CGA CGA Ethics & Professional Standards 2 — Questions and Answers
Question 1: Which of the following scenarios represents a self-review threat to auditor independence?
- The auditor owns shares in the audit client
- The auditor's firm prepared the financial statements it is now auditing (Correct answer)
- The auditor has a close friendship with the CFO
- The auditor advocates for the client in a tax dispute
Correct answer: The auditor's firm prepared the financial statements it is now auditing
A self-review threat occurs when the auditor must evaluate work previously done by themselves or their firm, impairing objectivity.
Question 2: The 'threats and safeguards' approach in the CPA Code of Ethics requires a member to:
- Avoid any situation that could involve a conflict of interest
- Identify threats to compliance, evaluate their significance, and apply safeguards (Correct answer)
- Report all potential threats to the professional body immediately
- Decline all non-audit services to audit clients
Correct answer: Identify threats to compliance, evaluate their significance, and apply safeguards
The conceptual framework requires identifying threats, assessing their significance, and applying appropriate safeguards to reduce them to acceptable levels.
Question 3: An accountant faces an ethical conflict when:
- Two accounting standards apply to the same transaction
- Employer pressure conflicts with compliance with professional standards (Correct answer)
- Two clients need work done simultaneously
- A tax deduction is unclear under the regulations
Correct answer: Employer pressure conflicts with compliance with professional standards
An ethical conflict arises when pressure from an employer or client conflicts with the accountant's obligation to comply with professional and ethical standards.
Question 4: Which body is primarily responsible for setting ethical standards for CPAs/CGAs in the United States?
- FASB
- IRS
- AICPA (Correct answer)
- SEC
Correct answer: AICPA
The American Institute of Certified Public Accountants (AICPA) issues the Code of Professional Conduct that governs CPA ethics in the US.
Question 5: A CGA who advertises services in a false or misleading manner violates which fundamental principle?
- Confidentiality
- Professional behavior (Correct answer)
- Objectivity
- Professional competence
Correct answer: Professional behavior
Professional behavior requires CGAs to comply with relevant laws and avoid any action that discredits the profession, including false advertising.
Question 6: What is the primary purpose of continuing professional education (CPE) requirements for CGAs?
- To generate revenue for the professional body
- To ensure members maintain competence throughout their careers (Correct answer)
- To allow members to expand into new service areas
- To satisfy IRS licensing requirements
Correct answer: To ensure members maintain competence throughout their careers
CPE requirements exist to ensure CGAs maintain and update their professional knowledge and skills, upholding the principle of professional competence.
CGA CGA Ethics & Professional Standards 2
Which of the following scenarios represents a self-review threat to auditor independence?