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CH 4 Independence Questions

The document discusses the definition of independence in auditing. It provides multiple choice questions that test understanding of independence rules. Independence means not being financially dependent on a client. The Sarbanes-Oxley Act prohibits a CPA firm from doing both bookkeeping and auditing services for the same public company client. Independence is required for audits of financial statements and all attestation services. Some conditions allow CPAs to provide bookkeeping services to private company audit clients while maintaining independence. Examples of indirect financial interests in a client include ownership of client stock by a covered member's spouse or a mutual fund with client investments. Two scenarios presented could violate independence rules based on financial interests or unpaid fees creating dependence.

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Hayam Amr
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35 views

CH 4 Independence Questions

The document discusses the definition of independence in auditing. It provides multiple choice questions that test understanding of independence rules. Independence means not being financially dependent on a client. The Sarbanes-Oxley Act prohibits a CPA firm from doing both bookkeeping and auditing services for the same public company client. Independence is required for audits of financial statements and all attestation services. Some conditions allow CPAs to provide bookkeeping services to private company audit clients while maintaining independence. Examples of indirect financial interests in a client include ownership of client stock by a covered member's spouse or a mutual fund with client investments. Two scenarios presented could violate independence rules based on financial interests or unpaid fees creating dependence.

Uploaded by

Hayam Amr
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Ch 4 Independence Questions

1- Briefly discuss the definition of independence rule.

MCQ:

1) "Independence" in auditing means

A) maintaining an indirect financial interest.

B) not being financially dependent on a client.

C) taking an unbiased viewpoint.

D) being an advocate for a client.

2) The Sarbanes-Oxley Act ________ a CPA firm from doing bothbookkeeping and auditing services for
the same public company client.

A) encourages

B) prohibits

C) allows

D) allows on a case-by-case basis

3) For which of the following professional services must CPAs beindependent?

A) management advisory services

B) audits of financial statements

C) preparation of tax returns

D) all of the above


4) Independence is required of a CPA when performing

A) management advisory services.

B) all attestation services.

C) all attestation and tax services.

D) all professional services.

5) CPAs may provide bookkeeping services to their private company audit clients, but there are a number
of conditions that must be met if the auditor is to maintain independence. Which of the following
conditions is not necessary?

A) The CPA must not assume a management role or function.

B) The client must hire an external CPA to approve all the journal entries prepared by the auditor.

C) The auditor must comply with GAAS when auditing work prepared by his/her firm.

D) The client must accept responsibility for the financial statements.

6) An example of an "indirect financial interest in a client" would be

A) ownership of less than 10% of the client's stock by the covered

members spouse.

B) an ownership of less than 10% of the client's stock by a staff member who is not involved in the audit.

C) the covered member's ownership of a mutual fund that has an investment in the client.

D) All of the above are examples of an indirect financial interest in a client.


7) Each of the following situations involves a possible violation of the rule on independence. For each
situation, (1) decide whether the Code of Professional Conduct has been violated, and (2) briefly explain
how the situation violates (or does not violate) the Code of Professional Conduct.

a. John Woods is an audit manager with Calden & Co., CPAs, a one office CPA firm. John owns 100 shares
of common stock in one of the firm's audit clients, but he does not provide any audit or non-audit

services to the company.

b. Hamilton Appliance has not paid Karen Linwood, CPA, her audit fee for the past two years. Karen is
starting work on the current year's audit of Hamilton.

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