Department of Accountancy: Page - 1

Mindanao State University
College of Business Administration and Accountancy

DEPARTMENT OF ACCOUNTANCY
Marawi City
MODULE 3
PROFESSIONAL AND LEGAL RESPONSIBILITY
PSA BASED QUESTIONS
1. The revised Code of Ethics is mandatory for all CPAs and is applicable to professional services performed in the
Philippines on or:
A. Before June 30, 2008

B. After June 30, 2008
C. Before January 1, 2008
D. After January 1, 2008
2. Which of the following is not explicitly referred to in the Code of Ethics as source of technical standards?
A. Commission on Audit (COA)

B. Auditing and Assurance Standards Council (AASC)
C. Securities and Exchange Commission (SEC)
D. Relevant legislation
3. Immediate family includes:
A. parent.
B. sibling.
C. non-dependent child
D. spouse.
4. Close Family includes the following, except:
A. Parent
B. Non-dependent child
C. Sibling
D. Spouse
5. Firm includes the following except:
A. A sole practicing professional accountant.

B. An entity that controls a partnership of professional accountants.
C. An entity controlled by a partnership of professional accountants.
D. A sole practitioner, partnership or corporation of professional accountants.
6. Existing accountant, as defined in the Code of Ethics, means:
A. A professional accountant employed in industry, commerce, the public sector or education.

B. A professional accountant in public practice currently holding an audit appointment or carrying out
accounting, taxation consulting or similar professional services for a client.
C. Those persons who hold a valid certificate issued by the Board of Accountancy.
D. A sole proprietor, or each partner or person occupying a position similar to that of a partner and each staff
in a practice providing professional services to a client irrespective of their functional classification (e.g.,
audit, tax or consulting) and professional accountants in a practice having managerial responsibilities.
7. The term professional accountant in public practice includes the following, except:
A. A sole proprietor providing professional services to a client.

B. Each partner or person occupying a position similar to that of a partner staff in a practice providing
professional services to a client.
C. Professional accountants employed in the public sector having managerial responsibilities.
D. A firm of professional accountants in public practice.
8. The term receiving accountant includes the following, except:
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A. A professional accountant in public practice to whom the existing accountant has referred tax engagement.
B. A professional accountant in public practice to whom the client of the existing accountant has referred audit
engagement.
C. A professional accountant in public practice who is consulted in order to meet the needs of the client.
D. A professional accountant in public practice currently holding an audit appointment or carrying out
accounting, taxation, consulting or similar professional services for a client.
9. Related entity is an entity that has any of the following relationships with the client, except:
A. An entity that has direct or indirect control over the client provided that the client is material to such entity.
B. An entity with a direct financial interest in client even though such entity has no significant influence over
the client provided the interest in the client is material to such entity
C. An entity over which the client has direct or indirect control.
D. An entity which is under common control with the client (referred to as a “sister entity”) provided the sister
entity and the client are both material to the entity that controls both the client and sister entity.
10. A primary purposes for establishing a code of ethics within a professional organization is to:
A. Demonstrate the acceptance of responsibility to the interest of those served by the profession.
B. Reduce the likelihood that members of the profession will be sued for substandard work.
C. Ensure that all members of the profession possess approximately the same level of competence
D. Require members of the profession to exhibit loyalty in all matters pertaining to the affairs of the
organization.
11. Which statement is incorrect regarding the Code of Ethics for Professional Accountants in the Philippines?
A. Professional accountants refer to persons who are registered in the PRC as 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 Code of Ethics for Professional Accountants in the Philippines is mandatory for all CPAs and is
applicable to professional services performed in the Philippines on or after June 30, 2008.
D. Professional accountants should consider the ethical requirements as the basic principles which they should
follow in performing their work.
12. The communication to the public of facts about a professional accountant which are not designed for the
deliberate promotion of that professional accountant.
A. Publicity
B. Indirect promotion
C. Advertising
D. Solicitation
13. Advertising, as defined in the Code of Ethics, means
A. The communication to the public of facts about a professional accountant which are not designed for the
deliberate promotion of that professional accountant.
B. The approach to a potential client for the purpose of offering professional services.
C. The communication to the public of information as to the services or skills provided by professional
accountants in public practice with a view to procuring professional business.
D. Any of the given choices.
14. The following bodies develop and or issue technical and professional standards for implementation:
I. Board of Accountancy
II. National Economic Development Authority
III. Financial Reporting Standards Council
IV. Securities and Exchange Commission
V. Auditing and Assurance Standards Council
VI. Cooperative Commission of the Philippines
According to the revised code of ethics for CPAs, which of the foregoing are sources of technical and professional
standards in the Philippines?
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A. I, III, IV, V
B. I, III, IV, V, VI
C. I, III, IV
D. All of them
15. What should be the logical pattern of the following development for a professional accountant?
A. III,II, IV, I
B. III, I, II, IV
C. II, III, IV, I
D. II, III, I, IV
16. Which of the following is least likely the basis of determining audit fees?
A. The skill and knowledge required for the type of work

B. The degree of responsibility and urgency that the work entails.
C. The expected outcome of the engagement
D. The required level of training and experience of the persons engaged on the work.
17. Which of the following is not allowed by the revised code of ethics?
A. A professional accountant in public practice may issue to client or, in response to an unsolicited request, to
a non-client factual and objectively worded of the service provided.
B. Booklets and other documents bearing the name of a professional accountant and giving technical
information for the assistance of staff or clients may be issued to such persons, other professional
accountants or other interested parties.
C. The use of the name of an international accounting firm affiliation/ correspondence is generally allowed.
D. A firm or CPA practitioner can continue to use the term “Accredited” or any similar words or phrase
calculated to convey the same meaning if the claimed accreditation has not expired.
18. How frequent can a professional accountants have press and other media releases commemorating their
anniversaries in public practice by informing the public of their achievements or accomplishments in contributing
toward nation building or enhancing the image or standards of the accounting profession?
A. 2 years
B. 3 years
C. 5 years
D. 6 years
19. Which of the following is not allowed to be included in a website of a firm of professional accountants?
A. Names of partners/principals with their educational attainment.

B. Membership in any professional body.
C. Awards received
D. Listings of the firm’s clients.
20. In their fiduciary role, the professional accountants owe their primary loyalty to:
A. The accounting profession

B. The general public
C. The client
D. Government regulatory agencies
21. Which of the following is a distinguishing mark of the accountancy profession?
A. A drive to excellence
B. Acceptance of the responsibility to act in the public interest
C. Professional objectivity
D. Professional skepticism
22. Which statement is incorrect regarding the Code of Ethics for Professional Accountants in the Philippines?
A. The objectives as well as the fundamental principles are of a general nature and are not intended to be used
to solve a professional accountant’s ethical problems in a specific case.
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B. The code is divided into two parts, part A and part B.
C. Part A applies to all professional accountants unless otherwise specified
D. Part B applies only to those professional accountants in public practice.
23. A professional accountant should comply with relevant laws and regulations and should avoid any action that
discredits the profession. This is a fundamental principle of:
A. Objectivity
B. Professional competence and due care
C. Professional behavior
D. Integrity
24. The IFAC Code of Professional Conduct will ordinarily be considered to have been violated when the member
represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the
representation that the
A. actual fee would be substantially higher

B. actual fee would be substantially lower than the fees charged by the other members for comparable
services.
C. fee was a competitive bid.
D. member would not be independent.
25. Which of the following is not one of the fundamental principles of ethical conduct for professional accountants?
A. Integrity
B. Confidentiality
C. Loyalty
D. Professional competence and due care
26. To what fundamental principle does the following statement best fit? A professional accountant is likened to a
prudent father to his son.
A. Professional competence and due care

B. Confidentiality
C. Integrity
D. Objectivity
27. Which fundamental principle is seriously threatened by an engagement that is compensated based on the net
proceeds on loans received by the client form a commercial bank?
A. Objectivity
B. Professional behavior
C. Confidentiality
D. Integrity
28. Which of the following is required to comply with the fundamental principle of professional competence and
due care?
A. A professional accountant should not allow bias, conflict of interest or undue influence of others to override
professional or business judgment.
B. A professional accountant should act diligently and in accordance with technical and professional standards
when providing professional services.
C. A professional accountant should comply with relevant laws and regulations and should avoid any action
that discredits the profession.
D. The accountant should observe fair dealings and truthfulness.
29. “A professional accountant should be straight forward and honest in all his professional and business
relationship.” This description appropriately describes the fundamental principle of:
A. Integrity
B. Objectivity
C. Confidentiality
D. Professional behavior
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30. It is essential that users of the audited financial statements regard CPA firms as
A. competent
B. unbiased
C. technically proficient
D. All of the given choices
31. The Code of Professional Ethics states, in part, that a CPA should maintain integrity and objectivity. Objectivity
refers to the CPA’s ability to
A. Determined accounting practices that were consistently applied.

B. Maintain impartial attitudes on all matters which come under his review.
C. Determine the materiality of items.
D. Insist on all matters regarding audit procedures
32. Which of the following values is not necessary for a professional accountant?
A. Honesty
B. Objectivity
C. Integrity
D. A primary commitment to self-interest
33. Which of the following is not a fundamental principle in codes of ethics for professional accountants?
A. Act in the client’s best interest

B. Objectivity and independence
C. Maintain the good reputation of the profession
D. Maintain confidentiality
34. Which of the following statements about conceptual framework of the code of ethics is incorrect?
A. A conceptual framework that requires a professional accountant to identify, evaluate, and address threats to
compliance with the fundamental principles, rather than merely comply with a set of specific rules which
may be arbitrary is in the public interest.
B. As a concern to the public interest, the professional accountant should comply with a set of specific rules
rather than arbitrarily identify, evaluate and address threats to compliance with fundamental principles
C. If identified threats are other than clearly insignificant, a professional accountant should appropriately
apply safeguards to eliminate the threats or reduce them to an acceptable level.
D. All inadvertent violations of the code of Ethics, irrespective of their nature and significance, always
compromise compliance with the fundamental principles.
36. Which of the following appropriately describes an advocacy threat?
A. The professional accountant may be deterred from acting objectively by threats, actual or perceived.
B. Because of a close relationship, a professional accountant becomes too sympathetic to the interests of other.
C. The professional accountant provides a position or opinion to the point that subsequent may be
compromised.
D. The professional accountant needs to reevaluate his previous judgment.
37. A threat that prevents the professional accountant from acting objectively by threats, actual or perceived.
A. Self-interest
B. Familiarity
C. Intimidation
D. Advocacy
38. A form of threat which may occur when a previous judgment needs to be reevaluated by the professional
accountant who is responsible for the judgment.
A. Self-interest threat
B. Self-review threat
C. Familiarity threat
D. Advocacy threat
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39. Advocacy threat may occur:
A. As a result of the financial or other interests of a professional accountant or an immediate or close family
member.
B. When, because of a close relationship, a professional accountant becomes too sympathetic to the interests
of others.
C. When a professional accountant promotes a position or opinion to the point that subsequent objectivity may
be compromised.
D. When a professional accountant may be deterred from acting objectively by threats, actual or perceived
40. It occurs when a firm or a member of the assurance team could benefit from a financial interest in, or other self-
interest conflict with, an assurance client.
C. Advocacy threat
D. Familiarity threat
41. A financial interest beneficially owned through a collective investment vehicle, estate, trust or other
intermediary over which the individual or entity has no control.
A. Indirect financial interest

B. Financial instrument
C. Direct financial interest
D. Clients’ monies
42. Financial interest means:
A. Any bank account which is used solely for the banking of clients’ monies.
B. Any monies received by a professional accountant in public practice to be held or paid out on the
instruction of the person from whom or on whose behalf they are received.
C. A financial interest beneficially owned through a collective investment vehicle, estate, trust or other
intermediary over which the individual or entity has no control.
D. An equity interest or other security, debenture, loan or other debt instrument of an entity, including rights
and obligations to acquire such an interest and derivatives directly related to such interest.
43. Direct financial interest is a financial interest:

A B C D
 owned directly by and under the control of an

Individual or entity (including those managed Yes Yes Yes No
On a discretionary basis by other)
 beneficially owned through a collective investment
vehicle, estate, trust or other intermediary Yes Yes No No
over which the individual or entity has control
 beneficially owned through a collective
investment vehicle, estate, trust or other intermediary Yes No No Yes
over which the individual or entity has no
control
44. Occurs when any product or judgment of a previous assurance engagement or non-assurance engagement needs
to be reevaluated in reaching conclusions on the assurance engagement or when a member of the assurance team
was previously a director or officer of their assurance client, or was an employee in a position to exert direct and
significant influence over the subject matter of the assurance engagement.
C. Advocacy threat
45. Intimidation threat:
A. is not a threat to independence.
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B. occurs when a member of the assurance team may be deterred form acting objectively and exercising
professional skepticism by threats, actual or perceived, form the directors, officers or employees of an
assurance client.
C. occurs when, by virtue of a close relationship with an assurance client, its directors, officers or employees,
a firm or a member of the assurance team becomes too sympathetic to the client’s interest.
D. 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.
46. Safeguards created by the profession, legislation or regulation, include the following, except:
A. Educational, training and experience requirements for entity into the profession.
B. Continuing education requirements.
C. Legislation governing the independence of the firm
D. Policies and procedures that emphasize the assurance client’s commitment to fair financial reporting.
47. Which of the following is an example of engagement-specific safeguards?
A. Advising partners and professional staff of those assurance clients and related entities from which they
must be independent.
B. Consulting an independent third party, such as a committee of independent directors, a professional
regulatory body or another professional accountant.
C. Policies and procedures that will enable the identification of interests or relationships between the firm or
members of engagement teams and clients.
D. External review by a legally empowered third party of the reports, returns, communications or information
produced by a professional accountant.
48. Which of the following is not a safeguard created by the profession, legislation or regulation?
A. Professional standards.
B. Policies and procedures to implement and minor quality control of engagements
C. Continuing professional development requirements
D. Educational, training and experience requirements for entry into the profession.
49. Safeguards may eliminate or reduce threats to an acceptable level. The following are examples of these
safeguards.
I. Professional or regulatory monitoring and disciplinary procedures

II. Documented internal policies and procedures requiring compliance with the fundamental principles
III. Policies and procedures to monitor and if necessary, manage the reliance on revenue received from a
single client.
Which of the foregoing examples of safeguards is/are classified firm-wide safeguards in the work environment?
A. All of these
B. I and II
C. II and III
D. I and III
50. Which of the following fundamental principles is compromised when a professional accountant is associated
with reports or returns that are significantly misleading?
A. Integrity
B. Competence and blue professional care
C. Objectivity
D. Professional behavior
51. Safeguards may eliminate or reduce threats to an acceptable level. The following are examples of these
safeguards:
I. Professional or regulatory monitoring and disciplinary procedures.

II. Documented internal policies and procedures requiring compliance with the fundamental principles.
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III. Policies and procedures to minor and if necessary manage the reliance on revenue received from a
single client.
IV. Corporate governance regulations
Which of the foregoing examples of safeguards that can be applied is/are created by the profession, legislation, or
regulation?
A. I and III
B. II and IV
C. I and IV
D. II and III
52. Which of the following examples of safeguards that may effectively reduce threats to compliance with the
fundamental principles is created by the profession, legislation or regulation?
A. Published policies and procedures to encourage and empower staff to communicate to senior levels within
the firm any issue relating to compliance with the fundamental principles that concerns them.
B. Effective, well-publicized complaints systems operated by the employing organization, the profession or a
regulator, which enable colleagues, employers, and members of the public to draw attention to unethical
behavior.
C. Designating a member of senior management to be responsible for overseeing the adequate functioning of
the firm’s quality control system.
D. Disclosing to those charged with governance of the client the nature of services provided and the extent of
fees charged.
53. Professional accountants may encounter problems in identifying unethical behavior or in resolving an ethical
conflict. When faced with significant ethical issues, professional accountants should do the following, except
A. follow the established policies of the employing organization to seek a resolution of such conflict.
B. review the conflict problem with the immediate superior if the organization’s policies do not resolve the
ethical conflict.
C. if the problem is not resolved with the immediate superior and the professional accountant determines to go
to the next higher managerial level, the immediate superior need not be notified of the decision.
D. seek counseling and advice on a confidential basis with an independent advisor on the applicable
professional accountancy body or regulatory body to obtain an understanding of possible courses of action.
54. As a resolution of the conflict in the application of fundamental principles, the auditor, after considering the
ethical issues and relevant facts may do any of the following, except:
A. Must immediately resign from the engagement or the employing entity.

B. Should weigh the consequences of each possible course of action.
C. Should consult with other appropriate persons within the firm or employing organization for help to finally
resolve the matter
D. The professional accountant may wish to obtain professional advice from the relevant professional body
without breaching confidentiality if significant cannot be resolved.
55. Which of the following is incorrect regarding integrity and objectivity?
A. Integrity implies not merely honesty but fair dealing and truthfulness.
B. The principle of objectivity imposes the obligation on all professional accountants to be fair, intellectually
honest and free of conflicts of interest
C. Professional accountants serve in many different capacities and should demonstrate their objectivity in
________ circumstances.
D. Professional accountants should neither accept nor other any gifts or entertainment.
56. If a professional accountant is billing an audit client a number of hours greater than those actually worked.
Which of the following fundamental principles is likely violated?
A. Objectivity
B. Integrity
C. Professional due care
D. Confidentiality
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57. 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.
58. In which of the following circumstances may disclosure of confidential information be appropriate?
A. Disclosure is necessary as required by legal proceedings.

B. The professional accountant volunteered to reveal information in order to help a faster resolution of legal
proceedings.
C. Working papers are turned over to other professional accountant who purchased the accounting practice.
D. Detailed listing of inactive customers of one assurance client is passed on to other non-assurance client.
59. 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 congress
D. that it allows Professional Regulation Commission to have a yardstick to measure deficient performance.
60. A professional accountant may be associated with a tax return that
A. contains a false or misleading statement.

B. contains statements or information furnished recklessly or without any real knowledge of whether they are
true or false.
C. omits or obscures information required to be submitted and such omission or obscurity would mislead the
revenue authorities
D. uses of estimates if such use is generally acceptable or if it is impractical under the circumstances to obtain
exact data.
61. There are fundamental principles that the professional accountant has to observe when performing assurance
engagements. The requirement of which principle is of particular importance in an assurance engagement in
ensuring that the conclusion of the professional accountant has value to the intended user?
A. Integrity
B. Confidentiality
C. Professional competence
D. Objectivity
62. If a professional accountant is auditing a public company and he receives from his client its shares of stock as
payment for his audit services, he will be violating the fundamental principle of:
A. Integrity
B. Professional due care
C. Objectivity
D. Confidentiality
63. Which of the following is least likely an indication that the CPA violates the integrity principle? The CPA is
associated with reports on information that
A. The CPA issues a qualified opinion due to scope limitation because he fails to arrive at a clear-cut
conclusion.
B. Contains a materially false or misleading statement
C. Omits or obscure information required to be included when such omission or obscurity would make the
information misleading.
D. Contains statements or information furnished recklessly.
64. Which of the following is the least required in attaining professional competence?
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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.
65. 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 service.
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 authorization 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.
66. A professional accountant is auditing Maiden Company and providing consulting services to Widow Company.
Both clients are in the same industry. If the professional accountant uses specific information from maiden’s audit to
prepare a business plan for Widow he will be violating the principle of
A. Integrity
B. Professional behavior
C. Objectivity
D. Confidentiality
67. Which of the following statements is incorrect about the principle of confidentiality?
A. The professional accountants must refrain from disclosing confidential information acquired as a result of
professional and business relationships to any party outside the firm or employing organization unless there
is a legal or professional right or duty to disclose.
B. The professional accountants must never disclose confidential information obtained as a result of
professional business relationships
C. The need to comply with confidentiality principle continues even after the end of relationship between a
professional accountant and a client or employer
D. A professional accountant should consider that some information may be kept confidential within the firm
or employing organization.
68.The confidential relationship applies to
A. All services provided by CPAs

B. only audit and attestation services
C. audit and tax services, but not MAS services
D. audit and MAS services, but not tax services
69. Which of the following may not be a professional duty to disclose confidential information?
A. In compliance with the quality review of a member body or professional body.

B. B.in compliance with technical standards and ethics requirements
C. In response to specific inquiry from the major stockholder
D. In protecting the professional interests of the professional accountant in case of litigation.
70. A professional accountant has a professional duty or right to disclose confidential information in each of the
following, except
A. To comply with technical standards and ethics requirements

B. To disclose to BIR fraudulent scheme committed by the client on payment of income tax.
C. To comply with the quality review of a member body or professional body.
D. To respond to an inquiry or investigation by a member body or regulatory body.
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71. What kind of threat to noncompliance to fundamental principles is created if the professional fees due from a
financial statement audit client remain unpaid for a long time?
C. Familiarity threat
D. No threat is created
72. A CPA in public practice shall not disclose any confidential client information without the specific consent of
the client. The confidentiality rule is violated if a CPA disclose information without a client’s consent as a result of a
A. subpoena or summons.
B. peer review
C. complaint filed with the trial board of the Board of Accountancy
D. request from a client’s largest stockholder
73. The confidential relationship will be violated if without the client’s permission, the CPA provides working
papers about the client to
A. a court of law which subpoenas them.

B. another CPA firm as part of a peer review
C. another CPA firm which has just purchased the CPA’s entire practice
D. an investigative or disciplinary body which is conducting a review of the CPA’s practice
74. Assurance team include

A B C D
 All professionals participating in the assurance
Engagement Yes Yes Yes Yes
 All others within a firm who can directly influence
The outcome of the assurance engagement Yes Yes No No
 For the purposes of an audit client, all those within
A network firm who can directly influence the Yes No No Yes
Outcome of the audit engagement
75. Examples of circumstances that may create self-interest threat include:
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
76. Which of the following 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 relationship with an assurance client.
D. Pressure to reduce inappropriately the extent of work performed in order to reduce fees.
77. If the firm is involved in the preparation of accounting records or financial statements and those financial
statements are subsequently the subject matter of an audit engagement of the firm, this will most likely create
B. self-review threat
C. C intimidation threat.
D. familiarity threat
78. Examples of circumstances that may create self-review threat least likely include
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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.
79. Family and personal relationships between a member of the assurance team and a director, an officer or certain
employees, depending on their role, of the assurance client, least likely create
A. self-interest threat
B. self-review threat
C. intimidation threat
80. A director, an officer or an employee of the assurance client in a position to exert direct and significant influence
over the subject matter of the assurance engagement has been a member of the assurance team or partner of the firm.
This situation least likely create
A. A .self-interest threat
B. Advocacy threat
81. A former officer, director or employee of the assurance client serves as a member of the assurance team, this
situation will least likely create
A. A .self-interest threat
B. Advocacy threat
82. Which of the following will least likely impair independence?
A. An immediate family member of a member of the assurance team is a director, an officer or an employee of
the assurance client in a position to exert direct and significant influence over the subject matter of the
assurance engagement
B. A member of the assurance team participates in the assurance engagement while knowing, or having reason
to believe, that he or she is to, or may, join the assurance client in the future
C. A partner or employee of the firm serves as an officer or as a director on the board of an assurance client
D. A partner or employee of the firm or a network firm serves as company secretary for an audit client, the
duties and functions undertaken are limited to those of a routine and formal administrative nature as such as
the preparation of minutes and maintenance of statutory returns
83. The provision of services by a firm or network firm to an audit client that involve the design and implementation
of financial information technology systems that are used to generate information forming part of a client’s financial
statements may most likely create
A. self-interest threat
84. 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.
Such may be the case if a firm or a member of the assurance team were to subordinate their judgment to that of the
client.
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C. Advocacy threat
85. A CPA-lawyer, acting as a legal counsel to one of his audit client, is an example of
C. Advocacy threat
86. Which of the following is not likely a threat to independence?
A. Acting as an advocate on behalf of an assurance client in litigation or in resolving disputes with third
parties
B. Long association of a senior member of the assurance team with the assurance client
C. Threat of replacement over a disagreement with the application of an accounting principle
D. Owning immaterial indirect financial interest in an audit client
87. Occurs when, by virtue of a close relationship with an assurance client, its directors, officers or employees, a
firm or a member of the assurance team becomes too sympathetic to the client’s interest,
C. Advocacy threat
88. Examples of circumstances that may create familiarity threat least likely include
A. 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. A member of the assurance team having an immediate family member or close family member who, as an
employee of the assurance client, is in a position to exert direct and significant influence over the subject
matter of the assurance engagement
C. A former partner of the firm being a director, officer of the assurance client or an employee in a position to
exert direct and significant influence over the subject matter of the assurance engagement
D. dealing in, or being a promoter of, share or other securities in an assurance client.
89.Consideration of the nature of the safeguards to be applied will be affected by matters such as the
A B C D
 Significance of the threat Yes Yes Yes Yes
 Nature of the assurance engagement Yes Yes Yes No
 Intended users of the assurance report Yes Yes No Yes
 Structure of the firm Yes No No No
90. The safeguards available to eliminate the threats or reduce them to an acceptable level include
A B C D
 Safeguards created by the profession, legislation or
Regulation Yes Yes Yes Yes
 Safeguards with the assurance client Yes Yes No No

 Safeguards within the own systems and procedures Yes No No Yes
91. Safeguards within the firm’s own systems and procedures, include the following, except:
A. Firm leadership that stresses the importance of independence and the expectation that members of
assurance teams will act in the public interest
B. External review of a firm’s quality control system
C. Policies and procedures to implement and monitor quality control of assurance engagements
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D. Policies and procedures that enable the identification of interests or relationship between the firm or
members of the assurance team and assurance clients.
92. Safeguards within the assurance clients include the following expect:
A. Professional standards and monitoring and disciplinary processes

B. The assurance client has competent employees to make managerial decisions
C. Internal procedures that ensure objective choices in commissioning non-assurance engagements.
D. A corporate governance structure, such as an audit committee, that provides appropriate oversight and
communications regarding a firm’s services.
93. In determining estimates of fees, an auditor may take into account each of the following, except the:
A. Value of the service to the client

B. Degree of responsibility assumed by undertaking the engagement.
C. Skills required in performing the service
D. Attainment of specific findings.
94. The Code of Professional Conduct would be violated if a member accepted a fee for services and the fee was
A. fixed by a public authority

B. based on a price quotation submitted in competitive bidding
C. based on the result of judicial proceedings
D. payable after a specified finding was attained.
95. In the marketing and promotion of themselves and their work, professional accountants should:
A. Not use means which brings the profession into disrepute

B. Not make exaggerated claims for the services they are able to offer the qualifications they possess, or
experience they have gained.
C. Not denigrate the work of other accountants
D. All of the above
96. Which of the following is incorrect regarding independence?
A. Independence consist of independence of mind and independence in appearance

B. Independence of mind is the state of mind that permits the provision of a 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
97. 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 identifies users
D. All of the above
98. For assurance engagements provided to an audit client, the following should be independent of the client:
A B C D
 The members of the assurance team Yes Yes Yes Yes
 The firm Yes Yes No No
 Network firm Yes No No Yes
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99. Using partners who do not report to the audit partners for the provision of non-assurance services to an audit
client is an example of:
A. safeguards reducing the risk of conflict of interest created by the profession, legislation, or regulation
B. Safeguards reducing the risk of conflict of interest within a client
C. Safeguards reducing the risk of conflict of interest within a professional accounting firm
D. All of these
100. The recommendation for the appointment of the external auditors by the audit committee is an example of:
A. Safeguards reducing the risk of conflict of interest created by the profession, legislation, or regulation
B. Safeguards reducing the risk of conflict of interest between an auditor and the management
C. Safeguards reducing the risk of conflict of interest within a professional accounting firm’s own systems and
procedures.
D. All of these
101. For assurance engagements provided to clients that are not audit clients, when the report is not
expressly restricted for use by identified users, the following should be independent of the client:
A B C D
 The members of the
Assurance team Yes Yes Yes Yes
102. For assurance
 Network firms Yes No No Yes
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 with the client:
A B C D
 The members of the
Assurance team Yes Yes Yes Yes
 Network firms Yes No No Yes
103. Contingent fee pricing of public accounting services is:
A. Always strictly prohibited in public accounting practice

B. Never restricted in public accounting practice
C. Prohibited for clients for whom attestation services are provided
D. Considered an act discreditable to the profession
104. The firm should be independent of the client in the following engagements:
A B C D
Assurance engagements provided toan audit
client Yes Yes Yes Yes
Assurance engagements provided to clients
that are not audit clients, when the report is
not expressly restricted for use by identified
users Yes Yes No No
Assurance engagements provided to clients
that are not audit clients, when the
assurance report is expressly restricted for
use by identified users Yes No No Yes
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105. When the safeguards available are insufficient to eliminate the threats to independence or to
reducethem to an acceptable level, or when a firm chooses not to eliminate the activities or interest
creating the threat, the only course of action available will be the
A. Issuance of an adverse opinion

B. Issuance of a qualified opinion or disclaimer of opinion
C. Issuance of unqualified opinion with explanatory paragraph
D. Refusal to perform or withdrawal from the assurance engagement
106. 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 independence may be created by
previous services provided to the audit client.
107. If a member of the assurance team or their immediate family member has a direct financial interest
or a material indirect financial interest, in the assurance client, the self interest threat created would be so
significant that the only safeguards available to eliminate the threat or reduce it to an acceptable level
would be to (choose the incorrect one)
A. dispose of the direct financial interest prior to the individual

becoming a member of the assurance team.
B. dispose of the indirect financial interest in total prior to the
individual becoming member of the assurance team
dispose of a sufficient amount of the indirect financial
C. interest
so that the remaining interest is no longer material
prior to
the individual becoming a member of the assurance team
D. limit the participation of the member of the assurance team
108. If a member of the assurance team, or their immediate family member receives by way of, for
example, an inheritance, gift or, as a result of a merger, a direct financial interest or a material indirect
financial interest in the assurance client, a self interest threat would be created. The following safeguards
should be applied to eliminate the threat or reduce it to an acceptable level:
A. Disposing of the financial interest at the earliest practical date

B. Removing the member of the assurance team from the assurance engagement
C. Either A or B
D. neither a nor b
109. 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 the professional accountant who took part in the assurance engagement o
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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.
110. When a firm or a member of the assurance team holds a direct financial interest or a material
indirect financial interest in the assurance client as a trustee, a self interest threat may be created by the
possible influence of the trust over the assurance client. Accordingly, such an interest cannot be held
when:
A. The member of the assurance team, an immediate family member of

the member of the assurance team and the firm are beneficiaries of the
trust
B. The interest held by the trust in the assurance client is not material to
the trust
C. The trust is not able to exercise significant influence over the
assurance client
D. The member of the assurance team or the firm does not have
significant influence over any investment decision involving a
financial interest in the assurance client
111. An inadvertent violation of the Independence rules as it relates to a financial interest in an assurance
client would not impair the independence of the firm, the network firm or a member of the assurance team
when:
A. The firm, and the network firm, has established policies and
procedures that require all professionals to report promptly to the firm
any breaches resulting from the purchase inheritance or other
acquisition of a financial interest in the assurance client.
B. The firm, and the network firm, promptly notifies the professional that
the financial interest should be disposed of.
C. The disposal occurs at the earliest practical date after identification of
the issue or the professional is removed from the assurance team.
112. The following self interest threat created would be so significant no safeguard could reduce the
threat to an acceptable level, except
A. If a firm, or a network firm, has a direct financial interest in an audit client of the
firm
B. If a firm, or a network firm, has a material indirect financial interest in an audit
client of the firm.
C. If a firm, or a network firm, has a material financial interest in an entity that has
controlling interest in an audit client
D. If the retirement benefit plan of a firm, or a network firm, has a financial interest
in an audit client
113. If a firm, or a network firm, has a direct financial interest in an audit client of the firm, the self
interest threat created would be so significant no safeguard could reduce the threat to an acceptable level.
The action appropriate to permit the firm to perform the engagement would be to
A. Dispose of the financial interest

B. Dispose of a sufficient amount of it so that the remaining interest is no
longer material
C. Either of the given choices
D. Neither of the given choices
114. If a firm, or a network firm, has a direct financial interest in a financial statement audit client of the
firm, the appropriate safeguard against the self interest threat created would be:
A. Dispose of the entire financial interest

B. Dispose of a sufficient amount of the financial interest so that the
remaining interest is no longer material
C. Any of the two is appropriate
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D. None of the two is appropriate
115. If a firm, or a network firm, has material financial interest in an entity that has controlling interest in
a financial statement audit client, the self interest threat created is so significant. The audit firm can only
perform the engagement if it:
I. Dispose of the entire financial interest
II. Dispose of a sufficient amount of the financial interest so that the remaining interest is no
longer significant.
A. Either I or II
B. Neither I nor II
C. I only
D. II only
116. Which of the following safeguards is inappropriate if a firm has a material financial interest in an
entity that has a controlling interest in a financial statement audit client?
A. Discuss the presence of self interest threat with the client’s

board of directors
B. Dispose of the financial interest in total
117. C. Dispose of a sufficient amount of the financial interest The retirement
D. Either dispose of a sufficient amount of the financial benefit plan of a
firm, interest or the financial interest in total or a network firm,
has a financial interest in a
financial statement audit client. If the self interest threat that is created by the financial interest is
significant, the firm that intends to continue the engagement should:
A. Reduce the financial interest so that the remaining interest

is no longer material
B. Discuss the matter with the audit committee of the
financial statement audit client
C. Refer the audit of the stockholders’ equity of the financial
statement audit to the other CPA
D. Either dispose of the financial interest in total or a
sufficient amount so that the remaining amount is no
longer material
118. The following loans
and guarantees would not create a threat to independence, except:
A. A loan from, or a guarantee thereof by, an assurance client that is a

bank, or a similar institution, to the firm, provided the loan is made
under normal lending procedures, terms and requirements and the loan
is immaterial to both the firm and the assurance client.
B. A loan from, or a guarantee thereof by, an assurance client that is a
bank or a similar institution, to a member of the assurance team or their
immediate family, provided the loan is made under normal lending
procedures, terms and requirements
C. Deposits made by, or brokerage accounts of, a firm or a member of the
assurance team with an assurance client that is a bank, broker or similar
institution, provided the deposit or account is held under normal
commercial terms.
D. If the firm, or a member of the assurance team, makes a loan to an
assurance client that is not a bank or similar institution or guarantees
such an assurance client’s borrowing.
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119. Examples of close business relationships that may create self interest and intimidation threat least
likely include:
A. Having a material financial interest in a joint venture with the

assurance client or the controlling owner, director, officer or other
individual who performs senior managerial functions for that client.
B. Arrangements to combine one or more services or products of the
assurance client and to market the package with reference to both
parties.
C. Distribution or marketing arrangements under which the firm acts as a
distributor or marketer of the assurance client’s products or services, or
the assurance client acts as the distributor or marketer of the products
or services of the firm.
D. The purchase of the goods and services from an assurance client by the
firm (or from an audit client by a network firm) or a member of the
assurance team, provided the transaction is in the normal course of
business and on an arm’s length basis.
120.
When a
firm or a member of the assurance team and the audit client or one of its officers hold interest in a closely-
held entity, a threat to independence is not created, except:
A. The relationship is clearly insignificant to the firm or a

member of the assurance team and the audit client
B. The relationship is other than insignificant which is
acceptable for indirect financial interest.
C. The interest held is immaterial to the investor or group of
investors
D. The interest does not give the investor, or group of
investors, the ability to control the closely-held entity.
121. When an immediate family member of a member of the assurance team is a director or an officer of
the assurance client in a position to exert direct and significant influence over the subject matter
information of the engagement, the threat to independence can only be reduced to an acceptable level,
aside from withdrawing from the engagement, by:
A. Removing the individual from the assurance team.

B. Reduce the participation of the professional
C. Discuss the matter with the audit committee of the client
entity
D. Request the audit client management to require the immediate
family member of the professional to go on forced vacation
leave.
122. Which of the following relationships is most likely to impair a CPA’s independence with respect to a
particular audit client on which the CPA works as a member of engagement team?
A. A close relative has a material investment in that client of

which the CPA is not aware.
B. A cousin has an immaterial investment in that client of which
the CPA is not aware.
C. The CPA’s father is the president of the audit client.
D. The CPA’s spouse participates in a savings plan sponsored by
the client.
123. An inadvertent violation of the rules on family and personal relationships would not impair the
independence of a firm or a member of the assurance team when:
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A. The firm has established policies and procedures that require all
professionals to report promptly to the firm any breaches resulting from
changes in the employment status of their immediate or close family
members or other personal relationships that create threats to
independence.
B. Either the responsibilities of the assurance team are restructured so that
the professional does not deal with matters that are within the
responsibility of the person with whom he or she is related or has a
personal relationship or, if this is not possible, the firm promptly
removes the professional from the assurance engagement.
C. Additional care is given to reviewing the work of the professional
124. If a member of the assurance team, partner or former partner of the firm has joined the assurance
client, the significance of the self interest, familiarity or intimidation threats created is least likely affected
by:
A. The position the individual has taken at the assurance client

B. The amount of any involvement the individual will have with
the assurance team
C. The length of time that the individual was a member of the
assurance team or firm.
D. The former position of the individual within the assurance
team or firm.
125. Using the same senior personnel on an assurance engagement over a long period of time may create
a familiarity threat. The significance of the threat will least likely depend upon
A. The length of time that the individual has been a member of

the assurance team
B. The role of the individual on the assurance team
C. The structure of the client
D. The nature of the assurance engagement
126. A small CPA firm provides audit services to a large local company. Almost 80 percent of the CPA
firm’s revenues come from this client. Which statement is most likely to be true?
A. Appearance of independence may be lacking

B. The small CPA firm does not have proficiency to perform a larger audit
C. The situation is satisfactory if the auditor exercises due sceptical negative
assurance care in the audit.
D. The auditor should provide an “emphasis of a matter paragraph” to his
audit report adequately disclosing this information and then issues an
unqualified opinion.
127. A professional accountant has been the partner-in-charge of a particular audit client for the past eight
years. This situation could result to the following threat to professional independence:
A. Self-review
B. Advocacy
C. Intimidation
D. Familiarity
128. Which statement is incorrect regarding long association of personnel with audit clients that are listed
entities?
Page | 20
A. Using the same lead engagement partner on an audit over a prolonged
period may create a familiarity threat.
B. The lead engagement partner should be rotated after a predefined
period, normally no more than six years.
C. A partner rotating after a pre-defined period should not participate in
the audit until a further period of time, normally two years has elapsed
D. When audit client becomes a listed entity the length of time the lead
engagement partner has served the audit client in that capacity should
be considered in determining when the partner should be rotated. 129. The
professional accountant who has been the lead engagement partner for an audit engagement for a
prolonged period of time may continue to serve as the lead engagement partner before rotating off the
engagement for how many years after the audit client becomes a listed entity?
A. One year
B. Three years
C. Two years
D. Four years
130. While the lead engagement partner should be rotated after such a pre-defined period, some degree of
flexibility over timing of rotation may be necessary in certain circumstances. Examples of such
circumstances include:
A. Situations when the lead engagement partner’s continuity is especially

important to the audit client, for example, when there will be major
changes to the audit client’s structure that would otherwise coincide with
the rotation of the lead engagement partner
B. Situations when due to the size of the firm, rotation is not possible or
does not constitute an appropriate safeguard.
C. Both choices are correct
D. Both choices are incorrect
131. A CPA can continue to be an engagement partner on the audit of financial statements of listed
entities over a prolonged period of engagement. In order to avoid a creation of familiarity threat, subject
to transitional provisions, how many years are prescribed by the as maximum for the CPA to continue
serving as engagement partner for a listed entity?
A. Five years
132.
B. Three years An
C. Seven years
D. Ten years
engagement partner who is rotated in the audit of financial statements of listed entity can only participate
in the audit engagement for the same client after a period of:
A. Twelve months
B. Two years
C. Three years
D. Five years
133.
While the engagement partner for an audit of financial statements of listed entities should be rotated after
a predefined period, some degree of flexibility over the timing of rotation maybe necessary. How many
A. Six months
B. One year
C. Two years
D. Three years
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134. The following activities would generally create self-interest or self-review threats that are so
significant and that only avoidance of the activity or refusal to perform the assurance engagement would
reduce the threats to an acceptable level, except:
A. Authorizing, executing or consummating a transaction, or

otherwise exercising authority on behalf of the assurance
client, or having the authority the authority to do so.
B. Determining which recommendation of the firm should be
implemented
C. Reporting in a management role, to those charged with
governance
D. Providing technical assistance and advice on accounting
principles for audit clients
135. Which of the following may not create a self review threat?
A. Supervising assurance client employees in the performance of

their normal recurring duties
B. Preparing source documents in electronic or other form
evidencing business transaction
C. Prolonged period of assignment as member of engagement
136. If firm, or
team in one particular audit engagement network firm,
D. Performing corporate financial services for the audit client personnel providing
such assistance make
management decisions, the self-review threat created could not be reduced to an acceptable level by any
safeguards. Examples of such managerial decisions include the following except
A. Determining or changing journal entries or the classifications

for accounts or transactions or other accounting records
without obtaining the approval of the audit clients
B. Authorizing or approving transactions
C. Preparing source documents or originating data (including
decisions on evaluation assumptions) or making changes to
such documents or data.
D. Assisting an audit client in resolving account reconciliation
problems
137. The following services are considered to be a normal part of the audit process and do not, under
circumstances, threaten independence, except
A. Analyzing and accumulating information for regulatory

reporting
B. Assisting in the preparation of consolidated financial
statements
C. Drafting disclosure items
D. Having custody of an assurance client’s assets
138. If the firm is involved in the preparation of accounting records or financial statements and those
financial statements are subsequently the subject matter of an audit engagement of the firm, this will most
likely create
B. Intimidation threat
C. Self-review threat
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139. The firm, or a network firm, may provide an audit client that is not a listed entity with accounting
and bookkeeping services, including payroll services, of a routine or mechanical nature provided any self-
review threat created is reduced to an acceptable level. Examples of such services least likely include
A. Recording transactions for which the audit client has

determined or approved the appropriate account classification
B. Posting coded transactions to the audit client’s general ledger
C. Preparing financial statements based on information in the
trial balance
D. Determining and posting journal entries without obtaining the
approval of the audit client
140. The safeguards necessary to reduce the threat created by providing accounting and bookkeeping
services to an audit client that is not a listed entity to an acceptable level might include the following,
except:
A. Making arrangements so that services are not performed by a

member of the assurance team
B. Implementing policies and procedures to prohibit theindividual
providing such services from making any managerial decisions on
behalf of the audit client
C. Requiring thesource data for the accounting entries to be originated
by the assurance team
D. Obtaining audit client approval for ny proposed journal entries or
other changes affecting the financial statements
141. The provision of accounting and bookkeeping services of a routine or mechanical nature to divisions
or subsidiaries of listed audit clients would not be seen as impairing independence with respect to the
audit client provided that the following conditions are met, except:
A. The services do not involve the exercise of judgment

B. The divisions or subsidiaries for which the service is provided are
collectively immaterial to the audit client
C. The services provided are collectively immaterial to the division or
subsidiary
D. The fees to the firm, or network firm, from such services are
collectively significant
142. The provision of accounting and bookkeeping services to audit clients in emergency or other unusual
situations, when it is impractical for the audit client to make other arrangements, would not be considered
to pose an unacceptable threat to independence provided:
A. The firm, or network firm, does not assume any managerial role or
make any managerial decisions
B. The audit client accepts responsibility for the result of the work
C. Personnel providing the services are not members of the assurance
team
143. If the
valuation services involves the valuation of matters material to the financial statements and the valuation
involves a significant degree of subjectivity, the self-review threat created (choose the incorrect one)
A. Could not bereduced to an acceptable level by the application of any

safeguard
B. Could be reduced to an acceptable level by the application of
safeguards
C. Such valuation services should not be provided
D. The assurance team should withdraw from the audit engagement if
Page | 23
the team opted to perform the valuation services
144. The following would not generally create a significant threat to independence, except:
A. When a firm, or a network firm, performs a valuation service for an

audit client for the purpose of making a filing or return to a tax
authority
B. The firm provides formal taxation opinions and assistance in the
resolution of tax disputes to an audit client
C. The firm renders internal services involving an extension of the
procedures required to conduct an audit in accordance with PSA to an
audit client
D. When a firm, or network firm, provides assistance in the performance
of a client’s internal audit activities or undertakes the outsourcing of
some of the activities
145. Which
A. The lending of staff by a firm to the financial statement audit client

B. The firm provides internal audit services to the financial statement
audit client
C. The firm renders litigation support services to the financial statement
audit
D. Recruitment of senior manager for the financial statement audit client
146. Which
A. The provision of services by affirm or network firm to an audit client

which involve either the design or the implementation of financial
information technology systems that are used to generate information
forming part of a client’s financial statements
B. The provision of services in connection with the assessment, design
and implementation of internal accounting controls and risk
management controls
C. The lending of staff by a firm, or a network firm, to an audit client
when the individual is in a position to influence the preparation of a
client’s accounts or financial statements
D. The provision of litigation support services to an audit client when
include the estimation of the possible outcome and thereby affects the
amounts or disclosures to be reflected in the financial statements
147. The lending of staff by a firm to a financial statement audit client may be made only on the
understanding that the firm’s personnel will not be involved in the following, except:
A. Assembling the annual financial statements based on recorded

transactions
B. Making management decisions
C. Approving or signing agreements or other similar documents
D. Exercising discretionary authority to commit the client
148. Which
of the following is not a factor to evaluate the effect of litigation support services rendered by a firm to an
A. The nature of the engagement

B. The degree of subjectivity inherent in the matter concerned
C. The materiality of the amount involved
D. The manner of payment of professional fee on litigation service
Page | 24
149.Legal services are defined as:
A. The making of assumptions with regard to future developments, the

application of certain methodologies and techniques and the
combination of both in order to compute a certain value, or range of
values, for an asset, a liability or for a business as a whole
B. A broad range of services, including compliance, planning, provision
of formal taxation opinions and assistance in the resolution of tax
disputes
C. May include such activities as acting as an expert witness, calculating
estimated damages or other amounts that might become receivable or
payable as the result of litigation or other legal dispute, and assistance
with document management and retrieval in relation to a dispute or
litigation
D. Any services for which the person providing the services must either be
admitted to practice before the Courts of the jurisdiction in which such
services are to be provided, or have the required legal training to
practice law.
150. The provision of legal services to financial statement audit clients most likely create a (an):
A. Familiarity threat
B. Self-interest threat
C. Advocacy threat
D. Intimidation threat
151. When the firm provides legal services to support a financial statement audit client in the execution of
corporate restructuring, the threat created can be reduced to an acceptable level provided that:
A. Members of the assurance team who are involved in providing the

services are given reduced participation in providing assurance
services
B. The advice provided was reviewed by a staff who is not a member of 152. Which
of the assurance team the following
C. The staff who makes the ultimate decision is not a member of the threats to
assurance team independence
D. In relation to the advice provided, the audit client makes the ultimate can be
decision eliminated or
reduced to an
acceptable
level?
A. Acting for an audit client in the resolution of a dispute or litigation in

such circumstances when the amounts involved are material in
relation to the financial statements of the audit client
B. When a firm is asked to act in an advocacy role for an audit client in
the resolution of a dispute or litigation in circumstances when the
amounts involved are not material to the financial statements of the
audit client
C. The appointment of a partner or an employee of the firm or network
firm as general Counsel for legal affairs to an audit client
D. None of the above
153. The recruitment of senior management for an assurance client, such as those in a postion to affect the
subject of the assurance engagement may least likely create:
Page | 25
B. Intimidation threat
C. Advocacy threat
154. Which of the following corporate finance services create advocacy or self-review threats cannot be
reduced to an acceptable level?
A. Committing the assurance client to the terms of a transaction or

consummating a transaction on behalf of the client
B. Assisting a client in developing corporate strategies
C. Assisting in identifying or introducing a client to possible sources of
capital that meet the client specifications or criteria
D. Providing structuring advice and assisting a client in analyzing the
accounting effects of proposed transactions
155. Which of the following is not likely to create a threat to independence?
A. The total fees generated by an assurance client represent a large

proportion of a firm’ s total fees
B. Fees due from an assurance client for professional services remain
unpaid for a long time
C. A firm obtains an assurance engagement at a significantly lower fee
level that that charged by the predecessor firm, or quoted by other
firms
D. A court or other public authority is the one that established the fees
156. A client company has not paid its 2008 audit fees. According to the Code of Professional Conduct,
for an auditor to be considered independent with respect to the 2009audit, the 2008 audit fees must be
paid before the
A. 2008 report issued

B. 2009 report is issued
C. 2009 field work is started
D. 2010 field work is started
157. When a firm obtains an assurance engagement at a significantly lower professional fee than that
charged by the predecessor firm, or quoted by other firms, a (an):
A. Threat to independence is not created

B. Intimidation threat is created
C. Advocacy threat is created
D. Self-interest threat is created
158. Fees calculated on a predetermined basis relating to the outcome or result of a transaction or the
result of the work performed.
A. Contingent fees
B. Flat sum fees
C. Retainer fees
D. Per diem fees
159. Which of the following is least likely to create a threat to independence?
A. The fees generated by the assurance client represent a large

proportion of the revenue of an individual partner
B. The firm charges a contingent fee to an assurance client
C. Accepting gifts or hospitality, the value of which is clearly
insignificant, from an assurance
Page client.
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D. When litigation takes place, or appears likely, between the firm or a
member of the assurance team and the assurance client
160. Which of the following does not create a self-interest threat to independence?
A. An audit of an insurance company is engaged by the assurance client

based upon the instruction from the Office of Insurance Commission.
The audit fee is contingent upon the assessment by the Office of the
Insurance Commission of the liquidity of the company.
B. An audit fee on an assurance client that is outstanding for two years
C. An assurance engagement with a fee significantly lower than the fee
quoted by other firm.
D. A litigation between the firm and the assurance client that relates to a
prior assurance engagement involving a breach of contract
161. When litigation takes place between the firm and the assurance client, the firm and the client
management may be placed in adversarial positions and the firm may face a self-interest threat. Which of
the following is least likely a factor in determining the significance of the threat created by this litigation?
A. The nature of the assurance engagement

B. Whether the litigation relates to a prior assurance engagement
C. The materiality of the amount involved on litigation
D. The likelihood of the firm winning the litigation
162. When independence is threatened by litigation between the member of the assurance team and the
client management, the following safeguards that can reduce the effect to an acceptable level may be
applied, except:
A. Involve an additional professional accountant in the firm who is not a

member of the assurance team to review the work done
B. Disclose to the audit committee, or others charged with governance,
the extent and the nature of the litigation
C. Remove the particular member of the assurance team who is involved
in litigation from the engagement
D. Submit a new engagement letter
163. Which of the following threats to independence is least likely considered a result of the firm’s
service of recruiting senior managers for an assurance client?
B. Familiarity threat
C. Intimidation threat
D. Self-review threat
164. Which of the following combination of threats to independence is most likely to occur as a result of
the provision of corporate finance services, advice or assistance to an assurance client?
A. Advocacy and self review threats

B. Self review and familiarity threats
C. Familiarity and advocacy threats
D. Self review and self interest threats
165. Which
of the following is not allowed to be included in a website of a firm of professional accountants?
A. Names of partners/principals with their educational attainment

B. Membership to any professional body
C. Awards received
D. Listings of the firm’s clients
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166. The set of rules and regulations promulgated in 2004 for the “supervision, control and regulation” of
the practice of Accountancy in the Philippines.
A. Philippine Financial Reporting Standards

B. The Code of Ethics for Professional Accountants
C. Philippine Standards on Auditing
The IRR of the Philippine Accountancy Act of
D. 2004
167. The objectives of the Philippine Accountancy Act of 2004 are the following except:
A. The standardization and regulation of accounting education

B. Examination for registration of certified public accountants
C. Supervision, control and regulation of the practice of accountancy
D. Integration of accountancy profession
168. A document under seal issued to an individual by the Professional Regulation Commission
signifying thathe has complied with all the legal and procedural requirements for such issuance including
the passing of the licensure examination for Certified Public Accountants
A. Certificate of Accreditation
B. Professional Identification Card
C. Certificate of Registration
D. Professional seal
169. The following is deemed a practice of accountancy, except:
A. Appointment to a position in the government that requires a CPA

license as a prerequisite
B. Employment as budget officer in a local government unit regardless
of the officer being a holder of a CPA license or not
C. Teaching professional subjects in a collegiate program leading to the
degree of bachelor of Science in Accountancy
D. Representing his clients before government agencies on tax and other
matters related to accounting.
170. The
A. The Professional Regulation Commission has the authority to remove

any member of the Board of Accountancy for negligence,
incompetence, or any other just cause
B. Insanity is not a ground for proceeding against a CPA
C. A person shall be considered to be in the professional practice of
accounting if, as an officer in a private enterprise, he makes decisions
requiring professional accounting knowledge
D. After three years, subject to certain conditions, the Board of
accountancy may order the reinstatement of a CPA whose certificate
of registration has been revoked
171. The president of the Philippines appoints the members of the Board of Accountancy based on the
recommendation submitted to the office of the president. Which of the following is an incorrect statement
about the submission of nominations?
A. The accredited National Professional Organization of CPAs shall submit the

names of its nominees to the PRC not later than 60 days prior to the expiry of
the term of an incumbent chairman or member
B. There should be an adequate documentation to show the qualifications and
primary field of professional activity of each nominee
C. The Accredited National Professional Organization of CPA shall submit the
names of its nominees to the PRC not later than days prior to the expiry of the
term of an incumbent chairman or member
D. If the Accredited national Professional Organization of CPAs fails to submit its
own nominee(s) to the PRC within the prescribed period, the PRC, in
consultation with the Board of Accountancy shall submit to the president of the
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Philippines a list of three nominees for each position.
172. Which of the following is not a qualification of a member of the Board of Accountancy?
A. He must be a natural born citizen and a citizen of the Philippines

B. He must not be a director or officer of the Accredited National
Professional Organization of CPAs at the time of his appointment
C. He must be of good moral character and must not have been convicted
of crimes involving oral turpitude
D. He must be a duly registered certified public accountant with at least ten
years of experience in public accounting
173. The following statements relate to the term of office of the chairman and embers of the Board of
Accountancy. Which of them is incorrect?
A. The chairman and embers of the Board of Accountancy shall hold

office for a term of three years
B. The term of a member shall be filled up for the unexpired portion of the
term only.
C. Appointment to fill up an expired term is not to be considered as a
complete term
D. The Board of Accountancy member who has served two successive
complete terms as chairman or member shall be eligible for
reappointment until the lapse of three years.
174. No
A. 3 years
B. 6 years
C. 9 years
D. 12 years
175. Which of the following is not a function of the Board of Accountancy as specified in the Philippine
Accountancy Act of 2004?
A. To investigate violations of the Accountancy Law and the rules and regulations
promulgated therewith.
B. To look from time to time into the conditions affecting the practice of the
accountancy profession
C. To create and direct accrediting agencies that are entrusted the functions of
reviewing higher educational institutions policies and practices leading to
accreditation/reaccreditation of BSA
D. To determine and prescribe minimum requirements leading to the admission of
candidates to the CPA licensure examination
176.The following are presented both to the Financial Reporting Standards Council (AASC), except:
A. BangkoSentralngPilipinas
B. Securities and Exchange Commission
C. Bureau of Internal Revenue
D. Board of Accountancy
177. All of the following are represented to the Financial Reporting Standards Council, except:
A. Commission on Higher Education

B. Board of Accountancy
C. Securities and Exchange Commission
D. Bureau of Internal Revenue
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178. The Financial Reporting Standards Council which is the accounting standards setting body is
composed of a chair and:
A. Fourteen members
B. Fifteen members
C. Sixteen members
D. Seventeen members
179. The chairman and the members of both Financial Reporting Standards Council and Auditing and
Assurance Standards Council have a renewable term of:
A. 4 years
B. 2 years
C. 3 years
D. 5 years
180. Which of the following is not a requisite in applying for the CPA licensure examinations?
A. Natural born citizen of the Philippines

B. Good moral character
C. Holder of the degree of Bachelor of Science in Accountancy
Has not been convicted of any criminal offense involving moral
D. turpitude
181. Which of the following is incorrect?
A. Candidates who fails to obtain a general average of 75% but obtains a

rating of at least 75% in at least four subjects shall receive a conditional
credit for the subjects passed
B. To successfully pass the licensure examination, the candidates should
obtain a general weighted average of at least 75% with no rating lower
than 65% in any subject
C. Conditional candidates hall take an examination in the conditional
subject(s) within two years from the preceding examination
D. Candidates who failed in three complete examinations must enrol in
refresher course consisting of twenty-four units of the subjects given in
the licensure examination
182. Which of the following is one of the reasons for not issuing a certificate of registration to a
successful examinee? The individual:
A. Is of unsound mind
B. Had been guilty of immoral and dishonourable conduct
C. Had been convicted by a court of a criminal offense involving
183. A CPA whose certificate of registration has been revoked:
A. Can no longer be reinstated

B. Is automatically reinstated as a CPA by the PRC after two years if he has acted
in an exemplary manner
C. May be reinstated by the Professional Regulation Commission after two years if
he has acted in an exemplary manner
D. May be reinstated as a CPA by the Board of Accountancy after two years if he
has acted in an exemplary manner.
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184. The Philippine Accountancy Act of 2004 provides that all working papers made during an audit shall
be the property of the auditor. These working papers shall include the following except:
A. Working papers prepared by the CPA and his staff

B. Analysis and schedule prepared and submitted to the auditor by his client’s staff
C. Excerpts or copies of documents furnished to the auditor
D. Any report submitted by the auditor to his client
185. Who are required to apply for accreditation with the Professional Regulation Commission if the
applicant is a partnership of Professional Accountants?
A. Managing partner only

B. All partners only
C. Partners and staff members
D. Partners, principals and staff members
186. Which of the following is not included in the seal of a professional accountant?
A. Tax identification number

B. Name of the professional accountant
C. Title of the profession
D. Registration number
187. The body mandated by law to promulgate rules and regulations affecting the practice of
Accountancy.
A. Professional Regulation Commission

B. Philippine Institute of Certified Public Accountants
C. Professional Regulatory Board of Accountancy
D. Commission on Higher Education
188. Individual CPAs, Firms or Partnerships of CPAs, including partners and staff members thereof shall
register with the BOA and the PRC. If the accreditation of Alano and Co., CPAs was renewed on
September 30, 2008, the next renewal must be on or before:
A. September 30, 2010

B. September 30, 2011
C. December 31, 2010
D. December 31, 2011
189. How many CPE credit units must be accumulated by a registered accounting professional within the
3-year period?
A. 15 credit units
B. 45 credit units
C. 60 credit units
D. 90 credit units
190. The APO shall renew its Certificate of Accreditation once every how many years after date of the
Resolution granting the petition for re-accreditation and the issuance of the said certificate upon
submission of the requirements?
A. 2 years
B. 3 years
C. 4 years
D. 6 years
191. Engagement letters widely used in practice for professional engagements of all types. The primary
purpose of the engagement letter is to
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A. Remind management of its primary responsibility over the financial statements
B. Satisfy the requirements of the requirements of the Code of Professional Conduct
C. Provide a starting point for the auditor’s preparation of the preliminary audit
program
D. Provide a written record of the agreement with the client as to the services to be
provided
192. The accuracy of information included in the footnotes that accompany he audited financial
statements of a company whose shares are traded on a stock exchange is the primary responsibility of the
A. Stock exchange officials

B. Company’s management
C. Independent auditor
D. Securities and Exchange Commission
193. Which of the following is not likely a quality control procedure on consultation?
A. Identifies areas and specialized situations where consultation is required and

encourages personnel to consult with or in use authoritative sources on other
complex matters.
B. Designates individuals as specialists to serve as authoritative sources and
define their authority in consultative situations
C. Assigns an appropriate person or persons to be responsible assigning
personnel to audits
D. Specifies the extent of documentation to be provided for the result of
consultation in those areas and specialized situations where consultation is
required
194. According to Philippine Standards on Auditing, because there are inherent limitations in an audit that
affect the auditor’s ability to detect material misstatements, the auditor is:
A. Neither a guarantor nor an insurer of financial statements

B. A guarantor but not an insurer of the statements
C. An insurer but not a guarantor of the statements
D. Both a guarantor and an insurer of the financial statements
195. The objectives of an ordinary examination by the independent auditor is the expression of an opinion
on the:
A. Accuracy of the financial statements

B. Balance sheet and income statement
C. Fairness of the presentation of the financial statements
D. Quality of the decision process of the management
196. When a CPA expresses an opinion on the financial statements, his responsibilities extend to
A. The underlying wisdom of the client’s management decision

B. Active participation in the implementation of the advice given to the client
C. An ongoing responsibility for the client’s solvency
D. Whether the results of the client’s operating decisions are fairly presented in the
financial statements
197. The working papers prepared by a CPA in connection with an audit engagement are owned by the
CPA, subject to certain limitations. The rationale for this rule is to
A. Protect the working papers from being subpoenaed

B. Provide the basis for excluding admission of the working papers as evidence
because of the privileged communication rule
C. Provide the CPA with evidence and documentation which may be helpful in the
event of a lawsuit
D. Establish a continuity of relationship with the client whereby indiscriminate
Page | 32
replacement of CPAs is discouraged
198. The responsibility for adopting sound accounting policies, maintaining adequate internal control, and
making fair representations in the financial statements rests
A. With the management

B. With the independent auditor
C. Equally with management and the auditor
D. With the internal audit department
199. Fraudulent financial reporting is often called:
A. Management fraud
B. defalcation
C. Theft of assets
D. Employee fraud
200. The ordinary examination of financial statements is not primarily designed to disclose defalcations
and other irregularities although their discovery may result. Normal audit procedures are more likely to
detect a fraud arising from
A. Collusion on the part ofseveral employees

B. Failure to record cash receipts for services rendered
C. Forgeries on company checks
D. Theft of inventories
201. The factor that distinguishes an error from irregularity is
A. materiality
B. intent
C. whether it is a peso amount or a process
D. whether it is a caused by the auditor or the client
202. Audit standards require an auditor to:
A. Perform procedures that are designed to detect all instances of fraud.

B. Provide reasonable assurance that the financial statements are not materially misstated.
C. Issue an unqualified opinion when the auditor is satisfied that no instances of fraud have occurred.
D. Design the audit program to meet financial statement users’ expectations concerning fraud.
203.If specific information comes to an auditor’s attention that implies the existence of possible noncompliance
with laws and regulations that could have a material, but indirect effect on the financial statements, the auditor
should next
A. apply audit procedures specifically directed to ascertaining whether a noncompliance with laws and
regulations have occurred.
B. seek the advice of an informed expert qualified to practice law as to possible contingent liabilities.
C. report the matter to an appropriate level of management at least one level above those involved.
D. discuss the evidence with the client’s audit committee, or others with equivalent authority.
204. A principal purpose of a letter of representation from engagement is to
A. serve as an introduction to company personnel and an authorization to examine the records.

B. discharge the auditor from legal liability for his examination.
C. confirm in writing management’s approval of limitations on the scope of the audit.
D. remind management of its primary responsibility for financial statements.
205. The auditor should not assume that management is dishonest, but the possibility of dishonesty must be
considered. This is an example of
A. expectation gap.
B. an attitude of professional skepticism.
C. due diligence.
D. an ethical requirement.
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206. Which of the following statements is true?
A. It is usually easier for the auditor to uncover irregularities than errors.

B. It is usually easier for the auditor to uncover errors than irregularities.
C. It is usually equally difficult for the auditor to uncover errors or irregularities.
D. Usually, none of the given statements is true.
207. Should the auditor uncover circumstances that may cause suspicions of management fraud, the auditor
must
A. issue an adverse opinion.

B. issue a disclaimer of opinion.
C. evaluate their implications and consider the need to modify audit evidence.
D. withdraw from engagement.
208. Generally, the decision to notify parties outside the client’s organization regarding a noncompliance with the
laws and regulations is the responsibility of the
A. independent auditor.
B. management.
C. outside legal counsel.
D. internal auditors.
209. An audit made in accordance with Philippine Standards on Auditing generally should
A. be expected to provide assurance that noncompliance with laws and regulations will be detected if the
internal control is effective.
B. be relied upon to disclose indirect-effect noncompliance with laws and regulations.
C. encompass a plan to search actively for noncompliance with laws and regulations which relate to operating
aspects.
D. not be relied upon to provide assurance that all noncompliance with laws and regulations will be detected.
210. An auditor who believes that a material irregularity may exist should initially
A. discuss the matter with those who believed to be involved in the perpetration of material irregularity.
B. discuss the matter with a higher level of management.
C. withdraw from the management.
D. consult legal counsel.
211. When management refuses to disclose in the financial statements noncompliance to laws and regulations
which are identified by the independent auditor, the CPA may be charged with unethical conduct for
A. withdrawingfrom management.
B. issuing a disclaimer of opinion.
C. failure to uncover the noncompliance to laws and regulations during the previous audits.
D. reporting these activities to the audit committee.
212. In discovering material management fraud and an equally material error, the audit plan
A. should be expected to provide the same degree of assurance.

B. cannot be expected to provide the same degree of assurance.
C. provide no assurance of detecting either.
D. should provide complete assurance of detection.
213. An auditor who finds that the client has committed a noncompliance with laws and regulations would most
likely withdraw from the engagement when the
A. noncompliance with laws and regulations affects the auditor’s ability to rely on management
representations.
B. noncompliance with laws and regulations has material financial statement implications.
C. noncompliance with laws and regulations has received widespread publicity.
D. auditor cannot reasonably estimate the effect of the noncompliance with laws and regulations on the
financial statements.
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214. When the auditor knows that a noncompliance with laws and regulations has occurred, the auditor must
A. issue an adverse opinion.

B. withdraw from the engagement.
C. consider the effects on the financial statements, including the adequacy of disclosure.
D. report it to the proper government authorities.
215. When an independent auditor’s examination of financial statements disclose special circumstances that make
the auditor suspects that fraud may exist, the auditor’s initial course of action should be to
A. recommend that the client pursue the suspected fraud to a conclusion that is agreeable to the auditor.
B. extend normal audit procedures in an attempt to detect the full extent of the suspected fraud.
C. reach an understanding with the proper client representative as to whether the auditor or the client is to
make the investigation necessary to determine if a fraud has in fact occurred.
D. determine whether the fraud, if in fact it does exist, might be of such a magnitude as to affect the auditor’s
report on the financial statements.
QUIZZERS
1. A procedure in which a quality control partner periodically tests the application of quality control
procedures is most directly related to which quality control element?
A. Engagement, performance
B. Independence, integrity and objectivity
C. Monitoring
D. Personnel management
2. The work of each assistant needs to be reviewed by personnel of at least equal competence. Which of the
following is not one of the objectives of this requirement?
A. The conclusions expressed are consistent with the result of the work performed and support the
opinion.
B. The work performed and the results obtained have been adequately documented.
C. The audit objectives have been achieved.
D. All available evidences have been obtained, evaluated and documented.
3. Which of the following acts is prohibited by the Code of Professional Ethics for CPAs?
A. The use of a firm name which includes the name of a retired partner.
B. An announcement in a newspaper of the opening of a public accounting office.
C. Engaging in civic activities during business hours.
D. Accepting an engagement or employment which one cannot reasonably expect to complete or
discharge with professional competence.
4. Which of the following is a violation of the code of professional ethics for certified public accountants?
A. A CPA permits his name to be used in a client’s advertising as having verified financial data
and/or statistical facts with respect to client’s products.
B. Based on information obtained in an audit, a CPA reports a noncompliance with laws and
regulations of his client to government authorities.
C. Three years after a partner has retired, the remaining partners continue to practice under a firm
name that includes the name of the retired partner. The retired partner has severed all connections
with the CPA firm.
D. A CPA running for public office uses the professional designation “CPA” after his name on
posters employed in connection with his election campaign.
5. Which of the following is incorrect regarding the professional accountant’s tax code?
Page | 35
A. A professional accountant rendering professional tax services is entitled to put forward the best
position in favor of a client, or an employer.
B. Doubt may be resolved in favor of the client or the employer if there is reasonable support for the
position.
C. A professional accountant may hold out to a client or an employer the assurance that the tax return
prepared and the tax advice offered by him are beyond challenge.
D. Professional accountant’s should ensure that the client or the employer is aware of the limitations
attaching to tax advice and services so that they do not misinterpret an expression of opinion as an
assertion of fact.
6. Which of the following is least likely an application of maintaining an attitude of professional skepticism?
A. The auditor does not consider representations from management as substitute for obtaining
sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base
the opinion.
B. In planning and performing an audit, the auditor assumes that management is dishonest.
C. The auditor is alert to audit evidence that contradicts or brings into question the reliability of
documents or management representations.
D. The auditor makes a critical assessment, with a questioning mind, of the validity of audit evidence
obtained.
7. Prior to beginning the field work on a new audit engagement in which a CPA does not passes expertise in
the industry in which the client operates, the CPA should
A. reduce audit risk by lowering the preliminary levels of materiality.

B. design special substantive tests to compensate for the lack industry expertise.
C. engage financial experts who are familiar with the nature of the industry.
D. obtain a knowledge of matters that relates to the nature of the entity’s business.
8. Which of the following statements is true when the CPA has been engaged to do an attestation
engagement?
A. The 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 the
statement users.
C. Should a situation arise where there is no convincing authoritative standard available, and there is
a choice of actions which could impact client’s financial statements either positively or negatively,
the CPA is free to endorse the choice which is best in the client’s interest.
D. As long as CPA firms are competent, it is not required that they remain unbiased.
9. One difference between auditors and other professionals is that most professionals
A. need not be concerned about remaining independent.

B. do not have requirements for continuing education beyond the baccalaureate program.
C. do not have to pass a rigorous examination.
D. are not expected to act in public interest.
10. Independence of a CPA with respect to a client is not impaired if.
A. The CPA has a loan to an officer of the client.

B. The CPA has an immaterial direct financial interest in the client.
C. The CPA is a trustee of a client’s pension plan.
D. The CPA has an immaterial joint, closely held business investment with the client.
11. For which of the following services is a CPA professional not required to be independent?
A. Tax returns preparation

B. Audit of historical financial statements
C. Review engagement
Page | 36
D. Examination of a forecast
12. Which of the following will impair the independence of a CPA in public practice?
A. He has his name and address listed on a one-page section of the telephone book.
B. He obtained a loan from a bank under the normal lending procedures, terms, and requirements of
the bank.
C. He holds one share of the client’s capital stock.
D. He failed to disclose a client’s departure from GAAP.
13. When CPAs are able to maintain an independence attitude in fulfilling their responsibility, it is referred to
as independence in
A. fact.
B. appearance.
C. conduct.
D. total.
14. When the users of financial statements have confidence in the independence of the CPA, it is referred to as
independence in
A. fact.
B. appearance.
C. conduct.
D. total.
15. Which of the following statements is incorrect? CPAs lose their independence if they
A. acquire any direct financial interest in a client.

B. have a material direct financial interest in a client.
C. acquire any indirect financial interest in a client.
D. acquire a material indirect financial interest in a client.
16. When determining whether independence is impaired because of an ownership interest in client company,
materiality will affect whether ownership is a violation of rule of independence
A. in all circumstances.
B. only for direct ownership.
C. only for indirect ownership.
D. under no circumstances.
17. A successor auditor is required to communicate with the previous auditor. The primary concern in this
communication is
A. information which will help the successor auditor determine whether the client management has
integrity.
B. to learn about client by examining predecessor’s working
C. to enable successor auditor to perform a more efficient audit.
D. to save successor auditor time and money in gathering data.
18. When a CPA firm is requested to provide a written or oral opinion on the application of accounting
principles or the type of audit opinion that would be issued for a specific or hypothetical transaction
relating to an audit client of another CPA firm, primary among the requirements set forth is that
A. client is entitled to confidentiality, so the consulting CPA firm is forbidden from communicating
with the CPA firm which does the audit.
B. the consulted CPA firm should communicate with the entity’s existing auditors to ascertain all the
available facts relevant to forming a professional judgment on the matters the firm has been
requested to report on.
Page | 37
C. client is entitled to confidentiality, so the CPA firm which does the audit should refuse to share
any information with the consulting CPA firm under any circumstances.
D. client is not entitled to confidentiality under these circumstances, so the existing auditors should
share all information with the consulting CPA firm.
19. A professional accountant has a professional duty or right to disclose confidential information in each of
the following, except:
A. To comply with technical standards and ethics requirements.

B. To disclose to the Bureau of internal Revenue any fraudulent scheme committed by the client on
payment of income tax.
C. To comply with the quality review of a member body or professional body.
D. To respond to an inquiry or investigation by a member body or a regulatory body.
20. Which of the following best describes the passing of confidential information from a client to its auditor?
The information:
A. Should in no circumstances be conveyed to third parties.

B. Is not legally protected and can be subpoenaed by a competent court.
C. Can only be released for peer reviews after receiving permission from the client.
D. Should be conveyed to the public if it affects the correctness of the financial statements.
21. The CPA must not subordinate his or her professional judgment to that of others in every
A. engagement.
B. audit engagement.
C. engagement except tax services.
D. engagement except management advisory services.
22. Which of the following is an indication of lack of objectivity of an auditor?
A. The auditor believes that accounts receivable may not be collectible, but accepts management’s
opinion without an independent evaluation.
B. In preparing client’s tax return, the CPA encourages client to take a deduction which the CPA
believes is valid, but for which there is some but not complete support.
C. Both are violations.
D. Neither would be a violation.
23. Several months after an unqualified audit report was issued, the auditor discovers that the financial
statements were materially misstated. The client’s chief executive officer agrees that the statements are
misstated, but refuses to issue a correction, and claims that “confidentiality” prevents the CPA prevents
from informing anyone.
A. CEO is correct; the auditor must maintain confidentiality.

B. CEO is wrong; but since auditor’s report is issued, it is too late to retract.
C. CEO is wrong; and the auditor has an obligation to issue a revised correct audit report, even if
CEO will not revise and correct the financial statements.
D. CEO is correct; but to be ethically correct the auditor should violate the confidentiality rule and
disclose the error.
24. A member in public practice may perform for a contingent fee any professional services for a client for
whom the member or member’s firm performs
A. an audit.
B. a review.
C. a compilation used only by management.
D. an audit of prospective financial information.
25. Which of the following contingent fee is valid?
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A. All services performed by a CPA firm.
B. Non-attestation services.
C. Non-attestation services, unless the CPA firm was also performing attestation services for the
same client.
D. Attestation services.
26. Solicitation consists of the various means that CPA firms use to engage new clients. Which one of the
following would not be an example of solicitation?
A. Accepting new clients that approach the firm.

B. Taking prospective clients to lunch.
C. Offering seminars on current tax law changes to potential clients.
D. Advertisements in the yellow pages.
27. 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 because the financial interest is immaterial and, therefore, may issue a review report.
B. not independent and, therefore, may not be associated with the financial statements.
C. not independent and, therefore, may not issue a review report.
D. not independent and, therefore, may issue a review report, but may not issue an auditor’s opinion.
28. Which of the following most completely describes how independence has been defined by the CPA
profession?
A. Performing an audit from the viewpoint of the public.

B. Avoiding the appearance of significant interests in the affairs of an audit client.
C. Possessing the ability to act with integrity and objectivity.
D. Possessing the ability to act professionally and accordance with a professional code of ethics.
29. To emphasize auditor independence from management, many corporations follow the practice of
A. appointing a partner of the CPA firm to the corporation’s audit committee.

B. establishing a policy of discouraging social contact between employees of the corporation and the
staff of the independent auditor.
C. requesting that a representative of the independent auditor be on hand at the annual stockholders’
meeting.
D. having the independent auditor report to an audit committee of outside members of the board of
directors.
30. In determining independence with respect to any audit engagement, the ultimate decision as to whether or
not the auditor is independent must be made by the
A. auditor.
B. client.
C. audit committee.
D. public.
31. When a CPA who is not independent is associated with financial statements, he would be precluded from
expressing an opinion because
A. the public would be aware of his lack of independence and would place little or no faith on his
opinion.
B. he would place himself in the position of suffering an adverse decision in a possible liability suit.
C. he would be in position of auditing his own work.
D. any auditing procedures he might perform would not be in accordance with generally accepted
auditing standards.
Page | 39
32. 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 mechanism for enforcing the 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
professional’s responsibility to clients and colleagues.
C. The law requires an establishment of a code of ethics.
D. An essential means of self-protection for the profession is the establishment of flexible ethical
standards by the profession.
33. 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 summons enforceable by a court that 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 as part of a quality review of the CPA’s practice
by a peer review team authorized by the PICPA.
D. An inquiry by a disciplinary body of PICPA requests confidential client information.
34. Which of the following best describes why publicly-traded corporations follow the practice of having the
outside auditor appointed by the board of directors or elected bu the stockholders?
A. To comply with the regulations of the FRSC.

B. To emphasize the auditor’s independence from the management of the corporation.
C. To encourage a policy of rotation of the independent auditors.
D. To provide the corporate owners with an opportunity to voice their opinion concerning the quality
of the auditing firm selected by the directors.
35. A violation of the ethical standards would most likely have occurred when a CPA
A. made arrangement with a bank to collect notes issued by a client in payment of fees due.
B. joined an accounting firm made up of three non-CPA practitioners.
C. issued an unqualified opinion on the 2009 financial statements when fees for 2008 audit were
unpaid.
D. purchased a bookkeeping firm’s practice of monthly write-ups for a percentage of fees received
over a three-year period.
36. The concept of materiality would be least important to an auditor when considering the
A. decision whether to use positive or negative confirmations of accounts receivable.

B. adequacy of disclosure of a client’s noncompliance with laws and regulations.
C. discovery of weaknesses in a client’s internal control structure.
D. effects of a direct financial interest in the client upon the CPAs independence.
37. Which of the following is a violation of Confidentiality rule of the Code of Professional Conduct?
A. The CPA, in response to court subpoena, submits auditor-prepared working papers as evidence of
possible noncompliance with laws and regulations perpetrated by the client.
B. The CPA discloses to the board of directors a scheme concocted by top management to
intentionally inflate earnings.
C. The CPA warns Client B as to inadvisability of acquiring Client A. The CPA bases this warning
on knowledge of Client A’s financial condition and a belief that the management of Client A lacks
integrity. This knowledge was obtained by the CPA as a result of auditing Client A for the past
several years.
D. The CPA, when questioned in court, admits of having a knowledge of certain noncompliance with
laws and regulations perpetrated by the client.
Page | 40
38. 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 a knowledge of matters that relates to the nature of entity’s business.
C. refer a substantial portion of the audit to another CPA who will act as principal auditor.
D. first inform management that an unqualified opinion cannot be issued.
39. A CPA, while performing an audit, strives to achieve independence in appearance in order to
A. reduce risk and liability.

B. comply with the generally accepted standards of fieldwork.
C. become independent in fact.
D. maintain public confidence in the profession.
40. In which of the following instances would the independence of the CPA not be considered to be impaired?
The CPA has been retained as the auditor of brokerage firm
A. which owes the CPA audit fees for more than one year.
B. in which the CPA has a large active margin account.
C. in which the CPA’s brother is the controller.
D. which owes the CPA audit fees for services in the current year and has just filed a petition for
bankruptcy.
41. Which of the following fee arrangements is in violation of the Code of Professional Conduct?
A. A fee based on whether the CPA’s report on the client’s financial statements results in the
approval of a bank loan.
B. A fee based on the outcome of a bankruptcy proceeding.
C. A fee based on the nature of the service rendered and the CPA’s particular expertise instead of the
actual time spent on the engagement.
D. A fee based on the fee charged by the prior auditor.
42. The auditor is not liable to his client for
A. negligence.
B. bad faith.
C. dishonesty.
D. errors of judgment.
43. When the auditor issues an erroneous opinion as a consequence of an underlying failure to comply with the
requirements of generally accepted auditing standards, it results to
A. business failure.
B. audit failure.
C. audit risk.
D. all of them.
44. The reason why an auditor accumulates evidence is to
A. defend himself in the event of lawsuit.

B. justify the conclusions he has otherwise reached.
C. satisfy the requirements of the Bureau of Internal Revenue.
D. enable him to reach conclusions about the fairness of financial statements and issue an appropriate
audit report.
45. The auditor gives an audit opinion on the fair presentation of the financial statements and associates his or
her name with them when, on the basis of adequate evidence, the auditor concludes that the financial
statements are unlikely to mislead
Page | 41
A. a prudent user
B. management
C. the reader
D. investors
46. When preparing the financial statements, it is acceptable for the auditor to prepare
A. the statements for the client.

B. the footnotes for the client.
C. a draft of statements for the client.
D. a draft of statements and footnotes for the client.
47. Which of the following statements best describes the auditor’s responsibility regarding the detection of
material errors and frauds?
A. The auditor is responsible for the failure to detect material errors and frauds only when such
failures results from the misapplication of generally accepted accounting principles.
B. The audit should be designed to provide reasonable assurance that material errors and frauds are
detected.
C. The auditor is responsible for the failure to detect material errors and frauds only when the auditor
fails to confirm receivables or observe inventories.
D. Extended auditing procedures are required to detect unrecorded transactions even if there is no
evidence that material errors and frauds may exist.
48. The auditor has considerable responsibility for notifying users as to whether or not the financial statements
are properly stated. This imposes upon the auditor a duty to
A. be an insurer of the fairness of the presentation of the financial statement.

B. be a guarantor of the fairness in the statements.
C. be equally responsible with management for the preparation of the financial statements.
D. provide reasonable assurance that material misstatements will be detected.
49. Which of the following statementsbest distinguishes ordinary negligence from gross negligence?
A. Failure to detect material errors, whether internal control is strong or weak, suggest gross
negligence.
B. Failure to exercise reasonable care denotes ordinary negligence, whereas failure to exercise
minimal care indicates gross negligence.
C. Gross negligence is most probable when the auditor fails to detect errors that5 occurred under
conditions of strong internal control.
D. The more material the undetected error is, the greater the likelihood of ordinary negligence being
committed.
50. The auditor’s responsibility for failure to detect fraud arises
A. when such failure clearly results from non-compliance to generally accepted auditing standards.
B. whenever the amounts involved are material.
C. only when the examination was specifically designed to detect fraud.
D. only when such failure clearly results from negligence so gross as to sustain an inference of fraud
on the part of the auditor.
51. Which of the following statements is correct concerning the auditor’s responsibility with respect to
noncompliance with laws and regulation? An auditor must design tests to:
A. obtain reasonable assurance of detecting material direct-effect noncompliance with laws and
regulations.
B. detect both material and immaterial direct-effect noncompliance with laws and regulations.
Page | 42
C. detect both direct-effect and indirect-effect noncompliance with laws and regulations.
D. detect both material direct-effect and material indirect-effect noncompliance with laws and
regulations.
52. Most accounting and auditing professionals agree that when an audit has failed to uncover material
misstatements, and the wrong type of audit opinion is issued, the audit firm:
A. has failed to follow Philippine standards on auditing (PSAs).

B. deserves to lose the lawsuit.
C. should be asked to defend the quality of the audit.
D. should not be held responsible for the financial loss suffered by others.
53. What is the independent auditor’s prior to the completion of fieldwork when he believes that a material
fraud may have occurred?
A. Notify the appropriate law enforcement authority.

B. Investigate the persons involved, the nature of fraud, and the amounts involved.
C. Reach an understanding with the appropriate client representatives as to the desired nature and
extent of subsequent audit work.
D. Continue to perform normal audit procedures and write the audit report in such a way to disclose
adequately the suspicion of material fraud.
54. The risk that an audit will fail to uncover a material misstatement is eliminated
A. if client has good internal control.

B. if client follows generally accepted accounting principles.
C. when the auditor has complied with generally accepted auditing standards.
D. under no circumstances.
55. The auditor’s evaluation of the likelihood of material employee fraud is normally done initially as a part of
A. the assessment of whether to accept the audit engagement.

B. understanding the entity’s internal control structure.
C. the tests of control.
D. the tests of transactions.
56. A CPA establishes quality control policies and procedures for deciding whether to accept a new client or
continue to perform services for a current client. The primary purpose for establishing such policies and
procedures is to
A. enable the auditor to attest to the integrity or reliability of a client.

B. comply with the quality control standards established by regulatory bodies.
C. lessen the exposure to litigation resulting from failure to detect material misstatements due to
irregularities in client’s financial statements.
D. minimize the likelihood of association with clients whose management lacks integrity.
57. In which circumstance is a CPA firm’s independence most likely to be impaired?
A. A member of the engagement team has a close relative who is a receptionist for the client.
B. The father of the audit senior holds a material financial interest in the client of which the senior is
unaware.
C. The spouse of the member of the audit team has an immaterial common stock investment in the
audit client.
D. The partner in charge of the office’s compensation is affected by office profitability, a portion of
which arises from this audit.
58. While performing services for their clients, professionals have always had a duty to provide a level of care
which is
A. reasonable.
Page | 43
B. greater than average.
C. superior.
D. guaranteed to be free from error.
59. The existence of extreme or unusual negligence, even though there was no intent to deceive or do harm, is
a(n)
A. fraud.
B. gross fraud.
C. constructive fraud.
D. ordinary fraud.
60. The failure of the auditor to meet generally accepted auditing standards is
A. an accepted practice.
B. a suggestion of negligence.
C. an evidence of negligence.
D. tantamount to criminal behavior.
61. Which of the following statement(s) is (are) true?
A. Gross negligence may constitute a constructive fraud.

B. Constructive fraud is also termed recklessness.
C. Fraud requires the intent to deceive.
D. All the responses are true.
62. Which of the following, if present, would support a finding of constructive fraud on the part of the CPA?
A. Privity of contract
B. Intent to deceive
C. Reckless disregard
D. Ordinary negligence
63. In rare cases auditors have been held liable for criminal acts. A criminal conviction against an auditor can
result only when it is demonstrated that the auditor
A. was negligent.
B. was grossly negligent.
C. intended to deceive or harm others.
D. caused financial loss to an innocent third party.
64. The principal issue to be resolved in cases involving alleged negligence is usually
A. the amount of the damages suffered by the users of the financial statements.
B. whether to impose punitive damages on defendant.
C. the level of care required to be exercised.
D. whether defendant was involved in fraud.
65. “Absence of reasonable care that can be expected of a person in a set of circumstances” is the description of
A. ordinary negligence.
B. constructive fraud.
C. gross negligence.
D. fraud.
66. A CPA firm is considered independent when it performs which of the following services for a publicly-
traded audit client?
A. Serving as a member of the client’s board of directors.

B. Determining which accounting policies will be adopted by the client.
Page | 44
C. Accounting information system design and implementation.
D. Tax return preparation as approved by the board of directors.
67. The limitation of an auditor’s liability under contract law is known as
A. privity of contract.
B. contributory liability.
C. statutory liability.
D. common law liability.
68. As a consequence of his failure to adhere to generally accepted auditing standards in the course of his
examination of the Leis Corporation, Herman, CPA, did not detect embezzlement of a material amount of
funds by the company’s controller. As a matter of common law, to what extent would Herman be liable to
Leis Corporation for losses attributable to the theft?
A. He would have no liability, since the ordinary examination cannot be relied upon to detect
defalcations.
B. He would have no liability because privity of contract is lacking.
C. He would be liable for losses attributable to his negligence.
D. He would be liable only if it could be proven that he was grossly negligent.
69. In connection with the examination of financial statements, an independent auditor could be responsible for
failure to detect material fraud if
A. statistical sampling techniques were not used on the audit engagement.

B. the auditor planned the work in a hasty and inefficient manner.
C. accountants performing important parts of the work failed to discover a close relationship between
the treasurer and the cashier.
D. the fraud was perpetrated by one client employee, who circumvented the existing internal control.
70. A CPA is criminally liable if he
A. refuses to turn over the schedules or working papers prepared by the client staff to the client.
B. performs an audit in a negligent manner.
C. intentionally allows an omission of a material fact required to be stated in a financial statement.
D. was not able to submit the audited financial statements on time.
71. The auditor’s defense of contributory negligence is most likely to prevail when
A. third party injury has been minimal.

B. the auditor fails to detect fraud resulting from management override of the control structure.
C. the client is privately held as contrasted with a public company.
D. undetected errors have resulted in materially misleading financial statements.
72. Ana and Associates, CPAs, issued an unqualified opinion on the financial statements of Seral Corp. for the
year ended December 31, 2010. It was determined later that Seral’s treasurer had embezzled P300,000 from
Seral during 2010. Seral sued Ana because of Ana’s failure to discover the embezzlement. Ana was
unaware of the embezzlement. Which of the following is Ana’s best defense?
A. The audit was performed in accordance with PSAs.

B. The treasurer was Seral’s agent and, therefore, Seral was responsible for preventing the
embezzlement.
C. The financial statements were presented in conformity with PFRS.
D. Ana had no actual knowledge of the embezzlement.
73. The factor that distinguishes constructive fraud from actual fraud is
A. materiality.
B. quality of internal control.
C. type of error or irregularity.
Page | 45
D. intent.
74. If a CPA recklessly abandons standards of due care and diligence while performing an audit, he or she may
be held liable to unknown third parties for:
A. Fraudulent misconduct.
B. Gross misconduct.
C. Gross negligence.
D. Contributory negligence.
75. Salve Corp. orally engaged Rex & Co., CPAs, to audit its financial statements. The management of Salve
informed Rex that it suspected that the accounts receivable were materially overstated. Although the
financial statements audited by Rex did, in fact, include a materially overstated accounts receivable
balance, Rex issued an unqualified opinion. Salve relied on the financial statements in deciding to obtain a
loan from City Bank to expand its operations. City Bank relied on the financial statements in making a loan
to Salve. As a result of the overstated accounts receivable balance, Salve has defaulted on the loan and has
incurred a substantial loss. If Salve sues Rex for negligence in failing to discover the overstatement, Rex’s
best defense would be that
A. no engagement letter had been signed by Rex.

B. the audit was performed by Rex in accordance with generally accepted auditing standards.
C. Rex was not in privity of contract with Salve.
D. Rex did not perform the audit recklessly or with an intent to deceive.
76. In a common law action against an accountant, the lack of privity is a viable defense if the plaintiff
A. bases his action upon fraud.

B. is the accountant’s client.
C. is a creditor of the client who sues the accountant for negligence.
D. can prove the presence of gross negligence which amounts to a reckless disregard for the truth.
77. Which of the following conditions suggests an auditor’s negligence?
A. Failure to detect material errors under conditions of weak internal control.

B. Failure to detect collusive fraud perpetrated by members of middle management.
C. Failure to detect collusive fraud perpetrated by members of top management.
D. Failure to detect errors occurring outside the internal control structure.
78. Marcia Corporation orally engaged Legaspi and Lopez, CPAs, to audit its year-end financial statements.
The engagement was to be completed within two months after the close of Marcia’s fiscal year for a fixed
fee of P125,000. Under these circumstances, what obligation is assumed by Legaspi and Lopez?
A. None. The contract is unenforceable since it is not in writing.

B. An implied promise to exercise reasonable standards of competence and care.
C. An implied obligation to take extraordinary steps to discover all defalcations.
D. The obligation of an insurer of its work, which is liable without fault.
79. A third party sues a public accounting firm for negligence under common law on the basis of materiality
false financial statements. Which of the following is the firm’s defense?
A. Lack of privity.
B. Lack of reliance.
C. Lack of intent.
D. Contributory negligence.
80. What type(s) of liability do CPA’s have in the Philippines?
Common Law Liability Statutory Law Liability

A. Yes Yes
B. Yes No
Page | 46
C. No Yes
D. No No
81. A CPA firm issues an unqualified opinion on financial statements that were not prepared in accordance
with GAAP. The CPA firm would have acted with fraud or its equivalent in all of the following
circumstances except where the firm
A. intentionally disregard the truth.

B. has actual knowledge of fraud.
C. negligently performs auditing procedures.
D. intends to gain monetarily by concealing the fraud.
82. Conflict between financial statement users and auditors often arises because of the
A. high cost of performing an audit.

B. technical vocabulary which the auditor uses in the report.
C. placement of the auditor’s report at the back of the client’s annual report where it is hard to locate.
D. expectation gap.
83. A CPA will most likely be negligent when he fails to:
A. Correct errors discovered in the CPA’s previously issued audit reports.

B. Detect all of a client’s fraudulent activities.
C. Include a negligence disclaimer in the CPA’s engagement letter.
D. Warns a client’s customers of embezzlement that may be perpetuated by the client’s employees.
84. A CPA should not be liable to any party if he performs his services with:
A. Ordinary negligence.
B. Regulatory providence.
C. Due professional care.
D. Good faith.
85. If a CPA recklessly departs from the standards of due care when conducting an audit, the CPA will be
liable to third parties who are
A. Ordinary negligence.
B. Gross negligence.
C. Strict liability.
D. Criminal deceit.
Page | 47

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Mindanao State University

College of Business Administration and Accountancy

A. Before June 30, 2008

A. Commission on Audit (COA)

3. Immediate family includes:

4. Close Family includes the following, except:

5. Firm includes the following except:

A. A sole practicing professional accountant.

6. Existing accountant, as defined in the Code of Ethics, means:

A. A professional accountant employed in industry, commerce, the public sector or education.

A. A sole proprietor providing professional services to a client.

8. The term receiving accountant includes the following, except:

13. Advertising, as defined in the Code of Ethics, means

A. The skill and knowledge required for the type of work

A. Names of partners/principals with their educational attainment.

A. The accounting profession

21. Which of the following is a distinguishing mark of the accountancy profession?

A. actual fee would be substantially higher

A. Professional competence and due care

A. Determined accounting practices that were consistently applied.

A. Act in the client’s best interest

36. Which of the following appropriately describes an advocacy threat?

A. Indirect financial interest

42. Financial interest means:

43. Direct financial interest is a financial interest:

 owned directly by and under the control of an

45. Intimidation threat:

A. is not a threat to independence.

47. Which of the following is an example of engagement-specific safeguards?

I. Professional or regulatory monitoring and disciplinary procedures

I. Professional or regulatory monitoring and disciplinary procedures.

A. Must immediately resign from the engagement or the employing entity.

55. Which of the following is incorrect regarding integrity and objectivity?

A. Disclosure is necessary as required by legal proceedings.

60. A professional accountant may be associated with a tax return that

A. contains a false or misleading statement.

65. Which of the following is incorrect regarding confidentiality?

68.The confidential relationship applies to

A. All services provided by CPAs

A. In compliance with the quality review of a member body or professional body.

A. To comply with technical standards and ethics requirements

A. a court of law which subpoenas them.

74. Assurance team include

75. Examples of circumstances that may create self-interest threat include:

A. Contingent fees relating to assurance engagements.

76. Which of the following least likely create “self-interest threat”?

A. Undue dependence on total fees from an assurance client.

82. Which of the following will least likely impair independence?

86. Which of the following is not likely a threat to independence?

 Safeguards with the assurance client Yes Yes No No

A. Professional standards and monitoring and disciplinary processes

A. Value of the service to the client

A. fixed by a public authority

A. Not use means which brings the profession into disrepute

96. Which of the following is incorrect regarding independence?

A. Independence consist of independence of mind and independence in appearance

97. The network firms are required to be independent of the client

A. for assurance engagements provided to an audit client

103. Contingent fee pricing of public accounting services is:

A. Always strictly prohibited in public accounting practice

A. Issuance of an adverse opinion

106. Which of the following is incorrect regarding engagement period?