QB Chapter 14 Codes of professional ethics Flashcards
1 Which three of the following are reasons why the accounting profession needs ethical
codes?
A Accountants have access to confidential information
B Assurance providers claim to give an independent view
C The financial community relies on accountants
D The law requires it
A,B,C
There is no legal requirement for ethical codes.
2 ICAEW qualified auditors acting in the UK are subject to which two of the following?
A IESBA Code of Ethics
B ICAEW Code of Ethics
C FRC’s Ethical Standard
D The Code of Ethics set by the Governmen
2 B,C ICAEW qualified auditors acting in the UK are subject to the ICAEW Code and the
FRC’s Ethical Standard
3 Which three of the following are stated fundamental principles of the IESBA Code? A Integrity B Objectivity C Independence D Confidentiality E Courtesy
3 A,B,D
Independence and Courtesy (options C and E) are not fundamental principles of the
IESBA Code
`4 Which one of the following statements is correct?
A The ICAEW Code of Ethics applies to its members only.
B The ICAEW Code of Ethics applies to its members and employees of member firms
only.
C The ICAEW Code of Ethics applies to its members, employees of member firms and
ICAEW students.
D The ICAEW Code of Ethics applies to its members, employees of member firms,
ICAEW students and all other members of UK accountancy bodies
4 C As per the ICAEW Code of Ethics, the Code applies to its members, employees of
member firms and ICAEW students
5 For each of the following statements concerning professional ethics, select whether they
are true or false.
Prescriptive rules of ethical guidance are beneficial because they place the onus on the
accountant to actively consider independence in every given situation.
A True
B False
A framework of ethical guidance allows principles to be applied to different situations, and
is therefore effective in a situation that is changing rapidly.
C True
D False
A framework of ethical guidance prevents accountants interpreting legalistic requirements
narrowly, in order to circumvent ethical requirements.
E True
F False
5 B,C,E
The first statement is false as following prescriptive rules of ethical guidance may
become a mechanical process without due consideration given to the ethical principles
of each case. The other statements are true
6 Which three of the following bodies issue ethical guidance? A ICAEW B IESBA C IAASB D FRC
6 A,B,D
The IAASB issues ISAs, but not ethical guidance
Which one of the following statements best describes ethical guidance in the UK?
A Ethical guidance provides a set of rules which must be followed in all circumstances.
B Ethical guidance is a framework containing a combination of rules and principles the
application of which is dependent on the professional judgement of the assurance
provider based on the specific circumstances.
C Ethical guidance provides a set of principles which can be applied at the discretion of
the assurance provider.
D Ethical guidance is a series of legal requirements
B Although there are some specific ‘rules’, the majority of ethical guidance is in the form
of principles, the spirit of which should be followed by the assurance provider.
For each of the following threats, select whether they are identified by the IESBA Code only, the FRC's Ethical Standard only or both the IESBA Code and the FRC's Ethical Standard. Self-interest threat A IESBA Code only B FRC's Ethical Standard only C Both Management threat D IESBA Code only E FRC's Ethical Standard only F Both Familiarity threat G IESBA Code only H FRC's Ethical Standard only I Both Self-review threat J IESBA Code only K FRC's Ethical Standard only L Both
C,E,I,L
Both the IESBA Code of Ethics and the FRC’s Ethical Standard identify the following five
threats: self-interest, self-review, advocacy, familiarity and intimidation. The
FRC’s Ethical Standard also identifies the management threat in addition; the IESBA
Code of Ethics does not specify a ‘management threat’ as such, but notes that the
assumption of ‘management responsibilities’ would create other threats.
Which three of the following are valid reasons why independence and objectivity are
important to the assurance profession?
A The public’s expectations of accountants
B Public interest in financial information
C Tradition
D Credibility of published financial information
A,B,D
Tradition (option C) is not a valid reason why objectivity and independence matter.
There are two main approaches to a code of professional ethics: a rules-based ethical code
and a principles-based code.
Indicate whether the following statements are true or false.
A principles-based code requires a professional accountant to comply with a set of specific
rules.
A True
B False
A rules-based code requires a professional accountant to identify, evaluate and address
threats to compliance with fundamental ethical principles.
C True
D False
ICAEW uses a rules-based approach.
E True
F False
B,D,F
A principles-based code does not contain specific rules for auditor compliance.
A rules-based code does not require auditor adherence to a set of principles.
ICAEW uses a principles-based approach. SAMPLE PAPER
The ICAEW Code of Ethics provides guidance for members regarding their independence.
For each of the following statements, select whether they are most likely to be true or false.
The auditor should completely eliminate all threats to their independence.
A True
B False
The degree of required independence is higher for a non-audit engagement than for an
audit engagement.
C True
D False
If safeguards do not allow a threat to be sufficiently mitigated, then the auditor should
decline the engagement.
E True
F False
B,D,E
The aim is not to completely eliminate all threats, but to either reduce them to an
acceptable level or to eliminate them.
The degree of required independence is higher for an audit engagement.
If safeguards do not allow a threat to be sufficiently mitigated, then the auditor should
decline the engagement (or the interest/activity giving rise to the threat).
The ICAEW Code of Ethics provides guidance for members regarding their independence.
For each of the following statements, select whether they are most likely to be true or false.
If guidance is principles-based then it does not contain rules prohibiting certain activities
A True
B False
If guidance is based on general principles then it does not allow for particular or unique
situations.
C True
D False
Principles-based guidance may permit multiple correct responses in a given situation.
E True
F False
B,D,E
Principles-based guidance may contain rules for prohibitions, although its substantial
content would be based on general principles.
It is a major strength of principles-based guidance that its general principles may be
applied to unique situations, eg, situations for which a specific rule may not have been
created under a rules-based approach.
Principles-based guidance may permit multiple correct responses in a given situation.
Advocates of rules-based approaches see this as one of its principal defects.
The FRC’s Ethical Standard gives examples of threats in its six classificatory categories.
For each threat below, select the category into which they would most likely be placed.
Auditing financial statements prepared by the firm
A Familiarity threat
B Self-review threat
An audit team member having family at the client
C Familiarity threat
D Self-review threat
Making a loan to an audit client
E Familiarity threat
F Self-interest threat
B,C,F
Auditing financial statements prepared by the firm represents a self-review threat – the
firm would be auditing (‘reviewing’) material that it had itself produced, and may be
inclined to trust it more than if it had been produced by an entity that was independent
of it.
An audit team member having family at the client represents a familiarity threat – the
audit team would be overly familiar with the client. This is related to a self-review threat
in the sense that both threats involve proximity to the information being audited;
where the familiarity threat differs is that the information is prepared by someone else
but with whom the auditor has a close relationship.
Making a loan to an audit client represents a self-interest threat because the auditor
may have an incentive not to do anything that could imperil the client’s financial
position (such as modifying the audit opinion) lest this prejudice their ability to repay
the loan.
