CPA Test PDF

Possible Question Exam 1
1) Which of the following (according to Charles Fombrum) is not one of the four determinants that
influence a company's reputation?
a. Credibility.
b. Reliability.
c. Profitability.
d. Responsibility.
2) The 5 E's of the accounting profession in Texas are Ethics, Enthusiasm, Education,
Examination and Experience.
a. True
b. False
3) The P in CPA stands for Public?
a. True
b. False
4) The difference between what the public thinks it is getting in audited financial statements
and what the public is actually getting is known as:
a. Credibility gap
b. Expectations gap
c. Audit gap
d. Stewardship gap
e. None of the above
5) Which of the following is not a trend described in Chapter 1 as having an impact on the
ethics of business?
a. Directors’ legal liability

b. Management’s stated intention to protect reputation
c. Auditors’ legal liability
d. Management’s assertions to shareholders on the adequacy of internal controls
e. Management’s stated intention to manage risk
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6) Which corporate report discusses subjects that include environmental, health and safety,
philanthropic and other social impacts?
a. Corporate annual report

b. Corporate social responsibility report
c. Corporate quarterly report
d. Corporate stakeholder report
e. Corporate ethics committee report
7) The goal of the State Board of Public Accounting is to protect the public?
a. True
b. False
8) Professional Accountants, in their fiduciary role, owe their primary loyalty to:
a. The accounting profession

b. The client
c. The general public
d. Government regulations
e. All of the above
9) A CPA license issued by the State of Texas is a form of a social contract between the
CPA license holder and the public and the State of Texas.
a. True
b. False
10) Ethical corporate behaviour is expected to lead to:
a. Higher profitability in the short-term

b. Higher profitability both in the short-term and long-term
c. Lower profitability in the long-term
d. Higher profitability in the long-term
e. Lower profitability both in the short-term and long-term
11) A value that is almost universally respected by stakeholder groups is:
a. Super norm
b. Alfa norm
c. Value norm
d. Hypernorm
e. General norm
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12) Incomplete disclosure of the company’s revenue recognition policy is an example of:
a. Lack of transparency
b. Lack of integrity
c. Lack of accuracy
d. All of the above
13) This philosophical approach requires that an ethical decision depends upon the duty,
rights, and justice involved:
a. Consequentialism
b. Virtue ethics
c. Duty ethics
d. Righteousness
e. Deontology
14) Who does the AICPA Code of Professional Conduct apply to:
a. Members in Public practice
b. Members in Industry
c. Members in Government
d. Members in Education
e. All of the above
15) The Moral Standards Approach focuses on the following dimensions of the impact of a
proposed action:
a. Net benefit to society, fair to all stakeholders, whether it is right

b. Net benefit to society and whether it is legal
c. Net benefit to society, fair to all stakeholders, whether it is legal
d. Fair to most stakeholders and whether it is right
e. Net benefit to society, fair to most stakeholders, whether it is right
16) The following is a fundamental factor in having an effective ethical corporate culture:
a. Tone at the top
b. Inefficient oversight by the company’s Board of Directors
c. Unenforced code of conduct
d. None of the above
e. All of the above
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17) Which entity has final approval of financial accounting and reporting rules and regulation
for publically traded companies in the United States of America?
a. IRS
b. DOJ
c. PCAOB
d. AICPA
e. all of the above
18) Effective crisis management could represent:
a. An opportunity to avoid costs

b. An opportunity to change employee’s perspectives on risk
c. An opportunity to enhance the company’s reputation
d. All of the above
19) To sign a tax return as a tax return preparer you need which of the following?
a. CPA License
b. PTIN holder
c. Enrolled Agent
d. Attorney
e. All the above may sign a tax return as a return preparer
20) Tax return preparers who are members of a firm are specified tax return preparers and
must electronically file the income tax returns they prepare and file if the firm’s preparers, in
the aggregate, expect to file "_______" or more of these income tax returns in 2011. (Fill in
the blank.)
a. 2
b. 50
c. 100
d. 1,000
e. 1 million
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21) The IRS recommended in 2011 a number of steps that it plans to implement for future
filing seasons, including:
a. Requiring all paid tax return preparers who must sign a federal tax return to register with
the IRS and obtain a preparer tax identification number (PTIN). These preparers will be
subject to a limited tax compliance check to ensure they have filed federal personal,
employment and business tax returns and that the tax due on those returns has been paid.
b. Requiring competency tests for all paid tax return preparers except attorneys, certified
public accountants (CPAs) and enrolled agents who are active and in good standing with their
respective licensing agencies.
c. Requiring ongoing continuing professional education for all paid tax return preparers
except attorneys, CPAs, enrolled agents and others who are already subject to continuing
education requirements.
d. Extending the ethical rules found in Treasury Department Circular 230 -- which currently
only apply to attorneys, CPAs and enrolled agents who practice before the IRS -- to all paid
preparers. This expansion would allow the IRS to suspend or otherwise discipline tax return
preparers who engage in unethical or disreputable conduct.
e. All of the above.
22) The Board of Directors’ paramount duty is:
a. To determine management’s compensation

b. To safeguard the interest of the company’s stakeholders
c. To safeguard the company’s assets
d. To formulate the company’s strategy
e. To safeguard the interest of the company’s shareholders
23) In order to ensure an investment-grade credit rating, Enron began to emphasize the following three
actions:
a. Reducing accruals, increasing cash flow, and lowering debt

b. Smoothing accruals, increasing cash flow, and lowering debt
c. Increasing cash flow, lowering debt, and smoothing earnings
d. Increasing cash flow, lowering earnings and decreasing option expense
e. Increasing cash flow, lowering debt, and decreasing option expense
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24) Which of the following was not a committee in Enron’s Board?
a. Risk Management Committee

b. Executive Committee
c. Finance Committee
d. Audit and Compliance Committee
e. Nominating Committee
25) Enron referred to this transactions as “monetizing” or “syndicating” its assets:
a. Buy more assets using syndicated loans

b. Sell assets to third parties and record cash income as earnings
c. Hedge the company’s assets
d. Lend money to third parties to buy assets
e. Recording profits on energy derivatives trading
26) At the time of Enron’s collapse, the prevailing treatment for employee stock option expense was:
a. Record stock options only when and if exercised, at exercise price

b. Record all stock options when issued, at exercise price
c. Record all stock options at market price
d. Record stock options only when exercised at market price
e. Record not exercised options at market price
27) Which of the following was not a conflict of interest that Arthur Andersen’s personnel
encountered?
a. Auditing their own work as SPE consultants

b. Losing a very large client
c. A partner reviewed another partner’s work
d. Internal debates about Enron’s questionable accounting treatments were not discussed
with the audit committee
e. Audit staff leaving the firm to work for Enron
28) Which of the following was not among Arthur Andersen’s shortcomings in conducting Enron’s
audit?
a. Lack of competence
b. Failure of quality control standards
c. Misunderstanding of auditor’s fiduciary role
d. Inconclusive testing of control
e. Insufficient information provided by Enron’s staff
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29) Which of the following is not a requirement imposed by the SOX Corporate Governance
Framework?
a. The audit committee must be comprised solely by independent directors

b. The audit committee is responsible for appointing the company’s external auditor
c. The audit committee must establish procedures to allow employees to submit anonymous
complaints
d. The audit committee must approve non audit services to be provided by the auditors
e. The audit committee must be comprised solely by financial experts
30) SOX increased the time requirement and legal risk for company directors. These requirements will
likely:
a. Increase the number of directors in the board

b. Reduce the number of directors in the audit committee
c. Increase audit fees
d. Reduce the number of boards that each director sits on
e. All of the above
31) These companies are more likely to voluntarily adopt improved governance measures:
a. Larger companies
b. Less profitable companies
c. Foreign companies
d. Smaller companies
e. Private companies
32) Ethical dilemmas arise when:
a. Norms and values are in conflict

b. There is only one alternative course of action available
c. Norms and values are not in conflict
d. There are several theories of ethical decision making
e. All of the above
33) Individuals may be ethical because of:
a. Religious concerns
b. Emotional attachment to other people
c. Enlightened self-interest
d. All of the above
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34) This theory argues that the best ethical alternative is the one that will produce the greatest amount
of happiness to the largest number of stakeholders:
a. Deontology
b. Distributive Justice
c. Utilitarianism
d. Moral Imagination
e. Virtue Ethics
35) This theory focuses on the moral character of the decision maker:
a. Deontology
c. Utilitarianism
e. Virtue Ethics
36) This approach focuses on coming up with an innovative solution to an ethical dilemma:
a. Deontology
c. Utilitarianism
e. Virtue Ethics
37) This theory argues that equals should be treated equally in relationship to their relevant equalities
and differences:
a. Deontology
c. Utilitarianism
e. Virtue Ethics
38) This theory is concerned with the motivation of the decision maker rather than the consequences of
the decision:
a. Deontology
c. Utilitarianism
e. Virtue Ethics
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39) Two weaknesses of the following approach are (1) it is difficult to determine who demonstrates
integrity in the workplace, and (2) it is difficult to choose between compassion and not betraying
somebody’s trust:
a. Deontology
c. Utilitarianism
e. Virtue Ethics
40) A problem with this theory is that the categorical imperative does not provide clear guidelines for
deciding what is right and wrong when two or more moral laws conflict and only one can be chosen:
a. Deontology
c. Utilitarianism
e. Virtue Ethics
41) Minority rights may be violated under this approach:
a. Deontology
c. Utilitarianism
e. Virtue Ethics
42) This approach presupposes that happiness, utility, pleasure, pain and anguish can be quantified:
a. Deontology
c. Utilitarianism
e. Virtue Ethics
43) This approach, a variant of utilitarianism, considers an action to be ethically good if it will
probably produce a greater balance of good over evil:
a. Act Utilitarianism
b. Active Utilitarianism
c. Sub-Utilitarianism
d. Consequentialism
e. Virtue Ethics
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44) Under this approach what is important is that the decision was made for the right reasons:
a. Deontology
c. Utilitarianism
e. Virtue Ethics
45) This philosopher argued that self-interest leads to economic cooperation:
a. Adam Smith
b. John Locke
c. Thomas Hobbes
d. Jeremy Bentham
e. John Rawls
46) There are two aspect of justice, but under this aspect there should be a consistent application of
law:
a. Distributive justice
b. Procedural justice
c. Balance of justice
d. Deontology
e. Teleology
47) If managers use moral imagination to determine ethical alternatives, the decisions need to be good
for:
a. The individual
b. The firm
c. Society
d. (a) and (b) only
e. All of the above
48) This philosopher argued that social and economic inequalities are just if these inequalities
are to everyone’s benefit:
a. Adam Smith
b. John Locke
c. Thomas Hobbes
d. Jeremy Bentham
e. John Rawls
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49) Norman Jones, CPA is not independent of his audit client, Nora Jones when
a) he charges a contingent fee for audit services

b) he charges a commission for audit services
c) all of the above
50) Which of the following is false?
a. A hypernorm is a value that is almost universally respected by stakeholder groups.

b. The three basic philosophical approaches for corporate decision makers are
consequentialism, deontology, and virtue ethics.
c. Hypernorms involve the demonstration of the following basic values: Honesty, Fairness,
Compassion, Integrity, Predictability, and Responsibility.
51. Which of the following is true for a publicly traded company?
a. An audit partner cannot serve as the engagement partner or the concurring partner for
over five concurrent years.
b. Public Company Accounting Oversight Board consists of five CPAs
c. Auditors may offer actuarial services if permitted by the client’s Audit Subcommittee.
d. None of the above.
52. According to Article 2 in the Code of Professional Conduct, members should act in a way
that will:
a. Serve the public interest
b. Honor the public trust
c. Demonstrate commitment to professionalism
d. All of the above
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53. A practitioner who, having been retained by a client with respect to a matter administered by
the IRS, knows that the client has not complied with the revenue laws of the U.S. or has made an
error in or omission from any return, document, affidavit, or other paper which the client
submitted or executed under the revenue laws of the U.S., MUST
a. advise the client promptly of the fact of such noncompliance, error, or omission.
b. stay silent because informing the client of such noncompliance, error, or omission now
makes the practitioner liable.
c. advise the client of the consequences as provided under the Code and regulations of such
noncompliance, error, or omission.
d. Both A and C.
54. The expectations gap has been coined to describe:

a. the gap between what the public expects of a certain stock and what value the stock
actually closes on that day.
b. the difference between how the public believes a company will perform and how the
company actually performs after one year.
c. the difference between what the public thinks it is getting in audited financial statements
and what it is actually getting.
d. Both B and C.
55. A public accounting firm must be independent of the firm's audit client throughout the audit.
a. True
b. False
56. Which of the following are not examples of stakeholders?
a. Employees
b. Customers
c. Suppliers
d. Borrowers
e. All above could be stakeholders
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57. What is risk?
a. Risk is the culture, processes, and structures that are directed towards the effective
management of potential opportunities.
b. Risk includes the systematic application of management policies and procedures.
c. Risk is when the stock market goes down.
d. Risk is the chance of something happening that will have an impact on objectives.
58. Regarding the fees of registered independent accounting firms on a audit engagement the
following is true:
a. The firm may charge a client a commission based on recovery received due to finding an
issue on the financials.
b.The firm may charge a flat fee for all work.
c.The firm may charge a fee based on the number of errors it find in the clients financials.
d.The firm can receive commissions from third parties for work performed on a client.
59. The following is true about return of client tax related records:
1. Generally client records do not have to be returned if there is a dispute over fees.
2. Generally a practitioner must, at the request of the client, return any and all records of the
client.
3. A practitioner may not keep copies of client records.
4. A Practitioner has no obligation to allow a client to view their tax file.
60. All of the following are approaches of comprehensive ethical decision making known as
stakeholder impact analysis except for?
a. Five Questions Approach.

b. Moral Standard Approach.
c. Stakeholder Impact Analysis Approach.
d. Pastin Approach.
61. Which of the following (according to Charles Fombrum) is not one of the four determinants that
influence a company's reputation?
a. Credibility.
b. Reliability.
c. Profitability.
d. Responsibility.
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62. Stakeholder impact analysis as a form of ethical decision making commences with which of the
following:
a. Identification of significant stakeholders.

b. Investigation of stakeholder interests.
c. Ranking of stakeholder interests.
d. All of the above.
e. None of the above.
64. According to Chapter 1, which of these determinant factors define a corporation's reputation?
A. Credibility.
B. Reliability.
C. Responsibility.
D. Trustworthiness.
E. All of the above.
65. A CPA may conduct a financial statement audit when he or she is not independent, but the
audit report must be modified to disclose the lack of independence.
a. True
b. False
66. According to Circular 230, Part 10.33, which of these is the best practice for tax advisors?
a. Communicate clearly with the client the terms of the engagement.

b. Establish the facts (relevance, reasonableness of assumptions, applicability to law,
derived conclusions).
c. Advise client import of conclusions.
d. Act with fairness and integrity.
67. According to the AICPA Code of Professional Conduct, Rule 101-Independence, an audit
requires that an individual perform his or her services with integrity and objectivity. There
must be reasonable assurance that this is being done during the engagement. What must an
accountant do to be in compliance with the generally accepted auditing standards?
a. Be independent in fact.
b. Be independent in appearance.
c. Both.
d. Neither.
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68. Weasel & Mink, CPAs prepared an original tax return for Ms. Fleece and charged her $5,000
for the preparation of the return. In the event the Internal Revenue Service does not sustain
her tax deductions on her chinchilla farm, Weasel & Mink, CPAs will refund Ms. Fleece
$500.
a. This is a lawful practice because Weasel & Mink, CPAs made a mistake on the tax
return.
b. This is not lawful practice because Weasel and Mink, CPAs because CPAs cannot
refund for work already performed.
c. This is a lawful practice because Weasel & Mink, CPAs can reimburse a client for all
or a portion of a fee in the event that the position taken on the tax returned is
challenged by the Internal Revenue Service.
d. This is not lawful practice because Weasel and Mink, CPAs because CPAs cannot
charge a contingent fee for preparing an original tax return.
69. Which of the following organizations licences CPAs:
a. AICPA.
b. Texas Society of CPAs.
c. Texas State Board of Public Accountancy.
70. In regards to solicitation of clients, Jim Matter, C.P.A. would not be in violation of Circular
230 in which of the following scenarios:
a. Mr. Matter had been persistently soliciting and contacting a potential client. He has
been so persistent because he feels that, if he could sign this client, it would generate
huge profits for his firm. However, the client in question has asked Mr. Matter to
stop contacting him. Even after he has clearly told Jim to stop contacting him
because he did not want Jim's services, Mr. Matter still keeps pursuing the client.
b. Jim Matter has published a fee schedule that specifically states his hourly rate for
preparing 1040's is $125/hour. A potential client calls Jim up 6 weeks later after the
brochure has been published and tells Mr. Matter that she would like him to prepare
her 1040. Under the assumption that his going rate is $125/hour, the client in
question is shocked when she receives her bill for preparation of her 1040. Mr.
Matter charged her $135/hour, rather than the published rate of $125/hour.
c. Jim has taken it upon himself to mail out a brochure to a list of people he has
obtained through a friend. The brochure is an advertisement of all of the services
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offered by Jim and his firm. The list of names that Jim is going to mail brochures to
are not current clients, have not invited Jim to contact them through direct mail, and
are not seeking the type of services offered by a CPA. Mr. Matter only kept copies of
the brochures mailed out to these people for 24 months after they were mailed.
d. Mr. Matter's brochures explicitly state that he is Acertified by the Internal Revenue
Service to perform tax services.
71. Johnson CPAs practice before the IRS and have implemented a policy requiring all tax refund
checks of its clients be sent to the firm.
a. Johnson CPAs may endorse its client's refund checks and deposit the checks into Johnson
CPAs' operating accountant if the client has not paid its bill for the preparation of the tax
return.
b. Johnson CPAs may require that its client endorse the check and then negotiate the check
by depositing the check into its operating account if the client has not paid its bill for the
preparation of the tax return.
c. Johnson CPAs may hold a refund check until its client picks up the check.
72. Under PCAOB’s ethics rule 3524 governing an “Audit Committee Pre-Approval of Certain
Tax Services”, which step is not required of auditors in seeking preapproval of tax services?
a. Provide the audit committee a written, detailed description of the scope of the proposal,
related fee and other
b. Discuss the proposal and the potential impact on independence and ethics with the audit
committee
c. Document the substance of the discussion in a uniform format
d. Submit a sworn statement that the tax services are to be performed only by senior staff in
financial reporting oversight roles with the audit client (or its affiliates)
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73. Which of the following laws was enacted as a result of the corporate scandals of Enron,
Arthur Anderson, and WorldCom?
A. Sarbanes-Oxley Act of 2002

B. Securities Act of 1933
C. Securities Act of 1934
D. Jones Act
74. Under PCAOB's audit professional standards, a registered public accounting firm and its
associated persons must be
a. Independent of the firm’s audit client throughout the audit and professional engagement
period.
b. A CPA certification holder.
c. Understand the company’s process very well.
d. The person is in a financial reporting oversight role.
75. Which of the following statements are not correct regarding a publicly traded company:
a. The board of directors appoints the audit committee and has the authority to remove
members at anytime.
b. The committee should consist of at least three member of the board of directors and one
audit financial expert.
c. At least one member of the audit committee should be able to understand and analyze the
financial statements of the organization and the financial expert.
d. Consideration should give to individuals who have authority in the organization.

e. All statements are correct.
76. The recent corporate accounting scandals have brought to light the void between what investors
think they are getting in audited financial statements and what they are actually getting in audited
financial statements. This is commonly referred to as:
a. The credibility gap.

b. The financial statement gap.
c. The accountability gap.
d. The expectations gap.
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77. The Sarbanes Oxley Act of 2002 provides for the reform of:
a. Corporate Governance
b. Accounting Profession
c. Both of the above
78. A practitioner who knows that the client has not complied with the revenue
Laws of the United States must:
a. Advise the client promptly of the fact of such non-compliance

b. Advise the client of the consequences of such non-compliance
c. Advise the IRS promptly
d. Advise the client promptly of the fact and the consequences of such non-compliance
79. Under PCAOB rules the “Audit and professional engagement period” include(s):
a. the period covered by any financial statements being audited

b. the period of the engagement to audit or review the audit client’s financial statement
c. all of the above
d. none of the above
80. Paul Brown provides audit services to a client, an SEC registrant. Which of the following
services can Paul Brown provide to some of this same client's employees?
a. Bookkeeping services related to the client's financial records.

b. Financial information system design and implementation.
c. Tax services in limited circumstances.
d. Appraisal or valuation services.
e. Internal audit outsourcing services.
81. After discussing an ethical issue or a financial report that deviates from GAAP with your
manager and other executives, you found out that they were involved in the issue; your next step
is going to be:
a. Resign right away.

b. Consider advising the Board of Directors.
c. Secure all documentation related to that issue, take into
consideration the fact that the problem continues to persist after
reporting it and your inability to do anything to resolve the
problem,then consider resigning.
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82. SOX established a Public Accounting Oversight Board (PCAOB) that will:
a. Establish auditing and attestation standards.

b. Maintain and register foreign firms that audit SEC registrants, and who will be
subject to PCAOB regulations and discipline.
c. Consist of five members with five year staggered terms.
d. Inspect, discipline, and write rules governing accounting firms that audit public
companies.
83. Under Sarbanes-Oxley, the audit committee of a public company shall do the following:
a. Appoint and oversee outside auditors.

b. Establish procedures for anonymous employee complaints.
c. Receive audit reports from the auditors without management present.
d. Approve any non-audit services provided by auditors.
85. A practitioner may be censured, suspended or disbarred from practice before IRS due to
incompetence and disreputable conduct, including:
a. Conviction of any criminal offense under the revenue laws of United States.
b. Conviction of any criminal offense involving dishonesty or breach of trust.
c. Conviction of any felony under federal or state law for which the conduct involved
renders the practitioner unfit to practice before the IRS.
86. The Moral Standards Approach focuses on all of the below except:
a. Whether it provides a net benefit to society.

b. Whether it helps the officers of the corporation.
c. Whether it is fair to all stakeholders.
d. Whether it is right
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87. Weasel & Mink, CPAs prepared an original tax return for Ms. Fleece and charged her $5,000 for
the preparation of the return. In the event the Internal Revenue Service does not sustain her tax
deductions on her chinchilla farm, Weasel & Mink, CPAs will refund Ms. Fleece $500.
a. This is a lawful practice because Weasel & Mink, CPAs made a mistake on the tax return.
b. This is not lawful practice because Weasel and Mink, CPAs because CPAs cannot refund
for work already performed.
c. This is a lawful practice because Weasel & Mink, CPAs can reimburse a client for all or a
portion of a fee in the event that the position taken on the tax returned is challenged by the
Internal Revenue Service.
d. This is not lawful practice because Weasel and Mink, CPAs because CPAs cannot charge
a contingent fee for preparing an original tax return.

D
88. John Jacob, CPA works for XYZ Firm, which was hired to audit the financial statements of
Garbage Management, Inc. On the 3rd day of his audit work at XYZ Firm, John Jacob, CPA runs
into Shelly Rogers, a new executive of the company, who went to college with John Jacob, CPA.
They used to be very good friends, but haven't had contact with one another in over 15 years.
Actually, they used to date, but Shelly Rogers left John Jacob, CPA for another man, and left him
with $10,000.00 in debt for a diamond ring which she did not return. During the course of the audit,
it was discovered that some of the financial data was not presented in conformity with Generally
Accepted Accounting Principles, and for the financial statements to be in conformity with Generally
Accepted Accounting Principles would mean a major modification to the financial statements of
Garbage Management, Inc. Shelly Rogers asks John Jacob, CPA if XYZ Firm could overlook the
non-conformity. What are the potential violations of the AICPA Code of Professional Conduct that
this situation presents. Choose the best answer.
a. General Standards (Rule 201) and Compliance with Standards (Rule 202).
b. Independence (Rule 101); Accounting Principals (Rule 203); and Compliance with
Standards (Rule 202).
c. Accounting Principals (Rule 203) and General Standards (Rule 201).
d. Integrity and Objectivity (Rule 102); Accounting Principals (Rule 203); and
Independence (Rule 101).
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89. A member of the AICPA must:
a. Undertake only those professional services that the member of member=s firm can
reasonably expect to be completed with professional competence.
b. Exercise due professional care in the performance of professional services.
c. Adequately plan and supervise the performance of professional services.
90. A company’s comprehensive culture-building and risk reduction services include:

a. Strategy and Assessment
b. Training and Communication
c. Measurement and Reporting
91. Congress enacted the in response to a spate of highly publicized business

failures, allegations of corporate improprieties and financial restatements.
a. Public accounting rule.
b. Security act of 1933
c. Sarbanes Oxley Act of 2002
93. Based upon the PCAOB’s Rules on Ethics, a registered public accounting firm would not be
independent of its client if during the audit the firm provided tax services to an immediate family
member of the client, such as the officer’s brother-in-law.
a) True
b) False
93. The period of the engagement to audit or review the audit client’s financial statements
or to prepare a report filed with the Commission is called:
A. The “audit engagement period”
B. The “audit period”
C. The “professional audit period”
D. The “professional engagement period”
94. Who may practice before the internal Revenue Services?

a. Attorney
b. Certified public accountants
c. Enrolled agents
d. Enrolled actuaries
e. All of the above
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95. Gary Daman, CPA, determined to have a conflict of interest with a client, Lisa Billup. Gary
Daman is NOT allowed to represent Lisa Billup before the IRS when:
a. Gary reasonably believes that he will be able to provide competent and diligent
representation
to Lisa Billup.
b. The representation is not prohibited by law.
c. Lisa Billup gives informed consent, confirmed in writing.
d. The representation of Lisa Billup will be directly adverse to Gary’s another client,
Carol O’Neil.
96. Gary Daman’s CPA firm has been engaged in Beast Hungary Inc.’s financial audit for the
past 3 years. Gary Daman also files personal tax return for Scott Beast, a member of the Beast
Inc. Under what circumstance Gary Daman is still considered independent of Beast Hungary
Inc.?
a. Scott Hungary is the CEO of Beast Inc.

b. Scott Hungary is the CFO of Beast Inc.
c. Scott Hungary is a member of Board of Directors of Beast Inc.
d. Scott Hungary is the Controller of one of the Beast Inc.’s subsidiaries.
97. Joe the Client requests that Mike the CPA return to him all of his records so that Joe the
Client can comply with his Federal Tax obligations. Mike the CPA must return:
A. Any and all records necessary to fulfill the tax obligation, even if there is a fee dispute.
Mike the CPA is not allowed to make copies of these records.
B. Any and all records necessary to fulfill the tax obligation, unless there is a fee dispute. In
such case, Mike the CPA will not return the records until fee dispute is solved.
C. Any and all records necessary to fulfill the tax obligation, even if there is a fee dispute.
Mike the CPA is allowed to make copies of these records.
D. Any records that Mike is not using at the time.
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98. In connection with seeking Audit Committee pre-approval to perform an audit client any
permissible tax service, a registered public accounting firm shall:
A. Describe, in writing, to the audit committee of the client the scope of the services
performed, the fee structure of the engagement, as well as any other side letter on the
engagement letter.
B. Describe, in writing, to the audit committee of the client any compensation agreement or
other agreement, such as a referral agreement.
C. Discuss with the audit committee of the client any potential effects of the services on the
independence of the firm, and document the substance of the discussion with the audit
committee of the issuer.
D. All of the above.
99. John Fry, the Chairman and CEO of XYZ Corp., was arrested for using, growing, and selling
marijuana out of his home in Austin, TX. As a result, the stock price of XYZ Corp. plummeted.
The reason being is because John Fry’s actions affected the corporate reputation of his company.
The four determinates of corporate reputation are:
A. Credibility, trustworthiness, reliability, and responsibility.

B. Productivity, sales, cash flow, and equity.
C. Fairness, compassion, integrity, and honesty.
D. None of the above
100. The PCAOB which is charged with overseeing, regulating, inspecting, and disciplining
accounting firms in their roles as auditors of public companies.
a. True
b. false
101 What of the following is not considered as stakeholders?
a- Employees
b- Government
c- Suppliers
d- None of the above
23
102. Which of these is the best practice for tax advisors?
A. Communicate clearly with the client the terms of the engagement.
B. Establish the facts, (relevance, reasonableness of assumptions, applicability of law,
derived conclusions).
C. Advise client import of conclusions.
D. Act with fairness and integrity.
103. What is a positive way to maintain a quality relationship with a client?
A. Have written fee agreements, with clearly defined terms (i.e. billing) and, if needed,
provide cost estimates.
B. Complete work at agreed upon deadlines.
C. Use appropriate phone protocol to maintain confidentiality with clients.
D. Monitor quality of all work, including drafts as well as client status reports.
104. Which of the following does not belong to the checklist for maintaining good client relations?
A. Have written fee agreements.

B. Return all phone calls promptly.
C. Maintain professional office appearance.
D. They all belong to the checklist.
105. According to Article 2 in the Code of Professional Conduct, members should act in a way
that will
a. Serve the public interest
b. Honor the public trust
c. Demonstrate commitment to professionalism
d. All of the above
24
106. A practitioner who, having been retained by a client with respect to a matter administered
by the IRS, knows that the client has not complied with the revenue laws of the U.S. or has made
an error in or omission from any return, document, affidavit, or other paper which the client
submitted or executed under the revenue laws of the U.S., MUST
a. advise the client promptly of the fact of such noncompliance, error, or omission.
b. stay silent because informing the client of such noncompliance, error, or omission now
makes the practitioner liable.
c. advise the client of the consequences as provided under the Code and regulations of
such noncompliance, error, or omission.
d. Both A and C.
107. The expectations gap has been coined to describe:
a. the gap between what the public expects of a certain stock and what value the stock
actually closes on that day.
b. the difference between how the public believes a company will perform and how the
company actually performs after one year.
c. the difference between what the public thinks it is getting in audited financial
statements and what it is actually getting.
d. Both B and C.
108 . Who may practice before the IRS?
a. Anybody
b. Any person with a college degree
c. A CPA candidate
d. Any licensed attorney(s) in good standing
109. Taxes R Us, a CPA firm, has notified Mr. Jones that his federal income tax return and
extension for 2006 is complete and ready to be mailed to the IRS. Mr. Jones requests an estimate
of his payment. He then complains that Taxes R Us accounting fees are too high priced and
demands his records so he can go elsewhere. What must Taxes R Us do?
a. Taxes R Us must return the entire file of records provided by Mr. Jones at once because
those are his personal belongings.
b. Taxes R Us must allow Mr. Jones to only review and copy all the records he had
provided.
c. Taxes R Us must return the documents that the IRS requires attached to a return and
allow Mr. Jones to copy the remaining records needed to abide by his Federal tax
responsibility.
25
110. Since the new SOX governance framework was established, Eileen’s company has
reviewed the executive board, discussed the roles they play in the company, and revised the
penalties of misconduct. This reveals how SOX has had an impact on
a. Governance, Accountability and Reporting, and Management Practice

b. Accounting Profession and Auditing Practice
c. Business Ethics Trends
111. Regarding the fees of registered independent accounting firms on a audit engagement the
following is true:
1. The firm may charge a client a commission based on recovery received due to finding an
issue on the financials.
2. The firm may charge a flat fee for all work.
3. The firm may charge a fee based on the number of errors it find in the clients financials.
4. The firm can receive commissions from third parties for work performed on a client.
112. Jason has a hearing scheduled before a panel of IRS appeals officers relating to his 2005
Individual Federal Income Tax Return. Due to business travel he won’t be able to attend &
represent himself. Which of the following individuals can represent Jason at his hearing?
A) Jason’s best friend, a seasonal employee for H&R Block, who prepared and signed his 2005
return as the preparer
B) Jason’s aunt, an employee at the 5th Circuit Federal Court of Appeals, who advised him on
the tax deductions he claimed on his 2005 return
C) Jason’s mother who is employed as a bookkeeper at a local bank
D) Jason’s brother-in-law, who is a former CPA who practiced in the State of Texas
26
113. Under PCAOB’s ethics rules governing an “Audit Committee Pre-Approval of Certain Tax
Services”, which step is not required of auditors in seeking preapproval of tax services?
A) Provide the audit committee a written, detailed description of the scope of the proposal,
related fee and other
B) Discuss the proposal and the potential impact on independence and ethics with the audit
committee
C) Document the substance of the discussion in a uniform format
D) Submit a sworn statement that the tax services are to be performed only by senior staff in
financial reporting oversight roles with the audit client (or its affiliates)
114. In the 1980’s business evolved from a profit-only mandate to one recognizing the
interdependence of business & society. As a result, several trends developed that impacted the
ethics of business & the professional accountant. Which of the following is not one of those
trends?
a) decreasing legal liability for corporate directors

b) mgmt. assertion to shareholders on the adequacy of internal controls
c) a stated intention to manage risk & protect reputation
d) delayering, employee empowerment & the use of EDI
e) increased reliance by management on non-financial performance indicators used on a
real-time basis
115. Managements report upon the corporation’s internal controls, including management’s
responsibility for establishing, maintaining & assessing their effectiveness is governed by which
title of the Sarbanes-Oxley Act?
A) Title III – Corporate Responsibility

B) Title IV – Enhanced Financial Disclosures
C) Title VIII – Studies & Reports
D) Title XI – Corporate Fraud & Accountability
116. The Director of Practice will maintain roasters of all the following individuals:
A. Persons that have been granted active enrollment to practice before the IRS.
B. Persons that have been placed in inactive status for failure to meet the requirements for
renewal of enrollment.
C. Persons who have been censured, suspended, or disbarred from practice before the IRS.
D. All of the above.
27
117. Which of the following laws was enacted as a result of the corporate scandals of Enron,
Arthur Anderson, and WorldCom?
a. Sarbanes-Oxley Act of 2002
b. Securities Act of 1933
c. Securities Act of 1934
d. Jones Act
118. In Circular 230, means any person who is a member in good standing of the
bar of the highest court of any State, territory, possession of the United States, including a
Commonwealth, or the District of Columbia.
a. CPA
b. Attorney
c. Commissioner
d. Enrolled agents.
119. A company’s comprehensive culture-building and risk reduction services include:

a. Strategy and Assessment
b. Training and Communication
c. Measurement and Reporting
120. Based upon the PCAOB’s Rules on Ethics, a registered public accounting firm would not
be independent of its client if during the audit the firm provided tax services to an immediate
family member of the client, such as the officer’s brother-in-law.
a. True
b. False
121. __________ includes the culture, processes, and structures that are directed towards the
effective management of potential opportunities and adverse effects.
a) Risk Management
b) Hypernorms
c) Ethics
d) Synergy
28
122. Gary Daman, CPA, determined to have a conflict of interest with a client, Lisa Billup.
Gary Daman is NOT allowed to represent Lisa Billup before the IRS when:
a. Gary reasonably believes that he will be able to provide competent and diligent
representation to Lisa Billup.
b. The representation is not prohibited by law.
c. Lisa Billup gives informed consent, confirmed in writing.
d. The representation of Lisa Billup will be directly adverse to Gary’s another client, Carol
O’Neil.
123. Gary Daman’s CPA firm has been engaged in Beast Hungary Inc.’s financial audit for
the past 3 years. Gary Daman also files personal tax return for Scott Beast, a member of the
Beast Inc. Under what circumstance Gary Daman is still considered independent of Beast
Hungary Inc.?
a. Scott Hungary is the CEO of Beast Inc.

b. Scott Hungary is the CFO of Beast Inc.
c. Scott Hungary is a member of Board of Directors of Beast Inc.
d. Scott Hungary is the Controller of one of the Beast Inc.’s subsidiaries.
124. “Stakeholders increasingly expect that a company’s activities will respect their values
and interests. To a large extent, this respect for stakeholder values and interests determines
the ethical standing and success of a corporation.” (Brooks, P. 2) Which of the following
entities is not considered a “stakeholder” of a company?
a. Creditor.
b. Debtor.
c. Employee.
d. Stockholder.
29
125. “The new SOX governance framework will focus the attention of directors and
management on issues that are of critical importance to the proper governance and reporting
process.” Which one of the following developments is not the result of SOX framework?
a. Strengthening of the role of the audit committee.

b. Clarification of roles, responsibilities, and competencies of directors and board
subcommittees.
c. Decrease of the demand of qualified audit personnel.
d. Increased penalties for wrongdoing.
126. The Board of Director’s of ABC Corporation have three broad duties that stem from the
fiduciary status of corporate directors. Those three duties are the duties of obedience, loyalty, and
care. The duty of obedience requires the director to:
A. Ensure committing acts beyond the scope of the powers of ABC Corp. as defined by its
charter or laws of the state of corporation.
B. Avoid committing acts beyond the scope of the powers of ABC Corp. as defined by its
C. Avoid committing acts within the scope of the powers of ABC Corp. as defined by its
D. None of the above.
127. SOX of 2002 is primarily regulated and overseen by
A. SEC
B. PCAOB
C. AICPA
D. all of these
128. Under the Sarbanes-Oxley Act (SOX), management is responsible for, must assess, and certify
by signature which of the following:
a. The attestation standards, including quality control and independence standards of the
auditing firm performing contract internal work for the company.
30
b. The five members (only two of which can be CPAs) of the Public Company Accounting
Oversight Board (PCAOB) are certified in the Company=s headquarters.
c. The non-audit services of the auditing company were performed according to the
appropriate SARS.
d. Quarterly and annual financial reports, SEC forms, and period reports on systems of
internal control.
129. A member of the AICPA must:
a. Undertake only those professional services that the member of member=s firm can
reasonably expect to be completed with professional competence.
b. Exercise due professional care in the performance of professional services.
c. Adequately plan and supervise the performance of professional services.
130. The Sarbanes Oxley Act of 2002 provides for the reform of:
a. Corporate Governance
b. Accounting Profession
c. Both of the above
131. A practitioner who knows that the client has not complied with the revenue
Laws of the United States must:
a. Advise the client promptly of the fact of such non-compliance

b. Advise the client of the consequences of such non-compliance
c. Advise the IRS promptly
d. Advise the client promptly of the fact and the consequences of such non-
compliance
31
132. The term that refers to a set of values that, for the most part, is universally respected by
various stakeholders group is:
a. Due Diligence.
b. Morals.
c. Hypernorm.
d. Ethical framework.
133. The recent corporate accounting scandals have brought to light the void between what investors
think they are getting in audited financial statements and what they are actually getting in audited
financial statements. This is commonly referred to as:
a. The credibility gap.

b. The financial statement gap.
c.The accountability gap.
d. The expectations gap.
134. According to distributive justice theory, there are three main criteria for determining the just
distribution: Need, fairness, and merit
a. Need, arithmetic equality, and merit

b. Opportunity, fairness, and merit
c. Opportunity, fairness, and arithmetic equality
d. Need, arithmetic equality, and equivalence
32

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Possible Question Exam 1

3) The P in CPA stands for Public?

a. Directors’ legal liability

a. Corporate annual report

a. The accounting profession

10) Ethical corporate behaviour is expected to lead to:

a. Higher profitability in the short-term

11) A value that is almost universally respected by stakeholder groups is:

a. Net benefit to society, fair to all stakeholders, whether it is right

18) Effective crisis management could represent:

a. An opportunity to avoid costs

e. All of the above.

22) The Board of Directors’ paramount duty is:

a. To determine management’s compensation

a. Reducing accruals, increasing cash flow, and lowering debt

a. Risk Management Committee

25) Enron referred to this transactions as “monetizing” or “syndicating” its assets:

a. Buy more assets using syndicated loans

a. Record stock options only when and if exercised, at exercise price

a. Auditing their own work as SPE consultants

a. The audit committee must be comprised solely by independent directors

a. Increase the number of directors in the board

32) Ethical dilemmas arise when:

a. Norms and values are in conflict

33) Individuals may be ethical because of:

41) Minority rights may be violated under this approach:

45) This philosopher argued that self-interest leads to economic cooperation:

a) he charges a contingent fee for audit services

50) Which of the following is false?

a. A hypernorm is a value that is almost universally respected by stakeholder groups.

51. Which of the following is true for a publicly traded company?

a. Serve the public interest

b. Honor the public trust

c. Demonstrate commitment to professionalism

d. All of the above

e. None of the above

54. The expectations gap has been coined to describe:

56. Which of the following are not examples of stakeholders?

a. Five Questions Approach.

a. Identification of significant stakeholders.

a. Communicate clearly with the client the terms of the engagement.

69. Which of the following organizations licences CPAs:

d. All of the above.

e. None of the above.

c. Document the substance of the discussion in a uniform format

A. Sarbanes-Oxley Act of 2002

d. Consideration should give to individuals who have authority in the organization.

a. The credibility gap.

a. Advise the client promptly of the fact of such non-compliance

a. the period covered by any financial statements being audited

a. Bookkeeping services related to the client's financial records.

a. Resign right away.

a. Establish auditing and attestation standards.

a. Appoint and oversee outside auditors.

a. Whether it provides a net benefit to society.

e. None of the above.

90. A company’s comprehensive culture-building and risk reduction services include:

91. Congress enacted the in response to a spate of highly publicized business

94. Who may practice before the internal Revenue Services?

a. Scott Hungary is the CEO of Beast Inc.

A. Credibility, trustworthiness, reliability, and responsibility.

101 What of the following is not considered as stakeholders?

103. What is a positive way to maintain a quality relationship with a client?