Code of Ethics
Code of Ethics
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.
Objectivity
Professional behavior
Professional competence and due care
Independence
Ans.
Independence
The term professional accountant in public practice includes the following, except
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.
professional competence and due care
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
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
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?
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.
A combination of impartiality, intellectual honesty and a freedom from conflict of interest.
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.
The Code of Ethics for Professional Accountants in the Philippines defined “practice” as
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.
Which of the following is not explicitly referred to in the Code of Ethics as source of technical
standards?
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.
A combination of impartiality, intellectual honesty and a freedom from conflict of interest.
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:
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.
Which of the following fundamental principles would most likely be threatened when a
professional accountant in public practice solicits new work through advertising or other forms
of marketing?
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.
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.
Objectivity
professional behavior
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.
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 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
professional behavior
objectivity
due professional care
Ans.
professional behavior
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
Which of the following fundamental principles would most likely be threatened when a
professional accountant in public practice quotes a professional fee that is too low?
Integrity
Confidentiality
Objectivity
professional competence and due care
Ans.
professional competence and due care
Objectivity
Independence of mind
Professional skepticism
Independence
Ans.
Objectivity
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.
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.
Integrity
Confidentiality
Objectivity
professional competence and due care
Ans.
Objectivity
According to the standards of the profession, which of the following circumstances will prevent a
CPA performing audit engagements from being independent?
Litigation with a client relating to billing for consulting services for which the amount is
immaterial
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.
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.
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
Being pressured to reduce inappropriately the extent of work performed in order to reduce fees.
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.
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.
Which of the following fundamental principles would most likely be threatened when a
professional accountant in public practice assumes custody of client’s assets?
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?
Intimidation 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.
Which of the following fundamental principles would most likely be threatened when a
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
professional behavior
professional competence and due care
Ans.
Objectivity
The following circumstances create advocacy threats for a professional accountant in public
practice except
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?
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
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.
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
self-interest threat
Ans.
intimidation threat
Which of the following fundamental principles would most likely be threatened when a
professional accountant in public practice assumes custody of client’s assets?
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-interest threat
Self-review threat.
Intimidation threat
Advocacy threat
Ans.
Self-interest threat
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
professional behavior
professional competence and due care
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?
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
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.
The following forms of assistance to a financial statement audit client do not generally threaten
the firm’s independence, except
This occurs when a firm or a member of the assurance team could benefit from a financial
interest in an assurance client.
self-interest threat
self-review threat
advocacy threat
familiarity threat
Ans.
self-interest threat
Examples of circumstances that may create familiarity threat least likely include
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-interest threat
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-interest threat
Self-review threat
Familiarity threat
Ans.
Self-interest threat
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
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.
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?
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?
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-interest threat
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
Self-interest threat
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
Self-interest threat
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
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.
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
self-interest 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
Self-interest threat
Advocacy threat
Ans.
Self-interest threat
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.
Self-interest threat
Advocacy threat
Self-review threat
Familiarity threat
Ans.
Self-interest threat
Educational, training and experience requirements for entry into the profession.
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.
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
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?
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
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
Safeguards created by the profession, legislation or regulation, include the following, except
Educational, training and experience requirements for entry into the profession
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
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.
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
Addressing significant issues arising during the audit engagement, considering their significance,
and modifying the planned approach appropriately.
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
Monitoring
Inspection
Engagement quality control review
Supervision
Ans.
Monitoring
Who should take responsibility for the overall quality on each audit engagement?
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.
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.
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.
1) Yes 2) Yes 3) Yes
For audits of financial statements of listed entities, the engagement partner should not issue the
auditor’s report until the completion of the
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.
A professional accountant in public practice should not concurrently engage in any business,
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.
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.
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.
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 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) Yes 2) Yes 3) No
1) Yes 2) Yes 3) Yes
1) No 2) No 3) No
1) Yes 2) No 3) Yes
Ans.
1) Yes 2) Yes 3) Yes
Communication between the receiving accountant and existing accountant is not intended
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?
The CPA should not undertake an engagement if his audit fee is to be based upon
In determining estimates of fees, an auditor may take into account each of the following, except
the
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
(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
Which of the following actions by a professional accountant in public practice will not result in
violation of the code of Ethics regarding commissions?
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 lower than the fees charged by other professional accountants
for comparable services
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
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.
5 10 20 25
Ans.
5
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.
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
(2)Professional qualification
(3)Name of organization
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 make exaggerated claims for the services they are able to offer, the qualifications they
possess, or experience they have gained.
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.
(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
(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
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 professional accountant may invite the following to attend training courses or seminars
conducted for the assistance of staff
(1)Clients
(2)Staff
(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
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
professional accountants in public practice with a view to procuring professional business.
Advertising
Publicity
Solicitation
Marketing professional services
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:
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
Marketing professional services
Ans.
Advertising
All forms of advertisements must have a prior review and approval by the
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
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.
Omits or obscures information required to be submitted and such omission or obscurity would
mislead the revenue authorities.
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.
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.
One of the major differences between auditors and other professionals is that most professionals
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
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.
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
that are the subject matter of the assurance engagement.
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.
(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
Which of the following will not create self-interest threat for a professional accountant in public
practice?
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.
(2)The firm
(3)Network firms
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
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.
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.
(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
(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)YES
(1)YES; (2)YES; (3)NO
(1)YES; (2)NO; (3)NO
(1)YES; (2)NO; (3)YES
Ans.
(1)YES; (2)YES; (3)YES
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?
A firm issuing an assurance report on the effectiveness of the operation of financial systems after
designing or implementing the systems.
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
(2)The firm
(3)Network firms
(1)YES; (2)YES; (3)YES
(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
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?
The essence of the due care principle is that the auditor should not be guilty of:
Bias
errors in judgment
fraud
negligence
Ans.
Negligence
Be fair and should not allow prejudice or bias, conflict of interest or influence of others to
override objectivity.
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.