CPA ETHICS PRACTICE
EXAM Question 1: A CPA encounters an ethical circumstance that is not speci�cally addressed by a rule in the AICPA Code. What should the CPA do �rst under the conceptual framework approach?
Choices:
1) Identify threats to compliance with the rules 2) Immediately resign from the engagement 3) Apply every possible safeguard 4) Ask the client to choose the response
Correct Answer: Identify threats to compliance with the rules
Explanation: The conceptual framework begins by identifying threats to compliance with the rules. The CPA then evaluates the threats and, when necessary, identi�es and evaluates safeguards.Page 1
Question 2: After identifying a threat under the AICPA conceptual framework, what is the next step?
Choices:
1) Document the engagement conclusion 2) Discontinue all services to the client 3) Notify the state board 4) Evaluate whether the threat is at an acceptable level
Correct Answer: Evaluate whether the threat is at an acceptable level
Explanation: After a threat is identi�ed, the CPA evaluates its signi�cance to determine whether it is at an acceptable level. Safeguards are considered if the threat is not already acceptable.Question 3: A threat to compliance with an AICPA rule is signi�cant, and no safeguard can eliminate it or reduce it to an acceptable level. What is the appropriate response?
Choices:
1) Proceed if management signs a waiver 2) Proceed if the engagement fee is immaterial 3) Decline or discontinue the service or resign as appropriate 4) Replace the engagement letter with a broader disclaimer
Correct Answer: Decline or discontinue the service or resign as appropriate
Explanation: When a signi�cant threat cannot be reduced to an acceptable level, the member should not continue the professional service that would compromise compliance with the Code.Page 2
Question 4: Which statement best distinguishes independence in fact from
independence in appearance?
Choices:
1) Independence in fact is required only by the SEC; independence in appearance is required only by the AICPA 2) Independence in fact applies only to tax services; independence in appearance applies only to audits 3) Independence in fact is established by the engagement letter; independence in appearance is established by the audit report 4) Independence in fact concerns the auditor's actual state of mind; independence in appearance concerns how a reasonable informed third party would view the circumstances Correct Answer: Independence in fact concerns the auditor's actual state of mind; independence in appearance concerns how a reasonable informed third party would view the circumstances Explanation: Independence in fact concerns the auditor's ability to act with integrity, objectivity, and professional skepticism. Independence in appearance considers whether a reasonable and informed third party would conclude those qualities are compromised.Question 5: Which AICPA body has a central role in interpreting and enforcing the AICPA Code of Professional Conduct?
Choices:
1) Auditing Standards Board 2) Financial Accounting Standards Board 3) Professional Ethics Executive Committee 4) Internal Revenue Service O�ce of Professional Responsibility
Correct Answer: Professional Ethics Executive Committee
Explanation: The AICPA Professional Ethics Executive Committee, or PEEC, interprets and enforces the AICPA Code of Professional Conduct and develops ethics interpretations.Page 3