Integrated Auditing Theory| M9 Part 2| The Code of Ethics for Professional Accountants

1. Which statement is incorrect regarding the Code of Ethics for Professional Accountants in the Philippines?
a. The code is divided into two parts, part A and part B
b. Part A refers to general application of the code
c. Part B applies only to those professional accountants in public practice
d. Part C applies to professional accountants in business

2. Which statement is incorrect regarding the Revised Code of Ethics for Professional Accountants in the Philippines?
a. Professional accountants refer to persons who are Certified Public Accountants (CPA) and who hold a valid
certificate issued by the Board of Accountancy.
b. Where a local law is in conflict with a provision of the IFAC Code, the IFAC Code requirement prevails.
c. The Revised 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.
d. A member body of IFAC or firm shall not apply less stringent standards than those stated in this Code. However,
if a member body or firm is prohibited from complying with certain parts of this Code by law or regulation, they
shall comply with all other parts of this Code.

3. Which of the following statements best describes why the profession of CPAs has deemed it essential to promulgate a
code of ethics and to establish a mechanism for enforcing observance of the code?
a. A distinguishing mark of a profession is its acceptance of responsibility to the public
b. A prerequisite to success is the establishment of an ethical code that stresses primarily the professional’s
responsibility to client’s and colleagues
c. A requirement of most state laws calls for the profession to establish a code of ethics
d. An essential means of self-protection for the profession is the establishment of flexible ethical standards by the
profession

4. Fundamental principles are potentially affected by

I. Self-interest threat IV. Familiarity threat
II. Self review threat V. Intimidation threat
III. Advocacy threat
a. I, II, III, IV and V c. I, II and III
b. I, II, III and IV d. I only

5. Advocacy threat refers to

a. the threat that a financial or other interest will inappropriately influence the professional accountant’s judgment or
behavior
b. the threat that a professional accountant will not appropriately evaluate the results of a previous judgment made
or service performed by the professional accountant, or by another individual within the professional accountant’s
firm or employing organization, on which the accountant will rely when forming a judgment as part of providing a
current service
c. the threat that a professional accountant will promote a client’s or employer’s position to the point that the
professional accountant’s objectivity is compromised
d. the threat that due to a long or close relationship with a client or employer, a professional accountant will be too
sympathetic to their interests or too accepting of their work

6. Intimidation threat
a. is not a threat to independence, but only to fundamental principles.
b.is the threat that a professional accountant will be deterred from acting objectively because of actual or perceived
pressures, including attempts to exercise undue influence over the professional accountant.
c. is the threat that a financial or other interest will inappropriately influence the professional accountant’s judgment
or behavior.
d.all of the above.

7. 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.
a. True, True c. False, True
b. True, False d. False, False

8. Part A of the code of professional ethics establishes the fundamental principles of professional ethics for professional
accountants and provides a conceptual framework that professional accountants shall apply to complying with the
fundamental principles. A professional accountant shall use professional judgment in applying this conceptual
framework. Which of the following statements relating to the conceptual framework is incorrect?
a. Identify threats to compliance with the fundamental principles and evaluate the significance of the threats
identified.
b. Apply safeguards, when necessary, to eliminate the threats or reduce them to an acceptable level.
c. Safeguards are necessary when the professional accountant determines that the threats are not at a level at which
a reasonable and informed third party would be likely to conclude, weighing all the specific facts and circumstances
available to the professional accountant at that time, that compliance with the fundamental principles is not
compromised.
d. No safeguards are necessary as long as the professional accountants adhere to applicable technical standards.
9. A professional accountant may be required to resolve a conflict in complying with the fundamental principles. When
initiating either a formal or informal conflict resolution process, the following factors, either individually or together
with other factors, may be relevant to the resolution process:
I. Relevant facts
II. Ethical issues involved
III. Fundamental principles related to the matter in question
IV. Established internal procedures
V. Alternative courses of action
a. I, II, III c. I, II, III and V
b. I, II, III and IV d. All of the above

10. When faced with significant ethical issues, and having considered the relevant factors, a professional accountant shall
determine the appropriate course of action, weighing the consequences of each possible course of action. Professional
accountants should do the following, except
a. Follow the established policies of the employing organization to seek a resolution of such conflict.
b. Should not consult with those charged with governance of the organization, such as the board of directors or the
audit committee.
c. If a significant conflict cannot be resolved, a professional accountant may wish to obtain professional advice from
the relevant professional body or legal advisors, and thereby obtain guidance on ethical issues without breaching
confidentiality
d. If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, a professional accountant
should, where possible, refuse to remain associated with the matter creating the conflict.

11. Which of the following statements is (are) correct about objectivity and integrity?
a. The principle of integrity imposes the obligation on all professional accountants to be straightforward and honest
in professional and business relationships. Integrity also implies fair dealing and truthfulness.
b. The principle of objectivity imposes an obligation on all professional accountants not to compromise their
professional or business judgment because of bias, conflict of interest or the undue influence of others.
c. A professional accountant shall not perform a professional service if a circumstance or relationship biases or unduly
influences the accountant’s professional judgment with respect to that service
d. All of the above

12. A professional accountant should not be associated with reports, returns, communications or other information that i.
contains a false or misleading statement; ii. contains statements or information furnished recklessly or without any
real knowledge of whether they are true or false, and iii. c. omits or obscures information required to be submitted
and such omission or obscurity would be misleading; unless
a. The professional accountant is independent
b.Desired assurance engagement risk is high.
c. Engagement fee is commensurate to cover the risks involved.
d.An appropriate modified report is provided

13. The principle of professional competence and due care imposes the following obligations on all professional accountants,
except
a. To maintain professional knowledge and skill at the level required to ensure that clients or employers receive
competent professional service; and
b. To act diligently in accordance with applicable technical and professional standards when providing professional
services.
c. To exercise of infallible judgment in applying professional knowledge and skill in the performance of professional
service.
d. To take reasonable steps to ensure that those working under the professional accountant’s authority in a
professional capacity have appropriate training and supervision and where appropriate, make clients, employers
or other users of the accountant’s professional services aware of the limitations inherent in the services.

14. Which of the following is incorrect regarding professional competence and due care?
a. Professional competence may be divided into three separate phases.
b.The attainment of professional competence requires initially a high standard of general education.
c. The maintenance of professional competence requires a continuing awareness of development in the accountancy
profession.
d.Diligence encompasses the responsibility to act in accordance with the requirements of an assignment, carefully,
thoroughly and on a timely basis.

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

16. Which of the following is incorrect regarding confidentiality?

a. The principle of confidentiality imposes an obligation on all professional accountants to refrain from disclosing
outside the firm or employing organization confidential information acquired as a result of professional and
business relationships without proper and specific authority or unless there is a legal or professional right or duty
to disclose and using confidential information acquired as a result of professional and business relationships to
their personal advantage or the advantage of third parties.
b.The duty of confidentiality ceases after the end of the relationship between the professional accountant and the
client or employer.
 c. Confidentiality should always be observed by a professional accountant unless specific authority has been given to
disclose information or there is a legal or professional duty to disclose.
d.Confidentiality requires that a professional accountant acquiring information in the course of performing
professional services neither uses nor appear to use that information for personal advantage or for the advantage
of a third party.

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

18. The principle of professional behavior imposes an obligation on professional accountants to

a. Comply with relevant laws and regulations
b. Avoid any action that may bring discredit to the profession
c. Both a and b
d. Neither a nor b

19. In marketing and promoting themselves and their work, professional accountants shall be honest and truthful.
Professional accountants shall not:
a. Bring the profession into disrepute.
b. Make exaggerated claims for the services they are able to offer, the qualifications they possess, or experience they
have gained; or
c. Make disparaging references or unsubstantiated comparisons to the work of others.
d. All of the above.

20. The following are examples of circumstances that create threats to the fundamental ethical principles of a professional
accountant in public practice. Identify those that refer that refer to self review threat:
I. A member of the assurance team having a direct financial interest in the assurance client.
II. A firm having undue dependence on total fees from a client.
III. A member of the assurance team having a significant close business relationship with an assurance client.
IV. A firm issuing an assurance report on the effectiveness of the operation of financial systems after designing
or implementing the systems.
V. A firm being concerned about the possibility of losing a significant client.
VI. A member of the audit team entering into employment negotiations with the audit client.
VII. A firm entering into a contingent fee arrangement relating to an assurance engagement.
VIII. A firm having prepared the original data used to generate records that are the subject matter of the
assurance engagement.
a. All represent self review threat.
b. All do not represent self review threat.
c. Only two of the eight represent self review threat.
d. Only three of the eight represent self review threat.
e. Only four of the eight represent self review threat.

21. Examples of circumstances that create self-review threats for a professional accountant in public practice include,
except:
a. A member of the assurance team being, or having recently been, a director or officer of the client.
b. A member of the assurance team being, or having recently been, employed by the client in a position to exert
significant influence over the subject matter of the engagement.
c. The firm performing a service for an assurance client that directly affects the subject matter information of the
assurance engagement.
d. A professional accountant discovering a significant error when evaluating the results of a previous professional
service performed by a member of the professional accountant’s firm.

22. Examples of circumstances that create familiarity threats for a professional accountant in public practice include the
following, except:
a. A member of the engagement team having a close or immediate family member who is a director or officer or an
employee in a position to exert significant influence over the subject matter of the engagement.
b. A director or officer of the client or an employee in a position to exert significant influence over the subject matter
of the engagement having recently served as the engagement partner.
c. A professional accountant accepting gifts or preferential treatment from a client, unless the value is trivial or
inconsequential.
d. A member of the assurance team being, or having recently been, a director or officer of the client, or an employee
in a position to exert significant influence over the subject matter.

23. Examples of circumstances that create intimidation threats for a professional accountant in public practice include the
following, except:
a. A firm being pressured to reduce inappropriately the extent of work performed in order to reduce fees.
b. A professional accountant feeling pressured to agree with the judgment of a client employee because the employee
has more expertise on the matter in question.
c. A professional accountant being informed by a partner of the firm that a planned promotion will not occur unless
the accountant agrees with an audit client’s inappropriate accounting treatment.
d. A professional accountant acting as an advocate on behalf of an audit client in litigation or disputes with third
parties.
24. Safeguards created by the profession, legislation or regulation, include the following, except
a. Educational, training and experience requirements for entry into the profession
b. Continuing education requirements
c. Legislation governing the independence requirements of the firm.
d. Policies and procedures that emphasize the assurance client’s commitment to fair financial reporting

25. Safeguards in the work environment, include the following, except

a. Professional standards and monitoring and disciplinary processes, including external review of the firm’s quality
control system.
b. The assurance client has competent employees to make managerial decision.
c. Internal procedures that ensure objective choices in commissioning non-assurance engagements.
d. A corporate governance structure, such as an audit committee, that provides appropriate oversight and
communications regarding a firm’s services.

26. Existing accountant, as defined in the Code of Ethics, means

a. A professional accountant employed in industry, commerce, the public sector or education.
b. A professional accountant in public practice currently holding an audit appointment or carrying out accounting,
taxation, consulting or similar professional services for a client.
c. Those persons who hold a valid certificate issued by the Board of Accountancy.
d. A sole proprietor, or each partner or person occupying a position similar to that of a partner and each staff in a
practice providing professional services to a client irrespective of their functional classification (e.g. audit, tax or
consulting) and professional accountants in a practice having managerial responsibilities.

27. The term receiving accountant includes the following, except

a. A professional accountant in public practice to whom the existing accountant has referred tax engagement.
b.A professional accountant in public practice to whom the client of the existing accountant has referred audit
engagement.
c. A professional accountant in public practice who is consulted in order to meet the needs of the client.
d.A professional accountant in public practice currently holding an audit appointment or carrying out accounting,
taxation, consulting, or similar professional services for a client.

28. Before accepting a new client relationship, a professional accountant in public practice should consider the following,
except:
a. Acceptance would create any threats to compliance with the fundamental principles, such as, potential threats to
integrity or professional behavior may be created from, for example, questionable issues associated with the client
(its owners, management and activities).
b. The significance of any threats and the necessary safeguards necessary to eliminate them or reduce them to an
acceptable level.
c. Where it is not possible to reduce the threats to an acceptable level, a professional accountant in public practice
should decline to enter into the Client relationship.
d. All of the above should be considered.

29. A professional accountant in public practice should agree to provide only those services that the professional accountant
in public practice is competent to perform. Before accepting a specific client engagement, a professional accountant in
public practice should consider the following except:
a. Whether acceptance would create any threats to compliance with the fundamental principles. For example, a self-
interest threat to professional competence and due care is created if the engagement team does not possess, or
cannot acquire, the competencies necessary to properly carry out the engagement.
b. The significance of any threats and the necessary safeguards necessary to eliminate them or reduce them to an
acceptable level.
c. When a professional accountant in public practice intends to rely on the advice or work of an expert, the professional
accountant in public practice should evaluate whether such reliance is warranted. The professional accountant in
public practice should consider factors such as reputation, expertise, resources available and applicable professional
and ethical standards. Such information may be gained from prior association with the expert or from consulting
others.
d. All of the above should be considered.

30. The following statements relate to a professional accountant in public practice who is asked to replace another
professional accountant in public practice; which is incorrect?
a. A professional accountant in public practice shall determine whether there are any reasons for not accepting the
engagement, such as circumstances that threaten compliance with the fundamental principles.
b. It may require direct communication with the existing accountant to establish the facts and circumstances behind
the proposed change.
c. Since the existing accountant is no longer engaged, it is not bound by confidentiality. Hence, the existing accountant
is permitted to volunteer information about the client’s affairs.
d. A professional accountant in public practice will ordinarily need to obtain the client’s permission, preferably in
writing, to initiate discussion with an existing accountant.

31. A professional accountant in public practice should take reasonable steps to identify circumstances that could pose a
conflict of interest. Which of the following statements is/are incorrect?
a. A conflict of interest may give rise to a threat to integrity such as 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.
 b. A conflict of interest may give rise to a threat to objectivity or confidentiality such as when a professional accountant
in public practice performs services for clients whose interests are in conflict or the clients are in dispute with each
other in relation to the matter or transaction in question.
c. Where a conflict of interest poses a threat to one or more of the fundamental principles, including objectivity,
confidentiality or professional behavior, that cannot be eliminated or reduced to an acceptable level through the
application of safeguards, the professional accountant in public practice should conclude that it is not appropriate
to accept a specific engagement or that resignation from one or more conflicting engagements is required.
d. Where a professional accountant in public practice has requested consent from a client to act for another party
(which may or may not be an existing client) in respect of a matter where the respective interests are in conflict
and that consent has been refused by the client, then the professional accountant in public practice must not
continue to act for one of the parties in the matter giving rise to the conflict of interest.

32. Situations where a professional accountant in public practice is asked to provide a second opinion on the application of
accounting, auditing, reporting or other standards or principles to specific circumstances or transactions by or on behalf
of a company or an entity that is not an existing client may give rise to threats to compliance with the fundamental
principles. For example, there may be a threat to __________ in circumstances where the second opinion is not
based on the same set of facts that were made available to the existing accountant, or is based on inadequate evidence?
a. Professional competence and due care
b. Integrity
c. Professional behavior
d. Objectivity

33. If the fee quoted for a professional service is so low, it may be difficult for the CPA to perform the engagement in
accordance with applicable technical and professional standards for that price. This situation may create a self-interest
threat to
a. Objectivity
b. Professional competence and due care
c. Professional behavior
d. Integrity

34. In accordance with 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
a. The level of training and experience of the persons necessarily engaged on the work.
b. The time necessarily occupied by each person engaged on the work.
c. The outcome or result of a transaction or the result of the work performed.
d. The skill and knowledge required for the type of work involved.

35. Contingent fees are widely used for certain types of non-assurance engagements. They may create a self-interest
threat to objectivity and other fundamental principles. With respect to the acceptance of contingent fees for professional
ethics, the Code of ethics indicates the firm
a. should not accept contingent fees
b. should establish appropriate safeguards around acceptance of a contingent fee
c. should accept contingent fee only for assurance services other than FS audit
d. should accept contingent fees if it is customary in the country

36. Receiving a commission from a third party (e.g., a software vendor) in connection with the sale of goods or services
to a client or paying a referral fee to obtain a client without appropriate safeguards creates self-interest threat to which
of the following?
a. Objectivity
b. Professional competence and due care
c. Both a and b
d. Neither a nor b

37. A professional accountant in public practice, or an immediate or close family member, may be offered gifts and
hospitality from a client. Such an offer ordinarily gives rise to threats to compliance with the fundamental principles.
Which of the following statements is incorrect?
a. A self-interest or familiarity threat to objectivity may be created if a gift from a client is accepted, unless trivial
and inconsequential.
b. Intimidation threats to objectivity may result from the possibility of such offers being made public.
c. The significance of such threats will depend on the nature, value and intent behind the offer.
d. When the threats cannot be eliminated or reduced to an acceptable level through the application of safeguards, a
professional accountant in public practice may accept such an offer but only after informing the appropriate
regulatory bodies.

38. Which of the following statements is incorrect when a professional accountant considering to have custody of client
assets?
a. A professional accountant in public practice should not assume custody of client monies or other assets unless
permitted to do so by law.
b. The holding of client assets creates threats to compliance with the fundamental principles; for example, there is a
self-interest threat to professional behavior and may be a self-interest threat to objectivity arising from holding
client assets.
c. Professional accountants in public practice should be aware of threats to compliance with the fundamental principles
through association with such assets, for example, if the assets were found to derive from illegal activities, such
as money laundering.
 d. A professional accountant in public practice who is allowed by law to assume custody of client allows is permitted
to keep such assets together with personal or firm assets.

39. A professional accountant in public practice should consider when providing any professional service whether there are
threats to compliance with the fundamental principle of objectivity resulting from having interests in, or relationships
with, a client or directors, officers or employees.

A familiarity threat to objectivity may be created from a family or close personal or business relationship.
a. True, True c. False, True
b. True, False d. False, False

40. Safeguards against threats to compliance with objectivity may include the following, except
a. Withdrawing from the engagement team or supervisory procedures.
b. Terminating the financial or business relationship giving rise to the threat.
c. Discussing the issue with higher levels of management within the firm or with those charged with governance of
the client.
d. All of the above are a safeguard.

41. Which of the following most completely describes how independence has been defined by the accountancy profession?
a. Possessing the ability to act with integrity and exercise objectivity and professional skepticism.
b. Accepting responsibility to act professionally and in accordance with laws and regulations.
c. Avoiding the appearance of significant interest in the affairs of an assurance client.
d. Performing an assurance service from the viewpoint of the public.

42. Which of the following statements is/are are correct regarding independence
a. Independence consists of independence of mind and independence in appearance.
b. Independence in appearance is the state of mind that permits the provision of an opinion without being affected
by influences that compromise professional judgment, allowing an individual to act with integrity, and exercise
objectivity and professional skepticism.
c. Independence of mind 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.
d. All of the above are correct statements regarding independence

43. For assurance engagements provided to an audit client, the following should be independent of the client
a. b. c. d.
Members of the assurance
team Yes Yes Yes Yes
The firm Yes Yes No No
Network firms Yes No No Yes

44. When identified threats to independence are significant and the firm decides to accept or continue the assurance
engagement, the decision should be documented. The firm’s documentation should include:
a. A description of the threats identified.
b. The safeguards applied to eliminate or reduce the threats to an acceptable level
c. Both a or b
d. Neither a nor b

45. Statement 1: If a firm is deemed to be a network firm, the firm shall be independent of the audit clients of the other
firms within the network (unless otherwise stated in this Code). The independence requirements in this section that
apply to a network firm apply to any entity, such as a consulting practice or professional law practice, that meets the
definition of a network firm irrespective of whether the entity itself meets the definition of a firm.

Statement 2: The determination of whether the professional resources shared are significant, and therefore the firms
are network firms, shall be made based on the relevant facts and circumstances.
a. True, True c. False, True
b. True, False d. False, False

46. Under section 290.25 of the code of professional ethics, public interest entities are:
a. All listed entities.
b. Any entity defined by regulation or legislation as a public interest entity.
c. Any entity for which the audit is required by regulation or legislation to be conducted in compliance with the same
independence requirements that apply to the audit of listed entities. Such regulation may be promulgated by any
relevant regulator, including an audit regulator.
d. All of the above

47. Financial interest means

a. Any bank account which is used solely for the banking of clients’ monies.
b. 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.
c. A financial interest beneficially owned through a collective investment vehicle, estate, trust or other intermediary
over which the individual or entity has no control.
 d. 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.

48. In accordance with the Code, which of the following is correct?

Immediate family Close family
member member
a. Spouse and dependent Parent and sibling
b. Spouse and sibling Parent and dependent
c. Parent and dependent Spouse and sibling
d. Parent and sibling Spouse and dependent

49. If a member of the assurance team, or their immediate family member, has a direct financial interest, or a material
indirect financial interest, in the assurance client, the self-interest threat created would be so significant the only
safeguards available to eliminate the threat or reduce it to an acceptable level would be due to do the following, except
a. Dispose of the direct financial interest prior to the individual becoming a member of the assurance team.
b.Dispose of the indirect financial interest in total prior to the individual becoming a member of the assurance team.
c. Dispose of a sufficient amount of the indirect financial interest so that the remaining interest is no longer material
prior to the individual becoming a member of the assurance team.
d.Limit the participation of the member of the assurance team.

50. If a member of the assurance team, or their immediate family member receives, by way of, for example, an inheritance,
gift or, as a result of a merger, a direct financial interest or a material indirect financial interest in the assurance client,
a self-interest threat would be created. The following safeguards should be applied to eliminate the threat or reduce it
to an acceptable level:
a. Disposing of the financial interest at the earliest practical date.
b. Removing the member of the assurance team from the assurance engagement
c. Either a or b.
d. Neither a nor b.

51. The following loans and guarantees would not create a threat to independence, except
a. A loan from, or a guarantee thereof by, an assurance client that is a bank or a similar institution, to the firm,
provided the loan is made under normal lending procedures, terms and requirements and the loan is immaterial
to both the firm and the assurance client.
b.A loan from, or a guarantee thereof by, an assurance client that is a bank or a similar institution, to a member of
the assurance team or their immediate family, provided the loan is made under normal lending procedures,
terms and requirements.
c. Deposits made by, or brokerage accounts of, a firm or a member of the assurance team with an assurance client
that is a bank, broker or similar institution, provided the deposit or account is held under normal commercial
terms.
d.If the firm, or a member of the assurance team, makes a loan to an assurance client, that is not a bank or similar
institution, or guarantees such an assurance client’s borrowing.

52. Business relationships such having a financial interest in a joint venture with either the client or a controlling owner,
director, officer or other individual who performs senior managerial activities for that client most likely create
a. Self-interest threat c. Both a and b
b. Intimidation threat d. Neither a nor b

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

54. A director, an officer or an employee of the assurance client in a position to exert direct and significant influence over
the subject matter of the assurance engagement has been a member of the assurance team or partner of the firm.
The situation least likely create
a. Self-interest threat c. Intimidation threat
b. Self-review threat d. Familiarity threat

55. If a member of the assurance team, partner or former partner of the firm has joined the assurance client, the
significance of the self-interest, familiarity or intimidation threats created is least likely affected b
a. The position the individual has taken at the assurance client.
b. The amount of any involvement the individual will have with the assurance team.
c. The length of time that the individual was a member of the assurance team or firm.
d. The former position of the individual within the assurance team or firm.

56. When a firm lends staff to an audit client, in all circumstances, the client shall be responsible for directing and
supervising the activities of the loaned staff. This kind of arrangement most likely creates
a. Self-interest threat c. Intimidation threat
b. Self-review threat d. Familiarity threat

57. A former officer, director or employee of the assurance client serves as a member of the assurance team. This situation
will least likely create
a. Self-interest threat c. Intimidation threat
b. Self-review threat d. Familiarity threat
58. Serving as a director or officer of an audit client, except in performing routine administrative services to support a
secretarial administration, creates threats to ________ that would be so significant that no safeguards could address
the threats, except when permitted under local law, professional rules, or practice.
a. Self-interest threat c. Both a and b
b. Self-review threat d. Neither a nor b

59. Using the same engagement partner or the same individual for the engagement quality control review on a financial
statement audit over a prolonged period may create a
a. Self-review threat c. Familiarity threat
b. Intimidation threat d. Self-interest threat

60. In the financial statement audit of listed entities, the engagement partner and the individual responsible for the
engagement quality control review should be rotated after serving in either capacity, or a combination thereof, for a
pre-defined period, normally no more than
a. 5 years c. 7 years
b. 6 years d. 10 years

61. When an audit client becomes a public interest entity, the length of time the individual has served the audit client as
a key audit partner before the client becomes a public interest entity shall be taken into account in determining the
timing of the rotation. If the individual has served the audit client as a key audit partner for five years or less when
the client becomes a public interest entity, the number of years the individual may continue to serve the client in that
capacity before rotating off the engagement is seven years less the number of years already served. If the individual
has served the audit client as a key audit partner for six or more years when the client becomes a public interest entity,
the partner may continue to serve in that capacity for a maximum of ____ additional years before rotating off the
engagement.
a. One c. Three
b. Two d. Four

62. If firm, or network firm, personnel provide assistance involving making management decisions, the self-review threat
created could not be reduced to an acceptable level by any safeguards. Examples of such managerial decisions include
the following, except
a. Determining or changing journal entries, or the classifications for accounts or transactions or other accounting
records without obtaining the approval of the audit clients
b.Authorizing or approving transactions
c. Preparing source documents or originating data (including decisions on evaluation assumptions), or making
changes to such documents or data.
d.Assisting on audit client in resolving account reconciliation problems.

63. These following services are considered to be a normal part of the audit process and do not, under circumstances,
threaten independence, except
a. Analyzing and accumulating information for regulatory reporting.
b. Assisting in the preparation of consolidated financial statements.
c. Drafting disclosure items
d. Having custody of an assurance client’s assets.

64. The firm, or a network firm, may provide an audit client that is not a listed entity with accounting and bookkeeping
services, including payroll services, of a routine or mechanical nature, provided any self-review threat created is
reduced to an acceptable level. Examples of such services least likely include:
a. Recording transactions for which the audit client has determined or approved the appropriate account classification.
b. Posting coded transactions to the audit client’s general ledger.
c. Preparing financial statements based on information in the trial balance.
d. Determining and posting journal entries without obtaining the approval of the audit client.

65. In which of the following clients performing valuation services material to financial statements creates a self-review
threat that would be so significant that no such services shall be provided?
a. Public interest entities audit clients
b. Not public interest entities audit clients
c. Both a and b
d. Neither a nor b

66. Valuation services may be performed to other than public interest audit clients, except when
a. The valuation service has a material effect on the financial statements
b. The valuation involves a significant degree of subjectivity
c. Both a and b
d. Either a or b

67. Taxation services may create self-review and advocacy threats. However, which of the following taxation services
generally does not create such threats?
a. Tax return preparation.
b. Tax calculations for the purpose of preparing the accounting entries
c. Tax planning and other tax advisory services
d. Assistance in the resolution of tax disputes
68. 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 most likely create
a. Self-interest threat c. Intimidation threat
b. Self-review threat d. Familiarity threat

69. The recruitment of senior management for an assurance client, such as those in a position to affect the subject of the
assurance engagement may least likely create
a. Self-interest threat c. Intimidating threat
b. Advocacy threat d. Familiarity threat

70. Which of the following is not likely to create a threat to independence?

a. The total fees generated by an assurance client represent a large proportion of a firm’s total fees.
b.Fees due from an assurance client for professional services remain unpaid for a long time.
c. A firm obtains an assurance engagement at as significantly lower fee level that that charged by the predecessor
firm, or quoted by other firms.
d.A court or other public authority established fees.

71. Under the code of professional ethics, circumstances that may create self-interest threats for those professional
accountants in business include:
I. Financial interests, loans or guarantees.
II. Incentive compensation arrangements.
III. Inappropriate personal use of corporate assets.
IV. Concern over employment security.
V. Commercial pressure from outside the employing organization.
a. I, II, III c. I, II, III and V
b. I, II, III and IV d. All of the above

72. Statement 1: For professional accountants in business, circumstances that may create self-review threats include,
business decisions or data being subject to review and justification by the same professional accountant in business
responsible for making those decisions or preparing that data.

Statement 2: For professional accountants in business, when furthering the legitimate goals and objectives of their
employing organizations professional accountants in business may promote the organization’s position, provided any
statements made are neither false nor misleading. Such actions generally would not create an advocacy threat.
a. True, True c. False, True
b. True, False d. False, False

73. Under the code of professional ethics, circumstances that may create familiarity threats for professional accountants
in business include the following, except:
a. A professional accountant in business in a position to influence financial or nonfinancial reporting or business
decisions having an immediate or close family member who is in a position to benefit from that influence.
b. Long association with business contacts influencing business decisions.
c. Acceptance of a gift or preferential treatment, unless the value is clearly insignificant.
d. A dominant personality attempting to influence the decision making process, for example with regard to the
awarding of contracts or the application of an accounting principle.

74. A professional accountant in business should support the legitimate and ethical objectives established by the employer
and the rules and procedures drawn up in support of those objectives. Nevertheless, where compliance with the
fundamental principles is threatened, a professional accountant in business must consider a response to the
circumstances.

The significance of threats arising from such pressures, such as intimidation threats, should be evaluated and, if they
are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or
reduce them to an acceptable level.
a. True, True c. False, True
b. True, False d. False, False

75. Examples of safeguards against threats created by potential conflict between the employing organization and the
professional obligations to comply with the fundamental principles include the following, except
a. Obtaining advice where appropriate from within the employing organization, an independent professional advisor
or a relevant professional body.
b. The existence of a formal dispute resolution process within the employing organization.
c. Seeking legal advice.
d. All of the above are safeguards.

76. A professional accountant in business should prepare or present business information fairly, honestly and in accordance
with relevant professional standards so that the information will be understood in its context.

Threats to compliance with the fundamental principles, for example self-interest or intimidation threats to objectivity
or professional competence and due care, may be created where a professional accountant in business may be
pressured to become associated with misleading information or to become associated with misleading information
through the actions of others.
a. True, True c. False, True
b. True, False d. False, False
77. When a professional accountant in business faces threats to compliance with the fundamental principles, he or she
shall do the following, except
a. Evaluate the threats and, if they are other than clearly insignificant, safeguards should be considered and applied
as necessary to eliminate them or reduce them to an acceptable level.
b. Safeguards may include consultation with superiors within the employing organization, for example, the audit
committee or other body responsible for governance, or with a relevant professional body.
c. Where it is not possible to reduce the threat to an acceptable level, a professional accountant in business should
refuse to remain associated with information they consider is or may be misleading.
d. The professional accountant in business may not wish to seek legal advice or resign.

78. The fundamental principle of professional competence and due care requires that a professional accountant in business
should only undertake significant tasks for which the professional accountant in business has, or can obtain, sufficient
specific training or experience. (Choose the incorrect statement.)
a. A professional accountant in business should not intentionally mislead an employer as to the level of expertise or
experience possessed, nor should a professional accountant in business fail to seek appropriate expert advice and
assistance when required.
b. Identify and evaluate threats, such as: insufficient time for properly performing or completing the relevant duties;
incomplete, restricted or otherwise inadequate information for performing the duties properly; insufficient
experience, training and/or education; and inadequate resources for the proper performance of the duties.
c. The significance of the threats should be evaluated and, if they are other than clearly insignificant, safeguards
should be considered and applied as necessary to eliminate them or reduce them to an acceptable level.
d. Where threats cannot be eliminated or reduced to an acceptable level, professional accountants in business should
consider whether to refuse to perform the duties in question and may not be clearly communicated.

79. Professional accountants in business may have financial interests, or may know of financial interests of immediate or
close family members, that could, in certain circumstances, give rise to threats to compliance with the fundamental
principles. For example, self-interest threats to objectivity or confidentiality may be created through the existence of
the motive and opportunity to manipulate price sensitive information in order to gain financially.

A professional accountant in business should neither manipulate information nor use confidential information for
personal gain.
a. True, True c. False, True
b. True, False d. False, False

80. A professional accountant in business or an immediate or close family member may be offered an inducement or may
make an offered of inducement, such as, gifts, hospitality, preferential treatment and inappropriate appeals to
friendship or loyalty. Offers of inducements may create threats to compliance with the fundamental principles. (Choose
the incorrect statement)
a. Self-interest threats to objectivity or confidentiality are created where an inducement is made in an attempt to
unduly influence actions or decisions, encourage illegal or dishonest behavior or obtain confidential information.
b. Intimidation threats to objectivity or confidentiality are created if such an inducement is accepted and it is followed
by threats to make that offer public and damage the reputation of either the professional accountant in business
or an immediate or close family member.
c. A professional accountant in business should not offer an inducement to improperly influence professional judgment
of a third party.
d. If evaluated threats are other than clearly insignificant, safeguards should not be considered and applied as
necessary to eliminate them or reduce them to an acceptable level.

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