Certified Public Accountant Regulatory Frameworks & Compliance 3 — Questions and Answers
Question 1: Under Circular 230, which of the following best describes a 'covered opinion'?
- Any written tax advice provided to a client
- Written advice concerning a listed transaction or a principal purpose transaction (Correct answer)
- Oral tax advice given during a client consultation
- A tax return position that avoids penalties under reasonable cause
Correct answer: Written advice concerning a listed transaction or a principal purpose transaction
A covered opinion under Circular 230 includes written advice on listed transactions or transactions with tax avoidance as a principal purpose.
Question 2: Which federal agency enforces the Employee Retirement Income Security Act (ERISA) for private pension plans?
- Securities and Exchange Commission
- Department of Labor and IRS (jointly) (Correct answer)
- Pension Benefit Guaranty Corporation alone
- Federal Reserve Board
Correct answer: Department of Labor and IRS (jointly)
ERISA enforcement is shared primarily between the Department of Labor (plan administration) and the IRS (tax qualification), with the PBGC covering plan termination insurance.
Question 3: Under the Foreign Corrupt Practices Act (FCPA), which of the following is NOT considered a foreign official for purposes of the anti-bribery provisions?
- An employee of a state-owned enterprise
- A foreign political party official
- A foreign government minister
- A private sector business competitor in a foreign country (Correct answer)
Correct answer: A private sector business competitor in a foreign country
The FCPA's anti-bribery provisions apply to foreign officials, government employees, and political party officials, but not to private sector individuals.
Question 4: Which GAAS standard requires auditors to obtain an understanding of the entity and its environment, including its internal control?
- AU-C Section 230
- AU-C Section 315 (Correct answer)
- AU-C Section 500
- AU-C Section 700
Correct answer: AU-C Section 315
AU-C Section 315 requires the auditor to identify and assess risks of material misstatement through understanding the entity and its environment.
Question 5: A CPA firm that audits an SEC registrant must rotate the lead audit engagement partner every:
- 3 years
- 5 years (Correct answer)
- 7 years
- 10 years
Correct answer: 5 years
Under Sarbanes-Oxley and SEC rules, the lead audit partner must rotate off an engagement after five consecutive years of service.
Question 6: The Gramm-Leach-Bliley Act (GLBA) primarily requires financial institutions to:
- Register securities offerings with the SEC
- Protect and disclose their privacy practices for nonpublic customer information (Correct answer)
- Maintain minimum capital reserves
- Conduct annual stress tests
Correct answer: Protect and disclose their privacy practices for nonpublic customer information
GLBA requires financial institutions to protect customers' nonpublic personal information and provide privacy notices explaining their data-sharing practices.
Question 7: Under AICPA Statements on Standards for Tax Services (SSTS), a CPA may take a tax return position that has:
- A realistic possibility of being sustained on the merits (1-in-3 chance) (Correct answer)
- Reasonable basis, which is a lower standard than realistic possibility
- A more-likely-than-not chance of success only
- Absolute certainty of success on audit
Correct answer: A realistic possibility of being sustained on the merits (1-in-3 chance)
Under SSTS No. 1, a CPA may recommend a tax position if it has a realistic possibility of being sustained on its merits, roughly a 1-in-3 chance.
Certified Public Accountant Regulatory Frameworks & Compliance 3
Under Circular 230, which of the following best describes a 'covered opinion'?