CPA ETHICS TEST 2025 WITH 170 REAL
TEST QUESTIONS AND CORRECT
ANSWERS WITH RATIONALES/ CPA
ETHICS EXAM PREP 2024(BRAND NEW!)
Which category contains the ethical standards, a violation of which makes a
member liable to disciplinary action?
(a) Ethics Rulings.
(b) Interpretations of the Rules.
(c) Rules. - (c) is the correct answer. Code of Professional
Conduct, Structure, says that infraction of any of the rules makes a member liable
to disciplinary action.
(a) is wrong since members who depart from the
guidance in ethical rulings in similar circumstances
will be asked to justify such departure. They cannot
however be charged with violating a ruling.
(b) is also wrong since a member cannot be
charged with violating an interpretation. In a disciplina1y
hearing where the member was charged with
violating a rule, the member would have the burden of justifying any departure
from interpretations of that rule
The Trial Board may, after a hearing, do two of the three things listed below. Mark
the one that the Trial Board cannot do.
(a) Suspend a member.
(b) Suspend the member's CPA certificate.
pg. 1
,( c) Expel a member. - (b) is the correct answer. Code of Professional
Conduct, Enforcement, says a Trial Board may admonish, suspend or expel a
member. The Trial Board has no jurisdiction over a member's CPA certificate.
A CPA's client has threatened suit against the CPA and his firm for $2,000
claiming that due to faulty administrative procedures of the CPA's firm, their tax
return was filed late. The $2,000 represents interest and late penalties imposed by
the government plus an amount for legal fees incurred in bringing the action.
Total annual audit and tax fees from this client are approximately $45,000 a year.
This threatened action by the client will
(a) impair independence with the client.
(b) not impair independence with the client. - (b) is correct. Independence not
impaired because of the immaterial amount involved and the litigation would not
involve an attest engagement (Interpretation 101-6, litigation between client and
member 4)
An insurance company, under subrogation rights, has sued a CPA and her firm for
$100,000. The insurance company paid $ 100,000 to a client of the furn because
of an embezzlement of that amount by one of the client's former employees. The
former employee has admitted the theft, declared personal bankruptcy, and is
serving a three-year term in a federal prison upon being convicted of this theft. The
client's management, its board of directors, and its legal counsel have investigated
the matter and decided that since the fraud involved collusion with outside parties
by the former employee, the CPA using normal audit procedures would not have
been expected to discover the theft. In these circumstances
(a) the CPA and her firm are independent of the client.
(b) the CPA and her firm are not independent of the
client. - (a) is correct. Independence is not impaired because management is not
accusing the auditing firm of faulty procedures (Interpretation 101-6, Other third-
party litigation.).
pg. 2
,A partner in a CPA firm purchases a limited partnership
interest in an oil tax shelter. The amount is
material to her net worth. She later finds out that the
president of one of her audit clients and the treasurer
of another audit client have also each purchased
limited partnership interests. The general partner who
controls the partnership is a non-client. The interests
are material to the net worth of the president and treasurer.
Each of the three heard about this tax shelter
from their broker. In this situation
(a) independence is impaired with respect to these
two clients.
(b) independence is not impaired with respect to
these two clients. - (b) is correct. Since the limited partners do not control the
partnership, they are not in a joint closely held investment, and therefore
independence is not impaired. The general partner controls the partnership and the
limited partners are merely investors (Chapter 3, Definitions, Joint closely held
investment and Interpretation 101-1A.3).
A partner who has been retired for two years continues
to serve on the governing board of the accounting
firm. This group meets monthly and fulfills the role of
a board of directors. The retired partner has no client
responsibilities and thus no chargeable time. The retired
partner is asked to become a director of an audit
client. Acceptance of the director's position would
pg. 3
, (a) impair independence with this client.
(b) not impair independence with this client. - (a) is correct. The partner is still
active in the firm and thus independence would be impaired (Interpretation 101-2,
3).
A member has been asked to cosign checks with an
employee of a client during the month of January
when the president is on vacation. The president has
stated that with the CPA cosigning checks, she will
be confident that disbursements are being handled
properly. Since
(a) the member will merely be countersigning, and
thus, not making the original decision to draw the
check, independence with the client will not be
impaired.
(b) the member is only a co-signer and for only one twelfth
of the year, independence is not impaired.
( c) check signing is a management function, independence
is impaired. - (c) is correct. Check signing impairs independence.
(Interpretation 101-3, Table, non tax disbursement).
In a one-office firm a partner's wife works as a
cashier for one of the firms 's audit clients. The partner
does not work on the engagement for this client. The
wife's position as cashier impairs the firm's
pg. 4
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