JOSIE, AN ACCOUNTING SUPERVISOR IN MONK & SONS REALTY, INSTRUCTS MARIA ANSWER

1. Sarah, the controller of a large beverage supplier, supervises two employees. Her boss, Vladimir, instructs her to increase the company’s inventory balance for an amount that is material to the financial statements by crediting several small “miscellaneous” expense accounts. She does not understand why he wants her to make these entries but immediately directs one of her staff to make them because she has been instructed to do so. Which of the following statements best describes Sarah’s actions? a. Sarah failed to evaluate a potential ethical cause b. Sarah failed to refer the matter to the American Institute of Certified Public Accountants ethics hotline c. Sarah failed to ensure that her staff was competent to make the entries d. Sarah failed to consider the rules of other regulators ANSWER: a. Sarah failed to evaluate a potential ethical cause 2. Josie, an accounting supervisor in Monk & Sons Realty, instructs Maria, her employee, to make certain accounting entries in the company’s books that will increase revenue. Maria researches the matter, confirming her concern that these entries would overstate revenue, and informs Josie that recognizing revenue in this manner would be premature and not consistent with generally accepted accounting principles (GAAP) but Josie disagrees and insists that Maria record the entries. The amount of revenue is material to Monk’s financial statements. According to the American Institute of Certified Public Accountants rules, what should Maria do first? a. Resign her position quietly b. Report the matter to the senior partner in the firm c. Take out a professional liability policy d. Discuss her concerns with Josie’s boss ANSWER: b. Report the matter to the senior partner in the firm d. Discuss her concerns with Josie’s boss 3. The American Institute of Certified Public Accountants Ethics Codification includes the following sections: re-check the options. Whether only 1 option need to be selected or multiple options? a. Preface, rules, and interpretations applicable to members in tax practice and rules and interpretations applicable to members in business b. Preface, rules, and interpretations applicable to members in public practice and rules and interpretations applicable to members in business c. Preface, rules, and interpretations applicable to members in tax practice and rules and interpretations applicable to members in audit practice d. Preface, rules, and interpretations applicable to members in audit practice and rules and interpretations applicable to members in business ANSWER: b. Preface, rules, and interpretations applicable to members in public practice and rules and interpretations applicable to members in business 4. Which phrase is used by the Code of Professional Conduct to describe integrity a. Candid, within the constraints of client confidentiality b. Forceful advocate of the client’s position c. Valued business advisor to the client d. Willing to subordinate judgment to achieve a proper outcome a. Candid, within the constraints of client confidentiality 5. Sophie, the CFO of Slolum Ski Supplies, received a watch from one of her company’s largest vendors, Colorado Ski Shoppe. She received the gift with a card congratulating her on Slolum’s recent merger with another company. In determining whether accepting the gift would create a significant threat to her compliance with the American Institute of Certified Public Accountants Code, which factor should Sophie consider a. Whether she disclosed receipt of the gift to the board of directors b. Whether she truly earned the gift c. Whether the gift was reasonable in the circumstances d. Whether the gift cost more than $100 c. Whether the gift was reasonable in the circumstances 6. Which statement best describes competence as defined in the American Institute of Certified Public Accountants Code of Professional Conduct a. Infallible judgment that cannot subsequently be called into question b. The application of skill and knowledge with reasonable care and diligence c. Possessing an advanced college degree in the relevant subject matter d. Rigid adherence to the professional standards of engagement performance b. The application of skill and knowledge with reasonable care and diligence 7. A former client of Charlie Hayes, CPA, filed a lawsuit in state court alleging that Charlie failed to exercise due care in the perfo