as described in GAAP b) The terms and conditions set forth in the lease agreement are not comparable with other leases of a similar nature. c) All amounts are paid in accordance with the lease terms or provisions d) All of the above

Problem 41
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.

Problem 42
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.

Problem 43
Bogart & Bacall, CPA's is a local CPA firm with approximately one hundred clients. As a result of poor economic times, many of the firm's clients are behind in paying their bills to the firm. Precision Medical is a long-time client of the firm and, as a result of poor accounts receivable collections, is facing a severe cash crunch. The company has asked Bogart & Bacall to prepare a reviewed financial statement for the year ended December 31, 20X5 and to issue a report no later than February 15, 20X6. The firm anticipates that it will issue its report on February 8, 20X6 In order to maintain their independence, the firm has told Precision Medical that fees from work performed prior to which of the following dates must be paid?

a) December 31, 20X5 b) February 15, 20X5 c) August 8, 20X5 d) February 8, 20X5

Problem 44
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 and guaranteeing that she will do a better job. 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.

Problem 45
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.

Problem 46
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. Marco's role and the committee's role are exclusively advisory in nature. 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

Problem 47
According to the California Accountancy Act, which of the following is acceptable as it relates to nonlicensee 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 nonlicensee. 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

Problem 48
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.

Problem 49
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.

Problem 50
Ryan & Ryan, CPA's is a full-service accounting firm that provides attest and nonattest 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 leases a portion of the building to an audit client and allows the audit client to pay rent on the basis of the attest client's ability to pay. All other tenants must pay monthly as is typical for a commercial lease. 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 independence.