exam 2

Question 1

Which of the following statements best describes why the profession of certified public accountants has deemed it essential to promulgate a code of professional ethics and to establish a mechanism for enforcing observation of the Code?

A. A pre-requisite to success is the establishment of an ethical code that primarily defines the professional’s
responsibility to clients and colleagues.
B. A distinguishing mark of a profession is its acceptance of responsibility to the public.
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 flexble ethical standards by the
profession.

Answer 1

B. A distinguishing mark of a profession is its acceptance of responsibility to the public.

Question 2

The following are the attributes of a profession. Which is not?

A. Systematic body of theory and professional authority
B. Regulative code and culture
C. Maintenance of high integrity and infallible performance
D. Community sanction

Answer 2

C. Maintenance of high integrity and infallible performance

Question 3

The following are the attributes of a profession. Which is not?

A. Systematic body of theory and professional authority
B. Regulative code and culture
C. Maintenance of high integrity and infallible performance
D. Community sanction

Answer 3

C. Maintenance of high integrity and infallible performance

Question 4

Society has attached a special meaning to the term “professional”. A professional is
A. someone who has passed a qualifying exam to enter the job market
B. a person who is expected to conduct himself or herself at a higher level that the requirements of society’s laws or
regulations
C. any person who receives pay for the services performed
D. someone who has both an education in the trade and on-the-job experience received under an experienced
supervisor

Answer 4

B. a person who is expected to conduct himself or herself at a higher level that the requirements of society’s laws or
regulations

Question 5

Which statement is incorrect regarding the 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 national statutory requirement is in conflict with a provision of the IFAC Code, the IFAC Code requirement prevails
C. The lFAC Code of Ethics for Professional Accountants is composed of four parts.
D. Professional accountants should consider the ethical requirements as the basic principles which they should
follow in performing their work.

Answer 5

B. Where a national statutory requirement is in conflict with a provision of the IFAC Code, the IFAC Code requirement prevails

Question 6

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

A. 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.
B. 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.
C. 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.
D. Any of the above.

Answer 6

D. Any of the above.

Question 7

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

Answer 7

D. Act in a manner consistent with the good reputation of the profession and refrain from any conduct which might
bring discredit to the profession.

Question 8

8. Which of the following is incorrect regarding professional competence?

A. Professional accountants may portray themselves as having expertise or experience they do not possess.
B. Professional competence may be divided into two separate phases.
C. The attainment of professional competence requires initially a high standard of general education.
D. The maintenance of professional competence requires a continuing awareness of development in the accountancy profession.

Answer 8

A. Professional accountants may portray themselves as having expertise or experience they do not possess.

Question 9

Which of the following is incorrect regarding confidentiality?

A. Professional accountants have an obligation to respect the confidentiality of information about a client’s or
employer’s affairs acquired in the course of professional services.
B. The duty of confidentiality ceases after the end of the relationship between the professional accountant and the
client or employer.
C. Confidentiality should always be observed by a professional accountant unless specific authority has been given to disclose information or there is a legal or professional duty to disclose.
D. Confidentiality requires that professional accountant acquiring information in the course of performing professional services neither uses nor appear to use that information for personal advantage or for the advantage of a third party.

Answer 9

B. The duty of confidentiality ceases after the end of the relationship between the professional accountant and the
client or employer.

Question 10

10. If an audit firm discovers threats to independence with respect to an audit engagement, the code indicates that the
    firm should

A. Immediately resign from the engagement.
B. Notify the appropriate regulatory body.
C. Document the ieeu
D. Evaluate the signifiçance of the threats and apply appropriate safeguards to reduce them to an acceptable level.

Answer 10

D. Evaluate the signifiçance of the threats and apply appropriate safeguards to reduce them to an acceptable level.

Question 11

11. Circumstances that threaten the ability of a professional accountant in business to perform duties with the appropriate degree of professional competence and due care include the following, except:
    A. Insufficient time for properly performing or completing the relevant duties
    B. Incomplete, restricted or otherwise inadequate information for performing the duties properly
    C. Sufficient experience, training and/or education
    D. Inadequate resources for the proper performance of the duties

Answer 11

C. Sufficient experience, training and/or education

Question 12

12. Which statement is incorrect regarding employed professional accountants?

A. Employed professional accountants owe a duty of loyalty to their employer as well as to the profession; therefore
there may be no time that the two will be in conflict.
B. A professional accountant, particularly one having authority over others, should give due weight for the need for them to develop and hold their own judgment in accounting matters and should deal with difference of opinion in a professional way.
C. When undertaking significant tasks for which a professional accountant has not had sufficient specific training or
experience, he or she should not mislead the employer as to the degree of expertise or experience he or she
possesses, and where appropriate, expert advice and assistance should be sought.
D. A professional accountant is expected to present financial information fully, honestly and professionally and so that it’ll wil be understood in it’s context.

Answer 12

A. Employed professional accountants owe a duty of loyalty to their employer as well as to the profession; therefore
there may be no time that the two will be in conflict.

Question 13

13. The following statements pertain to provisions of Part 2 of the IFAC Code of Ethics for professional accountants.
    Which is incorrect?

A. A professional accountant shall not allow a conflict of interest to compromise professional or business judgment.
B. When the professional accountant knows or has reason to believe that the information with which the accountant
is associated is misleading, the accountant shall take appropriate actions to seek to resolve the matter.
C. Acting without sufficient expertise creates a self-review threat to compliance with the principle of professional
competence and due care.
D. A professional accountant shall not offer, or encourage others to offer, any inducement that is made, or which the
accountant considers a reasonable and informed third party would be likely to conclude is made, with the intent to
improperly influence the behavior of the recipient or of another individual.

Answer 13

D. A professional accountant shall not offer, or encourage others to offer, any inducement that is made, or which the
accountant considers a reasonable and informed third party would be likely to conclude is made, with the intent to
improperly influence the behavior of the recipient or of another individual.

Question 14

14. With regard to marketing professional services, the code indicates that

A. Direct marketing is prohibited.
B. Marketing is allowed if lawful.
C. Marketing should be honest and truthful.
D. Marketing of audit services is prohibited.

Answer 14

C. Marketing should be honest and truthful.

Question 15

15. Which of the following is a “self-review” threat to member independence?

A. An engagement team member has a spouse that serves as CFO of the attest client.
B. A second partner review is required on all attest engagements.
C. An engagement team member prepares invoices for the attest client.
D. An engagement team member has a direct financial interest in the attest client.

Answer 15

C. An engagement team member prepares invoices for the attest client.

Question 16

16. According to the standards of the profession, which of the following circumstances will prevent a CPA performing
    audit engagements from being independent?

A. Obtaining a collateralized automobile loan from a financial institution client.
B. Litigation with a client relating to billing for consulting services for which the amount is immaterial.
C. Employment of the CPA’s spouse as a client’s director of internal audit.
D. Acting as an honorary trustee for a not-for-profit organization client.

Answer 16

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

Question 17

17. A client company has not paid its 2020 audit fees. According to the Code of Professional Conduct, for the auditor to be considered independent with respect to the 2021 audit, the 2020 audit fees must be paid before the

A. 2020 report is issued
B. 2021 report is issued
C. 2021 field work is started
D. 2022 field work is started

Answer 17

A. 2020 report is issued

Question 18

18. Which of the following is an example of a safeguard implemented by the client that might mitigate a threat to
    independence?

A. Required continuing education for all attest engagement team members.
B. Required second partner review of an attest engagement.
C. An effective corporate governance structure.
D. Management selection of the CPA firm.

Answer 18

C. An effective corporate governance structure.

Question 19

19. May a CPA hire for the CPA’s public accounting firm a non-CPA systems analyst who specializes in developing
    computer systems?
    A. Yes, provided the CPA is qualified to perform each of the specialist’s tasks.
    B. Yes, provided the CPA is able to supervise the specialist and evaluate the specialist’s end product
    C. No, because non-CPA professionals are not permitted to be associated with CPA firms in public practice.
    D. No, because developing computer systems is not recognized as a service performed by public accountants.

Answer 19

B. Yes, provided the CPA is able to supervise the specialist and evaluate the specialist’s product.

Question 20

20. According to the ethical standards of the profession, which of the following acts is generally prohibited?

A. Issuing a modified report explaining a failure to follow a governmental regulatory agency’s standards when
conducting an attest service for a client.
B. Revealing confidential client information during a quality review of a professional practice by a team from the
Board of Accountancy (BOA).
C. Accepting a contingent fee for representing a client in an examination of the client’s tax return by the Bureau of
Internal Revenue (BIR).
D. Retaining client records after an engagement is terminated prior to completion and the client has demanded their return.

Answer 20

B. Revealing confidential client information during a quality review of a professional practice by a team from the
Board of Accountancy (BOA).

Question 21

21. Which statement is incorrect regarding professional fees?

A. 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.
B. 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.
C. It is for each professional accountant in public practice to determine the appropriate rates.
D. It is not proper for a professional accountant in public practiae to charge a client a lower fee than has previously
been charged for similar services

Answer 21

D. It is not proper for a professional accountant in public practiae to charge a client a lower fee than has previously
been charged for similar services

Question 22

22. According to the ethical standards of the profession, which of the following acts is generally prohibited?

A. Purchasing a product from a third party and reselling it to a client.
B. Writing a financial management newsletter promoted and sold by a publishing company.
C. Accepting a commission for recommending a product to an audit client.
D. Accepting engagements obtained through the efforts of third parties.

Answer 22

C. Accepting a commission for recommending a product to an audit client.

Question 23

23. 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
B. Intimidation threat
C. AdvOcacy threat
D. Familiarity threat

Answer 23

D. Familiarity threat

Question 24

24. When a member of the assurance team knows that his or her close family member has a direct financial interest or a
    material indirect financial interest in the assurance client, a self-interest threat may be created. Safeguards least likely
    include:

A. The close family member disposing of all or a sufficient portion of the financial interest at the earliest practical
date.
B. Discussing the matter with those charged with governance, such as the audit committee.
C. Involving a professional accountant who took part in the assurance engagement to review the work done by the
member of the assurance team with the close family relationship or otherwise advise as necessary
D. Removing the individual from the assurance engagement.

Answer 24

B. Discussing the matter with those charged with governance, such as the audit committee.

Question 25

25. 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 A. Promptly advise the client or employer of the error or omission and recommend that disclosure be made to the revenue authorities. B. Immediately inform the revenue authorities. C. 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. D.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 emnlover does not correct the error.

Answer 25

B. Immediately inform the revenue authorities.

Question 26

26. Which of the following is incorrect regarding independence? A. Independence consists of independence of mind and independence in appearance B. Independence of mind 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 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. D. Independence is a combination of impartiality, intellectual honesty and a freedom from conflicts of interest

Answer 26

C. 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.

Question 27

which of the following is incorrect regarding engagement period? A. The period of the engagement starts when the assurance team begins to perform assurance services and ends when the assurance report is issued, except when the assurance engagement is of a recurring nature. B. If the assurance engagement is expected to recur, the period of the assurance engagement ends with the notification by either party that the professional relationship has terminated or the issuance of the final assurance report, whichever is earlier. C. In the case of an audit engagement, the engagement period includes the period covered by the financial statements reported on by the firm. D. When an entity becomes an audit client during or after the period covered by the financial statements that the firm will report on, the firm should consider whether any threats to compliance with fundamental principles may be created by previous services provided to the audit client

Answer 27

A. The period of the engagement starts when the assurance team begins to perform assurance services and ends when the assurance report is issued, except when the assurance engagement is of a recurring nature.

Question 28

28. According to Code of Ethics, audit teams are required to be independent of the audit client during the engagement period and during which other period? A. The fiscal year following the period covered by the financial statements. B. The period covered by the financial statements. C. The calendar years that includes any part of the period covered by the financial statements. D. The two years prior to the period covered by the financial statements.

Answer 28

B. The period covered by the financial statements.

Question 29

29. On June 1, 2020, a CPA obtained a personal loan from a financial institution client for whom the CPA provided compilation services. The loan was fully secured and considered material to the CPA's net worth. The CPA paid the loan in full on December 31, 2021. On April 3, 2021, the client asked the CPA to audit the client's financial statements for the year ended December 31, 2021. Is the CPA considered independent with respect to the audit of the client's December 31, 2021 financial statements? A. Yes, because the loan was fully secured. B. Yes, because the CPA was not required to be independent at the time the loan was granted. C. No, because the CPA had a loan with the client during the period of a professional engagement. D. No, because the CPA had a loan with the client during the period covered by the financial statements

Answer 29

C. No, because the CPA had a loan with the client during the period of a professional engagement.

Question 30

30. Long association may create familiarity and self-interest threats. An example of an action that might eliminate the familiarity and self-interest threats created by an individual being involved in an audit engagement over a long period of time would be rotating the individual off the audit team. Which of the following is incorrect regarding the rules on rotation according to IFAC Code of Ethics for Professional Accountant? A. For entities not publicly traded, the fim shall determine an appropriate period to address possible threats. B. For public interest entity, when the individual acted as the engagement partner for seven cumulative years, the cooling-off period shall be five consecutive years. C. For public interest entity, when the individual acted in a combination of key audit partner roles and served as the engagement partner for four or more cumulative years, the cooling-off period shall be five consecutive years. D. For public interest entity, where the individual has been appointed as responsible for the engagement quality control review and has acted in that capacity for seven cumulative years, the cooling-off period shall be two consecutive years.

Answer 30

D. For public interest entity, where the individual has been appointed as responsible for the engagement quality control review and has acted in that capacity for seven cumulative years, the cooling-off period shall be two consecutive years.