Question 1

Two CPAs are good friends as well as partners together in a CPA firm. They recently invested their money together to buy an apartment building. One of the tenants in the apartment building is an employee of their CPA firm, and another tenant is the father of one of the two CPAs. The father's lease terminates soon and the father wishes to renew the lease at the same rental amount that he currently is paying. Under the AICPA's Code of Professional Conduct:

Accepted Answer

A)   Two conflicts of interest exist
B)   The father's status as a tenant creates a conflict of interest that cannot be corrected by safeguards
C)   The father's status as a tenant creates a conflict of interest that can be remedied by safeguards
D)   No conflicts of interest exist

Question 2

A CPA agreed to render professional services to all three of the shareholders in a corporation. All three shareholders asked the CPA to determine the amount of corporate earnings that should be distributed as dividends and the amount that should be maintained as Retained Earnings to spur the future growth of the corporation. All three told the CPA that they want to "allocate cash flow to maximize everyone's after-tax wealth." Two weeks after the CPA began this assignment, one of the shareholders told the CPA privately that she "desperately needed immediate cash flow from dividends because her mother recently had a stroke and needs to be able to afford to give her mother proper medical care. This shareholder asked that her mother's medical condition be kept confidential, to respect her mother's wishes. The CPA:

Accepted Answer

A)   Acted properly at the outset of this professional engagement
B)   Acted improperly at the outset of this professional engagement because representation of fellow shareholders automatically creates a dual-client conflict of interest
C)   Acted improperly at the outset of this professional engagement, but now has a duty to complete the engagement to minimize further harm to her clients
D)   Acted improperly at the outset of this professional engagement and has a duty to inform the accountancy licensing board about this misconduct A

Question 3

An accountant recent met with the CFO of a major corporation. The accountant and this prospective client are contemplating entering into a professional relationship. The prospective corporate client has a history of violating the Foreign Corrupt Practices Act's provisions concerning bribery of foreign government officials. The accountant's job is to ensure that the company fully complies with this law. To accomplish this, the accountant will perform unannounced reviews of the company's accounting records and internal controls from time to time. The accountant's daughter told the CFO that her father is "an amazing accountant," which facilitated the professional introduction. The accountant's daughter recently was promoted to serve as this corporation's Director of International Sales-Asia Division. In all likelihood, the accountant:

Accepted Answer

A)   Should not agree to provide these services to this prospective client
B)   May provide services to this client, as long as the accountant's daughter does not also participate directly in the corporation's presentation of corporate financial transactions in the form of financial statements
C)   May provide all requested services because a conflict of interest does not currently exist and is not reasonably foreseeable
D)   May provide services to this client because safeguards against conflicts of interest readily are available

Question 4

In deciding whether a conflict of interest exists, the relevant standard to be applied is whether:

Accepted Answer

A)   The CPA subjectively believes that a conflict of interest exists
B)   A reasonable observer, with reasonable knowledge of the relevant circumstances, would conclude that a conflict of interest exists
C)   In an accountant-client conflict of interest situation, at least one of the clients believes, reasonably or unreasonably, that a conflict of interest exists
D)   In a dual-client conflict of interest situation, both of the clients themselves believe, reasonably or unreasonably, that a conflict of interest exists

Question 5

A CPA's conflicts of interest are determined by:

Accepted Answer

A)   The CPA herself
B)   The accountancy licensing board of the state in which she works as an accountant
C)   The AICPA Conflicts Enforcement Committee
D)   The AICPA committee that evaluates issues of independence, objectivity, and conflicts of interest

Question 6

A CPA firm knows that clients find it difficult to change auditors after a professional relationship has been in place for several years because the termination of an auditor often makes investors concerned about the trustworthiness of a company's financial statements. To take advantage of this fact, this CPA firm routinely bids on new audit engagements at a fee that is likely to be 25 percent lower than the fees bid by its competitors. The CPA firm plans to recoup this fee differential by steadily raising its fees to above-market rates in subsequent years. The CPA firm's policy creates:

Accepted Answer

A)   A current conflict of interest
B)   A foreseeable future conflict of interest
C)   An appearance of a conflict of interest, but not an actual one
D)   No conflict of interest

Question 7

A CPA has to focus on whether a conflict of interest exists:

Accepted Answer

A)   Only at the outset of a professional relationship
B)   Only after a professional relationship has commenced
C)   Both at the outset of a professional relationship and throughout the conduct of a professional relationship
D)   In all professional relationships other than the provision of voluntary services to a charitable, civic, or religious organization

Question 8

The concept of "moral licensing," in the context of conflicts of interest, relates to:

Accepted Answer

A)   A person receiving actual consent to proceed in a professional relationship, despite the potential for a conflict of interest to arise
B)   A person receiving implied consent to proceed in a professional relationship, despite the potential for a conflict of interest to arise
C)   A person who potentially will benefit from a conflict of interest agreeing to make periodic payments to reimburse any party who is adversely affected by the conflict of interest
D)   A person making exaggerated claims about goods or services after having disclosed influences that create the appearance of a conflict of interest

Question 9

What is an apparent conflict of interest? Provide an example.

Accepted Answer

An apparent conflict of interest occurs when a situation suggests that a person or organization could be influenced by a secondary interest when making a decision or performing an action, even if no actual conflict of interest exists. It is the perception or appearance that a person's ability to act impartially or in the best interest of their duty is compromised by a personal interest, such as financial gain, personal relationships, or professional advancement.

The key aspect of an apparent conflict of interest is that it is based on the perception of potential bias, rather than evidence that a conflict has influenced a decision or action. This perception can undermine trust and confidence in the person or organization involved.

Example of an apparent conflict of interest:

Imagine a government official who is responsible for awarding contracts for public works projects. This official's spouse owns a construction company that regularly bids on such contracts. Even if the official does not participate in the decision-making process for awarding contracts and there is no evidence of favoritism, the relationship between the official and their spouse's business creates an apparent conflict of interest. The public might perceive that the official's influence could be used to benefit the spouse's company, even if all procedures are followed correctly and the spouse's company does not receive any preferential treatment. To avoid the appearance of impropriety, the official should disclose this relationship and recuse themselves from any related decision-making processes.

Question 10

An Oregon CPA provides management advisory services to a large public utility that provides natural gas throughout Oregon and is the only supplier of electricity to residential users in Oregon. The CPA has been asked to prepare a request for a utility rate increase that will be submitted to state regulators for their approval.
a. Does the CPA have a conflict of interest?
b. Would you expect this conflict of interest to impair the CPA's objectivity?
c. Does the CPA have a duty to disclose this conflict of interest?

Accepted Answer

a. Yes, the CPA does have a conflict of interest in this situation. By providing management advisory services to the public utility, the CPA has a financial interest in the success of the utility, which may be at odds with the interests of the utility's customers who would be affected by a rate increase.

b. It is possible that this conflict of interest could impair the CPA's objectivity. The CPA may be inclined to advocate for the rate increase in order to benefit the utility, even if it may not be in the best interest of the utility's customers.

c. Yes, the CPA has a duty to disclose this conflict of interest. It is important for the CPA to be transparent about any potential conflicts of interest in order to maintain trust and integrity in their professional services. Disclosing the conflict of interest allows the state regulators and the public to assess the CPA's objectivity and make informed decisions about the rate increase request.

Question 11

According to the IFAC Code of Conduct, the determination of whether a professional accountant has, or does not have, a conflict of interest is resolved by:

Accepted Answer

A)   The IFAC Ethics Committee, if the conflict of interest is challenged by the accountant's client
B)   Balancing costs to the client and to society against the financial benefits to the CPA
C)   Applying the Public Interest Principle
D)   By the professional accountant, using professional judgment

Question 12

A CPA serves two clients in the same industry. One of these clients has an email address called ? HYPERLINK "mailto:steelcompany@gmail.com," ?steelcompany@gmail.com,? and the other client has an email address called ? HYPERLINK "mailto:steelco@gmail.com." ?steelco@gmail.com.
By mistake, this CPA firm just emailed the tax return prepared for one of these clients to the other client.
a. Did the CPA violate professional standards by providing professional services to two clients in the same industry?

Accepted Answer

Ask the recipient to delete th...

Question 13

The materiality of a conflict of interest should be evaluated from the perspective of:

Accepted Answer

A)   Whether a reasonable client would consider the conflict to be material
B)   Whether a client, acting unreasonably or reasonably, would consider the conflict to be material
C)   Whether an objective observer who is reasonably informed about the surrounding facts would conclude that a conflict of interest is material
D)   Whether the CPA subjectively, from his or her own vantage point, has concerns about two or more material interests clashing

Question 14

The "Fund of Funds" court decision stands for the proposition that:

Accepted Answer

A)   Auditors inherently have conflicts of interest with their clients
B)   Segregating one team of auditors at a CPA firm from another team does not necessarily prevent conflict of interest issues from affecting the firm's ethical obligations
C)   The duty of loyalty to one client sometimes has to override the duty of confidentiality owed to a different client
D)   The duty of loyalty to a client sometimes has to override the duty of confidentiality owed to that same client

Question 15

What is "discounting," as that term is used in the context of conflicts of interest?

Accepted Answer

"Discounting," in the context of conflic...

Question 16

An employee at an information systems consulting firm recently asked a partner at the firm for a 20% pay raise. The partner said that this request was excessive. To resolve this issue amicably, the employee and the partner agreed that the firm's managing partner, who is well-respected, would mediate this issue and determine the fair amount of the pay raise. All parties agreed to this arrangement. The managing partner who is deciding this issue is a CPA. She:

Accepted Answer

A)   Does not have to disclose her conflict of interest to this employee because she is not a practicing CPA
B)   Does not have to make any disclosures because none are needed
C)   Does have to disclose her conflict of interest, but she does not need to get the employee's consent
D)   Does have to disclose her conflict of interest and does need to get the employee's explicit consent

Question 17

In the "Fund of Funds" case, the plaintiff contended that:

Accepted Answer

A)   The defendant CPA firm owed it due care in performing professional services and failed to do so
B)   The defendant CPA firm violated the Integrity and Objectivity Rule
C)   The defendant CPA firm pursued its own self-interest over the public interest
D)   The defendant CPA firm had a duty to utilize all available information in performing professional services for the plaintiff

Question 18

The determination of whether an American CPA has, or does not have, a conflict of interest is resolved by:

Accepted Answer

A)   A CPA on his or her own
B)   The Conflicts Advisory Board of the AICPA
C)   A board of the AICPA other than the Conflicts Advisory Board
D)   A mediation process between the CPA and its client

Question 19

For a CPA who performs auditing services, the most significant conflict of interest that is likely to arise is between:

Accepted Answer

A)   Two clients who both sell the same product in different geographic markets
B)   Two clients who both are aggressively pursuing sales to the same prospective customer
C)   The client's interest and the public interest
D)   The CPA's interest and another CPA's interests

Question 20

An auditing firm has a standard fee policy that it maintains internally and uses in bidding on auditing projects. However, in preparing bids, it increases its audit fee by up to 20% for corporate audit clients that have December 31 fiscal year-ends and lowers its audit fees by up to 30% for government entities that have fiscal years that end during the summer months. The auditing firm justifies this pricing practice by noting that its personnel are overwhelmed with work during the end-of-year "busy season," but often are idle during the summer months. This auditor:

Accepted Answer

A)   Does not have a conflict of interest
B)   Has a dual-client conflict of interest
C)   Has an accountant-client conflict of interest, even if this pricing differential is cost-justified
D)   Is not acting with integrity, unless it discloses this pricing policy to all affected clients

Exam 11: Conflicts of Interest

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified

In deciding whether a conflict of interest exists, the relevant standard to be applied is whether:

Correct Answer
verified

A CPA's conflicts of interest are determined by:

Correct Answer
verified

Correct Answer
verified

A CPA has to focus on whether a conflict of interest exists:

Correct Answer
verified

The concept of "moral licensing," in the context of conflicts of interest, relates to:

Correct Answer
verified

What is an apparent conflict of interest? Provide an example.

According to the IFAC Code of Conduct, the determination of whether a professional accountant has, or does not have, a conflict of interest is resolved by:

Correct Answer
verified

Correct Answer
verified
Ask the recipient to delete th...
View Answer

The materiality of a conflict of interest should be evaluated from the perspective of:

Correct Answer
verified

The "Fund of Funds" court decision stands for the proposition that:

Correct Answer
verified

What is "discounting," as that term is used in the context of conflicts of interest?

Correct Answer
Answered by ExamLex AI
"Discounting," in the context of conflic...
View Answer

Correct Answer
verified

In the "Fund of Funds" case, the plaintiff contended that:

Correct Answer
verified

The determination of whether an American CPA has, or does not have, a conflict of interest is resolved by:

Correct Answer
verified

For a CPA who performs auditing services, the most significant conflict of interest that is likely to arise is between:

Correct Answer
verified

Correct Answer
verified

Exam 11: Conflicts of Interest

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA

Correct AnswerverifiedShow Answer

In deciding whether a conflict of interest exists, the relevant standard to be applied is whether:

Correct AnswerverifiedShow Answer

A CPA's conflicts of interest are determined by:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A CPA has to focus on whether a conflict of interest exists:

Correct AnswerverifiedShow Answer

The concept of "moral licensing," in the context of conflicts of interest, relates to:

Correct AnswerverifiedShow Answer

What is an apparent conflict of interest? Provide an example.

According to the IFAC Code of Conduct, the determination of whether a professional accountant has, or does not have, a conflict of interest is resolved by:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedAsk the recipient to delete th...View AnswerShow Answer

The materiality of a conflict of interest should be evaluated from the perspective of:

Correct AnswerverifiedShow Answer

The "Fund of Funds" court decision stands for the proposition that:

Correct AnswerverifiedShow Answer

What is "discounting," as that term is used in the context of conflicts of interest?

Correct AnswerAnswered by ExamLex AI"Discounting," in the context of conflic...View AnswerShow Answer

Correct AnswerverifiedShow Answer

In the "Fund of Funds" case, the plaintiff contended that:

Correct AnswerverifiedShow Answer

The determination of whether an American CPA has, or does not have, a conflict of interest is resolved by:

Correct AnswerverifiedShow Answer

For a CPA who performs auditing services, the most significant conflict of interest that is likely to arise is between:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Ask the recipient to delete th...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
Answered by ExamLex AI
"Discounting," in the context of conflic...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified