Compliance and Auditing Ethics and Professional Standards 1 — Questions and Answers
Question 1: Which organization publishes the Code of Professional Conduct governing the ethical behavior of Certified Public Accountants (CPAs) in the United States?
- SEC
- AICPA (Correct answer)
- PCAOB
- IIA
Correct answer: AICPA
The American Institute of CPAs (AICPA) publishes the Code of Professional Conduct that establishes the ethical standards for CPAs in the United States.
Question 2: The confidentiality principle in professional ethics requires auditors to:
- Share client information freely with any regulatory body that requests it
- Disclose all material client information to the investing public
- Not disclose information acquired during professional services to third parties without proper authority (Correct answer)
- Keep only financial data confidential while sharing operational data freely
Correct answer: Not disclose information acquired during professional services to third parties without proper authority
Confidentiality requires professionals not to disclose information acquired during professional services to third parties without proper authorization, unless there is a legal or professional right or duty to disclose.
Question 3: Which ethical principle requires auditors to perform duties with competence, diligence, and care?
- Integrity
- Objectivity
- Professional competence and due care (Correct answer)
- Independence
Correct answer: Professional competence and due care
Professional competence and due care requires auditors to maintain professional knowledge and skill at the level needed to ensure clients receive competent professional service.
Question 4: When an auditor holds a direct financial interest in a client's company, this creates a threat to which core principle?
- Confidentiality
- Independence (Correct answer)
- Integrity
- Professional behavior
Correct answer: Independence
A financial interest in a client creates a self-interest threat to independence, as the auditor may be influenced by potential financial gain when forming their professional opinion.
Question 5: The IIA's International Standards for the Professional Practice of Internal Auditing require internal auditors to maintain which combination of attributes?
- External audit certifications and continuing education
- Independence from the external auditors only
- Independence and objectivity in their work (Correct answer)
- Financial independence from the organization they audit
Correct answer: Independence and objectivity in their work
The IIA's Standards require internal auditors to be independent from the activities they audit and to maintain an objective, impartial mindset in all engagements.
Question 6: What does 'independence in appearance' mean in the context of auditing?
- The auditor's actual mental state of objectivity and impartiality
- The perception by reasonable third parties that the auditor is independent (Correct answer)
- The auditor's physical separation from the client's office
- The legal requirement documented in auditor engagement letters
Correct answer: The perception by reasonable third parties that the auditor is independent
Independence in appearance refers to avoiding circumstances that would cause a reasonable and informed third party to conclude that the auditor's integrity or objectivity has been compromised.
Question 7: Which of the following is an example of a 'self-review threat' to auditor independence?
- An auditor accepting gifts from client management
- An auditor reviewing financial statements they previously prepared (Correct answer)
- An auditor having a personal friendship with the client's CFO
- An auditor advocating for a client's position in a regulatory dispute
Correct answer: An auditor reviewing financial statements they previously prepared
A self-review threat occurs when an auditor must evaluate their own previous work, creating reluctance to identify errors or make adverse findings about their own prior judgments.
Compliance and Auditing Ethics and Professional Standards 1
Which organization publishes the Code of Professional Conduct governing the ethical behavior of Certified Public Accountants (CPAs) in the United States?