Professional Documents
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Auditing Reviewer
Auditing Reviewer
CPA REVIEW SCHOOL OF THE PHILIPPINES b. An engagement conducted to provide a moderate level of
assurance that the subject matter is plausible in the
Manila circumstances.
c. An engagement in accordance with the Philippine
Standard on Assurance Engagement(s) issued by the
CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS IN THE Philippine Auditing Standards and Practices Council as
PHILIPPINES approved by the Board of Accountancy/Professional
Regulation Commission.
PREFACE d. An engagement to perform agreed-upon procedures.
1. Which statement is incorrect regarding the Code of Ethics for 6. Close family include the following, except
Professional Accountants in the Philippines? a. Parent c. Non-
a. Professional accountants refer to persons who are dependent child
Certified Public Accountants (CPA) and who hold a valid b. Sibling d.
certificate issued by the Board of Accountancy. Spouse
b. Where a national statutory requirement is in conflict with
a provision of the IFAC Code, the IFAC Code requirement 7. Assurance team include
prevails.
c. The Code of Ethics for Professional Accountants in the
Philippines is mandatory for all CPAs and is applicable to All professionals participating in the assurance engagement
professional services performed in the Philippines on or
after January 1, 2004. All others within a firm who can directly influence the outcome of
d. Professional accountants should consider the ethical the assurance engagement
requirements as the basic principles which they should
follow in performing their work. For the purposes of an audit client, all those within a network
firm who can directly influence the outcome of the audit
2. Which statement is correct regarding the Code of Ethics for engagement
Professional Accountants in the Philippines?
a. Professional accountants refer to persons who are
8. Financial interest means
Certified Public Accountants (CPA) in public practice and
a. Any bank account which is used solely for the banking of
who hold a valid certificate issued by the Board of
clients’ monies.
Accountancy.
b. Any monies received by a professional accountant in
b. It is practical to establish ethical requirements which
public practice to be held or paid out on the instruction of
apply to all situations and circumstances that professional
the person from whom or on whose behalf they are
accountants may encounter.
received.
c. Professional accountants should consider the ethical
c. A financial interest beneficially owned through a collective
requirements as the ideal principles which they should
investment vehicle, estate, trust or other intermediary
follow in performing their work.m
over which the individual or entity has no control.
d. All CPAs are expected to comply with the ethical
d. An interest in an equity or other security, debenture, loan
requirements of the Code and other ethical requirements
or other debt instrument of an entity, including rights and
that may be adopted and approved by IFAC. Apparent
obligations to acquire such an interest and derivatives
failure to do so may result in an investigation into the
directly related to such interest.
CPA’s conduct.
9. Direct financial interest is a financial interest
Modifications to the IFAC Code
3. The following definitions from the IFAC Code were modified to owned directly by and under the control of an individual or entity
consider Philippine regulatory requirements and circumstances, (including those managed on a discretionary basis by other)
except
a. Firm beneficially owned through a collective investment vehicle,
c. Professional accountants estate, trust or other intermediary over which the individual or
b. Professional accountants in public practice d. Lead entity has control
engagement partner
beneficially owned through a collective investment vehicle,
4. The following are modifications to the IFAC Code to consider estate, trust or other intermediary over which the individual or
Philippine regulatory requirements and circumstances, except entity has no control
a. The period for rotation of the lead engagement partner
was changed from five to seven years.
10. Firm includes the following, except
b. Advertising and solicitation by individual professional
a. A sole practitioner professional accountant.
accountants in public practice were not permitted in the
b. An entity that controls a partnership of professional
Philippines.
accountants.
c. Additional examples relating to anniversaries and
c. An entity controlled by a partnership of professional
websites wherein publicity is acceptable, as provided in
accountants.
BOA Resolution 19, Series of 2000, were included.
d. A sole practitioner, partnership or corporation of
d. Payment and receipt of commissions were not permitted
professional accountants.
in the Philippines.
11. Which of the following is incorrect regarding independence?
← DEFINITIONS a. Independence consists of independence of mind and
independence in appearance.
5. Assurance engagement include the following, except b. Independence of mind is the state of mind that permits
a. An engagement conducted to provide a high level of the provision of an opinion without being affected by
assurance that the subject matter conforms in all material influences that compromise professional judgment,
respects with identified suitable criteria.
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allowing an individual to act with integrity, and exercise d. A sole proprietor or a partnership of professional
objectivity and professional skepticism.
c. Independence in appearance is the avoidance of facts accountants which offers professional services to the
and circumstances that are so significant a reasonable public.
and informed third party, having knowledge of all relevant
information, including any safeguards applied, would
17. The communication to the public of facts about a professional
reasonably conclude a firm's or a member of the
accountant which are not designed for the deliberate promotion
assurance team’s integrity, objectivity or professional
of that professional accountant.
skepticism had been compromised.
d. Independence is a combination of impartiality, intellectual a. Publicity
honesty and a freedom from conflicts of interest. c. Indirect promotion
b. Advertising
12. A financial interest beneficially owned through a collective d. Solicitation
investment vehicle, estate, trust or other intermediary over which
the individual or entity has no control.
18. Advertising, as defined in the Code of Ethics, means
a. Indirect financial interest c.
a. The communication to the public of facts about a
Financial instrument
professional accountant which are not designed for the
b. Direct financial interest d.
deliberate promotion of that professional accountant.
Clients’ monies
b. The approach to a potential client for the purpose of
offering professional services.
13. A combination of impartiality, intellectual honesty and a freedom
c. The communication to the public of information as to the
from conflicts of interest.
services or skills provided by professional accountants in
a. Objectivity public practice with a view to procuring professional
c. Professional skepticism business.
b. Independence of mind d. d. Any of the above.
Independence
19. Existing accountant, as defined in the Code of Ethics, means
14. Lead engagement partner is a. A professional accountant employed in industry,
I. The partner responsible for signing the report on the commerce, the public sector or education.
consolidated financial statement of the audit client. b. A professional accountant in public practice currently
II. Where relevant, the partner responsible for signing holding an audit appointment or carrying out accounting,
the report in respect of any entity whose financial taxation, consulting or similar professional services for a
statements form part of the consolidated financial client.
statements and on which a separate stand-alone c. Those persons who hold a valid certificate issued by the
report is issued. Board of Accountancy.
III. When no consolidated financial statements are d. A sole proprietor, or each partner or person occupying a
prepared, the partner responsible for signing the position similar to that of a partner and each staff in a
report on the financial statements. practice providing professional services to a client
irrespective of their functional classification (e.g., audit,
a. I, II and III tax or consulting) and professional accountants in a
practice having managerial responsibilities.
c. I only
b. I and II only 20. The term professional accountant in public practice includes the
d. I and III only following, except
a. A sole proprietor providing professional services to a
client.
15. A distinct sub-group, whether organized on geographical or
b. Each partner or person occupying a position similar to
practice lines.
that of a partner staff in a practice providing professional
a. Office c. Firm
services to a client.
b. Practice c. Professional accountants employed in the public sector
d. Network firm having managerial responsibilities.
d. A firm of professional accountants in public practice.
16. The Code of Ethics for Professional Accountants in the
Philippines defined “practice” as 21. The term receiving accountant includes the following, except
a. A distinct sub-group, whether organized on geographical a. A professional accountant in public practice to whom the
existing accountant has referred tax engagement.
or practice lines. b. A professional accountant in public practice to whom the
b. An entity under common control, ownership or client of the existing accountant has referred audit
engagement.
management with the firm or any entity that a reasonable
c. A professional accountant in public practice who is
and informed third party having knowledge of all relevant consulted in order to meet the needs of the client.
information would reasonably conclude as being part of d. A professional accountant in public practice currently
holding an audit appointment or carrying out accounting,
the firm nationally or internationally. taxation, consulting or similar professional services for a
c. Any service requiring accountancy or related skills client.
performed by a professional accountant including
accounting, auditing, taxation, management consulting 22. Related entity is an entity that has any of the following
relationships with the client, except
and financial management services. a. An entity that has direct or indirect control over the client
provided the client is material to such entity.
b. An entity with a direct financial interest in the client even
though such entity has no significant influence over the
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client provided the interest in the client is material to such 27. The principle of professional behavior requires a professional
entity. accountant to
c. An entity over which the client has direct or indirect a. Be straightforward and honest in performing professional
control. services.
d. An entity which is under common control with the client b. Be fair and should not allow prejudice or bias, conflict of
(referred to as a “sister entity”) provided the sister entity interest or influence of others to override objectivity.
and the client are both material to the entity that controls c. Perform professional services with due care, competence
both the client and sister entity. and diligence.
d. Act in a manner consistent with the good reputation of the
INTRODUCTION profession and refrain from any conduct which might
bring discredit to the profession.
23. A profession is distinguished by certain characteristics including
I. Mastery of a particular intellectual skill, acquired by
training and education. 28. Which of the following is not explicitly referred to in the Code of
II. Adherence by its members to a common code of Ethics as source of technical standards?
values and conduct established by its administrating a. Commission on Audit (COA)
body, including maintaining an outlook which is b. Auditing Standards and Practices Council (ASPC)
essentially objective. c. Securities and Exchange Commission (SEC)
III. Acceptance of a duty to society as a whole (usually d. Relevant legislation
in return for restrictions in use of a title or in the
granting of a qualification). ← THE CODE
46. For assurance engagements provided to clients that are not audit 53. Examples of circumstances that may create self-review threat
clients, when the assurance report is expressly restricted for use least likely include
by identified users, the following should be independent of the a. Preparation of original data used to generate financial
client 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
The members of the assurance team
recently been, an employee of the assurance client in a
The firm
position to exert direct and significant influence over the
Network firms subject matter of the assurance engagement.
c. Performing services for an assurance client that directly
47. The firm should be independent of the client in the following affect the subject matter of the assurance engagement.
engagements d. Potential employment with an assurance client.
Assurance engagements provided to an audit client 54. Occurs when a firm, or a member of the assurance team,
Assurance engagements provided to clients that are not audit promotes, or may be perceived to promote, an assurance client’s
clients, when the report is not expressly restricted for use by position or opinion to the point that objectivity may, or may be
identified users perceived to be, compromised. Such may be the case if a firm or
Assurance engagements provided to clients that are not audit a member of the assurance team were to subordinate their
clients, when the assurance report is expressly restricted for use judgment to that of the client.
by identified users a. Self-interest threat
c. Advocacy threat
48. Independence is potentially affected by b. Self-review threat d.
I. Self-interest threat Familiarity threat
IV. Familiarity threat
55. A CPA-lawyer, acting as a legal counsel to one of his audit client,
is an example of
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a. Self-interest threat any threats to an acceptable level, takes into account the
public interest.
c. Advocacy threat
b. Self-review threat d.
61. Consideration of the nature of the safeguards to be applied will
Familiarity threat
be affected by matters such as the
56. Occurs when, by virtue of a close relationship with an assurance
client, its directors, officers or employees, a firm or a member of Significance of the threat
the assurance team becomes too sympathetic to the client’s Nature of the assurance engagement
interests. Intended users of the assurance report
a. Self-interest threat Structure of the firm
c. Advocacy threat
b. Self-review threat d.
Familiarity threat
Preparing Accounting Records and Financial Statements Preparing Accounting Records and Financial Statements – Audit
Clients that are Listed Entities
88. If firm, or network firm, personnel providing such assistance
make management decisions, the self-review threat created 93. The provision of accounting and bookkeeping services of a
could not be reduced to an acceptable level by any safeguards. routine or mechanical nature to divisions or subsidiaries of listed
Examples of such managerial decisions include the following, audit clients would not be seen as impairing independence with
except respect to the audit client provided that the following conditions
a. Determining or changing journal entries, or the are met, except
classifications for accounts or transactions or other a. The services do not involve the exercise of judgment.
accounting records without obtaining the approval of the b. The divisions or subsidiaries for which the service is
audit clients provided are collectively immaterial to the audit client.
b. Authorizing or approving transactions. c. The services provided are collectively immaterial to the
c. Preparing source documents or originating data division or subsidiary.
(including decisions on evaluation assumptions), or d. The fees to the firm, or network firm, from such services
making changes to such documents or data. are collectively significant.
d. Assisting an audit client in resolving account
reconciliation problems. Preparing Accounting Records and Financial Statements –
Emergency Situations
89. These following services are considered to be a normal part of
the audit process and do not, under circumstances, threaten 94. The provision of accounting and bookkeeping services to audit
independence, except clients in emergency or other unusual situations, when it is
a. Analyzing and accumulating information for regulatory impractical for the audit client to make other arrangements, would
reporting. not be considered to pose an unacceptable threat to
b. Assisting in the preparation of consolidated financial independence provided:
statements. a. The firm, or network firm, does not assume any
c. Drafting disclosure items. managerial role or make any managerial decisions.
d. Having custody of an assurance client’s assets. b. The audit client accepts responsibility for the results of
the work.
Preparing Accounting Records and Financial Statements – General c. Personnel providing the services are not members of the
Provisions assurance team.
d. All of the above.
90. If the firm is involved in the preparation of accounting records or
financial statements and those financial statements are Valuation Services
subsequently the subject matter of an audit engagement of the
firm, this will most likely create 95. If the valuation services involves the valuation of matters material
a. Self-interest threat to the financial statements and the valuation involves a significant
degree of subjectivity, the self-review threat created (choose the
c. Intimidation threat
incorrect one)
b. Self-review threat d.
Familiarity threat
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a. Could not be reduced to an acceptable level by the d. Any services for which the person providing the services
application of any safeguard. must either be admitted to practice before the Courts of
b. Could be reduced to an acceptable level by the the jurisdiction in which such services are to be provided,
application of safeguards. or have the required legal training to practice law.
c. Such valuation services should not be provided.
d. The assurance team should withdraw from the audit 100. Which of the following threats to independence can be eliminated
engagement, if the team opted to perform the valuation or reduced to an acceptable level?
services. a. Acting for an audit client in the resolution of a dispute or
litigation in such circumstances when the amounts
96. The following would not generally create a significant threat to involved are material in relation to the financial
independence, except statements of the audit client.
a. When a firm, or a network firm, performs a valuation b. When a firm is asked to act in an advocacy role for an
service for an audit client for the purposes of making a audit client in the resolution of a dispute or litigation in
filing or return to a tax authority. circumstances when the amounts involved are not
b. The firm provides formal taxation opinions and assistance material to the financial statements of the audit client.
in the resolution of tax disputes to an audit client. c. The appointment of a partner or an employee of the firm
c. The firm renders internal services involving an extension or network firm as General Counsel for legal affairs to an
of the procedures required to conduct an audit in audit client.
accordance with Philippine Standards on Auditing to an d. Both a and c.
audit client.
d. When the firm, or a network firm, provides assistance in Recruiting Senior Management
the performance of a client’s internal audit activities or
undertakes the outsourcing of some of the activities. 101. 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
← Provision of IT Systems Services to Audit Clients
c. Intimidation threat
b. Advocacy threat d.
97. The provision of services by a firm or network firm to an audit
Familiarity threat
client that involve the design and implementation of financial
information technology systems that are used to generate
Corporate Finance and Similar Activities
information forming part of a client's financial statements may
most likely create
102. Certain corporate finance services may create advocacy or self-
a. Self-interest threat review threats; however, safeguards may be available to reduce
c. Intimidation threat these threats to an acceptable level. Examples of such services
b. Self-review threat d. include the following, except
Familiarity threat a. Committing the assurance client to the terms of a
transaction or consummating a transaction on behalf of
98. Which of the following is least likely considered to create a threat the client.
to independence? b. Assisting a client in developing corporate strategies.
a. The provision of services by a firm or network firm to an c. Assisting in identifying or introducing a client to possible
audit client which involve either the design or the sources of capital that meet the client specifications or
implementation of financial information technology criteria.
systems that are used to generate information forming d. Providing structuring advice and assisting a client in
part of a client’s financial statements. analyzing the accounting effects of proposed
b. The provision of services in connection with the transactions.
assessment, design and implementation of internal
accounting controls and risk management controls. Fees and Pricing
c. The lending of staff by a firm, or network firm, to an audit
client when the individual is in a position to influence the 103. Which of the following is not likely to create a threat to
preparation of a client’s accounts or financial statements. independence?
d. The provision of litigation support services to an audit a. The total fees generated by an assurance client represent
client, which include the estimation of the possible a large proportion of a firm’s total fees.
outcome and thereby affects the amounts or disclosures b. Fees due from an assurance client for professional
to be reflected in the financial statements. services remain unpaid for a long time.
c. A firm obtains an assurance engagement at a significantly
Provision of Legal Services to Audit Clients lower fee level than that charged by the predecessor firm,
or quoted by other firms.
99. Legal services are defined as d. A court or other public authority established fees.
a. The making of assumptions with regard to future
developments, the application of certain methodologies 104. A client company has not paid its 2003 audit fees. According to
and techniques, and the combination of both in order to the Code of Professional Conduct, for the auditor to be
compute a certain value, or range of values, for an asset, considered independent with respect to the 2004 audit, the 2003
a liability or for a business as a whole. audit fees must be paid before the
b. A broad range of services, including compliance, a. 2003 report is issued c. 2004
planning, provision of formal taxation opinions and report is issued
assistance in the resolution of tax disputes. b. 2004 field work is started d. 2005
c. May include such activities as acting as an expert field work is started
witness, calculating estimated damages or other amounts
that might become receivable or payable as the result of 105. Fees calculated on a predetermined basis relating to the
litigation or other legal dispute, and assistance with outcome or result of a transaction or the result of the work
document management and retrieval in relation to a preformed.
dispute or litigation. a. Contingent fees c. Flat
sum fees
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b. Retainer fees d. Per a. Actual fee would be substantially higher.
diem fees b. Actual fee would be substantially lower than the fees
charged by other professional accountants for
106. Which of the following is least likely to create a threat to comparable services
independence? c. Fee was a competitive bid.
a. The fees generated by the assurance client represent a d. Professional accountant would not be independent.
large proportion of the revenue of an individual partner.
b. The firm charges a contingent fee to an assurance client. 111. Which of the following fee arrangements would violate the Code
c. Accepting gifts or hospitality, the value of which is clearly of Professional Conduct?
insignificant, from an assurance client. a. A fee based on the approval of a bank loan.
d. When litigation takes place, or appears likely, between b. A fee based on the outcome of a bankruptcy proceeding.
the firm or a member of the assurance team and the c. A per hour fee that includes out-of-pocket expenses.
assurance client. d. A fee based on the complexity of the engagement.
← SECTION 9 - Professional Competence and 112. Which of the following actions by a professional accountant in
Responsibilities Regarding the Use of Non-Accountants public practice will not result in violation of the Code of Ethics
regarding commissions?
107. Which statement is incorrect regarding Professional Competence a. Accepting commission for referring a client to a third
and Responsibilities Regarding the Use of Non-Accountants? party.
a. Professional accountants in public practice should refrain b. Accepting commission for the referral of the products or
from agreeing to perform professional services which services of others.
they are not competent to carry out. c. Receipt of referral fees by the referring accountant when
b. If a professional accountant does not have the no services are performed by the referring accountant.
competence to perform a specific part of the professional d. Entering into an arrangement for the purchase of the
service, technical advice may be sought from experts. whole or part of an accounting practice requiring
c. In situations wherein a professional accountant sought payments to individuals formerly engaged in the practice
technical advice from experts, although the professional or payments to their heirs or estates.
accountant is relying on the technical competence of the
expert, the knowledge of the ethical requirements cannot ← SECTION 11 - Activities Incompatible with the Practice
be automatically assumed. of Public Accountancy
d. If at any time the professional accountant is not satisfied
that proper ethical behavior can be respected or assured, 113. Which statement is incorrect regarding activities incompatible
the engagement should not be accepted unless the with the practice of public accountancy?
engagement has commenced in which case the auditor is a. A professional accountant in public practice should not
allowed to finish the engagement. concurrently engage in any business, occupation or
activity which impairs or might impair integrity, objectivity
← SECTION 10 - Fees and Commissions or independence, or the good reputation of the
profession.
108. Professional fees should be a fair reflection of the value of the b. A professional accountant in public practice should not
professional services performed for the client, taking into concurrently engage in any business, occupation or
account: activity which would be incompatible with the rendering of
professional services.
c. The rendering of two or more types of professional
The skill and knowledge required for the type of professional services concurrently does by itself impair integrity,
services involved objectivity or independence.
The level of training and experience of the persons necessarily d. The simultaneous engagement in another business,
engaged in performing the professional services occupation or activity unrelated to professional services
which has the effect of not allowing the professional
The time necessarily occupied by each person engaged in accountant in public practice properly to conduct a
performing the professional services professional practice in accordance with the fundamental
ethical principles of the accountancy profession should be
The degree of responsibility that performing those services regarded as inconsistent with the practice of public
entails accountancy.
1. b
2. d
3. d
4. a
5. d
6. d
7. a
8. d
9. b
10. d
11. d
12. a
13. a