Code of Ethics

Which of the following is incorrect regarding professional competence?
Professional accountants may portray themselves as having expertise or experience they do not
possess.
Professional competence may be divided into two separate phases.
The attainment of professional competence requires initially a high standard of general
education.
The maintenance of professional competence requires a continuing awareness of development in
the accountancy profession.
Ans.
Professional accountants may portray themselves as having expertise or experience they do not
possess.
Which of the following is not a fundamental ethical principle?
Objectivity
Professional behavior
Professional competence and due care
Independence
Ans.
Independence
The code of ethics for professional accountants applies to

CPAs in public practice.
CPAs in government.
CPAs in public practice and employed in private business.
All CPAs
Ans.
All CPAs
The term professional accountant in public practice includes the following, except
A sole proprietor providing professional services to a client.

Each partner or person occupying a position similar to that of a partner staff in a practice
providing professional services to a client.
Professional accountants employed in the public sector having managerial responsibilities.
A firm of professional accountants in public practice.
Ans.
Professional accountants employed in the public sector having managerial responsibilities.
Which of the following fundamental principles would most likely be threatened when a
professional accountant in public practice is asked to provide a second opinion which is based on
inadequate sets of facts or evidence?
Integrity
Objectivity
Objectivity
professional competence and due care
Ans.
According to the ethical standards of the profession, which of the following acts is generally
prohibited?
Issuing a modified report explaining a failure to follow a governmental regulatory agency’s
standards when conducting an attest service for a client
Revealing confidential client information during a quality review of a professional practice by a

team from the QRC
Accepting a contingent fee for representing a client in an examination of the client’s federal tax
return by a BIR agent
Retaining client records after an engagement is terminated prior to completion and the client has
demanded their return
Ans.
Retaining client records after an engagement is terminated prior to completion and the client has
demanded their return
Professional competence should include
1) Attainment of professional competence
2) Maintenance of professional competence
1) YES 2) YES;
1) NO 2) YES;
1) NO 2) NO;
1) YES 2) NO;
Ans.
1) YES 2) YES;
A CPA shall not disclose confidential information obtained during an audit engagement in which
one of the following situations?
When the security of the state requires.

With the consent of the client.
In defense of himself when sued by his client.
To a successor auditor without the client’s permission.
Ans.
To a successor auditor without the client’s permission.
Competence as a certified public accountant includes all of the following except
Having the technical qualifications to perform an engagement.

Possessing the ability to supervise and evaluate the quality of staff work.
Warranting the infallibility of the work performed.
Consulting others if additional technical information is needed.
Ans.
Warranting the infallibility of the work performed.
Which of the following most accurately states how objectivity has been defined by the Code of
Ethics?
Being honest and straight forward in all professional and business relationships.
A state of mind that permits the provision of an opinion without being affected by influences that
compromise professional judgment.
A combination of impartiality, intellectual honesty and a freedom from conflict of interest.
Avoiding facts and circumstances that could reduce the public confidence in the professional
accountant’s report.
Ans.
When a professional accountant performs services in a country other than the home country and
differences on specific matters exist between ethical requirements of the two countries, the
following provisions should be applied
When the ethical requirements of the country in which the services are being performed are less
strict than the Code of Ethics of the Philippines , then the Code of Ethics of
the Philippines should be applied.
When the ethical requirements of the country in which services are being performed are stricter
than the Code of Ethics of the Philippines, then the ethical requirements in the country where
services are being performed should be applied.
When the ethical requirements of the home country are mandatory for services performed outside
that country and are stricter, then the ethical requirements of the home country should be applied.
Any of the above.

Ans.
Any of the above.
The Code of Ethics for Professional Accountants in the Philippines defined “practice” as
A distinct sub-group, whether organized on geographical or practice lines.
An entity under common control, ownership or management with the firm or any entity that a
reasonable and informed third party having knowledge of all relevant information would
reasonably conclude as being part of the firm nationally or internationally.
Any service requiring accountancy or related skills performed by a professional accountant

including accounting, auditing, taxation, management consulting and financial management
services.
A sole proprietor or a partnership of professional accountants which offers professional services

to the public.
Ans.
A sole proprietor or a partnership of professional accountants which offers professional services
to the public.
Which of the following is not explicitly referred to in the Code of Ethics as source of technical
standards?
Commission of Audit (COA)

Auditing standards and practices council ( ASPC)
Securities and exchange Commission (SEC)
Relevant legislation
Ans.
Commission of Audit (COA)
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
Objectivity
Professional Competence and Due care
Technical Standards
Confidence
Ans.
Confidence
Which of the following most accurately states how objectivity has been defined by the Code of
Ethics?
Being honest and straight forward in all professional and business relationships.
A state of mind that permits the provision of an opinion without being affected by influences that
compromise professional judgment.
Avoiding facts and circumstances that could reduce the public confidence in the professional
accountant’s report.
Ans.
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:
attainment of professional competence

maintenance of professional competence
application of professional competence
review of professional competence
Ans.
maintenance of professional competence
Which statement is correct regarding the Code of Ethics for Professional Accountants in the
Philippines?
Professional accountants refer to persons who are Certified Public Accountants (CPA) in public
practice and who hold a valid certificate issued by the Board of Accountancy.
It is practical to establish ethical requirements which apply to all situations and circumstances
that professional accountants may encounter.
Professional accountants should consider the ethical requirements as the ideal principles which
they should follow in performing their work.
All CPA’s are expected to comply with the ethical requirements of the Code and other ethical
requirements that may be adopted and approved by IFAC. Apparent failure to do so may result in
an investigation into the CPA’s conduct.
Ans.
All CPA’s are expected to comply with the ethical requirements of the Code and other ethical
requirements that may be adopted and approved by IFAC. Apparent failure to do so may result in
an investigation into the CPA’s conduct.
professional accountant in public practice solicits new work through advertising or other forms
of marketing?

integrity
objectivity
professional behavior
Ans.
The principle of confidentiality applies to:
Professional accountants in public practice

Professional accountants in commerce and industry
Professional accountants in government
All professional accountants
Ans.
All professional accountants
Which of the following ethical principles implies fair dealings and truthfulness?
integrity
confidentiality
objectivity
professional skepticism
Ans.
Integrity
Which statement is incorrect regarding the Code of Ethics for Professional Accountants in the
Philippines?
Professional accountants refer to persons who are Certified Public Accountants (CPA) and who
hold a valid certificate issued by the Board of Accountancy.
Where a national statutory requirement is in conflict with a provision of the IFAC Code, the
IFAC Code requirement prevails.
The Code of Ethics for Professional Accountants in the Philippines is mandatory for all CPA’s
and is applicable to professional services performed in the Philippines on or after January 1,
2004.
Professional accountants should consider the ethical requirements as the basic principles which
they should follow in performing their work.
Ans.
Where a national statutory requirement is in conflict with a provision of the IFAC Code, the
IFAC Code requirement prevails.
The term receiving accountant includes the following, except
A professional accountant in public practice to whom the existing accountant has referred tax
engagement.
A professional accountant in public practice to whom the client of the existing accountant has
referred audit engagement.
A professional accountant in public practice who is consulted in order to meet the needs of the
client.
A professional accountant in public practice currently holding an audit appointment or carrying

out accounting, taxation, consulting, or similar professional services for a client.
Ans.
A professional accountant in public practice currently holding an audit appointment or carrying
out accounting, taxation, consulting, or similar professional services for a client.
Confidential client information may be disclosed in the following circumstances, except
When disclosure is authorized

When disclosure is required by law
When the relationship between the client and the auditor ceases.
When there is a professional duty or right to disclose.
Ans.
When the relationship between the client and the auditor ceases.
Which of the following is not one of the characteristics of a profession?
Mastery of a particular intellectual skill acquired by training and education

Adherence by its members to a common code of conduct
Acceptance of a duty to society as a whole.
A responsibility to protect exclusively the interest of a client or employer.
Ans.
A responsibility to protect exclusively the interest of a client or employer.
Which of the following ethical principles requires proper supervision of assistants?

integrity
objectivity
Ans.
Part A of the Code of professional ethics establishes fundamental principles of professional

ethics for professional accountants and provides a conceptual framework for applying those
principles. Which of the following is not one of the fundamental principles:
Objectivity
confidentiality
independence
Ans.
Independence
The CPA profession deemed it necessary to establish a code of ethics and a mechanism for its
enforcement because
An ethical conduct that stresses the CPA’s responsibility to clients and colleagues is a
prerequisite to success.
A requirement of law provides that CPAs establish a code of ethics.
Acceptance of responsibility to the public is a distinguishing mark of a profession.
The establishment of flexible ethical standards provides self-protection for CPAs.

Ans.
Acceptance of responsibility to the public is a distinguishing mark of a profession.
The principle of professional competence and due care imposes certain obligations on professional
accountants. Which of the following is not one of the obligations required by this ethical
principle?
To act diligently in accordance with applicable technical and professional standards.
To be straightforward and honest in all professional and business relationships.
To obtain professional knowledge and experience to enable them to fulfill their responsibilities.
To become aware and understand relevant technical, professional and business developments.
Ans.
To be straightforward and honest in all professional and business relationships.
Which of the following fundamental principles requires a professional accountant to comply with
relevant laws and regulations?
Integrity
objectivity
due professional care
Ans.
Which of the following is a member of IFAC?
PICPA BOA PRC SEC

Ans.
PICPA
Which of the following is the least required in attaining professional competence?
High standard of general education.

Specific education, training and examination in professionally relevant subjects.
Period of meaningful work experience.
Continuing awareness of development in the accountancy profession.
Ans.
Continuing awareness of development in the accountancy profession.
Which of the following is the correct order of steps in attaining professional competence?
1. education
2. professional experieces
3. professional examination
1, 2 and 3
1, 3 and 2
3, 1 and 2
2, 1 and 3
Ans.
1, 3 and 2
professional accountant in public practice quotes a professional fee that is too low?
Integrity
Confidentiality
Objectivity
Ans.
A combination of impartiality, intellectual honesty and a freedom from conflicts of interest.
Objectivity
Independence of mind
Professional skepticism
Independence
Ans.
Objectivity
A professional accountant has a professional duty or right to disclose confidential information in

each of the following, except
To comply with technical standards and ethics requirements

To disclose to BIR fraudulent scheme committed by the client on payment of income tax.
To comply with the quality review of a member body or professional body
To respond to an inquiry or investigation by a member body or regulatory body.
Ans.
To disclose to BIR fraudulent scheme committed by the client on payment of income tax.
The Code recognizes that the objectives of the accountancy profession are to work to the highest
standards of professionalism, to attain the highest levels of performance and generally to meet
the public interest requirements set out above. These objectives require four basic needs to be
met including the following, except
Credibility
Professionalism
Quality of Services
Integrity
Ans.
Integrity
May a CPA hire for the CPA’s public accounting firm a non-CPA systems analyst who specializes
in developing computer systems?
Yes, provided the CPA is qualified to perform each of the specialist’s tasks
Yes, provided the CPA is able to supervise the specialist and evaluate the specialist’s end product
No, because non-CPA professionals are not permit ted to be associated with CPA firms in public
practice
No, because developing computer systems is not recognized as a service performed by public
accountants
Ans.
Yes, provided the CPA is able to supervise the specialist and evaluate the specialist’s end product
Which statement is incorrect regarding the Code of Ethics for Professional Accountants in the
Philippines?
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.
The code is divided into two parts, part A and part B
Part A applies to all professional accountants unless otherwise specified.
Part B applies only to those professional accountants in public practice.

Ans.
The code is divided into two parts, part A and part B
The underlying reason for a code of professional ethics is
That it is required by legislation.
To provide the Board of Accountancy with a basis for measuring the performance of the
practitioners.
The need for public confidence in the quality of service of the profession.
That it provides a safeguard against unscrupulous people.

Ans.
The need for public confidence in the quality of service of the profession.
professional accountant in public practice charges contingent fees?
Integrity
Confidentiality
Objectivity
Ans.
Objectivity
According to the standards of the profession, which of the following circumstances will prevent a
CPA performing audit engagements from being independent?
Obtaining a collateralized automobile loan from a financial institution client
Litigation with a client relating to billing for consulting services for which the amount is
immaterial
Employment of the CPA’s spouse as a client’s director of internal audit
Acting as an honorary trustee for a not-for-profit organization client

Ans.
Employment of the CPA’s spouse as a client’s director of internal audit
Examples of circumstances that may create self-review threat do not include
preparation of original data used to generate financial statements or preparation of other records
that are the subject matter of the assurance engagement.
a member of the assurance team being, or having recently been, an employee of the assurance
client in a position to exert direct and significant influence over the subject matter of the
assurance engagement.
performing services for an assurance client that directly affect the subject matter of the assurance
engagement.
potential employment with an assurance client.

Ans.
potential employment with an assurance client.
A loan, or guarantee of a loan, to the firm from an audit client that is a bank or a similar
institution, would not create a threat to independence provided
I. The loan, or guarantee, is made under normal lending procedures, terms and
requirements.
II. The loan is immaterial to both the firm receiving the loan and the audit client.
I only II only Neither I nor II Both I and II

Ans.
Both I and II
A CPA –lawyer, acting as legal counsel to one of his audit client, is an example of
Self-interest threat
Self-review threat
Advocacy threat
Familiarity threat
Ans.
Advocacy threat
The following circumstances may create intimidation threats, except
Being threatened with dismissal or replacement in related to a client engagement.
Being pressured to reduce inappropriately the extent of work performed in order to reduce fees.
Being threatened with litigation.
A member of the assurance team being, or having recently been, a director or officer of the
client.
Ans.
A member of the assurance team being, or having recently been, a director or officer of the
client.
Which of the following would not generally create a threat to independence?
The purchase of goods and services from an assurance client by the firm (or from a financial
statement audit client by a network firm) or a member of the assurance team provided that the
transaction is in the normal course of business and on an arm’s length basis.
A partner or employee of the firm or a network firm serves as Company Secretary for a financial
statement audit client.
Determining which recommendations of the firm should be implemented.
Reporting, in a management role, to those charged with governance.

Ans.
The purchase of goods and services from an assurance client by the firm (or from a financial
statement audit client by a network firm) or a member of the assurance team provided that the
transaction is in the normal course of business and on an arm’s length basis.
professional accountant in public practice assumes custody of client’s assets?

confidentiality
integrity
Ans.
Integrity
This occurs when any product or judgment of a previous assurance engagement or non-assurance
engagement needs to be revaluated 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 if
the assurance engagement.
self-interest threat
self-review threat
advocacy threat
familiarity threat
Ans.
self-review threat
Which of the following threats to independence may be created by family and personal
relationships between a member of the assurance team and a director, an officer, or an employee
of the assurance client in a position to exert direct and significant influence over the subject
matter information of the assurance engagement?
Self-interest, familiarity or intimidation threats

Self-review, familiarity, or advocacy threats
Advocacy, familiarity or self-review threats
Self-interest, advocacy or self-review threats
Ans.
Which of the following would most likely create a self-review threat?
financial interest in a client

litigation involving professional accountant and a client
a former partner joins the assurance client
a former officer of a client is now a member of the assurance team.
Ans.
a former officer of a client is now a member of the assurance team.
Intimidation threat
Is not a threat to independence.
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.
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.
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.
Ans.
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.
professional accountant in public practice competes directly with a client or has a joint venture
or similar arrangement with a major competitor of a client?
Integrity
Objectivity
Ans.
Objectivity
The following circumstances create advocacy threats for a professional accountant in public
practice except
Promoting shares in an audit client.
Acting as an advocate on behalf of an audit client in litigation or disputes with third parties.
Acting as campaign manager for the president of a client who is running for a public office.
A member of the assurance team having a significant close business relationship with an
assurance client.
Ans.
A member of the assurance team having a significant close business relationship with an
assurance client.
Which part of the Code establishes the fundamental principles of professional ethics for
professional accountants and provides a conceptual framework that professional accountants
shall apply to identify threats to compliance with the fundamental principles, evaluate the
significance of the threats identified, and apply safeguards, when necessary, to eliminate the
threats or reduce them to an acceptable level?
Part A. Part B. Part C. Part D.

Ans.
Part A.
Examples of circumstances that may create self-review threat least likely include
Preparation of original data used to generate financial statements or preparation of other records
A member of the assurance team being, or having recently been, an employee of the assurance
client in a position to exert direct and significant influence over the subject matter of the
assurance engagement.
Performing services for an assurance client that directly affect the subject matter of the assurance
engagement.
Potential employment with an assurance client.

Ans.
Potential employment with an assurance client.
This threat to independence 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.
intimidation threat
advocacy threat
familiarity threat
Ans.
intimidation threat
professional accountant in public practice assumes custody of client’s assets?

confidentiality
integrity
Ans.
Integrity
When the total fees generated by an assurance client represent a large proportion of a firm’s total
fees, the dependence on that client or client group and concern about the possibility of losing the
client may create a/an
Self-review threat.
Intimidation threat
Advocacy threat
Ans.
A threat to objectivity may be created when a professional accountant in public practice performs
services for clients whose interests are in conflict with each other. In addition, this could also
pose threat to
Integrity
Confidentiality
Ans.
Confidentiality
Which of the following threats to independence may be created by family and personal
relationships between a member of the assurance team and a director, an officer, or an employee
of the assurance client in a position to exert direct and significant influence over the subject
matter information of the assurance engagement?

Self-review, familiarity, or advocacy threats
Advocacy, familiarity or self-review threats
Self-interest, advocacy or self-review threats
Ans.
A close business relationship between a firm or a member of the audit team, or a member of that
individual’s immediate family, and the audit client or its management may create
Self-interest and intimidation threats

Self-review and familiarity threats
Advocacy and self-review threats
Self-interest and self-review threats
Ans.
Self-interest and intimidation threats
According to the Philippine Code of Ethics, independence is potentially affected by self-interest,
self-review, advocacy, familiarity and intimidation threats. Which of the following best describes
“advocacy threat”?
This occurs when a firm or a member of the assurance team could benefit from financial interest
in an assurance client.
This occurs when any product or judgment of a previous engagement needs to be re-evaluated in
reaching conclusions on the assurance engagement
This occurs when a member of assurance team was previously a director or officer of the
assurance client.
This 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.
Ans.
This 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.
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 to subordinate their judgment to that of
the client.
Advocacy threat
Self-review threat
Familiarity threat
Ans.
Advocacy threat
The following forms of assistance to a financial statement audit client do not generally threaten
the firm’s independence, except
Analyzing and accumulating information for regulatory reporting.

Assisting in resolving account reconciliation problems.
Authorizing or approving transactions.
Assisting in the preparation of consolidated financial statements.
Ans.
Authorizing or approving transactions.
This occurs when a firm or a member of the assurance team could benefit from a financial
interest in an assurance client.
self-review threat
advocacy threat
familiarity threat
Ans.
Examples of circumstances that may create familiarity threat least likely include
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.
A member of the assurance team having an immediate family member or close

family member who, as an employee of the assurance client, is in a position to
exert direct and significant influence over the subject matter of the assurance
engagement.
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.
Dealing in, or being a promoter of, share or other securities in an assurance client.
Ans.
Dealing in, or being a promoter of, share or other securities in an assurance client.
This 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
interest.
self-review threat
advocacy threat
familiarity threat
Ans.
familiarity threat
Which of the following threats to independence is created when a member of the assurance team
participates in the assurance engagement while knowing, or having reason to believe, that he is
to, or may, join the assurance client sometime in the future?
Intimidation threat
Self-review threat
Familiarity threat
Ans.
In the case of audit engagements, it is in the public interest and, therefore, required by the Code
that members of audit teams, firms and network firms shall be independent of audit clients.
Independence requires
Independence of mind only.

Independence in appearance only.
Both independence of mind and independence in appearance
Either independence of mind or independence in appearance
Ans.
Both independence of mind and independence in appearance
When a firm obtains an assurance engagement at a significantly lower fee level than that
charged by the predecessor firm, or quoted by other firms, the self-interest threat created
will not be reduced to an acceptable level unless
I. The firm is able to demonstrate that appropriate time and qualified staff are
assigned to the task.
II. All applicable assurance standards, guidelines, and quality control
procedures are being complied with.
I only II only Both I and II Neither I nor II

Ans.
Both I and II
Which of the following would least likely create “self-interest threat”?
Undue dependence on total fees from an assurance client

Concern about the possibility of losing the engagement
Having a close business relationships with an assurance client
Pressure to reduce inappropriately the extent of work performed in order to reduce fees
Ans.
Pressure to reduce inappropriately the extent of work performed in order to reduce fees
What threat to independence is created when the litigation support services provided to an audit
client include the estimation of the possible outcome and thereby affects the amounts or
disclosures to be reflected in the financial statements?
Self-review threat
Advocacy threat
Intimidation threat
Familiarity threat
Ans.
Self-review threat
Which of the following fundamental principles would most likely be threatened when a client
offers gifts or hospitality to a professional accountant in public practice?

objectivity
integrity
Ans.
Objectivity
Which of the following threats to independence may be created when litigation takes place, or
appears likely, between the firm or a member of the assurance team the assurance client?
Self-interest or advocacy threat

Advocacy or intimidation threat
Self-interest or intimidation threat
Familiarity or self-review threat
Ans.
Self-interest or intimidation threat
These are fees calculated on a predetermined basis relating to the outcome or result of a
transaction or the result of the work performed.
Contingent fees
Fixed fees
Predetermined fees
Commissions.
Ans.
Contingent fees
This threat to independence occurs when a member of the assurance team has recently performed
services for an assurance client that directly affect the subject matter information of the
assurance engagement (e.g., valuation services).
Self-review threat.
Advocacy threat.
Self-interest threat.
Familiarity threat.
Ans.
Self-review threat.
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.
Self-review threat
Advocacy threat
Familiarity threat
Ans.
Familiarity threat
Financial interests may be held through an intermediary (for example, a collective investment
vehicle, estate or trust). When control over the investment vehicle or the ability to influence
investment decisions exists, the code defines that financial interest to be a/an
Direct financial interest.

Material direct financial interest.
Indirect financial interest.
Material indirect financial
Ans.
Direct financial interest.
Examples of circumstances that may create self-interest threat include
Contingent fees relating to assurance engagements.
A direct financial interest or material indirect financial interest in an assurance client.
A loan or guarantee to or from an assurance client or any of its directors or officers.
All of the above.

Ans.
All of the above.
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.
Advocacy threat
Self-review threat
Familiarity threat
Ans.
Self-review threat
The recruitment of senior management for an assurance client, such as those in a position to
affect the subject matter of the assurance engagement, may create the following current or future
threats to independence, except
Familiarity threat
Intimidation threat
Self-review threat
Ans.
Self-review threat
A partner rotating after a pre-defined period should not resume the lead engagement
partner role until a further period of time, normally ____ year(s), has elapsed.
1 2 3 5
Ans.
2
The threat that a professional accountant will be deterred from acting objectively because of
actual or perceived pressures from the client is known as
Intimidation threat
Familiarity threat.
Self-interest threat.
Advocacy threat.
Ans.
Intimidation threat
When threats to independence that are not clearly insignificant are identified, the following are
appropriate, except
Professional judgment is used to determine the appropriate safeguards to eliminate threats to

independence or to reduce them to an acceptable level.
In situations when no safeguards are available to reduce the threat to an acceptable level, the
only possible actions are to eliminate the activities or interest creating the threat, or to refuse to
accept or continue the assurance engagement.
When the firm decides to accept or continue the assurance engagement, the decision need not be
documented provided the threats identified were eliminated.
The evaluation of the significance of any threats to independence and the safeguards necessary to
reduce any threats to an acceptable level, takes into account the public interest.
Ans.
When the firm decides to accept or continue the assurance engagement, the decision need not be
documented provided the threats identified were eliminated.
This refers to the threat that a professional accountant will not appropriately evaluate of a
previous judgement made or service performed by the professional accountant, by another
individual within the professional accountant’s firm or employing organization, on which the
accountant will rely when forming a judgement as a part of providing a current service.
Self- interest threat

Self- review threat
Advocacy threat
Familiarity threat
Ans.
Self- review threat
Using the same senior personnel on an assurance engagement over a long period of time would
most likely create
intimidation threat
advocacy threat
familiarity threat
Ans.
familiarity threat
What threat to independence may be created when the fees generated by the assurance client
represent a large proportion of the revenue of an individual of the firm?
Self-review threat
Familiarity threat
Advocacy threat
Ans.
As defined in the Code, “a valuation comprises the making of assumptions with regard to future
developments, the application of certain methodologies and techniques, and the combination of
both in order to compute a certain value, or range of values, for an asset, a liability or for a
business as a whole.” Which of the following threats may be created when a firm or a network
firm performs valuation for an audit client that is to be incorporated in the client’s financial
statements?
Advocacy threat
Familiarity threat
Self-review threat
Intimidation threat
Ans.
Self-review threat
Occurs when a firm or a member of the assurance team could benefit from a financial
interest in, or other self-interest conflict with, an assurance client.
Advocacy threat
Self-review threat
Familiarity threat
Ans.
Safeguards created by the profession, legislation or regulation, include the following,

except
Educational, training and experience requirements for entry into the profession.
Continuing education requirements.
Legislation governing the independence requirements of the firm.
Policies and procedures that emphasize the assurance client’s commitment to fair
financial reporting.
Ans.
Policies and procedures that emphasize the assurance client’s commitment to fair financial
reporting.
Safeguards with the firm’s own systems and procedures, include the following except
Firm leadership that stresses the importance of independence and the expectation that members
of assurance teams will act in the public interest.
External review of the firm’s quality control system.
Policies and procedures to implement and monitor quality control of assurance engagements.
Policies and procedures that will enable the identification of interests or relationships between
the firm or members of the assurance team and assurance clients.
Ans.
External review of the firm’s quality control system.
The safeguards available to eliminate the threats or reduce them to an acceptable level
include
(1) Safeguards created by the profession

legislation or regulation
(2) Safeguards within the assurance client
(3) Safeguards within the firm’s own systems and procedures

(1)YES; (2)YES; (3)YES
(1)YES: (2)YES: (3)NO
(1)YES; (2)NO; (3)NO
(1)YES; (2)NO; (3)YES
Ans.
When a professional accountant is asked to provide a second opinion, the professional accountant
has a responsibility to identify potential threat to fundamental principles. If the identified threat
is other than clearly insignificant, appropriate safeguards should be applied. Which of the
following safeguards could possibly eliminate the threat that arises when providing second
opinions?
Engage the services of an expert

Involving another firm to perform or re-perform part of the engagement
Seek client’s permission to contact the existing accountant
Contact the existing accountant without obtaining the client’s permission
Ans.
Seek client’s permission to contact the existing accountant
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
Issuance of an adverse opinion.
Issuance of qualified opinion or disclaimer of opinion.
Issuance of unqualified opinion with explanatory paragraph.
Refusal to perform, or withdrawal from, the assurance engagement.
Ans.
Refusal to perform, or withdrawal from, the assurance engagement.
According to Section 240 of the Code of Ethics, fees charged for assurance engagements should
be a fair reflection of the value of the work involved. In determining professional fees, the
following should be taken into account, except
The time necessarily occupied by each person engaged on the work.

The outcome or result of a transaction or the result of the work performed.
The skill and knowledge required for the type of work involved.
The level of training and experience of the persons necessarily engaged on the work.
Ans.
The outcome or result of a transaction or the result of the work performed.
Statement 1: Safeguards are actions or other measures that may eliminate threats
or reduce them to an acceptable level.
Statement 2: They fall into two broad categories: (a) Safeguards created by the
profession, legislation or regulation; and (b) Safeguards in the work environment.
True, True False, False False, True True, False

Ans.
True, True
Safeguards within the assurance client, include the following, except
Professional standards and monitoring and disciplinary processes.
The assurance client has competent employees to make managerial decision.
Internal procedures that ensure objective choices in commissioning non-assurance engagements.
A corporate governance structure, such as an audit committee, that provides appropriate

oversight and communications regarding a firm’s services.
Ans.
Professional standards and monitoring and disciplinary processes.
When the professional accountant determines that appropriate safeguards are not
available or cannot be applied to eliminate the threats to independence or reduce them to
an acceptable level, the professional accountant shall
I. Eliminate the circumstance or relationship creating the threats.

II. Decline or terminate the audit engagement.
I only II only Neither I nor II Either I or II

Ans.
Either I or II
Safeguards created by the profession, legislation or regulation, include the following, except
Educational, training and experience requirements for entry into the profession
Continuing education requirements
Legislation governing the independence requirements of the firm.
reporting
Ans.
reporting
Which of the following is an example of engagement-specific safeguards in the work

environment?
Advising partners and professional staff of those assurance clients and related entities from
which they must be independent.
Disclosing to those charged with governance of the client the nature of service provided and
extent of fees charged.
A disciplinary mechanism to promote compliance with the firm’s policies and procedures.
Published policies and procedures to encourage and empower staff to communicate to senior
levels within the firm any issue relating to compliance with the fundamental principles that
concerns them.
Ans.
Disclosing to those charged with governance of the client the nature of service provided and
extent of fees charged.
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.
External review of a firm’s quality control system.
Policies and procedures to implement and monitor quality control of assurance

engagements.
Policies and procedures that will enable the identification of interests or

relationships between the firm or members of the assurance team and assurance
clients.
Ans.
External review of a firm’s quality control system.
Consideration of the nature of the safeguards to be applied will be affected by matters

such as the
(1) Significance of the threat

(2) Nature of the assurance engagement
(3) Intended users of the assurance report
(4) Structures of the firm

(1) YES; (2) YES; (3)YES; (4)YES
(1)YES: (2)YES; (3)YES; (4)NO
(1)YES; (2)YES; (3)NO; (4)NO
(1)YES; (2)NO; (3)YES; (4)NO
Ans.
(1) YES; (2) YES; (3)YES; (4)YES
These are policies and procedures designed to eliminate or to reduce threats to fundamental
principles to an acceptable level.
International controls
Control activities
Safeguards
Segregation of duties
Ans.
Safeguards
The engagement partner should take responsibility for the direction, supervision, and
performance of the audit engagement in compliance with professional standards and regulatory
and legal requirements, and for the auditor’s report that is issued to be appropriate in the
circumstances. Supervision includes the following, except
Tracking the progress of the audit engagement.
Addressing significant issues arising during the audit engagement, considering their significance,
and modifying the planned approach appropriately.
Informing the members of the engagement team of their responsibilities.
Identifying matters for consultation or consideration by more experienced engagement team

members during the audit engagement.
Ans.
Informing the members of the engagement team of their responsibilities.
The existing accountant, on receipt of the communication from the proposed professional
accountant in public practice, should not
Reply, preferably in writing, advising whether there are any professional reasons why the
proposed professional accountant in public practice should not accept the appointment.
Ensure that the client has given permission to give details of this information to the proposed
professional accountant in public practice.
Report the fact, that the permission is not granted, to the proposed professional accountant in
public practice.
Disclose all information needed by the proposed professional accountant in public practice to be
able to decide whether or not to accept the appointment, if permission is not granted.
Ans.
Disclose all information needed by the proposed professional accountant in public practice to be
able to decide whether or not to accept the appointment, if permission is not granted.
Which element of a system of quality control is addressed by the establishment of policies and
procedures designed to provide the firm with reasonable assurance that it has sufficient personnel
with the competence, capabilities, and commitment to ethical principles?
Monitoring
Leadership responsibilities for quality within the firm
Human resources
Engagement performance
Ans.
Human resources
As defined in PSQC 1, __________ is a process comprising an ongoing consideration and

evaluation of the firm’s system of quality control, including a periodic inspection of a selection
of completed engagements, designed to provide the firm with reasonable assurance that its
system of quality control is operating effectively.
Monitoring
Inspection
Engagement quality control review
Supervision
Ans.
Monitoring
Who should take responsibility for the overall quality on each audit engagement?
Engagement quality control reviewer

Engagement partner
Engagement team
CPA firm
Ans.
Engagement partner
Which statement is incorrect regarding relations with other professional accountants in public
practice?
Professional accountants in public practice should only undertake the services which they can
expect to complete with professional competence.
The wishes of the client should be paramount in the choice of professional advisers, whether or
not special skills are involved.
When a professional accountant in public practice is asked to provide services or advice,

inquiries should be made as to whether the prospective client has an existing accountant.
The receiving accountant may express any criticism of the professional services of the existing
accountant without giving the latter an opportunity to provide all relevant information.
Ans.
The receiving accountant may express any criticism of the professional services of the existing
accountant without giving the latter an opportunity to provide all relevant information.
A distinct sub-group, whether organized on geographical or practice lines.
Office
Practice
Firm
Network firm
Ans.
Office
Which of the following are elements of a CPA firm’s quality control that should be
considered in establishing its quality control policies and procedures?
1) Ethical Requirements
2) Human Resources
3) Engagement Performance
1) No 2) Yes 3) No
1) Yes 2) No 3) No
1) Yes 2) Yes 3) Yes
1) No 2) No 3) Yes
Ans.
For audits of financial statements of listed entities, the engagement partner should not issue the
auditor’s report until the completion of the
Engagement Quality Control Review

Management Review
Engagement Team Review
Engagement Partner Review
Ans.
Engagement Quality Control Review
Which statement is incorrect regarding Professional Competence and Responsibilities Regarding
the Use of Non-Accountants?
Professional accountants in public practice should refrain from agreeing to perform professional
services which they are not competent to carry out.
If a professional accountant does not have the competence to perform a specific part of the
professional service, technical advice may be sought from experts.
In situations wherein a professional accountant sought technical competence of the expert, the
knowledge of the ethical requirements cannot be automatically assumed.
If at any time the professional accountant is not satisfied that proper ethical behavior can be
respected or assured, the engagement should not be accepted unless the engagement has
commenced in which case the auditor is allowed to finish the engagement.
Ans.
If at any time the professional accountant is not satisfied that proper ethical behavior can be
respected or assured, the engagement should not be accepted unless the engagement has
commenced in which case the auditor is allowed to finish the engagement.
Which statement is incorrect regarding activities incompatible with the practice of public
accountancy?
A professional accountant in public practice should not concurrently engage in any business,
occupation or activity which impairs or might impair integrity, objectivity or independence, or
the good reputation of the profession.
occupation or activity which would be incompatible with the rendering of professional services.
The rendering of two or more types of professional services concurrently does by itself impair
integrity, objectivity or independence.
The simultaneous engagement in another business, occupation or activity unrelated to

professional services which has the effect of not allowing the professional accountant in public
practice properly to conduct a professional practice in accordance with the fundamental ethical
principles of the accountancy profession should be regarded as inconsistent with the practice of
public accountancy.
Ans.
occupation or activity which would be incompatible with the rendering of professional services.
Lead engagement partner is
I. The partner responsible for signing the report on the consolidated financial statement of
the audit client.
II. Whose relevant, the partner responsible for signing the report in respect of any entity
whose financial statements from part of the consolidated financial statements and on
which is a separate stand-alone report is issued.
III. When no consolidated financial statements are prepared, the partner responsible for
signing the report on the financial statements.
I, II and III
I, and II only
I only
I and III only
Ans.
I, II and III
The primary purpose of establishing quality control policies and procedures for deciding
whether to accept a new client is to
Anticipate before performing any fieldwork whether an unqualified opinion can be
expressed.
Enable the CPA firm to attest to the reliability of the client.
Satisfy the CPA firm’s duty to the public concerning the acceptance of new clients.
Minimize the likelihood of association with clients whose management lacks integrity.
Ans.
Minimize the likelihood of association with clients whose management lacks integrity.
Retainer’s fee basis is when
Billing is done in the basis of actual time spent at the agreed rate/hours
The client is charged on a per diem basis with a cap or ceiling amount
The client is billed a fixed fee periodically for the services rendered during a designated period
of time.
The client is billed at a single amount for the entire engagement

Ans.
The client is billed a fixed fee periodically for the services rendered during a designated period
of time.
Which of the following is incorrect regarding integrity and objectivity?

Integrity implies not merely honesty but fair dealing and truthfulness.
The principle of objectivity imposes the obligation on all professional accountants to be fair,
intellectually honest and free of conflicts of interest.
Professional accountants serve in many different capacities and should demonstrate their
objectivity in varying circumstances
Professional accountants should neither accept nor offer any gifts or entertainment.
Ans.
Professional accountants should neither accept nor offer any gifts or entertainment.
The nature, timing, and extent of an audit firm’s quality control policies and procedures
depend on
1) The CPA Firm’s Size
2) The Nature of the CPA Firm’s Practice
3) Appropriate Cost-Benefit Considerations
1) Yes 2) Yes 3) No
1) No 2) No 3) No
1) Yes 2) No 3) Yes
Ans.
Communication between the receiving accountant and existing accountant is not intended
To protect a professional accountant in public practice from accepting the appointment in

circumstances where all the pertinent facts are not known.
To protect the minority proprietors of a business who may not be fully informed of the
circumstances in which the change is proposed.
To protect the interests of the existing accountant when the proposed change arises from, or is an
attempt to interfere with, the conscientious exercise of the existing accountant’s duty to act as an
independent professional.
To restrict the client’s freedom to choose their professional advisers and to change to others.
Ans.
To protect a professional accountant in public practice from accepting the appointment in
circumstances where all the pertinent facts are not known.
Which statement is incorrect regarding professional fees?
Professional fees should normally be computed on the basis of appropriate rates per hour or per
day for the time of each person engaged in performing professional services
The appropriate rates should be based on the fundamental premise that the organization and
conduct of the professional accountant in public practice and the services provided to clients are
well planned, controlled and managed.
It is for each professional accountant in public practice to determine the appropriate rates.
It is not proper for a professional accountant in public practice to charge a client a lower fee than
has previously been charged for similar services.
Ans.
It is not proper for a professional accountant in public practice to charge a client a lower fee than
has previously been charged for similar services.
Which of the following fee arrangements would violate the code of Professional Conduct?
A fee based on the approval of a bank loan.

A fee based on the outcome of a bankruptcy proceeding.
A per hour fee that includes out-of-pocket expenses.
A fee based on the complexity of the engagements.
Ans.
A fee based on the approval of a bank loan.
The CPA should not undertake an engagement if his audit fee is to be based upon
a percentage of audited net income

per diem rates plus expenses
the findings of a tax authority
the complexity of the service rendered
Ans.
a percentage of audited net income
In determining estimates of fees, an auditor may take into account each of the following, except
the
Value of the service to the client

egree of responsibility assumed by undertaking the engagement
Skills required to perform the service
Attainment of specific findings
Ans.
Attainment of specific findings
Professional fees should be a fair reflection of the value of the professional services performed
for the client, taking into account:
The skill and knowledge required for the type of professional services involved.
The level of training and experience of the persons necessarily engaged in performing the
professional services.
The time necessarily occupied by each person engaged in performing the professional services
and the degree of responsibility that performing those services entails
All of the above

Ans.
All of the above
Professional fees should be a fair reflection of the value of the professional services
performed for the client, taking into account:
(1) The skill and knowledge required for the type of professional services involved.
(2) The level of training and experience Of the persons necessarily engaged In
performing the professional services
(3)The time necessarily occupied by each person engaged in performing the professional
services
(4) The degree of responsibility that Performing those services entails

(1) YES; (2)YES (3)YES; (4)YES
(1)YES; (2)YES; (3)YES; (4)NO
(1)YES; (2)YES; (3)NO; (4)NO
(1)YES; (2)NO; (3)NO; (4)NO
Ans.
(1) YES; (2)YES (3)YES; (4)YES
Which of the following actions by a professional accountant in public practice will not result in
violation of the code of Ethics regarding commissions?
Accepting commission for referring a client to a third party
Accepting commission for the referral of the products or services of others
Receipt of referral fees by the referring accountant when no services are performed by the
referring accountant.
Entering into an arrangement for the purchase of the whole or part of an accounting practice
requiring payments to individuals formerly engaged in the practice or payments to their heirs or
estates.
Ans.
Entering into an arrangement for the purchase of the whole or part of an accounting practice
requiring payments to individuals formerly engaged in the practice or payments to their heirs or
estates.
In which of the following situations would a CPA be in violation of the rules of professional
ethics in determining professional fees?
A fee based on appropriate rates per hour or per day for the time of each person engaged in
performing professional services
A fee which is lower compared to the fee charged in the prior year for similar services
A fee based on appropriate rates per hour, where the appropriate rate is based on the fundamental
premise that the organization and conduct of the CPA and the services provided to clients are
well planned, controlled and manage
A fee that is based on 10% of the client’s adjusted net income for the current year
Ans.
A fee that is based on 10% of the client’s adjusted net income for the current year
The Rules of Conduct will ordinarily be considered to have been violated when the professional
accountant represents that specific consulting services will be performed for a stated fee and it is
apparent at the time of the representation that the
Actual fee would be substantially higher
Actual fee would be substantially lower than the fees charged by other professional accountants
for comparable services
Fee was a competitive bid.
Professional accountant would not be independent.

Ans.
Professional accountant would not be independent.
Yellow, a non-CPA has a law practice. Red, CPA, has agreed to pay Yellow 10% of the fee for
services rendered by Red to Yellow’s clients. Who, if anyone, is in violation of the code of
ethics?
Only Red
Both Red and Yellow
Only Yellow
Neither Red nor Yellow
Ans.
Only Red
Advertising as defined in the Code of Ethics, means
The communication to the public of facts about a professional accountant which are not designed
for the deliberate promotion that professional accountant.
The approach to a potential client for the purpose of offering professional services.
The communication to the public of information as to the services or skills provided by

professional accountants in public practice with a view to procuring professional business.
Any of the above.

Ans.
The communication to the public of information as to the services or skills provided by
The holding of media-covered events undertaken only to commemorate a professional

accountant’s anniversaries in public practice does not violate the rules on advertising and
solicitation provided that such undertaking should be done only every _____ years of
celebration.
5 10 20 25
Ans.
5
Which of the following is not acceptable?
An appointment of a professional accountant in a matter of national importance was publicized.
A professional accountant writes a letter to another professional accountant seeking employment

or professional business.
A professional accountant is listed in a directory that could reasonably be regarded as a

promotional advertisement for those listed therein.c
A professional accountant who authored an article on professional subject, stated his name and
professional qualifications and gave the name of his organization.
Ans.
An appointment of a professional accountant in a matter of national importance was publicized.
Which of the following is true regarding advertising and solicitation?
Advertising, but not solicitation, by individual professional accountants in public practice is

permitted in the Philippines.
It is clearly desirable that the public should be aware of the range of services available from a
professional accountant.
Solicitation but not advertising, by individual professional accountants in public practice is

A professional accountant in public practice in the Philippines, where advertising is prohibited,

may advertise in a newspaper or magazine published in a country where advertising is permitted.
Ans.
Advertising, but not solicitation, by individual professional accountants in public practice is
The approach to a potential client for the purpose of offering professional services is called
indecent proposal
solicitation
encroachment
advertising
Ans.
Solicitation
Professional accountant who author books or articles on professional subjects, may state
(1)His or her name
(2)Professional qualification
(3)Name of organization
(4)Information as to the services his or Her firm provide

(1) YES; (2)YES; (3)YES; (4)YES
(1)YES; (2)YES; (3)YES; (4)NO
(1)YES; (2)YES; (3)NO; (4)NO
(1)YES; (2)NO; (3)NO; (4)NO
Ans.
(1)YES; (2)YES; (3)YES; (4)NO
As defined in the Code of Ethics, __________ is the communication to the public of facts about a
professional accountant which are not designed for the deliberate promotion of that professional
accountant.
Advertising
Publicity
Solicitation
Marketing professional services
Ans.
Publicity
In the marketing and promotion of themselves and their work, professional accountants should
Not use means which brings the profession into disrepute
Not make exaggerated claims for the services they are able to offer, the qualifications they
possess, or experience they have gained.
Not denigrate the work of other accountants.
All of the above.

Ans.
All of the above.
Which of the following is acceptable?
A professional accountant invited a potential client to attend training courses or seminars

conducted for the assistance of staff.
Job specification that gives some detail as to one or more of the services provided to clients by
the professional accountant in public practice was communicated to the public through the
classified ads section of the newspaper.
A professional accountant in public practice indicated in his stationery that he is a tax expert.
A professional accountant developed a website that contains self-laudatory statements design to

solicit social clients.
Ans.
A professional accountant in public practice indicated in his stationery that he is a tax expert.
Publicity by individual professional accountants in public practice is acceptable provided:
(1)It has as its object the notification to the public or such sectors of the
public as are concerned, of matters of fact in a manner that is not false,
misleading or deceptive
(2)It is in good taste
(3)It is professionally dignified
(4)It avoids frequent repetition of, and any undue prominence being given to the name of
the professional accountant in public practice
(1)YES; (2)YES; (3)YES; (4)YES
(1)YES; (2)YES; (3)YES; (4)NO
(1)NO; (2)YES; (3)YES; (4)NO
(1)YES; (2)YES; (3)NO; (4)YES
Ans.
(1)NO; (2)YES; (3)YES; (4)NO
A professional accountant in public practice is allowed to
Refer to, use or cite actual or purported testimonials by third parties.
Publish services in billboard (e.g., tarpaulin, streamers, etc.) advertisements.
Publish and compare fees with other CPAs or CPA firms or compare those services with those
provided by another firm or CPA practitioner.
Inform interested parties through any medium that a partnership or salaried employment of an
accountancy nature is being sought.
Ans.
Inform interested parties through any medium that a partnership or salaried employment of an
accountancy nature is being sought.
A CPA in public practice should not
Publish services in billboards like tarpaulin or streamers

Indicate that the firm is a member firm of a foreign firm
Use the term “Accredited”
Maintain website in the internet
Ans.
Publish services in billboards like tarpaulin or streamers
A professional accountant may invite the following to attend training courses or seminars
conducted for the assistance of staff
(1)Clients
(2)Staff
(3)Other potential accountants
(4)Potential clients
(1)YES; (2)YES; (3)YES; (4)YES
(1)YES; (2)YES; (3)YES; (4)NO
(1)NO; (2)YES; (3)NO; (4)YES
(1)NO; (2)YES; (3)NO; (4)NO
Ans.
(1)YES; (2)YES; (3)YES; (4)NO
Professional accountants press and other media releases undertaken to commemorate

anniversaries in public practice by informing the public of their achievements or
contributions towards nation building are
Considered violation of the rules on advertising

Forms of solicitation
Not permitted in the Philippines
Allowed provided such undertaking is done only once every 5 years.
Ans.
Allowed provided such undertaking is done only once every 5 years.
Which of the following statements concerning publicity is incorrect?
Booklets and other documents bearing the name of a professional accountant and giving
technical information for the assistance of staff or clients may be issued to such persons, other
professional accountants or other interested parties.
Professional accountants who author books or articles on professional subjects may state their
name and professional qualifications; give the name of their organization; and give any
information as to the services that the firm provides.
Appropriate newspapers or magazines may be used to inform the public of the establishment of a
new practice, of changes in the composition of a partnership of professional accountants in
public practice, or of any alteration in the address of a practice.
A professional accountant may develop and maintain a website in the Internet in such suitable
length and style which may also include announcements, press releases, publications and such
other necessary and factual information.
Ans.
Professional accountants who author books or articles on professional subjects may state their
name and professional qualifications; give the name of their organization; and give any
information as to the services that the firm provides.
This is the communication to the public of information as to the services or skills provided by
Advertising
Publicity
Solicitation
Ans.
Advertising
This refers to the communication to the public of facts about a professional accountant which are
not designed for the deliberate promotion of that professional accountant.
Advertising
Publicity
Solicitation
Referral
Ans.
Publicity
Generally, advertising and publicity in any medium are acceptable provided it is:
not in good taste

published in billboard advertisements
not professionally dignified
not self-laudatory
Ans.
not self-laudatory
As defined in the Code of Ethics, __________ is the communication to the public of information
as to the services or skills provided by professional accountants in public practice with a view to
procuring professional business.
Advertising
Publicity
Solicitation
Ans.
Advertising
All forms of advertisements must have a prior review and approval by the
Lead engagement partner

Risk management partner
Quality control reviewer
Board of Accountancy
Ans.
Risk management partner
Offer of gifts or undue hospitality from a client may create threats to objectivity. In evaluating
the significance of threat created by such offer, the professional accountant should consider the:
(1)Nature of the offer
(2)Value of the offer
(3)Intent behind the offer

(1)YES; (2)NO; (3)YES
(1)NO; (2)NO; (3)NO
(1)NO; (2)YES; (3)NO
Ans.
Which statement is incorrect regarding clients’ monies?
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.
A professional accountant in public practice should maintain one or more bank accounts for
clients’ monies.
Monies may only be drawn from the client account on the instructions of the client.
Fees due from a client may be drawn from clients’ monies without the need of notifying the
client.
Ans.
Fees due from a client may be drawn from clients’ monies without the need of notifying the
client.
When a professional accountant is entrusted with the custody of money or other assets belonging
to others, the professional accountant should not
keep such assets separate from personal assets

use such assets for purposes other than those for which they are intended
be ready to account for those assets at all times
make inquiries about the source of such assets
Ans.
use such assets for purposes other than those for which they are intended
When a professional accountant learns of a material error or omission in a tax return of a prior
year, or of the failure to file a required tax return, the professional accountant has a
responsibility to do the following, except
Promptly advise the client or employer of the error or omission and recommend that disclosure
be made to the revenue authorities.
Immediately inform the revenue authorities.
Take reasonable steps to ensure that the error is not repeated in subsequent tax returns if the
professional accountant concludes that a professional relationship with the client or employer can
be continued.
Inform the client or the employer that it is not possible to act for them in connection with that
return or other related information submitted to the authorities if the client or the employer does
not correct the error.
Ans.
Immediately inform the revenue authorities.
A professional accountant may be associated with a tax return that
Contains a false or misleading statement
Contains statements or information furnished recklessly or without any real knowledge of

whether they are true or false.
Omits or obscures information required to be submitted and such omission or obscurity would
mislead the revenue authorities.
Uses of estimates if such use is generally acceptable or if it is impractical under the

circumstances to obtain exact data.
Ans.
Uses of estimates if such use is generally acceptable or if it is impractical under the
circumstances to obtain exact data.
Which of the following is incorrect regarding the professional accountants’ tax practice?
A professional accountant rendering professional tax services is entitled to put forward the best
position in favor of a client, or an employer.
Doubt may be resolved in favor of the client or the employer if there is reasonable support for
the position.
A professional accountant may hold out to a client or an employer the assurance that the tax
return prepared and the tax advice offered are beyond challenge.
Professional accountants should ensure that the client or the employer are aware of the
limitations attaching to tax advice and services so that they do not misinterpret an expression of
opinion as an assertion of fact.
Ans.
A professional accountant may hold out to a client or an employer the assurance that the tax
return prepared and the tax advice offered are beyond challenge.
The following statements relate to the provision of legal services to an audit client. Which is
incorrect?
The provision of legal services to an audit client involving matters that would not be expected to
have a material effect on the financial statements may create a self-review threat.
Legal services to support an audit client in the execution of a transaction (e.g., contract support)
may create a self-review threat.
Acting for an audit client in the resolution of a dispute or litigation in such circumstances when
the amounts involved are material in relation to the financial statements of the audit client would
create advocacy and self-review threats so significant no safeguards could reduce the threats to
an acceptable level.
The appointment of a partner or an employee of the firm or network firm as General Counsel for
legal affairs to an audit client would create self-review and advocacy threats that are so
significant no safeguards could reduce the threats to an acceptable level.
Ans.
The provision of legal services to an audit client involving matters that would not be expected to
have a material effect on the financial statements may create a self-review threat.
Which of the following is incorrect regarding independence?
Independence consists of independence of mind and independence in appearance.
Independence of mind is the state of mind that permits the provision of an opinion without being
affected by influences that compromise professional judgement, allowing an individual to act
with integrity, and exercise objectivity and professional skepticism.
Independence in appearance is the avoidance of facts and circumstances that are so significant a
reasonable and informed third party, having knowledge of all relevant information, including any
safeguards applied, would reasonably conclude a firm’s or a member of the assurance team’s
integrity, objectivity or professional skepticism had been compromised.
Independence is a combination of impartiality, intellectual honesty and a freedom from conflicts

of interest.
Ans.
Independence is a combination of impartiality, intellectual honesty and a freedom from conflicts
of interest.
One of the major differences between auditors and other professionals is that most professionals
Do not have to pass rigorous examination to be admitted in the profession.

Are not expected to act in the best interest of the public.
Need not be concerned about independence.
Do not need the confidence of the public.
Ans.
Need not be concerned about independence.
A CPA, while performing an audit, strives to achieve independence in appearance in order to
Reduce risk and liability

Become independent in mind.
Maintain public confidence in the profession.
Comply with the generally accepted standards of fieldwork
Ans.
Maintain public confidence in the profession.
Independence is required whenever a professional accountant performs:
professional services
assurance services
non-assurance services
tax consultancy services
Ans.
assurance services
It refers to the avoidance of facts and circumstances that are so significant that a reasonable and
informed third party, having knowledge of all relevant information, including safeguards applied,
would reasonably conclude a firm’s or a member of the assurance team’s integrity, objectivity or
professional skepticism had been compromised.
Independence in fact
Independence of mind
Independence in appearance
Inherent independence
Ans.
Independence in appearance
Close family include the following, except

Parent
Sibling
Non-dependent child
Spouse
Ans.
Spouse
If requested to perform a review engagement for a nonpublic entity in which an accountant has
an immaterial direct financial interest, the accountant is
Not independent and, therefore, may not be associated with the financial statements.
Not independent and, therefore, may not issue a review report.

Not independent and, therefore, may issue a review report, but may not issue an auditor’s
opinion.
Independent because the financial interest is immaterial and, therefore, may issue a review
report.
Ans.
Not independent and, therefore, may not issue a review report.
Which of the following is an example of an intimidation threat that may affect the independence
of the professional accountant?
Preparation of original data used to generate financial statements or preparation of other records
Threat of replacement over a disagreement with the application of an accounting principle.
Dealing in, or being a promoter of, share or other securities in an audit client.
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.
Ans.
Threat of replacement over a disagreement with the application of an accounting principle.
A financial interest beneficially owned through a collective investment vehicle, estate, trust or
other intermediary over which the individual or entity has no control.
Indirect financial interest

Direct financial interest
Financial instrument
Clients’ monies
Ans.
Indirect financial interest
The firm should be independent of the client in the following engagements
(1)Assurance engagements provided to an audit client
(2)Assurance engagements provided to clients that are not audit clients, when the report
is not expressly restricted for use by identified users
(3)Assurance engagements provided to clients that are not audit clients, when the
assurance report is expressly restricted for use by identified users

(1)YES; (2)YES; (3)NO
(1)YES; (2)NO; (3)NO
(1)YES; (2)NO; (3)YES
Ans.
(1)YES; (2)YES; (3)NO
Which of the following will not create self-interest threat for a professional accountant in public
practice?
The possibility of losing a significant client.
Direct financial interest in the assurance client.
Undue dependence on total fees from a client.
Preparing the original data used to generate records that are the subject matter of the assurance
engagement.
Ans.
Preparing the original data used to generate records that are the subject matter of the assurance
engagement.
Independence in auditing means
Not having any financial or economic relationship with the client.

Being an advocate of the assurance client.
Taking an unbiased viewpoint
Not having a loan to or from an assurance client.
Ans.
Taking an unbiased viewpoint
For assurance engagements provided to an audit client, the following should be

independent of the client
(1)members of the assurance team
(2)The firm
(3)Network firms

(1)YES; (2)YES; (3)NO
(1)YES; (2)NO; (3)NO
(1)YES; (2)NO; (3)YES
Ans.
Kar, CPA, is a staff auditor participating in the audit engagement of Fort, Inc. Which of the
following circumstances impairs Kar’s independence?
During the period of the professional engagement, Fort gives Kar tickets to a football game
worth P3,000
Kar owns stock in a corporation that Fort’s 401(k) plan also invests in
Kar’s friend, an employee of another local accounting firm, prepares Fort’s tax returns
Kar’s sibling is director of internal audit at Fort

Ans.
Kar’s sibling is director of internal audit at Fort
The Code of Ethics requires the members of the assurance team and the firm to be independent of
the assurance client during the period of the assurance engagement. Which of the following
statements relating to the period of engagement is correct?
The engagement period starts when the assurance team perform assurance services and ends
when the assurance report is issued, regardless of whether the engagement is expected to recur.
If the assurance engagement is expected to recur, the engagement period starts when the
assurance team begins to perform assurance services and ends with the notification by either
party that the professional relationship has terminated or the issuance of the final assurance
report, whichever is earlier.
In the case of a financial statement audit engagement, the engagement period includes the period
covered by the financial statements reported on by the firm.
If the assurance engagement is expected to recur, the engagement period ends with the
notification by either party that the professional relationship has terminated.
Ans.
In the case of a financial statement audit engagement, the engagement period includes the period
covered by the financial statements reported on by the firm.
Financial interest means
Any bank account which is used solely for the banking of clients’ monies.
Any monies received by a professional accountant in public practice to be held or paid out on the
instruction of the person from whom or on whose behalf they are received.
A financial interest beneficially owned through a collective investment vehicle, estate, trust or
other intermediary over which the individual or entity has no control.
An interest in an equity or other security, debenture, loan or other debt instrument of an entity,
including rights and obligations to acquire such an interest and derivatives directly related to
such interest.
Ans.
An interest in an equity or other security, debenture, loan or other debt instrument of an entity,
including rights and obligations to acquire such an interest and derivatives directly related to
such interest.
The Philippine Code of Ethics for professional accountants requires independence
(1)Of mind
(2)In appearance
(1)YES (2)YES
(1)YES (2)NO
(1)NO (2)NO
(1)NO (2)YES
Ans.
(1)YES (2)YES
Independence is potentially affected by
(I)Self-interest threat
(II)Intimidation threat
(III)Self-review threat
(IV)Familiarity threat
(V)Advocacy Threat
I,II,III,IV and V
I,II, III and IV
I, II and III
I only
Ans.
I,II,III,IV and V
Which of the following should be independent of the financial statement audit client?
(1)The members of the assurance team
(2)The firm
(3)Network firms
(1)YES; (2)YES; (3)NO
(1)YES; (2)NO; (3)NO
(1)YES; (2)NO; (3)YES
Ans.
The following statements relate to the provision of taxation, internal audit or IT Systems services
to audit clients. Which is false?
Preparing calculations of current and deferred tax liabilities (or assets) for an audit client for the
purpose of preparing accounting entries that will be subsequently audited by the firm creates a
self-interest threat.
A self-review threat may be created when a firm, or network firm, provides internal audit
services to an audit client.
The provision of services by a firm or network firm to an audit client that involve the design and
implementation of financial information technology systems that are used to generate
information forming part of a client’s financial statements may create a self-review threat.
The provision of services in connection with the assessment, design, and implementation of
internal accounting controls and risk management controls does not create a threat to
independence provided that firm or network firm personnel do not perform management
functions.
Ans.
Preparing calculations of current and deferred tax liabilities (or assets) for an audit client for the
purpose of preparing accounting entries that will be subsequently audited by the firm creates a
self-interest threat.
Which of the following circumstances may create advocacy threat for a professional accountant
in public practice?
The firm promoting shares in an audit client.
A firm issuing an assurance report on the effectiveness of the operation of financial systems after
designing or implementing the systems.
A firm being threatened with dismissal from a client engagement.
A firm being concerned about the possibility of losing a significant client.

Ans.
The firm promoting shares in an audit client.
Ultimately, the decision as to whether the CPA is independent or not, will be made by the
Client
Audit committee
Public
Auditor
Ans.
Auditor
For assurance engagements provided to clients that are not audit clients, when the report
is not expressly restricted for use by identified users, the following should be independent
of the client
(1)The members of the assurance team
(2)The firm
(3)Network firms
(1)YES; (2)YES; (3)NO
(1)YES; (2)NO; (3)NO
(1)YES; (2)NO; (3)NO
Ans.
(1)YES; (2)YES; (3)NO
Which of the following is incorrect regarding confidentiality?
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.
The duty of confidentiality ceases after the end of the relationship between the professional
accountant and the client or employer.
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.
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.
Ans.
The duty of confidentiality ceases after the end of the relationship between the professional
accountant and the client or employer.
According to the standards of the profession, which of the following activities would most likely
not impair a CPA’s independence?
Providing advisory services for a client

Contracting with a client to supervise the client’s office personnel
Signing a client’s checks in emergency situations
Accepting a luxurious gift from a client
Ans.
Providing advisory services for a client
The essence of the due care principle is that the auditor should not be guilty of:
Bias
errors in judgment
fraud
negligence
Ans.
Negligence
The principle of professional behavior requires a professional accountant to
Be straightforward and honest in performing professional services.
Be fair and should not allow prejudice or bias, conflict of interest or influence of others to
override objectivity.
Perform professional services with due care, competence and diligence
Act in a manner consistent with the good reputation of the profession and refrain from any
conduct which might bring discredit to the profession.
Ans.
Act in a manner consistent with the good reputation of the profession and refrain from any
conduct which might bring discredit to the profession.

Code of Ethics

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Code of Ethics

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Which of the following is incorrect regarding professional competence?

Which of the following is not a fundamental ethical principle?

The code of ethics for professional accountants applies to

A sole proprietor providing professional services to a client.

Revealing confidential client information during a quality review of a professional practice by a

Professional competence should include

1) Attainment of professional competence

2) Maintenance of professional competence

When the security of the state requires.

Competence as a certified public accountant includes all of the following except

Having the technical qualifications to perform an engagement.

A combination of impartiality, intellectual honesty and a freedom from conflict of interest.

Any of the above.

A distinct sub-group, whether organized on geographical or practice lines.

Any service requiring accountancy or related skills performed by a professional accountant

A sole proprietor or a partnership of professional accountants which offers professional services

Commission of Audit (COA)

A combination of impartiality, intellectual honesty and a freedom from conflict of interest.

attainment of professional competence

professional competence and due care

The principle of confidentiality applies to:

Professional accountants in public practice

The term receiving accountant includes the following, except

A professional accountant in public practice currently holding an audit appointment or carrying

Confidential client information may be disclosed in the following circumstances, except

When disclosure is authorized

Which of the following is not one of the characteristics of a profession?

Mastery of a particular intellectual skill acquired by training and education

Which of the following ethical principles requires proper supervision of assistants?

Part A of the Code of professional ethics establishes fundamental principles of professional

A requirement of law provides that CPAs establish a code of ethics.

Acceptance of responsibility to the public is a distinguishing mark of a profession.

The establishment of flexible ethical standards provides self-protection for CPAs.

To act diligently in accordance with applicable technical and professional standards.

To be straightforward and honest in all professional and business relationships.

Which of the following is a member of IFAC?

PICPA BOA PRC SEC

Which of the following is the least required in attaining professional competence?

High standard of general education.

A combination of impartiality, intellectual honesty and a freedom from conflicts of interest.

A professional accountant has a professional duty or right to disclose confidential information in

To comply with technical standards and ethics requirements

The code is divided into two parts, part A and part B

Part A applies to all professional accountants unless otherwise specified.

Part B applies only to those professional accountants in public practice.

The underlying reason for a code of professional ethics is

That it is required by legislation.

That it provides a safeguard against unscrupulous people.

Obtaining a collateralized automobile loan from a financial institution client

Employment of the CPA’s spouse as a client’s director of internal audit

Acting as an honorary trustee for a not-for-profit organization client

Examples of circumstances that may create self-review threat do not include

potential employment with an assurance client.

I only II only Neither I nor II Both I and II

The following circumstances may create intimidation threats, except

Being threatened with dismissal or replacement in related to a client engagement.

Being threatened with litigation.

Which of the following would not generally create a threat to independence?

Determining which recommendations of the firm should be implemented.

Reporting, in a management role, to those charged with governance.

professional competence and due care

Self-interest, familiarity or intimidation threats

Which of the following would most likely create a self-review threat?