1.A client company has not paid its 2004 audit fees. According to the AICPA Code of Professional Conduct, for the auditor to be considered independent with respect to the 2005 audit, the 2004 audit fees must be paid before thea.2004 report is issued.b.2005 fieldwork is started.c.2005 report is issued.d.2006 fieldwork is started.2.Inclusion of which of the following in a promotional brochure published by a public accounting firm would be most likely to result in a violation of the AICPA rules of conduct?a.Reprints of newspaper articles that praise the firm’s expertise.b.Services offered and fees for such services, including hourly rates and fixed fees.c.Educational and professional attainments of partners.d.Testimonials and endorsements.3.In which of the following instances would the independence of the CPA not be considered to be impaired? The CPA has been retained as the auditor of a brokerage firma.Which owes the CPA audit fees for more than one year.b.In which the CPA has a large active margin account.c.In which the CPA’s brother is the controller.d.Which owes the CPA audit fees for services in the current year and has just filed a petition for bankruptcy.4.According to the AICPA rules of conduct, the auditor’s responsibility to the profession is defined bya.The AICPA Code of Professional Conduct.b.Federal laws governing licensed professionals who are involved in interstate commerce.c.Statements on Auditing Standards.d.The Bylaws of the AICPA.5.Which of the following fee arrangements is in violation of the AICPA Code of Professional Conduct?a.A fee based on whether the CPA’s report on the client’s financial statements results in the approval of a bank loan.b.A fee based on the outcome of a bankruptcy proceeding.c.A fee based on the nature of the service rendered and the CPA’s particular expertise instead of the actual time spent on the engagement.d.A fee based on the fee charged by the prior auditor.6.Which of the following is required for a firm’s letterhead to include “Member of the American Institute of Certified Public Accountants?”a.At least one of the partners must be a member.b.The partners whose names appear in the firm name must be members.c.All partners must be members.d.The firm must be a dues paying member.7.The management of a client company believes that the statement of cash flow is not a useful document and refuses to include one in the annual report to stockholders. As a result, the auditor’s opinion should bea.Qualified due to inadequate disclosure.b.Qualified due to a scope limitation.c.Adverse.d.Unqualified.8.If the auditor believes there is minimal likelihood that resolution of an uncertainty will have a material effect on the financial statements, the auditor would issue a(n)a.Qualified opinion.b.Adverse opinion.c.Unqualified opinion.d.Disclaimer of opinion.9.The Sarbanes-Oxley Act requires the CEO and CFO to certify thata.They have evaluated the effectiveness of internal control.b.They have evaluated the monthly financial statements.c.They have communicated with the Audit Committee regarding the annual financial statements.d.There is no fraud in the financial statements.10.Which of the following constitutes fraud?a.Mistakes in the application of accounting principles.b.Clerical mistakes in the accounting data underlying the financial statements.c.Misappropriation of assets.d.Misinterpretations of facts that existed when the financial statements were prepared.11.Richard, CPA, performs accounting services for Norton Corporation. Norton wishes to offer shares to the public and asks Richard to audit the financial statements. Richard refers Norton to Cruz, CPA, who is more competent in the area of registration statements. Cruz performs the audit of Norton’s financial statements and subsequently thanks Richard for the referral by giving Richard a portion of the audit fee. Richard accepts the fee. Who, if anyone, has violated professional ethics?a.Only Richard.b.Both Richard and Cruz.c.Only Cruz.d.Neither Richard nor Cruz.12.Inclusion of which of the following statements in a CPA’s advertisement is not acceptable under the AICPA Code of Professional Conduct?a.Paula FallCertified Public AccountantFluency in Spanish and Frenchb.Paula FallCertified Public AccountantTax Specialistc.Paula FallCertified Public AccountantFree Consultationd.Paula FallCertified Public AccountantEndorsed by the AICPA13. Joint-and-several liability is a.The ability of the defendant to recover all damages from the auditor alone, even though the opinion only contributed partially to the loss.b.Liability under both common and statutory law.c.Liability under both the Securities Acts of 1933 and 1934.d.The ability of the defendant to recover the auditor’s proportionate share of the loss.Problems (Questions #14-20):14.Based upon the information given, determine which type of audit report will be issued for each of the following companies:a) Company A – a highly material “Departure from GAAP”b) Company B – a highly material “Lack of Independence”c) Company C – a material “Scope Limitation”d) Company D – a material “Opinion based partly on another auditor’s work”e) Company E – a material “Going Concern”f) Company F – an immaterial “Inconsistency that Management Can Justify”15.An auditor accepts a gift item worth several hundred dollars from a client. Has the appearance of independence of that CPA, or that CPA’s firm, been impaired?16.Many finance professionals feel that the U.S. Foreign Corrupt Practices Act places U.S. companies at a disadvantage in competing in foreign countries. Why do they think so?17.What is the economic value of a financial statement audit?18.You are an experienced auditor. During a routine financial statement audit, you discover that one of your fellow auditors has started to date (become romantically involved with) the head of the client’s accounting department. How would you handle this situation?19.Please identify at least five (5) weaknesses in the following scenario:An agent for a large insurance company has a small office in a rural town. There are only two employees in the office: the agent and his secretary.The agent spends all of his time in meeting with customers and selling insurance products to them. The secretary processes all of the paperwork connected with the insurance policies, including processing the collection of premiums and the paying out of claims.The agent feels that he is a “big man” and that his time is very valuable, and that he should not bother himself with “clerical work,” so he does not supervise the secretary’s work, nor does he look at the accounting records, cash documents or bank statements. Besides, he trusts the secretary as she is very hard-working; in fact, she has never missed a day of work in five years and does not even take her annual leave.The agent works for a large insurance company; however, because the number of policies and customers handled by the office is relatively small, the insurance company’s internal audit office has not bothered to audit the office’s records/cash for several years; the external auditors have also never visited the office.20.The article “Woman Sentenced To 33-Month Term” appeared in the Hartford Courant on Friday, April 30, 2010 and may be found on the next page at the end of this exam. Please read this article and answer the following questions:a. In order for fraud to occur, two elements must be present. Please state the two elements, then make reference to the text in the article that supports/describes each element.b. During class, I discussed several important characteristics (different from the two elements of 20.a.) that appear in many fraud cases. Please describe at least two of these characteristics that are described in the article.