Chapter 13 [Salosagcol] Flashcards
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 than 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
B
The code of professional ethics for CPAs promulgated by the Board of Accountancy applies to
a. All CPAs in public practice
b. All CPAs in government
c. All CPAs in public practice and employed in private business
d. All CPAs in public practice, employed in private practice and industry, in the government, and in education
D
Which of the following statements best describes why the profession of certified public accountants 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 professionals responsibility to clients and colleagues
c. A requirement of most 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
A
The underlying reason for a code of professional conduct for any profession is
a. The need for public confidence in the quality of service of the profession
b. That it provides a safeguard to keep unscrupulous people out
c. That it is required by federal legislation
d. That it allows licensing agencies to have a yardstick to measure deficient performance
A
Which of the following statements is true when the CPA has been engaged to perform an audit of financial statements?
a. The CPA firm is engaged and paid by the client; therefore, the firm has primary responsibility to be an advocate for the client.
b. The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are those who rely on the financial statements
c. Should a situation arise where there is no convincing authoritative standard available, and there is a choice of actions which could impact a client’s financial statements, the CPA is free to endorse the choice which is in the investors’ interests
d. The CPA firm’s paramount concern should be the interest of the client
B
Which of the following is not one of the characteristics of a profession?
a. Mastery of a particular intellectual skill acquired by training and education
b. Adherence by its members to a common code of conduct
c. Acceptance of a duty to society as a whole
d. A responsibility to protect exclusively the interest of a client or employer.
D
In order to achieve the objectives of the accountancy profession, professional accountants have to observe a number of prerequisites or fundamental principles. The fundamental principles include the following, except
a. Objectivity
b. Professional Competence and due Care
c. Technical Standards
d. Confidence
D
The principle of professional competence and due care imposes certain obligations on professional accountants. Which of the following is not one of those obligations required by this principle?
a. To act diligently in accordance with applicable technical and professional standards
b. To be far, intellectually honest and free of conflict of interest
c. To become aware and understand relevant technical, professional and business developments
d. To obtain professional knowledge and experience to enable them to fulfill their responsibilities.
B
Competence as a certified public accountant includes all the following except
a. Having the technical qualifications to perform an engagement
b. Possessing the ability to supervise and evaluate the quality of staff work
c. Warranting the infallibility of the work performed
d. Consulting others if additional technical information is needed
C
An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity should
a. Engage financial experts familiar with nature of the business entity
b. Obtain knowledge of matters that relate to the nature of the entity’s business
c. Refer a substantial portion of the audit to another CPA who will act as the principal auditor
d. First inform management that an unmodified opinion cannot be issued
B
Professional competence should include
a. Attainment of professional competence, Maintenance of professional competence
b. Maintenance of professional competence
c. None of the two
d. Attainment of professional competence
A
The phase of professional competence that requires a professional accountant to adopt a program designed to ensure quality control in the performance of professional services consistent with technical and professional standards is:
a. Attainment of professional competence
b. Maintenance of professional competence
c. Application of professional competence
d. Review of professional competence
B
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
D
The essence of the due care principle is that the CPA should not be guilty of
a. Bias
b. Errors in judgment
c. Fraud
d. Negligence
D
The principle of confidentiality applies to:
a. Professional accountants in public practice
b. Professional accountants in commerce and industry
c. Professional accountants in government
d. All professional accountants
D
The principle of confidentiality imposes an obligation on professional accountants to refrain from:
a. Disclosing confidential information to another party even if the client authorizes the disclosure
b. Using confidential information acquired as a result of professional and business relationships to their personal advantage or the advantage of third parties
c. Disclosing information to defend themselves in case of litigation
d. Responding to an inquiry or investigation conducted by the Professional Regulatory Board of Accountancy
B
A CPA shall not disclose confidential information obtained during an audit engagement in which one of the following situations?
a. When the security of the state requires
b. With the consent of the client
c. In defense of himself when sued by his client
d. To a successor auditor without the client’s permission
D
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 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.
B
The confidential relationship will be violated if, without client’s permission, the CPA provides working papers about a client to
a. A court of law which subpoenas them
b. Another CPA as part of PICPA’s quality assurance review program
c. Another CPA firm which has just purchased the CPA’s entire practice
d. An investigative or disciplinary body of the Board of Accountancy which is conducting a review of the CPA’s practice
C
Which one of the following is false?
a. Confidentiality is broken when an auditor is presented with subpoena concerning an audit client
b. Information that a CPA obtains from a client is generally not privileged.
c. When the Board of Accountancy conducts a review of the quality controls of another CPA firm, permission of the client is not needed to examine audit documentation
d. A CPA firm which observes substandard audit documentation of another firm during a quality control review should immediately inform the firm being reviewed in order to rectify the deficiency
A
Which of the following is considered a violation of rules on confidentiality?
a. The CPA discloses information to protect his own interest in the course of legal proceedings.
b. The CPA discloses information to a successor auditor after obtaining the client’s permission.
c. The CPA discloses information to another CPA in compliance with a quality control review conducted by the Board of Accountancy.
d. The CPA divulges information disclosed to him by a prospective client.
D
When a professional accountant leans 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 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 employer does not correct the error.
B
In which of the following circumstances would a CPA be bound by ethics to refrain from disclosing any confidential information obtained during the course of a professional engagement?
a. The CPA is issued a summon enforceable by a court order which orders the CPA to present confidential information.
b. A major stockholder of a client company seeks accounting information from the CPA after the management declined to disclose the requested information.
c. Confidential client information is made available with client’s permission.
d. An inquiry by the Professional Regulation Commission and the CPA needs the disclosure to defend himself.
B
The principal 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.
D
[Code of Ethics for Professional Accountants, IFAC]
The principle of professional behavior imposes an obligation on all professional accountants to comply with relevant laws and regulations and avoid any action that the professional accountant knows or should know may discredit the profession. This includes actions that a reasonable and informed third party, weighing all the specific facts and circumstances available to the professional accountant at that time, would be likely to conclude adversely affects the good reputation of the profession
Identify the incorrect statement. “A professional accountant rendering tax service is entitled to put forward the best position in favor of a client or an employer, provided…”
a. It does not impair the accountant’s integrity and objectivity.
b. It is rendered with professional competence.
c. It is consistent with the law.
d. The professional accountant assumes responsibility for the content of the tax return.
D
A professional accountant’s name can be associated with information that:
a. Contains a misleading statement
b. Intentionally omits or obscures information
c. Uses estimates
d. Contains information without any real knowledge of whether they are true or false.
C
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 professional accountant should apply
a. The ethical requirements of his or her home country
b. The ethical requirements of the country in which services are being performed
c. The stricter of the two ethical requirements
d. The less strict ethical requirements
C
If the ethical requirements in the country in which a CPA firm practices are either more or less restrictive than the Philippine Code of Ethics, the CPA firm must follow
a. The Philippine Code of Ethics
b. The ethical requirements of the country where the CPA practices
c. Whichever rules are less restrictive
d. Whichever rules are more restrictive
D
Which fundamental principal is seriously threatened by an engagement that is compensated based on the net proceeds on loans received by the client from a commercial bank?
a. Integrity
b. Objectivity
c. Confidentiality
d. Professional behavior
B
The Code of Professional Ethics states that a CPA should maintain integrity and objectivity. The term “objectivity” in the code refers to a CPA’s ability
a. To choose independently between alternate accounting principles and auditing standards.
b. To distinguish independently between accounting practices that are acceptable and those that are not.
c. To be unyielding in all matters dealing with auditing procedures.
d. To maintain an impartial attitude on all matters that come under the CPA’s review.
D
One of the major differences between auditors and other professionals is that most professionals
a. Do not have to pass rigorous examination to be admitted in the profession.
b. Are not expected to act in the best interest of the public.
c. Need not be concerned about independence.
d. Do not need the confidence of the public.
C
Independence in auditing means
a. Not having any financial or economic relationship with the client.
b. Being an advocate of the assurance client.
c. Taking an unbiased viewpoint.
d. Not having a loan to or from an assurance client.
C
Which of the following most accurately states how objectively has been defined by the Code of Ethics?
a. Being honest ad straight forward in all professional and business relationships.
b. A state of mind that provision of an option without being affected by influences that compromise professional judgement.
c. A combination of impartiality, intellectual honesty and a freedom from conflict of interest.
d. Avoiding facts and circumstances that could reduce the public confidence in the professional accountant’s report.
C
A CPA, while performing an audit, strives to achieve independence in appearance in order to
a. Reduce risk and liability
b. Become independent in mind
c. Maintain public confidence in the profession
d. Comply with the generally accepted standards of fieldwork
C
Holding a financial interest in an audit client may create a self-interest threat. The existence and significance of any threat created depends on:
a. The role of the person holding the financial interest
b. Whether the financial interest is direct or indirect, and
c. The materiality of the financial interest
d. The type of opinion that the auditor expects to issue
D
???
Holding a financial interest in an audit client may create a self-interest threat. The existence and significance of any threat created depends on
I. The role of the person holding the financial
interest.
II. Whether the financial interest is direct or
indirect.
III. The materiality of the financial interest.
A. I and II only.
B. I and III only.
C. II and III only.
D. I, II, and III.
ANSWER: D
The concept of materiality would be least important to an auditor in determining
a. Transactions that should be reviewed
b. The need for disclosing a particular transaction or event
c. The extent of audit work planned for particular account
d. The effect of an auditor’s direct financial interest in client
D
The primary factor that distinguishes a direct from an indirect financial interest is the
a. Materiality of the amount involved
b. Control over investment decisions
c. Risk associated with such investment
d. Relationship between the investor and investee
B
Ultimately, the decision as to whether the CPA is independent or not, will be made by the
a. Client
b. Audit committee
c. Public
d. Auditor
D
The Philippine Code of Ethics for professional accountants requires independence
Refer to page 742, number 39
a. Yes; Yes
b. Yes; No
c. No; No
d. No; Yes
A
Independence is required whenever a professional accountant performs
a. Professional services
b. Assurance services
c. Non-assurance services
d. Tax consultancy services
B
Not all engagements performed by professional accountants are assurance engagements. Other engagements frequently performed by professional accountants that are not assurance engagements include the following, except
a. Agreed-upon procedures
b. Compilation of financial or other information
c. Management consulting
d. Examination of prospective financial information
D
According to the principles of the Code of Ethics
a. All professional CPAs should maintain independence
b. All professional CPAs public practice should maintain independence
c. All professional CPAs in public practice should maintain independence when providing assurance services
d. All professional CPAs in public practice should maintain independence when providing auditing tax, and advisory services
C
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.
a. Independence in fact
b. Independence in appearance
c. Independence of mind
d. Inherent independence
B
When CPAs are able to maintain their actual independence, it is referred to as independence in:
a. Conduct
b. Appearance
c. Fact
d. Total
C
If requested to perform a review engagement for a nonpublic entity in which an accountant has an immaterial direct financial interest, the accountant is
a. Independent and, therefore, may issue a review report
b. Not independent and, therefore, may not issue a review report
c. Not independent and, therefore, may issue a review report
d. Not independent and, therefore, may not be associated with the financial statements
C
The network firms are required to be independent of the client
a. For assurance engagements provided to an audit client
b. For assurance engagements provided to clients that are not audit clients, when the report is not expressly restricted for use by identified users
c. For assurance engagements provided to clients that are not audit clients, when the assurance report is expressly restricted for use by identified users
d. For non-assurance engagements
A
[Code of Ethics for Professional Accountants, IFAC]
In the case of audit engagements, it is in the public interest and, therefore, required by this Code of Ethics, that members of audit teams, firms and network firms shall be independent of audit clients.
Network firm: Any entity which is part of a larger structure that is aimed at co-operation and which is: controlled by the firm; or. under common control, ownership or management; or. part of a larger structure that is clearly aimed at profit or cost sharing
Which of the following should be independent of the financial statement audit client?
refer to number 47, page 744
a. Yes, Yes, Yes
b. Yes, Yes, No
c. Yes, No, No
d. Yes, No, Yes
A
For assurance engagements provided to clients that are not audit clients, when the assurance report is expressly restricted for use by identified users, the following should be independent of the client:
Refer to number 48, page 744
a. Yes, Yes, Yes
b. Yes, Yes, No
c. Yes, No, No
d. Yes, No, Yes
C
Which of the following statements is not correct about independence requirements?
a. For assurance engagements provided to audit client, the members of the assurance team, the firm and network firms are required to be independent of the client.
b. For assurance engagements provided to non-audit clients, the members of the assurance team and the firm are required to be independent of the client.
c. For assurance engagements provided to non-audit clients, where the distribution of the assurance report is limited only to specified users, the members of the assurance team are required to be independent of the client.
d. For assurance engagements provided to non-audit clients, where the distribution for the assurance report is limited only to specified users, the firm should independent of the client.
D
Which of the following professional services does not require independence?
a. Direct reporting engagements
b. Examination of financial forecast
c. Tax consultancy services
d. Assertion-based engagements
C
Source: Coursehero
For which of the following professional services must CPAs be independent?
a. Management advisory services
b. Audits of financial statements
c. Preparation of tax returns
d. All three of the above
B
A CPA firm should decline an offer to perform consulting services engagement if
a. The proposed engagement is not accounting-related
b. Recommendations made by the CPA firm are to subjected to review by the client
c. Acceptance would require the CPA firm to make management decisions for an assurance client
d. Any of the above is true
C
The members of the assurance team and the firm should be independent of the assurance client during the period of the assurance engagement. For this purpose, the period of the engagement:
a. Starts when the assurance team begins to perform assurance services and ends when the assurance report is issued.
b. Starts when the assurance team begins to perform assurance services and ends when the fieldwork is completed.
c. Starts when the engagement letter is prepared and ends when the fieldwork is completed.
d. Starts when the engagement letter is prepared and ends when the assurance report is issued.
A
This occurs as a result of the financial or other interests of a professional accountant or of an immediate or close family member.
a. Self-interest threat
b. Self-review threat
c. Advocacy threat
d. Familiarity threat
A
This occurs when, because of a close relationship, a professional accountant becomes too sympathetic to the interests of others.
a. Self-interest threat
b. Self-review threat
c. Advocacy threat
d. Familiarity threat
D
According to the Code of Ethics, compliance with fundamental principles is potentially affected by self-interest, self-review, advocacy, familiarity and intimidation threats. Which of the following best describes “advocacy threat”?
a. This occurs when a firm or a member of the assurance team could benefit from financial interest in an assurance client.
b. This occurs when any product or judgement of a previous engagement needs to be re-evaluated in reaching conclusions on the assurance engagement.
c. This occurs when a member of assurance team was previously aa director or officer of a the assurance client.
d. 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.
D
This occurs when any product or judgement 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 a employee in a position to exert direct and significant influence over the subject matter if the assurance engagement.
a. Self-interest threat
b. Self-review threat
c. Advocacy threat
d. Familiarity threat
B
This threat occurs when a member of the assurance team may be deterred from acting objectively and exercising professional skepticism by threats, actual or perceived, from the directors, officers or employees of an assurance client.
a. Intimidation threat
b. Familiarity threat
c. Advocacy threat
d. Self-interest threat
A
Which of the following circumstances would least likely create self-interest threat?
a. Contingent fees relating to assurance engagements.
b. A direct financial interest or material indirect financial interest in an assurance client.
c. A loan or guarantee to or from an assurance client or any of its directors or officers.
d. Having a close personal relationship between a member of the assurance team and the assurance client, its directors, officers or employees.
D
“D” is a familiarity threat.
Which of the following would least likely create “self-interest threat”?
a. Undue dependence on total fees from an assurance client.
b. Concern about the possibility of losing the engagement.
c. Having a close business relationships with an assurance client.
d. Pressure to reduce inappropriately the extent of work performed in order to reduce fees.
D
Which of the following would most likely create self-review threat?
a. Financial interest in a client.
b. Litigation involving professional accountant and a client.
c. A former partner joins the assurance client.
d. A former officer of a client is now a member of the assurance team.
D
Examples of circumstances that may create self-review threat do not include
a. Preparation of original data used to generate financial statements or preparation of other records that are the subject matter of the assurance engagement
b. 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
c. Performing services for an assurance client that directly affect the subject matter of the assurance engagement
d. Potential employment with an assurance client.
D
Which of the following is an example of an intimidation threat that may affect the independence of the professional accountant?
a. Preparation of original data used to generate financial statements or preparation of other records that are the subject matter of the assurance engagement.
b. Threat of replacement over disagreement in the application of an accounting principle.
c. Dealing in, or being a promoter of, share or other securities in an audit client.
d. 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
B
[Code of Ethics for Professional Accountants, IFAC]
Examples of circumstances that create intimidation threats for a professional accountant in public practice include:
- A firm being threatened with dismissal from a client engagement.
- An audit client indicating that it will not award a planned non-assurance contract to the firm if the firm continues to disagree with the client’s accounting treatment for a particular transaction.
- A firm being threatened with litigation by the client.
- A firm being pressured to reduce inappropriately the extent of work performed in order to reduce fees.
- 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.
- 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.
Acting for an audit client in the resolution of a dispute or litigation would most likely create
a. Self-interest threat
b. Intimidation threat
c. Advocacy threat
d. Familiarity threat
C