ACTG 11 – ASSURANCE PRINCIPLES

BS Accountancy, SY 2019-2020
3RD Year, 2ND Semester
QUIZ #2

Student Name: ________________________________________________________________________

Date: ___________________________________________________________________________________
Instructions: Encircle the letter of the correct answer. Please avoid erasures.

1. Which of the following statements best explains why the CPA profession has found it essential to establish
ethical standards and means for ensuring their observance?
a. Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts.
b. Ethical standards that emphasize excellence in performance over material rewards establish a
reputation for competence and character.
c. A distinguishing mark of a profession is its acceptance of responsibility to the public. (x)
d. A requirement for a profession is to establish ethical standards that stress primarily a responsibility
to clients and colleagues.

2. Which of the following fundamental ethical principles requires a professional accountant to act diligently
and in accordance with applicable technical and professional standards?
a. Objectivity
b. Professional behavior
c. Professional competence and due care (x)
d. Integrity

3. The threat that a professional accountant will be deterred from acting objectively because of actual or
perceived pressures from the client is known as
a. Intimidation threat (x)
b. Familiarity threat
c. Self-interest threat
d. Advocacy threat

4. Which of the following will not create self-interest threat for a professional accountant in public practice?
a. The possibility of losing a significant client
b. Direct financial interest in the assurance client
c. Undue dependence on total fees from a client
d. Preparing the original data used to generate records that are the subject matter of the assurance
engagement (x)

5. Familiarity threat could be created under the following circumstances except

a. A professional accountant accepting gifts from a client whose value is inconsequential or trivial (x)
b. Senior personnel having a long association with the assurance client
c. 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
d. A member of the engagement team having a close or immediate family member who is a director or
officer of the client
6. This threat to independence occurs when a member of the assurance team has recently performed services
for an assurance client that directly affect the subject matter information of the assurance engagement
a. Self-review threat (x)
b. Advocacy threat
c. Self-interest threat
d. Familiarity threat

7. Which of the following circumstances may create advocacy threat for a professional accountant in public
practice?
a. The firm promoting shares in an audit client (x)
b. A firm issuing an assurance report on the effectiveness of the operation of financial systems after
designing or implementing the systems
c. A firm being threatened with dismissal from a client engagement
d. A firm being concerned about the possibility of losing a client

8. The following circumstances may create intimidation threats except

a. Being threatened with dismissal or replacement in relation to a client engagement
b. Being pressured to reduce inappropriately the extent of work performed in order to reduce fees
c. Being threatened with litigation
d. A member of the assurance team being, or having recently been, a director or officer of the client (x)

9. In the case of audit engagements, it is in the public interest and, therefore, required by the Code that
members of audit teams, firms and network firms shall be independent of audit clients. Independence
requires
a. Independence of mind only
b. Independence in appearance only
c. Both independence of mind and in appearance (x)
d. Either independence of mind or appearance

10. Independence from the audit client is required

a. During the engagement period
b. During the period covered by the financial statements
c. Either A or B
d. Both A and B (x)

11. Which of the following threats may be created when a firm or a network firm performs valuation for an
audit client that is to be incorporated in the client’s financial statements?
a. Advocacy threat
b. Familiarity threat
c. Self-review threat (x)
d. Intimidation threat

12. When the total fees generated by an assurance client represent a large proportion of a firm’s total fees, the
dependence on that client or client group and concern about the possibility of losing the client may create
a/an
a. Self-interest threat (x)
b. Self-review threat
c. Intimidation threat
d. Advocacy threat
13. These are fees calculated on a predetermined basis relating to the outcome or result of a transaction or the
result of work performed
a. Contingent fees (x)
b. Fixed fees
c. Predetermined fees
d. Commissions

14. Which part of the Code establishes the fundamental principles of professional ethics for professional
accountants and provides a conceptual framework in identifying threats, evaluating its significance and
applying safeguards?
a. Part A (x)
b. Part B
c. Part C
d. Part D

15. Which part of the Code applies to professional accountants in public practice?
a. Part A
b. Part B (x)
c. Part C
d. Part D

16. 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 (x)
d. Contains information without any real knowledge of whether they are true or false

17. Ultimately, the decision as to whether the auditor is independent or not, will be made by the
a. Client
b. Audit committee
c. Public
d. Auditor (x)

18. The CPA should not undertake an engagement if his fee is to be based upon
a. A percentage of audited net income (x)
b. Per diem rates plus expenses
c. The findings of a tax authority
d. The complexity of the service rendered

19. Using the same senior personnel on an assurance engagement over a long period of time would most likely
create
a. Intimidation threat
b. Advocacy threat
c. Familiarity threat (x)
d. Self-interest threat

20. 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 the nature of the business entity
b. Obtain knowledge of matters that relate to the nature of the entity’s business (x)
c. Refer a substantial portion of the audit to another CPA who will act as the principal auditor
d. First inform managements that an unqualified opinion can not be issued