11-Squon, a CPA member, is the CFO at Scrabble Inc., a public company. Squon suspects that a fraud may have occurred. Which of the following actions is appropriate in this situation:

Before pursuing a course of action, the member should consider consulting with appropriate persons within the organization that employs the member.

Do nothing and wait for the fraud to be exposed

Immediately report the situation to the press

Immediately report the situation to the Securities and Exchange Commission

12- Section 302 of the Sarbanes-Oxley Act requires that management: 

Disclose all executive compensation

Blow the whistle on corporate wrongdoing

Assess the company’s internal controls

Certify the financial statements

13- Auditors need to be attuned to the red flags that fraud may exist because:

Materiality judgments are based on red flags identifying possible materialmisstatements

Overly-aggressive accounting and outright manipulation of earnings may exist

Audit opinions must be withdrawn when red flags indicate fraud may exist

All the listed options

14- Kim and Lee performed an audit required for Holligan Industries to extend a loan with Second National Bank & Trust. Kim and Lee may be liable for:

Gross negligence to the bank that loaned money to Holligan because the firm did not discover improper accounting for receivables and inventory

Second National Bank & Trust declining to extend the loan

Holligan declaring bankruptcy without a going-concern emphasis of matter

Ordinary negligence to the bank that loaned money to Holligan because the firm did not discover improper accounting for revenue and assets

15- Which of the following is not considered a behavioral indicator of fraud? 

An unwillingness to share duties

Refusal to take vacations

Satisfaction with pay

Financial difficulties

16- Auditors need to be attuned to the red flags that fraud may exist because:

Overly-aggressive accounting and outright manipulation of earnings may exist

Audit opinions must be withdrawn when red flags indicate fraud may exist

All of the above

Materiality judgments are based on red flags identifying possible material misstatements

17- Under the conceptual framework approach, many threats fall into one or more of seven broad categories. Those categories include which of the following:

Nuclear threat

Malpractice threat

Familiarity threat

Legal threat

18- Ethics rules in the AICPA Code apply to:

Individual CPAs who are licensed by state boards of accountancy only

Individual CPAs who are licensed by state boards of accountancy, licensedaccounting firms, and certain members of alternative practice structures

Individual CPAs who are licensed by state boards of accountancy and accounting firms

Licensed accounting firms and certain members of alternative practice structures

19- “Cookie jar reserves” can best be described as: 

Delaying the recording of expenses to a later year to boost income in the current year

Buying a lot of chocolate chip cookies, storing them for when you have a hungerattack, and then releasing them into your stomach

Overstating or understating allowances and reversing amounts in the future tosmooth out net income over time

Accelerating the recording of revenues into an earlier year than is warranted

20- An ethical climate is enhanced by all of the following except:

Openness and transparency

Supportive environment

Fear of retaliation

A values driven organization

21- According to the Sarbanes-Oxley Act, which of the following non-audit services would impair an auditor’s independence if provided to a publicly traded audit client at any point during the audit and professional engagement period?

Provide any service or product to an audit client for a contingent fee or a commission

All of the above would impair independence

Seeking out prospective candidates for managerial, executive, or director positions

Supervising the operation of the audit client’s information system or managing the audit client’s local area network

22- Juda, a CPA member, is the CFO at Solimo Industries and he directly supervises the work of Duarte, the controller. Duarte has been working with Juda for eight years and has always produced outstanding deliverables. The CEO has given Juda a major project and Juda has been working almost nonstop on the project for the last three months. In that time, Juda has not had any ability to review the financial statements prepared by Duarte and has just given them straight to management and the Board of Directors. Which of the following threats to compliance is illustrated by this situation?

Familiarity threat

Self-interest threat

Self-review threat

Friendship threat

23- A common requirement/effect of the commissions and contingent fees rule is:

A CPA who accepts such a payment always violates independence

The CPA must not turn over any working papers that might constitute clientbooks and records

A CPA is prohibited from accepting such a form of payment when engaged in attest services for a client

The CPA must disclose the acceptance of such a payment to the firm

24- Independence, per the Code of Professional Conduct, encompasses all of the following except:

Independence in fact

Independence of spirit

Independence of mind

Independence in appearance

25- Safeguards implemented by the attest client include each of the following except:

The tone at the top set by executive management

Policies and procedures to address ethical conduct

Management participation in the client by the attest firm

Proper oversight by client management