Certified Public Accountant Communication & Stakeholder Relations 4 — Questions and Answers
Question 1: A CPA providing attest services learns information that suggests a client is engaged in money laundering. Under the Bank Secrecy Act, CPAs in most states:
- Are required to file a Suspicious Activity Report (SAR) with FinCEN
- Must immediately terminate the engagement and notify law enforcement
- Should confront the client and allow them to self-report
- Are generally not required to file SARs but should consult legal counsel (Correct answer)
Correct answer: Are generally not required to file SARs but should consult legal counsel
Unlike financial institutions, CPAs are not generally required to file SARs, but they face potential criminal liability and should consult legal counsel about their obligations and consider withdrawal.
Question 2: When issuing a comfort letter to an underwriter in connection with a securities offering, the CPA's primary communication responsibility is to:
- Guarantee the accuracy of all financial information in the registration statement
- Provide negative assurance on unaudited financial information for the period after the audit date (Correct answer)
- Issue an opinion on the fairness of the offering price
- Confirm that all SEC disclosure requirements have been fully satisfied
Correct answer: Provide negative assurance on unaudited financial information for the period after the audit date
AU-C Section 920 specifies that comfort letters provide negative assurance on interim unaudited financial information, not a guarantee or positive assurance.
Question 3: A CPA is advising a client on a transaction that may qualify for a tax shelter. Under Circular 230, the CPA must:
- Always recommend the transaction if it reduces taxes
- Avoid discussing the transaction to prevent aiding tax avoidance
- Ensure advice is based on reasonable assumptions and clearly states the limits of the analysis (Correct answer)
- Charge a contingent fee based on the tax savings achieved
Correct answer: Ensure advice is based on reasonable assumptions and clearly states the limits of the analysis
Circular 230 Section 10.37 requires tax shelter advice to be based on reasonable factual and legal assumptions and clearly identify limitations on reliance.
Question 4: Which of the following BEST describes the CPA's communication responsibility when an engagement letter scope change occurs mid-project?
- Proceed with the expanded scope and adjust the bill at completion
- Issue a new engagement letter or written amendment documenting the changed scope (Correct answer)
- Verbally confirm the scope change with the client contact
- Decline any scope changes once the original engagement has begun
Correct answer: Issue a new engagement letter or written amendment documenting the changed scope
Professional standards and risk management best practices require scope changes to be documented in writing, either through an amended or new engagement letter, to avoid misunderstandings.
Question 5: A CPA serving on a nonprofit board must disclose a potential conflict of interest to other board members primarily because:
- SEC regulations require disclosure for all nonprofit transactions
- Board members owe fiduciary duties that require transparency about personal interests that could bias decisions (Correct answer)
- AICPA standards prohibit nonprofit board service entirely
- Disclosure protects the CPA from malpractice claims
Correct answer: Board members owe fiduciary duties that require transparency about personal interests that could bias decisions
Fiduciary duty requires board members to act in the nonprofit's best interest, and undisclosed conflicts of interest violate this duty regardless of SEC rules.
Question 6: During a review engagement, the CPA identifies a departure from GAAP. If the client refuses to correct the departure, the CPA should:
- Issue an unmodified report and add a footnote explaining the departure
- Modify the review report to disclose the departure and its effects (Correct answer)
- Withdraw from the engagement without issuing a report
- Issue an adverse opinion
Correct answer: Modify the review report to disclose the departure and its effects
SSARS No. 21 requires the CPA to modify the review report to disclose the nature of the GAAP departure and, if practicable, its effect on the financial statements.
Question 7: A CPA sends a client a proposed engagement letter but the client begins using the CPA's services before signing. The engagement letter is:
- Void because it was never countersigned
- Enforceable because the client's conduct indicates acceptance (Correct answer)
- Enforceable only for services rendered before the deadline to sign
- Invalid because CPA engagements require notarized agreements
Correct answer: Enforceable because the client's conduct indicates acceptance
Under contract law, a client who begins using services under terms proposed in an unsigned engagement letter typically manifests acceptance through conduct, making the letter enforceable.
Certified Public Accountant Communication & Stakeholder Relations 4
A CPA providing attest services learns information that suggests a client is engaged in money laundering.
Under the Bank Secrecy Act, CPAs in most states: