ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 41  May 2021 CPA Licensure Examination  Week No. 20

AUDITING (Auditing Theory) J. Ireneo  M. Ngina  F. Tugas  F. Yabut

AT-20: CODE OF ETHICS (PART 2)

Instruction: Select the letter of the best answer.

1. Non-compliance with laws and regulations (NOCLAR) comprises acts of omission or

commission, intentional or unintentional, which are contrary to the prevailing laws or
regulations committed by the following parties, except:
A. The professional accountant’s employing organization.
B. Those charged with governance of the employing organization or of a client.
C. Management of a client.
D. Independent or external auditors.

2. Which of the following statements is true?

A. The professional accountant’ responsibility for non-compliance to laws and
regulation (NOCLAR) is different for public interest entities and other entities.
B. The best interest of the client is paramount when it comes to the professional
accountant’s responsibility for NOCLAR.
C. Bribery is one of the examples of events and related laws covered by the
auditor’s responsibility for NOCLAR
D. NOCLAR only includes intentional acts of commission

3. Which of the following are appropriate responses to a suspected NOCLAR?

I. Obtain an understanding of the NOCLAR
II. Discuss with appropriate level of management but not with those charged with
governance
A. I only C. Both I and II
B. II only D. Neither I nor II
4. In discussing the non-compliance or suspected non-compliance with management and, where
appropriate, those charged with governance, the professional accountant shall advise them to
take appropriate and timely action to achieve the following, except:
A. Rectify, remediate or mitigate the consequences of the non-compliance.
B. Deter the commission of the non-compliance where it has not yet occurred.
C. Disclose the matter to an appropriate authority where required by law or
regulation or where considered necessary in the public interest.
D. Determine the account to be charged in order to conceal the non-compliance.

5. Which of the following are appropriate responses to a NOCLAR in the event that
Management has not taken any corrective action?
I. Auditor may decide to disclose the matter to appropriate authorities
II. Auditor may also consider withdrawing from the engagement and client relationship
A. I only
B. II only
C. Both I and II
D. Neither I nor II
6. In reference to the code of ethics, in the FS audit of listed entities, the engagement partner,
the individual responsible for the engagement quality control review or any other key audit
partner should be rotated after serving in either capacity, or a combination thereof, for a pre-
defined period (i.e., “time-on” period), normally no more than
a. 5 consecutive years c. 7 consecutive years
b. 5 cumulative years d. 7 cumulative years
7. In an audit of a public interest entity (PIE), which of the following individual role can be held
for a period of more than seven cumulative years (the “time-on” period)?
a. Engagement partner; c. Engagement quality control reviewer;
b. Other key audit partner; d. Engagement staff member.
8. Certain entities may be of significant public interest because, as a result of their business,
their size or their corporate status they have a wide range of stakeholders. Examples of
these entities include (select the exception):
A. Non-listed companies C. Insurance companies
B. Credit institutions D. Pension funds

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AT-20
Week No. 20: CODE of ETHICS (Part 2)

9. Using the same individual on an assurance engagement over a long period of time may
create a familiarity threat and self-interest 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 closeness of the individual’s personal relationship with senior management or those
charged with governance.

10. Evaluate the following services to be provided to a public entity:

I. Underwriting client share
II. Designing/implementing financial reporting IT systems
a. Both are not allowed without materiality considerations
b. Both are not allowed if not material to the financial statements
c. Only I is allowed if not material to the financial statements
d. Only II is allowed if not material to the financial statements

11. When associated with a larger structure of other firms and entities, a firm should:
12.
A. Exercise professional judgment to determine whether a network is created by such as larger
structure
13.
B. Consider whether a reasonable and informed third party would be likely to conclude that
the other firms and entities in the larger structure are associated in such a way that a
network exists
14.
C. Apply such judgment consistently throughout such a larger structure
15.
D. All of the choices

12. A professional accountant in business (PAIB) may be:

A. a salaried employee.
B. a partner, director (whether executive or non-executive) or an owner manager.
C. a volunteer or another working for one or more employing organization.
D. Any of these.

13. Evaluate the following statements related to PAIB:

I. They have the responsibility to further the legitimate business objectives of their
organization
II. The code would expressly hinder their responsibility in I even though their fundamental
principles are not compromised
A. Both are true.
B. Both are false
C. Only I is true
D. Only II is true

14. Evaluate the following possible threats related to PAIB:

I. PAIB participates an incentive compensation program offered by the organization
II. PAIB accounts for a business combination after preparing the related feasibility study
A. Both are self-review threats
B. Both are self-interest threats
C. Self-review, self-interest
D. Self-interest, self-review

15. Evaluate the following issues related to PAIB:

I. PAIB serves in a governance capacity for two employing organizations in the same
industry and area of operation.
II. PAIB is a member of the committee that selects a vendor where an immediate family
member is a key management personnel in the vendor.
a. Only I poses as a source of conflict of interest
b. Only II poses as a source of conflict of interest
c. Both pose as sources of conflict of interest
d. Neither I nor I poses as a source of conflict of interest

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