MIDTERM ETHICS 543 Spring
Saturdays, ULV.
This midterm is being issued on May 9th; it is due on May 23rd, by 9 pm. It is open book, open note, open internet. Do not discuss it with each other.
Suggestion: LOOK FOR THE RULE THAT APPLIES, AND READ IT SLOWLY. It is likely that the answer to each of these questions is found within the rule, once identified. Read through it, scroll slowly, and see if the rule/interpretation can be applied to answer the questions in order/sequence. Assume all CPAs are members of the AICPA, please.
Part 1 fact pattern:
Vanessica is a CPA in public practice. Bob is a client of Vanessica’s, she does Bob’s bookkeeping, and Bob asks her for some advice in investing some extra cash. Vanessica remembers her spouse, Chris, just bought stock in Company Blue, and Chris does some pretty intense research and usually shows major profit through stocks. Vanessica tells Bob, “Invest in Company Blue.”
Question 1 (2 pts): what defined term best describes Chris?
(A) Client
(B) Member
(C) Immediate Family Member
(D) None of the above.
Question 2 (2 pts): There is a specific rule that has likely been violated, or that Vanessica needs to be able to demonstrate she did not violate here. Please provide the citation for the rule that most closely applies here. PLEASE NOTE: A WRONG ANSWER AT THIS STAGE WILL LIKELY RESULT IN A WRONG ANSWRE FOR THE REMAINDER OF PART 1. DO YOUR BEST TO GET THIS RIGHT. An example of the format for the answer: “2.400.010 Discrimination and Harassment in Employment Practices.” (It’s not that one.)
Question 3 (4 pts). Now that Vanessica has identified the rule at issue, what step does this rule require she take? Please take this step with Vanessica—what is your determination here in taking this step?
Question 4 (2 pts). Assume Vanessica is not OK with her risk that maybe she’s violated the rule at issue here. Assume a simple disclosure of certain facts would be enough to bring her into compliance with the rule. What can Vanessica disclose, to whom, as a way to maybe reduce her risk of violating an ethics rule?
Question 5 (2 pts) Name any other safeguard, besides disclosure, that Vanessica could use here to reduce her risk of violating the rule at issue.
Question 6 (4 pts). List any 2 defined terms, other than the defined term named in question 1, that describe any fact in the fact pattern for Part 1. There are more than 2 defined terms; this is meant to help bolster your grade.
Part 2 Fact Pattern: Vanessica is a CPA, working for Best Pracitces CPA Firm. Vanessica’s mom, Kimber, owns 20% of a local company. That company is Vanessica’s client through Best Practices CPA Firm; Vanessica performs bookkeeping for that client. Vanessica has borrowed extensive amounts of money from Kimber. Kimber tells her daughter, “As I love you, I will forgive the loan you owe me. I don’t expect anything from this; I’m doing it not in exchange for anything of equal value. I’m doing it just to help you out.” Vanessica is concerned she may have just violated some rule.
Question 7: (4 pts) Please identify the rule that most directly applies to this situation. PLEASE BE CAREFUL; YOU MAY NEED TO BE CREATIVE WITH THE TERMS YOU LOOK FOR HERE. Please give the citation of the rule or the interpretation that addresses this fact pattern.
Question 8 (2 pts) Please name 1 of the 3 most applicable threats that this rule/interpretation states may apply here.
Question 9 (4 pts). In order to determine whether Vanessica has violated a rule or not, Vanessica must check which 2 entities’ policies, rules, and regulations?
Question 10 (4 pts). Vanessica looks at both entities’ policies, rules and regulations, and finds that she is, in fact, in violation of those policies; at least one entity has a policy that pretty explicitly says “No, you can’t do this.” Vanessica did not know of that policy when her mother forgave her loan. What defense does Vanessica have at this point? Can you think of anything that Vanessica can do, with Kimber’s help, to maybe get back into compliance?
Question 11 (2 pts): Name any defined term in the fact pattern that was not named in Part 1’s questions. There’s at least 2. One of them is even used in the fact pattern.
Part 3: Question 12 (15 pts). When looking for threats to compliance with the rules, what are the steps a Member should take? (There are at least 5 steps—each step will be worth 3 pts.)
Part 4: 2 pts each.
Question 13: Part 1 of the AICPA code applies to which members?
Question 14: The preface of the code (0.XXX.XXX) applies to which members?
Question 15: A member should be independent not only in fact, but also in _____ when providing auditing and other attestation services?
Question 16: A member exercising sensitive professional and moral judgments in all their activities is an example of which principle?
Question 17: Rule 1.200.XXX, the independence rule, applies in to which types of engagements?
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