Review Questions

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1.   
24. Occurs when, by virtue of a close relationship with an assurance client, its directors, officers
or employees, a firm or a member of the assurance team becomes too sympathetic to the client's
interests.
A. Self-interest threat
B. Self-review threat
C. Advocacy threat
D. Familiarity threat
2.   
2. Close family includes the following, except:
A. Parent
B. Non-dependent child
C. Sibling
D. Spouse
3.   
27. The following self-interest threat created would be so significant no safeguard could reduce
the threat to an acceptable level, except
A. If a firm, or a network firm, has a direct financial interest in an audit client of the firm.
B. If a firm, or a network firm, has a material indirect financial interest in an audit client of the
firm.
C. If a firm, or a network firm, has a material financial interest in an entity that has a controlling
interest in an audit client.
D. If the retirement benefit plan of a firm, or network firm, has a financial interest in an audit
client
4.   
19. Which of the following is incorrect regarding integrity and objectivity?
A. Integrity implies not merely honesty but fair dealing and truthfulness.
B. The principle of objectivity imposes the obligation on all professional accountants to be fair,
intellectually honest and free of conflicts of interest.
C. Professional accountants serve in many different capacities and should demonstrate their
objectivity in varying circumstances.
D. Professional accountants should neither accept nor offer any gifts or entertainment
5.   
39. When the safeguards available are insufficient to eliminate the threats to independence or to
reduce them to an acceptable level, or when a firm chooses not to eliminate the activities or
interest creating the threat, the only course of action available will be the
A. Issuance of an adverse opinion.
B. Issuance of qualified opinion or disclaimer of opinion.
C. Issuance of unqualified opinion with explanatory paragraph.
D. Refusal to perform, or withdrawal from, the assurance engagement.
6.   
31. Which of the following safeguards is inappropriate if a firm has a material financial interest
in an entity that has a controlling interest in a financial statement audit client?
A. Discuss the presence of self-interest threat with the client's board of directors.
B. Dispose of the financial interest in total.
C. Dispose of a sufficient amount of the financial Interest.
D. Either dispose of a sufficient amount of the financial interest of the financial interest in total.
7.   
20. If a professional accountant is billing an audit client a number of hours greater than those
actually worked, which of the following fundamental principles is likely violated?
Confidentiality
Integrity
Professional
Objectivity
8.   
15 Which of the following is an example of engagement-specific safeguards?
A. Advising partners and professional staff of those assurance clients and related entities from
which they must be independent.
B. Consulting an independent third party, such as a committee of independent directors, a
professional regulatory body or another professional accountant.
C. Policies and procedures that will enable the identification of interests or relationships between
the firm or members of engagement tears and clients.
D. External review by a legally empowered third party of the reports, returns, communications or
information produced by a professional accountant.
9.   
9. Which statement is incorrect regarding the Code of Ethics for Professional Accountants in the
Philippines?
A. Professional accountants refer to persons who are registered in the PRC as Certified Public
Accountants (CPA) and who hold a valid certificate issued by the Board of Accountancy.
B. Where a national statutory requirement is in conflict with a provision of the IFAC Code, the
IFAC Code requirement prevails.
C. The Code of Ethics for Professional Accountants in the Philippines is mandatory for all CPAS
and is applicable to professional services performed in the Philippines on or after June 30, 2008.
D. Professional accountants should consider the ethical requirements as the basic principles
which they should follow in performing their work.
10.   
13 intimidation threat
A. is not a threat to independence.
B. occurs when a member of the assurance team may be deterred from acting objectively and
exercising professional skepticism by threats, actual or perceived, from the directors, officers or
employees of an assurance client.
C. occurs when, by virtue of a close relationship with an assurance client, its directors, officers or
employees, a firm or a member of the assurance team becomes too sympathetic to the client's
interests.
D. 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.
11.   
33. A professional accountant has been the partner-in-charge of a particular audit client for the
past eight years. This situation could result to the following threat to professional independence:
A. Self-review
B. Advocacy
C. Intimidation
D. Familiarity
12.   
11. Which of the following appropriately describes an advocacy threat?
A. The professional accountant may be deterred from acting objectively by threats, actual or
perceived.
B. Because of a close relationship, a professional accountant becomes too sympathetic to the
interests of others.
C. The professional accountant provides a position or opinion to the point that subsequent
objectivity may be compromised.
D. The professional accountant needs to reevaluate his previous judgment.
13.   
32. The retirement benefit plan of a firm, or a network firm, has a financial interest in a financial
statement audit client. If the self-interest threat that is created by the financial interest is
significant, the firm that intends to continue the engagement should:
A. Reduce the financial interest so that the remaining interest is no
B. Discuss the matter with the audit committee of the financial statement audit client.
C. Refer the audit of the stockholders' equity of the financial statement audit client to other CPA.
D. Either dispose of the financial Interest in total or a sufficient amount so that the remaining
amount is no longer material.
14.   
12. Occurs when any product or judgment 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, or 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. Self-review threat
C. Advocacy threat
D. Familiarity threat
15.   
21. Which of the following is least likely an indication that the CPA violates the Integrity
principle? The CPA is associated with reports or information that:
A. The CPA issues a qualified opinion due to scope limitation because he fails to arrive at clear-
cut conclusion.
B. Contains a materially false or misleading statement.
C. Omits or obscure information required to be included when such omission or obscurity would
make the information misleading.
D. Contains statements or information furnished recklessly.
16.   
38. Safeguards within the assurance client, include the following, except
A, Professional standards and monitoring and disciplinary processes.
B. The assurance client has competent employees to make managerial decisions.
C. Internal procedures that ensure objective choices in commissioning non-assurance
engagements.
D. A corporate governance structure, such as an audit committee, that provides appropriate
oversight and communications regarding a firm's services.
17.   
36. Using partners who do not report to the audit partners for the provision of non-assurance
services to an audit client is an example of:
A. Safeguards reducing the risk of conflict of interest created by the profession, legislation, or
regulation.
B. Safeguards reducing the risk of conflict of interest within a client.
C. Safeguards reducing the risk of conflict of interest within a professional accounting firm.
D. All of these.
18.   
40. 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.
19.   
25. When a firm or a member of the assurance team holds a direct financial interest or a material
indirect financial interest in the assurance client as a trustee, a self-interest threat may be created
by the possible influence of the trust over the assurance client. Accordingly, such an interest
cannot be held when:
A. The member of the assurance team, an immediate family member of the member of the
assurance team, and the firm are beneficiaries of the trust.
B. The interest held by the trust in the assurance client is not material to the trust.
C. The trust is not able to exercise significant influence over the assurance client.
D. The member of the assurance team or the firm does not have significant influence over any
investment decision involving a financial interest in the assurance client.
20.   
17. The confidential relationship will be violated it, without the client's permission, the CPA
provides working papers about the client to
A. a court of law which subpoenas them
B. another CPA firm as part of a peer review.
C. another CPA firm which has just purchased the CPA's entire practice.
D. an investigative or disciplinary body which is conducting a review of the CPA's practice.
21.   
34.. Which statement is incorrect regarding long association or 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. The lead engagement partner should be rotated after a pre-defined period, normally no more
than six years,
C. A partner rotating after a pre-defined period should not participate the audit until a further
period of time, normally two years, has elapsed.
D. When audit client becomes a listed entity the length of time the lead engagement partner has
served the audit client in that capacity
22.   
4. Existing accountant, as defined in the Code of Ethics, means:
A. A professional accountant employed in industry, commerce, the public sector or education.
B. A professional accountant in public practice currently holding an audit appointment or
carrying out accounting, taxation, consulting or similar professional services for a client.
C. Those persons who hold a valid certificate issued by the Board of Accountancy.
D. A sole proprietor, or each partner or person occupying a position similar to that of a partner
and each staff in a practice providing professional services to a client irrespective of their
functional classification (e.g., audit, tax or consulting) and professional accountants in a practice
having managerial responsibilities.
23.   
10. Which statement is incorrect regarding the Code of Ethics for Professional Accountants in
the Philippines?
A. The objectives as well as the fundamental principles are of a general nature and are not
intended to be used to solve a professional accountant's ethical problems in a specific case.
B. The code is divided into two parts, part A and part B
C. Part A applies to all professional accountants unless otherwise specified
D. Part B applies only to those professional accountants in public practice.
24.   
23. Which of the following is not likely a threat to independence?
A. Acting as an advocate on behalf of an assurance client in litigation or in resolving disputes
with third parties.
B. Long association of a senior member of the assurance team with the assurance client.
C. Threat of replacement over a disagreement with the application of an accounting principle.
D. Owning immaterial indirect financial interest in an audit client.
25.   
28. If a firm, or a network firm, has a direct financial interest in an audit client of the firm, the
self-interest threat created would be so significant no safeguard could reduce the threat to an
acceptable level. The action appropriate to permit the firm to perform the engagement would be
to
A. dispose of the financial interest.
B. dispose of a sufficient amount of it so that the remaining interest is no longer material.
C. Either of the given choices
D. Neither of the given choices
26.   
6. The term receiving accountant includes the following, except:
A. A professional accountant in public practice to whom the existing accountant has referred tax
engagement.
B. A professional accountant in public practice to whom the client of the existing accountant has
referred audit engagement.
C. A professional accountant in public practice who is consulted in order to meet the needs of the
client.
D. A professional accountant in public practice currently holding an audit appointment or
carrying out accounting, taxation, consulting or similar professional services for a client.
27.   
8. A primary purpose for establishing a code of ethics within a processional organization is to:
A. Demonstrate the acceptance of responsibility to the interest of those served by the profession.
B. Reduce the likelihood that members of the profession will be sued for substandard work.
C. Ensure that all members of the profession posses approximately the same level of
competence.
D. Require members of the profession to exhibit loyalty in all matters pertaining to the affairs of
the organization.
28.   
29. A client company has not paid its 2017 audit fees. According to the Code of Professional
Conduct, for the auditor to be considered independent with respect to the 2018 audit, the 2017
audit fees must be paid before the
A. 2017 report is issued
B. 2018 report is issued
C. 2018 field work is started
D. 2019 field work is started
29.   
18. As a resolution of the conflict in the application of fundamental principles, the auditor, after
considering the ethical issues and relevant facts may do any of the following, except:
A. Must immediately resign from the engagement or the employing entity.
B. Should weigh the consequences of each possible course of action
C. Should consult with other appropriate persons within the firm or employing organization for
help to finally resolve the matter.
D. The professional accountant may wish to obtain professional advice from the relevant
professional body without breaching confidentiality if significant conflict cannot be resolved.
30.   
1. Immediate family includes:
A. parent.
B. sibling.
C. non-dependent child.
D. spouse.
31.   
16. Safeguards may eliminate or reduce threats to an acceptable level. The following are
examples of these safeguards:
I. Professional or regulatory monitoring and disciplinary procedures.
II. Documented internal policies and procedures requiring compliance with the fundamental
principles.
IVIII. Policies and procedures to monitor and, if necessary, manage the reliance on revenue
received from a single client.

Which of the foregoing examples of safeguards is/are classified firm-wide safeguards in the
work environment?
A. All of these
B. I and II
C. II and III
D. I and III
32.   
5. The term professional accountant in public practice includes the following, except:
A. A sole proprietor providing professional services to a client.
B. Each partner or person occupying a position similar to that of a partner staff in a practice
providing professional services to a client.
C. Professional accountants employed in the public sector having managerial responsibilities.
D. A firm of professional accountants in public practice.
33.   
7. Related entity is an entity that has any of the following relationships with the client, except:
A. An entity that has direct or indirect control over the client provided that the client is material
to such entity.
B. An entity with a direct financial Interest in the client even though such entity has no
significant influence over the client provided the interest in the client is material to such entity.
C. An entity over which the client has direct or indirect control.
D. An entity which is under common control with the client (referred to as a "sister entity")
provided the sister entity and the client are both material to the entity that controls both the client
and sister entity.
34.   
26. An inadvertent violation of the Independence rules as it relates to a assurance client would
An inadvertent violation of the Independence rules as it relates to a financial interest in an
assurance client would not impair the independence of the firm, the network firm or a member of
the assurance team when:
A. The firm, and the network firm, has established policies and procedures that require all
professionals to report promptly to the firm any breaches resulting from the purchase, inheritance
or other acquisition of a financial interest in the assurance client.
B. The firm, and the network firm, promptly notifies the professional that the financial interest
should be disposed of.
C. The disposal occurs at the earliest practical date after identification of the issue, or the
professional is removed from the assurance team.
D. All of the given choices
A
B
C
D
36.   
37. Safeguards within the firm's own systems and procedures, include the following, except:
A. Firm leadership that stresses the importance of independence and the expectation that
members of assurance teams will act in the public interest.
B. External review of a firm's quality control system.
C. Policies and procedures to implement and monitor quality control of assurance engagements.
D. Policies and procedures that will enable the identification of interests or relationships between
the firm or members of the assurance team and assurance clients:
37.   
22. 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.
38.   
3. Firm includes the following, except
A. A sole practicing 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.
39.   
14. Safeguards created by the profession, legislation or regulation, include the following, except
A. Educational, training and experience requirements for entry into the profession.
B. Continuing education requirements
C. Legislation governing the independence requirements of the firm.
D. Policies and procedures that emphasize the assurance client's commitment to fair financial
reporting
40.   
30. When a firm obtains an assurance engagement at a significantly lower professional fee than
that charged by the predecessor firm, or quoted by other firms, a(an):
A. threat to independence is not created.
B. intimidation threat is created.
C. advocacy threat is created.
D. self-interest treat is created.