1.

Which of the following statements is true when the CPA has been engaged to perform an audit of
financial statements?
A. The CPA firm is engaged and paid by the client, therefore, the firm has primary responsibility to be
an advocate for the client.
B. The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are those
who rely on the financial statements.
C. Should a situation arise where there is no convincing authoritative standard available, and there is
a choice of actions which could impact a client's financial statements, the CPA is free to endorse the
choice which is in the investor's interests.
D. The CPA firm's paramount concern should be the interest of the client.
Answer: B
2. In order to achieve the objectives of the accountancy profession, professional accountants have to
observe a number of prerequisites or fundamental principles. The fundamental principles include the
following, except
A. Objectivity
B. Professional Competence and Due Care
C. Technical Standards
D. Confidence
Answer: D
3. The principle of professional competence and due care imposes certain obligations on professional
accountants. Which of the following is not one of those obligations required by this principle?
A. To act diligently in accordance with applicable technical and professional standards.
B. To be fair, intellectually honest and free of conflict of interest.
C. To become aware and understand relevant technical, professional and business developments.
D. To obtain professional knowledge and experience to enable them to fulfil their responsibilities.
Answer: B
4. An auditor who accepts an audit engagement and does not possess the industry expertise of the
business entity should:
A. Engage financial experts familiar with nature of the business entity.
B. Obtain knowledge of matters that relate to the nature of the entity's business.
C. Refer a substantial portion of the audit to another CPA who will act as the principal auditor.
D. First inform management that an unmodified opinion cannot be issued.
Answer: B
5. The phase of professional competence that requires a professional accountant to adopt a program
designed to ensure quality control in the performance of professional services consistent with
technical and professional standards is:
A. Attainment of professional competence
B. Maintenance of professional competence
C. Application of professional competence
D. Review of professional competence
Answer: B
6. 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 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.
Answer: B
7. A CPA shall not disclose confidential information obtained during an audit engagement in which
one of the following situations?
A. When the security of the state requires.
B. With the consent of the client.
C. In defense of himself when sued by his client.
D. To a successor auditor without the client's permission.
Answer: D
8. The Code of Ethics for Professional Accountants states that a CPA shall not disclose any
confidential information obtained in the course of a professional engagement except with the
consent of his client. In which of the situations given below would a CPA be in violation of the
principle of confidentiality?
A. Disclosing confidential information in order to properly discharge the CPA's responsibilities in
accordance with his professional standards.
B. Disclosing confidential information in compliance with a subpoena issued by a court.
C. Disclosing confidential information to another accountant interested in purchasing the CPA's
practice.
D. Disclosing confidential information in an investigation conducted by the PRC thru the Board of
Accountancy.

9. Which of the following statements is false?

A. Confidentiality is broken when an auditor is presented with a subpoena concerning an audit client.
B. Information that a CPA obtains from a client is generally not privileged.
C. When the Board of Accountancy conducts a review of the quality control of another CPA firm,
permission of the client is not needed to examine audit documentation.
D. A CPA firm which observes substandard audit documentation of another firm during a quality
control review should immediately inform the firm being reviewed in order to rectify the deficiency.

10. Which of the following is considered a violation of rules on confidentiality?

A. The CPA discloses information to protect his own interest in the course of legal proceedings.
B. The CPA discloses information to a successor auditor after obtaining the client's permission.
C. The CPA discloses information to another CPA in compliance with a quality control review
conducted by the Board of Accountancy.
D. The CPA divulges information disclosed to him by a prospective client.

11. The principle of professional behaviour requires a professional accountant to:

A. Be straightforward and honest in performing professional services.
B. Be fair and should not allow prejudice or bias, conflict of interest or influence of others to override
objectivity.
C. Perform professional services with due care, competence and diligence.
D. Act in a manner consistent with the good reputation of the profession and refrain from any
conduct which might bring discredit to the profession.

12. A professional accountant's name can be associated with information that:

A. Contains a misleading statement.
B. Intentionally omits or obscures information.
C. Uses estimates.
D. Contains information without any real knowledge of whether they are true or false.

13. One of the major differences between auditors and other professionals is that most professionals
A. Do not have to pass rigorous examination to be admitted in the profession.
B. Are not expected to act in the best interest of the public.
C. Need not be concerned about independence.
D. Do not need the confidence of the public.

14. Independence in auditing means

A. Not having any financial or economic relationship with the client
B. Being an advocate of the assurance client
C. Taking an unbiased viewpoint
D. Not having a loan to or from an assurance client

15. Which of the following most accurately states how objectivity has been defined by the Code of
Ethics?
A. Being honest and straightforward in all professional and business relationships
B. A state of mind that permits the provision of an opinion without being affected by the influences
that compromise professional judgement
C. A combination of impartiality, intellectual honesty and a freedom from conflict of interest
D. Avoiding facts and circumstances that could reduce the public confidence in the professional
accountant's report.

16. Which fundamental principle is seriously threatened by an engagement that is compensated

based on the net proceeds on loans received by the client from a commercial bank?
A. Integrity
B. Objectivity
C. Confidentiality
D. Professional Behaviour

17. A CPA, while performing an audit, strives to achieve independence in appearance in order to
A. Reduce risk and liability
B. Become independent in mind
C. Maintain public confidence in the profession
D. Comply with the generally accepted standards of fieldwork
18. The concept of materiality would be least important to an auditor in determining
A. Transactions that should be reviewed
B. The need for disclosing a particular transaction or event
C. The extent of audit work planned for particular account
D. The effect of an auditor's direct financial interest in a client

19. The primary factor that distinguishes a direct from an indirect financial interest is the
A. Materiality of the amount involved
B. Control over investment decisions
C. Risk associated with such investment
D. Relationship between the investor and investee

20. Ultimately, the decision as to whether the CPA is independent or not, will be made by the
A. Client
B. Audit Committee
C. Public
D. Auditor

21. Independence is required whenever a professional accountant performs

A. Professional services
B. Assurance services
C. Non-assurance services
D. Tax consultancy services

22. Not all engagements performed by professional accountants are assurance engagements. Other
engagements frequently performed by professional accountants that are not assurance engagements
include the following, except
A. Agreed-upon procedures
B. Compilation of financial or other information
C. Management consulting
D. Examination of prospective financial information

23. When CPAs are able to maintain their actual independence, it is referred to as independence in
A. Conduct
B. Appearance
C. Fact
D. Total

24. According to the Code of Professional Ethics, professional accountant:

A. Should be independent in fact and in appearance at all times
B. In public practice should be independent in fact and in appearance at all times
C. In public practice should be independent in fact and in appearance when providing auditing and
other assurance services
D. In public practice should be independent in fact and in appearance when providing auditing, tax
and other advisory services

25. The network firms are required to be independent of the client

A. For assurance engagements provided to an audit client
B. For assurance engagements provided to clients that are not audit clients, when the report is not
expressly restricted for use by identified users
C. For assurance engagements provided to clients that are not audit clients, when the assurance
report is expressly restricted for use by identified users
D. For non-assurance engagements

26. Which of the following professional services does not require independence?
A. Direct reporting engagements
B. Examination of financial forecast
C. Tax consultancy services
D. Assertion-based engagements

27. For which of the following professional services must CPAs be independent?
A. Management advisory services
B. Audit of financial statements
C. Preparation of tax returns
D. All three of the above

28. This occurs as a result of the financial or other interests of a professional accountant or of an
immediate or close family member
A. Self-interest threat
B. Self-review threat
C. Advocacy threat
D. Familiarity threat

29. This threat 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.
A. Intimidation threat
B. Familiarity threat
C. Advocacy threat
D. Self-interest threat

30. The rotation of senior accounting personnel can be regarded as a safeguard

A. Created by profession
B. Created within the client's system and procedures
C. Created in the work environment
D. Created within the business community