1. A: Incorrect. A CPA must be independent to perform certain compilation reports. If independence is impaired, the CPA must disclose the lack of independence.
B: Incorrect. A CPA must be independent to perform an audit or review.
C: Incorrect. A CPA must be independent to perform any attest engagement.
D: Correct. A CPA must be independent when performing any attest engagement including all of the above engagements as well as compilations if the lack of independence is not disclosed.
(See Rule WAC 4-30-042 in the course material.)
2. A: Incorrect. Contingent fees are allowed in certain circumstances with non-attest clients.
B: Correct. Assuming a contingent fee agreement meets all the other requirements, it must be in writing and include the method of calculating the fee.
C: Incorrect. A public practice CPA may accept contingent fees from non-attest clients in certain circumstances.
D: Incorrect. A CPA may charge a contingent fee for representing a client during an IRS audit of the client’s tax return.
(See Rule WAC 4-30-044 in the course material.)
3. A: Correct. Prior to being released, the completed tax return is considered to be part of the CPA’s workpapers and is the property of the CPA. Accordingly, the tax return need not be released to the client. The CPA may set the terms for releasing the tax return. Such terms may include receiving payment for some or all fees.
B: Incorrect. Prior to being released, the completed tax return is considered to be part of the CPA’s workpapers and is the property of the CPA. Accordingly, the tax return need not be released to the client. The CPA may set the terms for releasing the tax return. Such terms may include receiving payment for some or all fees. The client has no right to pay only a portion of the fees and demand release of the tax return.
C: Incorrect. Prior to being released, the completed tax return is considered to be part of the CPA’s workpapers and is the property of the CPA. Accordingly, the tax return need not be released to the client. The CPA may set the terms for releasing the tax return. Such terms may include receiving payment for some or all fees. The
D: Incorrect. Both the Board of Accountancy and the AICPA have extensive rules relating to CPA workpapers and the return of client records. In fact, failure to return client records is one of the most common complaints received by the Board of Accountancy.
(See WAC 4-30-051 in the course material.)
4. A: Incorrect. WAC 4-30-051 requires the return of all client records upon request.
B: Incorrect. WAC 4-30-051 requires the return of all client records upon request. In addition, the permit holder must provide a copy of the working papers to the extent that such working papers include records that would ordinarily constitute part of the client’s records and are not otherwise available to the client.
C: Correct. WAC 4-30-051 requires the return of all client records upon request. In addition, the permit holder must provide a copy of the working papers to the extent that such working papers include records that would ordinarily constitute part of the client’s records and are not otherwise available to the client. The depreciation records are part of Doe’s workpapers but are also considered part of the client’s records and must be made available to the client.
D: Incorrect. WAC 4-30-051 requires the return of all client records upon request. In addition, the permit holder must provide a copy of the working papers to the extent that such working papers include records that would ordinarily constitute part of the client’s records and are not otherwise available to the client. The depreciation records are part of Doe’s workpapers but are also considered part of the client’s records and must be made available to the client. Doe has no obligation to provide access to any workpapers that are not considered client records.
(See WAC 4-30-051 in the course material.)
5. A: Incorrect. The prior year tax return has already been issued and therefore must be provided upon request. Doe may require payment of a reasonable charge for copying the return but may not hold the return hostage pending payment of other outstanding fees. The current year depreciation is considered to be part of Doe’s work product and is the property of Doe. Since the current year tax return was never provided to Plumber, the depreciation records are not considered client records and Doe need not release them.
B: Correct. The prior year tax return has already been issued and therefore must be provided upon request. Doe may require payment of a reasonable charge for copying the return but may not hold the return hostage pending payment of other outstanding fees. The current year depreciation schedule is considered to be part of Doe’s work product and is the property of Doe. Since the current year tax return was never provided to Plumber, the depreciation records are not considered client records and Doe need not release them.
C: Incorrect. The current year depreciation is considered to be part of Doe’s work product and is the property of Doe. Since the current year tax return was never provided to Plumber, the depreciation records are not considered client records and Doe need not release them. The prior year tax return has already been issued and therefore must be provided upon request. Doe may require payment of a reasonable charge for copying the return but may not hold the return hostage pending payment of other outstanding fees.
D: Incorrect. The prior year tax return has already been issued and therefore must be provided upon request. Doe may require payment of a reasonable charge for copying the return but may not hold the return hostage pending payment of other outstanding fees. The current year depreciation schedule is considered to be part of Doe’s work product and is the property of Doe. Since the current year tax return was never provided to Plumber, the depreciation records are not considered client records and Doe need not release them.
(See WAC 4-30-051 in the course material.)
6. A: Incorrect. WAC 4-30-051(3) specifically includes electronic documents.
B: Incorrect. The CPA is not required to recreate client documents that the CPA no longer has.
C: Correct. WAC 4-30-051(4) states in part, “Licensees, CPA-Inactive certificateholders, and nonlicensee firm owners must not refuse to return records, including electronic documents.”
D: Incorrect. If the original CD or DVD is available, it must be returned. If the original CD or DVD is not available, but the information is available, the information must be copied and provided to the client.
(See WAC 4-30-051(3) and (4) in the course material.)
7. A: Incorrect. Problems like this do occur, but they are not unavoidable. A good engagement letter would have specified when payment was due and otherwise specified the expectations and obligations of both CPA and client. Also, good communication goes a long way in avoiding problems.
B: Incorrect. Although this is true, it is not the best answer. A good engagement letter would have specified when payment was due and otherwise specified the expectations and obligations of both the CPA and client. The fact that Doe’s practice is limited to preparing tax returns is not an excuse for not using an engagement letter. Although sending out a separate engagement letter might seem awkward, Doe could incorporate it into the annual client organizer that Doe sends out to clients.
C: Incorrect. Although this is true, it is not the best answer. Good communication goes a long way in avoiding problems. Plumber could have disclosed additional facts, such as the fact that he has a gambling problem and this has left him broke but
D: Correct. Using an engagement letter along with effective communication could have avoided this problem. A good engagement letter would have specified when payment was due and otherwise specified the expectations and obligations of both CPA and client. By communicating information, such as that a gambling problem had left him broke but that he no longer gambles and hopes to begin making payments to Doe, Plumber could have avoided this mess. Likewise, if Doe had communicated his displeasure in not receiving payment from Plumber instead of holding the tax return hostage, Doe might have avoided this mess, helped a client, collected some of the past due debt, and saved valuable billable hours.
(See WAC 4-30-051 in the course material.)
8. A: Incorrect. 5 days is too short a period to expect compliance.
B: Incorrect. You must notify the Board within 30 days of your move.
C: Incorrect. You must notify the Board within 30 days of your move.
D: Correct. You must notify the Board in writing within 30 days of your move.
(See Rule WAC 4-30-032 in the course material.)
9. A: Incorrect. 5 days is too short a period to expect compliance.
B: Incorrect. You must respond within 20 days.
C: Correct. You have 20 days to respond. The requirement to respond also applies to other Board inquiries, such as QAR status letters.
D: Incorrect. You must respond in a timelier manner.
(See WAC 4-30-034 in the course material.)
10. A: Correct. Board rules clearly state that licensees must not refuse to return client records, including electronic documents, pending client payment of outstanding fees.
B: Incorrect. Although commission issues are routinely brought to the Board’s attention, it was not among the specifically identified enforcement issues.
C: Incorrect. Although issues relating to licensees failing to adequately supervise assistants are often reported to the Board, it was not among the specifically identified enforcement issues.
D: Incorrect. CPA candidates choosing to delay applying for their CPA certificate is not an enforcement issue.
11. A: Incorrect. Sole proprietors using the CPA title must get a firm license.
B: Incorrect. Changes in firm structure must be submitted to the Board.
C: Incorrect. A CPA license is required in order to use the CPA title.
D: Correct. All of the above issues have been noted as enforcement items by the Board.
(See the Enforcement Issues section near the end of the course material.)