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CERTIFIED PUBLIC ACCOUNTANT {CPA} ETHIC REAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS 2025//ALL YOU NEED T PASS YOUR CPA EXAM

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CERTIFIED PUBLIC ACCOUNTANT {CPA} ETHIC

CERTIFIED PUBLIC ACCOUNTANT {CPA} ETHIC REAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS 2025//ALL YOU NEED T PASS YOUR CPA EXAM CERTIFIED PUBLIC ACCOUNTANT {CPA} ETHIC REAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS 2025//ALL YOU NEED T PASS YOUR CPA EXAM CERTIFIED PUBLIC ACCOUNTANT...

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Institution CERTIFIED PUBLIC ACCOUNTANT {CPA} ETHIC
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CERTIFIED PUBLIC ACCOUNTANT {CPA} ETHIC REAL EXAM
180 QUESTIONS AND CORRECT DETAILED ANSWERS
2025//ALL YOU NEED T PASS YOUR CPA EXAM

A retired partner of a one-office public accounting firm

owns 1 percent of the outstanding stock of an audit client.

The client represents about 2 percent of the fum's

revenues and net earnings. The retired partner is not

active ill any way ill the fum, having been retired for

five years. Under the fum's retirement plan, she will

receive for the rest of her life a fixed annual amount.

Approximately one-fourth of her retirement pay is

funded, and the balance is paid from the general funds

of the accounting firm. The total annual payment is not

material to the firm. Since

(a) the partner is completely retired, there is no independence

impairment due to her stock-holdings.

(b) three-fourths of the partner's retirement pay is

not funded and must be paid from current operations,

independence is impaired with this client.

(c) she is receiving payments from the firm and will

do so for the rest of her life, independence is

i - ANSWER-(a) is correct, independence is not impaired. The

retired partner is not a covered member (Chapter 3,

Definitions, Covered member). Her stock holding

does not impair the fum' s independence.

(b) is incorrect since she is completely retired, i.e.,

she has no influence in the firm, does no work for

the fum etc. If she did any work for the fum, then

she would be considered an active partner in the

,firm and her stock holdings would impair independence.

(c) is incorrect. The fact that she is receiving fixed

retirement payments does not make her an active

partner so that her stock holdings would impair

independence.

A retired partner of a one-office public accounting firm

owns 1 percent of the outstanding stock of an audit client.

The client represents about 2 percent of the fum's

revenues and net earnings. The retired partner is not

active ill any way ill the fum, having been retired for

five years. Under the fum's retirement plan, she will

receive for the rest of her life a fixed annual amount.

Approximately one-fourth of her retirement pay is

funded, and the balance is paid from the general funds

of the accounting firm. The total annual payment is not

material to the firm.

Assume the same facts as in question above except

that the retired partner, during the busy season each

year, works for about one month helping in the

review of tax returns and unaudited financial statements.

Traditionally, the firm has given her a $1,000

bonus for this work although they do not bill clients

for her review time. Since

(a) there isn't any a - ANSWER-(b) is correct, independence is impaired. This work

makes her an active partner. Since this is a one office

fum, she is a covered member and independence

is impaired. (Chapter 3, Definitions, Covered

member d and Interpretation 101-1A.1).

(a) is incorrect because there is no requirement that

,one work full time to be considered an active partner.

(c) is incorrect because it makes no difference

whether they bill clients for her work or not. She is

doing work for clients.

( d) is incorrect. The fact that they pay her for the

work has no bearing on whether she is an active

partner or not. It does reinforce the fact that she's

working for the firm, the fum values her work and

compensates her for it

A calendar-year privately held review client of

Andrew & Co. CPAs, has paid only $15,000 of the

$25,000 fees billed to them in March 1996. Andrew

& Co. 's records show that $18,000 of the time

charges and expenses were incurred in 1995 and the

balance of $7 ,000 was time charges and expenses for

January and February 1996. The work consisted of

review of the 1995 financial statements, 1995 federal

and state income tax returns and some management

consulting services. The unpaid balance of $10,000 is

not significant to Andrews & Co.

In May 1997, Andrews & Co. started and completed

their work on the client's 1996 financial statements.

They plan on issuing their report on these financial

statements during the early part of June 1997. A staff

person questions, in light of the unpaid fees, whether

or not they are independent. In ANSWER to her query

which of the following statements is true?

(a) To maintain independence wit - ANSWER-(b) is correct. The past due fee must be paid before

the report is issued. Prior year 's work that the client

, has not paid for was finished in February 1996.

Sixteen months later in June 1997 they will issue

the report on the current work. A ruling says that

independence is impaired if fees for work performed more than one year prior are unpaid when the
report for the current year is issued (Ruling 52).

(a) is incorrect. If the $10,000 is paid before the

report is issued in June there is no independence

impairment.

( c) is incorrect since the significance to Andrew &

Co. CPAs of the amount of the unpaid fee does not make any difference.

( d) is incorrect since the ruling says billed or unbilled fees or a note receivable arising from such fees
that are unpaid impair independence. An agreement to pay in four equal payments is equivalent to a
note. (Ruling 52)

In 1997, Jones, a manager in a one-office firm, is

admitted into the partnership. Under the partnership

agreement, he is required to contribute $10,000 as

his share of partner's capital which will be returned

to him when he retires or in the event he resigns. He

has $3,000 saved which he contributes and borrows in

November 1997 the additional $7,000 on an unsecured

note from a bank audit client. The $7,000 is material

to Jones; however, the bank considers him an excellent

credit risk because of his firm 's reputation in the community

and Jones' new status as partner. Jones has not

and will not work on the audit of the bank. Since

(a) this is a normal lending situation for the bank and

Jones is not receiving any favoritism by way of

rates; independence with the bank is not impaired.

(b) this type of loan from a bank audit client is prohibited;

independence is impaired.

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Exam (elaborations)

CERTIFIED PUBLIC ACCOUNTANT {CPA} ETHIC REAL EXAM 180 QUESTIONS AND CORRECT DETAILED ANSWERS 2025//ALL YOU NEED T PASS YOUR CPA EXAM

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