CPA Ethics & Professional Responsibility Flashcards

A CPA who knowingly misrepresents facts to obtain a client contract has violated which AICPA principle?

Answer: Integrity

Knowingly misrepresenting facts violates the integrity principle, which demands honesty and freedom from deception in all professional dealings.

Under the Sarbanes-Oxley Act, it is unlawful for a public company to extend credit to which individuals?

Answer: Executive officers and directors

SOX Section 402 prohibits public companies from making or arranging personal loans to their executive officers and directors.

Which ethical framework holds that the morality of an action is determined solely by its consequences or outcomes?

Answer: Consequentialism (Utilitarianism)

Consequentialism judges actions as right or wrong based on their outcomes, with utilitarianism seeking the greatest good for the greatest number.

When a CPA firm rotates the lead audit partner on a public company engagement, SOX requires rotation at a minimum of every:

Answer: 5 years

SOX requires mandatory rotation of the lead audit partner on public company engagements at least every five years to maintain independence.

A CPA who prepares a tax return using information provided by the client without independent verification is applying the concept of:

Answer: Reasonable reliance on client representations

CPAs may reasonably rely on client-provided information for tax returns without verification, but must not ignore obvious errors or inconsistencies.

Which body has the authority to set auditing standards for audits of public company financial statements in the United States?

Answer: PCAOB

The Public Company Accounting Oversight Board (PCAOB) sets auditing standards for registered public accounting firms auditing SEC-registered companies.