UNIVERSITY OF SAN JOSE – RECOLETOS

COLLEGE OF COMMERCE – ACCOUNTANCY DEPARTMENT

AUDITING THEORY (ACCTG 401)

QUIZ 2: CODE OF ETHICS (SET A-D)

1. Close family include the following, except

a. Parent
b. Sibling
c. Non-dependent child
d. Spouse

2. Which of the following is the definition provided by the

Code of Ethics for Public interest?
a. A distinguishing mark of a profession is acceptance of
its responsibility to the public.
b. The accountancy profession’s public consists of
clients, credit grantors, governments, employers,
employees, investors, the business and financial
community, and others who rely on the objectivity and
integrity of professional accountants.
c. The collective well-being of the community of people
and institutions the professional accountant serves.
d. The standards of the accountancy profession are heavily
determined by the public interest.

3. Which of the following is the least required in attaining

professional competence?
a. High standard of general education.
b. Specific education, training and examination in
professionally relevant subjects.
c. Period of meaningful work experience.
d. Continuing awareness of development in the
accountancy profession.

4. Which of the following is incorrect regarding

confidentiality?
a. Professional accountants have an obligation to
respect the confidentiality of information about a
client’s or employer’s affairs acquired in the course
of professional services.
b. The duty of confidentiality ceases after the end of
the relationship between the professional accountant
and the client or employer.
c. Confidentiality should always be observed by a
professional accountant unless specific authority has
been given to disclose information or there is a
legal or professional duty to disclose.
d. Confidentiality requires that a professional
accountant acquiring information in the course of
 performing professional services neither uses nor
appear to use that information for personal advantage
or for the advantage of a third party.

5. A professional accountant has a professional duty or right

to disclose confidential information in each of the
following, except
a. To comply with technical standards and ethics
requirements.
b. To disclose to BIR fraudulent scheme committed by the
client on payment of income tax.
c. To comply with the quality review of a member body or
professional body.
d. To respond to an inquiry or investigation by a member
body or regulatory body.

6. For assurance engagements provided to an audit client, the

following should be independent of the client

a. b. c. d.
The members of the YES YES YES YES
assurance team
The firm YES YES NO NO
Network firm YES NO NO YES

7. The firm should be independent of the client in the

following engagements

a. b. c. d.
Assurance engagements YES YES YES YES
provided to an audit
Client
Assurance engagements YES YES NO NO
provided to clients that
are not audit clients,
when the report is not
expressly restricted for
use by identified users
Assurance engagements YES NO NO YES
provided to clients that
are not audit clients,
when the assurance report
is expressly restricted
for use by identified
users

8. When a member of the assurance team knows that his or her

close family member has a direct financial interest or a
material indirect financial interest in the assurance
client, a self-interest threat may be created. Safeguards
least likely include:
 a. The close family member disposing of all or a
sufficient portion of the financial interest at the
earliest practical date.
b. Discussing the matter with those charged with
governance, such as the audit committee.
c. Involving a professional accountant who took part in
the assurance engagement to review the work done by
the member of the assurance team with the close
family relationship or otherwise advise as necessary.
d. Removing the individual from the assurance
engagement.

9. Which of the relationships is most likely to impair a

CPA’s independence with respect to a particular audit
client on which the CPA works as the member of the
engagement of the team?
a. The CPA’s spouse participates in savings plan
sponsored client.
b. A close relative has a material investment in that
client of which the CPA is not aware.
c. A cousin has an immaterial investment in that client
of which the CPA is not aware.
d. The CPA’s father is the president of the audit
client.

10. A director, an officer or an employee of the assurance

client in a position to exert direct and significant
influence over the subject matter of the assurance
engagement has been a member of the assurance team or
partner of the firm. This situation least likely create.
a. Intimidation threat
b. Self-interest threat
c. Familiarity threat
d. Advocacy threat

11. Occurs when any product or judgement of a previous

assurance engagement or non-assurance engagement needs to
be re-evaluated in reaching conclusions on the assurance
engagement or when a member of the assurance team was
previously a director or officer of the assurance client,
was an employee in a position to exert direct and
significant influence over the subject matter of the
assurance engagement
a. self-interest threat
b. familiarity threat
c. advocacy threat
d. self-review threat

12. Firm includes the following, except

a. A sole practitioner professional accountant.
 b. An entity that controls a partnership of professional
accountants.
c. An entity controlled by a partnership of professional
accountants.
d. A sole practitioner, partnership or corporation of
professional accountants.

13. A former officer, director, or employee of the assurance

client serves as a member of the assurance team. The
situation will least likely create.
a. Familiarity threat
b. Self-interest threat
c. Intimidation threat
d. Self-review threat

14. The provision of accounting and bookkeeping services of a

routine or mechanical nature to divisions or subsidiaries
of listed audit clients would not be seen as impairing
independence with respect to the audit client provided,
except
a. the fees to the firm, or network firm, form such
services are collectively significant
b. the services do not involve the exercise of
judgement.
c. the services provided are collectively immaterial to
the division or the subsidiary
d. the divisions or subsidiaries for which the service
is provided are collectively immaterial to the audit
client.

15. When a CPA in business is pressured to become associated

with misleading information or to become associated with
misleading information through the actions of others what
kinds of threats might arise?
a. self-interest and intimidation threats
b. familiarity and self-review threats
c. self-review threats and advocacy threats
d. self-interest and self-review threats

16. Which statement is incorrect regarding long association of

senior personnel with audit clients that are listed
entities?
a. using the same lead engagement partner on an audit
over a prolonged period may create a familiarity
threat.
b. when audit client becomes a listed entity the length
of time the lead engagement partner has served the
audit client in that capacity should, be considered
in determining when the partner should be rotated.
 c. the lead engagement partner should be rotated after a
predefined period, normally no more than six years
d. a partner rotating after a pre-defined period should
not participate in the audit until a further period
of time, normally two years, has elapsed.

17. Examples of circumstances that may create familiarity

threat least likely include
a. a former partner of the firm being a director,
officer of the assurance client or an employee in a
position to exert direct and significant influence
over the subject matter of the assurance engagement.
b. a member of the assurance team having an immediate
family member or close family member who, as an
employee of the assurance influence over the subject
matter of the assurance engagement
c. A member of the assurance team having an immediate
family member or close family member who is a
director or officer of the assurance client.
d. dealing in, or being a promoter, shares or other
securities in an assurance client

18. Occurs when a firm, or a member of the assurance team,

promotes, or may be perceived to promote, an assurance
client’s position or opinion to the point that objectivity
may or may be perceived to be, compromised. Such may be
the case if a firm or a member of the assurance team were
subordinate their judgement to that of the client.
a. self-review threat
b. self-interest threat
c. advocacy threat
d. familiarity threat

19. The revised Code of the Ethics is mandatory for all CPAs
and is applicable to professional services performed in
the Philippines on or
a. before June 30, 2008
b. before January 1, 2008
c. after January 1, 2008
d. after June 30, 2008

20. The underlying reason for a code of professional conduct

for any profession is
a. that is required by the congress
b. that it follows professional regulation commission to
have a yardstick to measure deficient profession
c. that it provides safeguard to keep unscrupulous
people out
d. the need for the public confidence in the quality of
services of the profession
21. Which of the following best describes the passing of the
confidential information from a client to its auditor? The
information
a. should be conveyed to public if it affects the
“correctness’ of the financial statement
b. can only be released for peer reviews after receiving
permission from the client
c. should be in no circumstances be conveyed to third
parties
d. is not legally protected and can be subpoenaed by a
competent court

22. Which of the following is not likely a threat to

independence?
a. owning immaterial indirect financial interest in
audit client
b. threat of replacement over a disagreement with the
application of an accounting principle
c. long association of a senior member of the assurance
team with the assurance client
d. acting as an advocate on behalf of an assurance
client in litigation or in resolving disputes with
third parties

23. The work of each assistant needs to be reviewed by

personnel of at least equal competence. Which of the
following is not the objectives of this requirement?
a. the worked performed and the results obtained have
been adequately documented
b. all available evidences have been obtained, evaluated
and documented
c. the work conclusions expressed are consistent with
the result of the work performed and support the
opinion
d. the objectives of the audit procedures have bene
achieved

24. In the performance of an audit, SRV, CPA, discovers that

the professional competence necessary for the engagement
is lacking. SRV, CPA informs management of the situation
and recommends DBC, CPA, and management engages DBC, CPA.
Under these circumstances
a. SRV, CPA may request compensation from DBC, CPA for
other professional services rendered to it connection
with the engagement
b. SRV, CPA may accept referral fee from the DBC, CPA
c. SRV, CPA has violated the Code od Professional
Conduct because of non-fulfillment of the duty
performance
 d. SRV, CPA’s lack of competence should be construed to
be violation of generally accepted auditing standards

25. Family and personal relationships between a member of the

assurance team and a director, an officer or certain
employees, depending on their role, of the assurance
client, least likely create
a. Intimidation threat
b. Self-review threat
c. Familiarity threat
d. Self-interest threat

26. The confidential relationship will be violated if, without

client’s permission, the CPA provides working papers about
client to
a. an investigative or disciplinary body which is
conducting a review of the CPA’s practice
b. a court law which subpoenas them
c. another CPA firm as a part of a peer review
d. another CPA firm which has just purchased the CPA’s
entire practice

27. The confidential relationship applies to

a. audit and tax services, but not MAS services
b. only audit and attestation services
c. audit and MAS services but not tax services
d. all services provided by CPAs

28. Which of the following is incorrect regarding professional

competence?
a. Professional accountants may portray themselves as
having expertise or experience they do not possess.
b. Professional competence may be divided into two
separate phases.
c. The attainment of professional competence requires
initially a high standard of general Education
d. The maintenance of professional competence requires a
continuing awareness of development in the
accountancy profession

29. Which of the following principles is compromised when a

professional accountant is associated with reports or
returns that are significantly misleading?
a. Integrity
b. Objectivity
c. Competence and due care
d. Professional behavior

30. If the valuation services involve the valuation of matters

material to the financial statements and the valuation
 involves a significant degree of subjectivity, the self-
review threat created (choose the incorrect one)
a. Could not be reduced to an acceptable level by the
application of any safeguard.
b. Could be reduced to an acceptable level by the
application of safeguards.
c. Such valuation services should not be provided.
d. The assurance team should withdraw from the audit
engagement, if the team opted to perform the valuation
services.

31. Which of the following is least likely considered to create

a threat to independence?
a. The provision of services by a firm or network firm to
an audit client which involve either the design or the
implementation of financial information technology
systems that are used to generate information forming
part of a client’s financial statements.
b. The provision of services in connection with the
assessment, design and implementation of internal
accounting controls and risk management controls.
c. The lending of staff by a firm, or network firm, to an
audit client when the individual is in a position to
influence the preparation of a client’s accounts or
financial statements.
d. The provision of litigation support services to an
audit client, which include the estimation of the
possible outcome and thereby affects the amounts or
disclosures to be reflected in the financial
statements.

32. Fees calculated on a predetermined basis relating to the

outcome or result of a transaction or the result of the work
performed.
a. Contingent fees
b. Retainer fees
c. Flat sum fees
d. Per diem fees

33. Which of the following fee arrangements would violate the

Code of Professional Conduct?
a. A fee based on the complexity of the engagement
b. A per hour fee that includes out-of-pocket expenses.
c. A fee based on the outcome of a bankruptcy proceeding.
d. A fee based on the approval of a bank loan.

34. Which statement is incorrect regarding clients’ monies?

a. The professional accountants in public practice should
not hold client’s; monies if there is reason to believe
 that they were obtained from, or are to be used for,
illegal activities.
b. A professional accountant in public practice should
maintain one or more bank accounts for clients’ monies.
c. Fees due from a client may be drawn from client’s
monies without the need of notifying the client.
d. Monies may only be drawn from the client account on the
instructions of the client.

35. Assurance engagement include the following, except

a. An engagement conducted to provide a high level of
assurance that the subject matter conforms in all
material respects with identified suitable criteria.
b. An engagement conducted to provide a moderate level of
assurance that the subject matter is plausible in the
circumstances.
c. An engagement in accordance with the Philippine
Standard on Assurance Engagement(s) issued by the
Philippine Auditing Standards and Practices Council as
approved by the Board of Accountancy/Professional
Regulation Commission.
d. An engagement to perform agreed-upon procedures.