Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao
Since 1977
AT.3221
Ethical Standards and Responsibilities
of Professional Accountants
References:
• Code of Ethics for Professional Accountants in the Philippines
DISCUSSION QUESTIONS
The Code
1. Which statement is incorrect regarding the Code of
Ethics for Professional Accountants in the Philippines?
a. The code is divided into two parts, part A and part
B inappropriately
b. Part A refers to general application of the code
c. Part B applies only to those professional
accountants in public practice
d. Part C applies to professional accountants in
business
Preface
2. Which statement is incorrect regarding the Revised
Code of Ethics for Professional Accountants in the
Philippines?
a. Professional accountants refer to persons who are
Certified Public Accountants (CPA) and who hold
a valid certificate issued by the Board of
Accountancy.
b. Where a local law is in conflict with a provision of
the IFAC Code, the IFAC Code requirement
prevails.
c. The Revised Code of Ethics for Professional
Accountants in the Philippines is mandatory for all
CPA’s and is applicable to professional services
performed in the Philippines.
d. A member body of IFAC or firm shall not apply
less stringent standards than those stated in this
Code. However, if a member body or firm is
prohibited from complying with certain parts of
this Code by law or regulation, they shall comply
with all other parts of this Code.
Part A: GENERAL APPLICATION OF THE IESBA CODE
Section 100 – Introduction & Fundamental Principles
3. Which of the following statements best describes why
the profession of CPAs has deemed it essential to
promulgate a code of ethics and to establish a
mechanism for enforcing 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 client’s and
colleagues
c. A requirement of most state laws calls for the
profession to establish a code of ethics
d. An essential means of self-protection for the
profession is the establishment of flexible ethical
standards by the profession
Threats and safeguards
4. Fundamental principles are potentially affected by
I. Self-interest threat IV. Familiarity threat
II. Self review threat V. Intimidation threat
III. Advocacy threat
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MAY 2022
a. I, II, III, IV and V c. I, II and III
b. I, II, III and IV d. I only
5. Advocacy threat refers to
a. the threat that a financial or other interest will
influence the professional
accountant’s judgment or behavior
b. the threat that a professional accountant will not
appropriately evaluate the results of a previous
judgment made or service performed by the
professional accountant, or by another individual
within the professional accountant’s firm or
employing organization, on which the accountant
will rely when forming a judgment as part of
providing a current service
c. the threat that a professional accountant will
promote a client’s or employer’s position to the
point that the professional accountant’s objectivity
is compromised
d. the threat that due to a long or close relationship
with a client or employer, a professional accountant
will be too sympathetic to their interests or too
accepting of their work
6. Intimidation threat
a. is not a threat to independence, but only to
fundamental principles.
b.is the threat that a professional accountant will be
deterred from acting objectively because of actual
or perceived pressures, including attempts to
exercise undue influence over the professional
accountant.
c. is the threat that a financial or other interest will
inappropriately influence the professional
accountant’s judgment or behavior.
d.all of the above.
7. Statement 1: Safeguards are actions or other measures
that may eliminate threats or reduce them to an
acceptable level.
Statement 2: They fall into two broad categories: (a)
Safeguards created by the profession, legislation or
regulation; and (b) Safeguards in the work
environment.
a. True, True c. False, True
b. True, False d. False, False
Conceptual framework
8. Part A of the code of professional ethics establishes the
fundamental principles of professional ethics for
professional accountants and provides a conceptual
framework that professional accountants shall apply to
complying with the fundamental principles. A
professional accountant shall use professional judgment
in applying this conceptual framework. Which of the
following statements relating to the conceptual
framework is incorrect?
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a. Identify threats to compliance with the fundamental
principles and evaluate the significance of the
threats identified.
b. Apply safeguards, when necessary, to eliminate the
threats or reduce them to an acceptable level.
c. Safeguards are necessary when the professional
accountant determines that the threats are not at a
level at which a reasonable and informed third party
would be likely to conclude, weighing all the specific
facts and circumstances available to the
professional accountant at that time, that
compliance with the fundamental principles is not
compromised.
d. No safeguards are necessary as long as the
professional accountants adhere to applicable
technical standards.
Ethical conflict resolution
9. A professional accountant may be required to resolve a
conflict in complying with the fundamental principles.
When initiating either a formal or informal conflict
resolution process, the following factors, either
individually or together with other factors, may be
relevant to the resolution process:
I. Relevant facts
II. Ethical issues involved
III. Fundamental principles related to the matter in
question
IV. Established internal procedures
V. Alternative courses of action
a. I, II, III c. I, II, III and V
b. I, II, III and IV d. All of the above
10. When faced with significant ethical issues, and having
considered the relevant factors, a professional
accountant shall determine the appropriate course of
action, weighing the consequences of each possible
course of action. Professional accountants should do
the following, except
a. Follow the established policies of the employing
organization to seek a resolution of such conflict.
b. Should not consult with those charged with
governance of the organization, such as the board
of directors or the audit committee.
c. If a significant conflict cannot be resolved, a
professional accountant may wish to obtain
professional advice from the relevant professional
body or legal advisors, and thereby obtain guidance
on ethical issues without breaching confidentiality
d. If, after exhausting all relevant possibilities, the
ethical conflict remains unresolved, a professional
accountant should, where possible, refuse to remain
associated with the matter creating the conflict.
Section 110 – Integrity and Section 120 – Objectivity
11. Which of the following statements is (are) correct about
objectivity and integrity?
a. The principle of integrity imposes the obligation on
all professional accountants to be straightforward
and honest in professional and business
relationships. Integrity also implies fair dealing and
truthfulness.
b. The principle of objectivity imposes an obligation on
all professional accountants not to compromise their
professional or business judgment because of bias,
conflict of interest or the undue influence of others.
c. A professional accountant shall not perform a
professional service if a circumstance or relationship
biases or unduly influences the accountant’s
professional judgment with respect to that service
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d. All of the above
12. A professional accountant should not be associated with
reports, returns, communications or other information
that i. contains a false or misleading statement; ii.
contains statements or information furnished recklessly
or without any real knowledge of whether they are true
or false, and iii. c. omits or obscures information
required to be submitted and such omission or obscurity
would be misleading; unless
a. The professional accountant is independent
b.Desired assurance engagement risk is high.
c. Engagement fee is commensurate to cover the risks
involved.
d.An appropriate modified report is provided
Section 130 – Professional competence and due care
13. The principle of professional competence and due care
imposes the following obligations on all professional
accountants, except
a. To maintain professional knowledge and skill at the
level required to ensure that clients or employers
receive competent professional service; and
b. To act diligently in accordance with applicable
technical and professional standards when
providing professional services.
c. To exercise of infallible judgment in applying
professional knowledge and skill in the performance
of professional service.
d. To take reasonable steps to ensure that those
working under the professional accountant’s
authority in a professional capacity have
appropriate training and supervision and where
appropriate, make clients, employers or other users
of the accountant’s professional services aware of
the limitations inherent in the services.
14. Which of the following is incorrect regarding
professional competence and due care?
a. Professional competence may be divided into three
separate phases.
b.The attainment of professional competence requires
initially a high standard of general education.
c. The maintenance of professional competence
requires a continuing awareness of development
in the accountancy profession.
d.Diligence encompasses the responsibility to act in
accordance with the requirements of an
assignment, carefully, thoroughly and on a timely
basis.
15. Which of the following is the least required in attaining
professional competence?
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.
Section 140 –Confidentiality
16. Which of the following is incorrect regarding
confidentiality?
a. The principle of confidentiality imposes an
obligation on all professional accountants to
refrain from disclosing outside the firm or
employing organization confidential information
acquired as a result of professional and business
relationships without proper and specific authority
or unless there is a legal or professional right or
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duty to disclose and using confidential information
acquired as a result of professional and business
relationships to their personal advantage or the
advantage of third parties.
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 authority
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.
17. 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.
Section 150 –Professional Behavior
18. The principle of professional behavior imposes an
obligation on professional accountants to
a. Comply with relevant laws and regulations
b. Avoid any action that may bring discredit to the
profession
c. Both a and b
d. Neither a nor b
19. In marketing and promoting themselves and their work,
professional accountants shall be honest and truthful.
Professional accountants shall not:
a. Bring the profession into disrepute.
b. Make exaggerated claims for the services they are
able to offer, the qualifications they possess, or
experience they have gained; or
c. Make disparaging references or unsubstantiated
comparisons to the work of others.
d. All of the above.
PART B: PROFESSIONAL ACCOUNTANTS IN PUBLIC
PRACTICE
Section 200 –Introduction
20. The following are examples of circumstances that create
threats to the fundamental ethical principles of a
professional accountant in public practice. Identify
those that refer that refer to self review threat:
I. A member of the assurance team having a
direct financial interest in the assurance
client.
II. A firm having undue dependence on total
fees from a client.
III. A member of the assurance team having a
significant close business relationship with
an assurance client.
IV. A firm issuing an assurance report on the
effectiveness of the operation of financial
systems after designing or implementing
the systems.
V. A firm being concerned about the possibility
of losing a significant client.
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VI. A member of the audit team entering into
employment negotiations with the audit
client.
VII. A firm entering into a contingent fee
arrangement relating to an assurance
engagement.
VIII. A firm having prepared the original data
used to generate records that are the
subject matter of the assurance
engagement.
a. All represent self review threat.
b. All do not represent self review threat.
c. Only two of the eight represent self review threat.
d. Only three of the eight represent self review threat.
e. Only four of the eight represent self review threat.
21. Examples of circumstances that create self-review
threats for a professional accountant in public practice
include, except:
a. A member of the assurance team being, or having
recently been, a director or officer of the client.
b. A member of the assurance team being, or having
recently been, employed by the client in a position
to exert significant influence over the subject
matter of the engagement.
c. The firm performing a service for an assurance
client that directly affects the subject matter
information of the assurance engagement.
d. A professional accountant discovering a significant
error when evaluating the results of a previous
professional service performed by a member of the
professional accountant’s firm.
22. Examples of circumstances that create familiarity
threats for a professional accountant in public practice
include the following, except:
a. A member of the engagement team having a close
or immediate family member who is a director or
officer or an employee in a position to exert
significant influence over the subject matter of the
engagement.
b. A director or officer of the client or an employee in
a position to exert significant influence over the
subject matter of the engagement having recently
served as the engagement partner.
c. A professional accountant accepting gifts or
preferential treatment from a client, unless the
value is trivial or inconsequential.
d. A member of the assurance team being, or having
recently been, a director or officer of the client, or
an employee in a position to exert significant
influence over the subject matter.
23. Examples of circumstances that create intimidation
threats for a professional accountant in public practice
include the following, except:
a. A firm being pressured to reduce inappropriately the
extent of work performed in order to reduce fees.
b. A professional accountant feeling pressured to
agree with the judgment of a client employee
because the employee has more expertise on the
matter in question.
c. A professional accountant being informed by a
partner of the firm that a planned promotion will not
occur unless the accountant agrees with an audit
client’s inappropriate accounting treatment.
d. A professional accountant acting as an advocate on
behalf of an audit client in litigation or disputes with
third parties.
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Safeguards
24. Safeguards created by the profession, legislation or
regulation, include the following, except
a. Educational, training and experience requirements
for entry into the profession
b. Continuing education requirements
c. Legislation governing the independence
requirements of the firm.
d. Policies and procedures that emphasize the
assurance client’s commitment to fair financial
reporting
25. Safeguards in the work environment, include the
following, except
a. Professional standards and monitoring and
disciplinary processes, including external review of
the firm’s quality control system.
b. The assurance client has competent employees to
make managerial decision.
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.
Section 210 – Professional Appointment
26. 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.
27. The term receiving accountant includes the following,
except
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.
28. Before accepting a new client relationship, a
professional accountant in public practice should
consider the following, except:
a. Acceptance would create any threats to compliance
with the fundamental principles, such as, potential
threats to integrity or professional behavior may be
created from, for example, questionable issues
associated with the client (its owners, management
and activities).
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b. The significance of any threats and the necessary
safeguards necessary to eliminate them or reduce
them to an acceptable level.
c. Where it is not possible to reduce the threats to an
acceptable level, a professional accountant in public
practice should decline to enter into the Client
relationship.
d. All of the above should be considered.
29. A professional accountant in public practice should
agree to provide only those services that the
professional accountant in public practice is competent
to perform. Before accepting a specific client
engagement, a professional accountant in public
practice should consider the following except:
a. Whether acceptance would create any threats to
compliance with the fundamental principles. For
example, a self-interest threat to professional
competence and due care is created if the
engagement team does not possess, or cannot
acquire, the competencies necessary to properly
carry out the engagement.
b. The significance of any threats and the necessary
safeguards necessary to eliminate them or reduce
them to an acceptable level.
c. When a professional accountant in public practice
intends to rely on the advice or work of an expert,
the professional accountant in public practice should
evaluate whether such reliance is warranted. The
professional accountant in public practice should
consider factors such as reputation, expertise,
resources available and applicable professional and
ethical standards. Such information may be gained
from prior association with the expert or from
consulting others.
d. All of the above should be considered.
30. The following statements relate to a professional
accountant in public practice who is asked to replace
another professional accountant in public practice;
which is incorrect?
a. A professional accountant in public practice shall
determine whether there are any reasons for not
accepting the engagement, such as circumstances
that threaten compliance with the fundamental
principles.
b. It may require direct communication with the
existing accountant to establish the facts and
circumstances behind the proposed change.
c. Since the existing accountant is no longer engaged,
it is not bound by confidentiality. Hence, the
existing accountant is permitted to volunteer
information about the client’s affairs.
d. A professional accountant in public practice will
ordinarily need to obtain the client’s permission,
preferably in writing, to initiate discussion with an
existing accountant.
Section 220 – Conflicts of Interest
31. A professional accountant in public practice should take
reasonable steps to identify circumstances that could
pose a conflict of interest. Which of the following
statements is/are incorrect?
a. A conflict of interest may give rise to a threat to
integrity such as when a professional accountant in
public practice competes directly with a client or has
a joint venture or similar arrangement with a major
competitor of a client. [objectivity]
b. A conflict of interest may give rise to a threat to
objectivity or confidentiality such as when a
professional accountant in public practice performs
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services for clients whose interests are in conflict or
the clients are in dispute with each other in relation
to the matter or transaction in question.
c. Where a conflict of interest poses a threat to one or
more of the fundamental principles, including
objectivity, confidentiality or professional behavior,
that cannot be eliminated or reduced to an
acceptable level through the application of
safeguards, the professional accountant in public
practice should conclude that it is not appropriate to
accept a specific engagement or that resignation
from one or more conflicting engagements is
required.
d. Where a professional accountant in public practice
has requested consent from a client to act for
another party (which may or may not be an existing
client) in respect of a matter where the respective
interests are in conflict and that consent has been
refused by the client, then the professional
accountant in public practice must not continue to
act for one of the parties in the matter giving rise to
the conflict of interest.
Section 230 – Second Opinions
32. Situations where a professional accountant in public
practice is asked to provide a second opinion on the
application of accounting, auditing, reporting or other
standards or principles to specific circumstances or
transactions by or on behalf of a company or an entity
that is not an existing client may give rise to threats to
compliance with the fundamental principles. For
example, there may be a threat to __________ in
circumstances where the second opinion is not based on
the same set of facts that were made available to the
existing accountant, or is based on inadequate
evidence?
a. Professional competence and due care
b. Integrity
c. Professional behavior
d. Objectivity
Section 240 – Fees and Other Types of
Remuneration
33. If the fee quoted for a professional service is so low, it
may be difficult for the CPA to perform the engagement
in accordance with applicable technical and professional
standards for that price. This situation may create a
self-interest threat to
a. Objectivity
b. Professional competence and due care
c. Professional behavior
d. Integrity
34. In accordance with Section 240 of the Code of Ethics,
fees charged for assurance engagements should be a
fair reflection of the value of the work involved. In
determining professional fees, the following should be
taken into account, except
a. The level of training and experience of the persons
necessarily engaged on the work.
b. The time necessarily occupied by each person
engaged on the work.
c. The outcome or result of a transaction or the result
of the work performed.
d. The skill and knowledge required for the type of
work involved.
35. Contingent fees are widely used for certain types of
non-assurance engagements. They may create a self-
interest threat to objectivity and other fundamental
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principles. With respect to the acceptance of contingent
fees for professional ethics, the Code of ethics indicates
the firm
a. should not accept contingent fees
b. should establish appropriate safeguards around
acceptance of a contingent fee
c. should accept contingent fee only for assurance
services other than FS audit
d. should accept contingent fees if it is customary in
the country
36. Receiving a commission from a third party (e.g., a
software vendor) in connection with the sale of goods
or services to a client or paying a referral fee to obtain
a client without appropriate safeguards creates self-
interest threat to which of the following?
a. Objectivity
b. Professional competence and due care
c. Both a and b
d. Neither a nor b
Section 250 – Marketing Professional Services
Note: See AT.3223 Practice of Accountancy.
Section 260 – Gifts and Hospitality
37. A professional accountant in public practice, or an
immediate or close family member, may be offered gifts
and hospitality from a client. Such an offer ordinarily
gives rise to threats to compliance with the fundamental
principles. Which of the following statements is
incorrect?
a. A self-interest or familiarity threat to objectivity
may be created if a gift from a client is accepted,
unless trivial and inconsequential.
b. Intimidation threats to objectivity may result from
the possibility of such offers being made public.
c. The significance of such threats will depend on the
nature, value and intent behind the offer.
d. When the threats cannot be eliminated or reduced
to an acceptable level through the application of
safeguards, a professional accountant in public
practice may accept such an offer but only after
informing the appropriate regulatory bodies.
Section 270 – Custody of Client Assets
38. Which of the following statements is incorrect when a
professional accountant considering to have custody of
client assets?
a. A professional accountant in public practice should
not assume custody of client monies or other assets
unless permitted to do so by law.
b. The holding of client assets creates threats to
compliance with the fundamental principles; for
example, there is a self-interest threat to
professional behavior and may be a self-interest
threat to objectivity arising from holding client
assets.
c. Professional accountants in public practice should
be aware of threats to compliance with the
fundamental principles through association with
such assets, for example, if the assets were found
to derive from illegal activities, such as money
laundering.
d. A professional accountant in public practice who is
allowed by law to assume custody of client allows is
permitted to keep such assets together with
personal or firm assets.
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Section 280 – Objectivity–All Services
39. A professional accountant in public practice should
consider when providing any professional service
whether there are threats to compliance with the
fundamental principle of objectivity resulting from
having interests in, or relationships with, a client or
directors, officers or employees.
A familiarity threat to objectivity may be created from a
family or close personal or business relationship.
a. True, True c. False, True
b. True, False d. False, False
40. Safeguards against threats to compliance with
objectivity may include the following, except
a. Withdrawing from the engagement team or
supervisory procedures.
b. Terminating the financial or business relationship
giving rise to the threat.
c. Discussing the issue with higher levels of
management within the firm or with those charged
with governance of the client.
d. All of the above are a safeguard.
Section 290 – Independence
A Conceptual Framework Approach to Independence
41. Which of the following most completely describes how
independence has been defined by the accountancy
profession?
a. Possessing the ability to act with integrity and
exercise objectivity and professional skepticism.
b. Accepting responsibility to act professionally and in
accordance with laws and regulations.
c. Avoiding the appearance of significant interest in
the affairs of an assurance client.
d. Performing an assurance service from the viewpoint
of the public.
42. Which of the following statements is/are are correct
regarding independence
a. Independence consists of independence of mind and
independence in appearance.
b. Independence in appearance is the state of mind
that permits the provision of an 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 of mind 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. All of the above are correct statements regarding
independence
43. For assurance engagements provided to an audit client,
the following should be independent of the client
a. b. c. d.
Members of the assurance
team Yes Yes Yes Yes
The firm Yes Yes No No
Network firms Yes No No Yes
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44. When identified threats to independence are significant
and the firm decides to accept or continue the assurance
engagement, the decision should be documented. The
firm’s documentation should include:
a. A description of the threats identified.
b. The safeguards applied to eliminate or reduce the
threats to an acceptable level
c. Both a or b
d. Neither a nor b
Networks and Network Firms
45. Statement 1: If a firm is deemed to be a network firm,
the firm shall be independent of the audit clients of the
other firms within the network (unless otherwise stated
in this Code). The independence requirements in this
section that apply to a network firm apply to any entity,
such as a consulting practice or professional law
practice, that meets the definition of a network firm
irrespective of whether the entity itself meets the
definition of a firm.
Statement 2: The determination of whether the
professional resources shared are significant, and
therefore the firms are network firms, shall be made
based on the relevant facts and circumstances.
a. True, True c. False, True
b. True, False d. False, False
Public Interest Entities and Related Entities
46. Under section 290.25 of the code of professional ethics,
public interest entities are:
a. All listed entities.
b. Any entity defined by regulation or legislation as a
public interest entity.
c. Any entity for which the audit is required by
regulation or legislation to be conducted in
compliance with the same independence
requirements that apply to the audit of listed
entities. Such regulation may be promulgated by
any relevant regulator, including an audit regulator.
d. All of the above
Financial Interests
47. 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 interest in an equity 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.
48. In accordance with the Code, which of the following is
correct?
Immediate family Close family
member member
a. Spouse and Parent and sibling
dependent
b. Spouse and sibling Parent and dependent
c. Parent and dependent Spouse and sibling
d. Parent and sibling Spouse and dependent
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49. 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 the only safeguards available to eliminate the
threat or reduce it to an acceptable level would be due
to do the following, except
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 a member of the
assurance team.
c. Dispose of a sufficient amount of the indirect
financial 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.
50. 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.
Loans and Guarantees
51. 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.
Business Relationships
52. Business relationships such having a financial interest in
a joint venture with either the client or a controlling
owner, director, officer or other individual who performs
senior managerial activities for that client most likely
create
a. Self-interest threat c. Both a and b
b. Intimidation threat d. Neither a nor b
Family and Personal Relationships
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53. 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 c. Intimidation threat
b. Self-review threat d. Familiarity threat
Employment with Assurance Clients
54. 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. The situation least likely create
a. Self-interest threat c. Intimidation threat
b. Self-review threat d. Familiarity threat
55. 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 b
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.
Temporary Staff Assignments
56. When a firm lends staff to an audit client, in all
circumstances, the client shall be responsible for
directing and supervising the activities of the loaned
staff. This kind of arrangement most likely creates
a. Self-interest threat c. Intimidation threat
b. Self-review threat d. Familiarity threat
Recent Service with Assurance Clients
57. 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. Self-interest threat c. Intimidation threat
b. Self-review threat d. Familiarity threat
Serving as a Director or Officer of an Audit Client
58. Serving as a director or officer of an audit client, except
in performing routine administrative services to support
a secretarial administration, creates threats to
________ that would be so significant that no
safeguards could address the threats, except when
permitted under local law, professional rules, or
practice.
a. Self-interest threat c. Both a and b
b. Self-review threat d. Neither a nor b
Long Association of Senior Personnel with Assurance Clients
– Audit Clients that are Listed Entities
59. Using the same engagement partner or the same
individual for the engagement quality control review on
a financial statement audit over a prolonged period may
create a
a. Self-review threat c. Familiarity threat
b. Intimidation threat d. Self-interest threat
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60. In the financial statement audit of listed entities, the
engagement partner and the individual responsible for
the engagement quality control review should be
rotated after serving in either capacity, or a combination
thereof, for a pre-defined period, normally no more than
a. 5 years c. 7 years
b. 6 years d. 10 years
Note: Letter A (5 years) was the old answer per SEC rules.
61. When an audit client becomes a public interest entity,
the length of time the individual has served the audit
client as a key audit partner before the client becomes
a public interest entity shall be taken into account in
determining the timing of the rotation. If the individual
has served the audit client as a key audit partner for
five years or less when the client becomes a public
interest entity, the number of years the individual may
continue to serve the client in that capacity before
rotating off the engagement is seven years less the
number of years already served. If the individual has
served the audit client as a key audit partner for six or
more years when the client becomes a public interest
entity, the partner may continue to serve in that
capacity for a maximum of ____ additional years before
rotating off the engagement.
a. One c. Three
b. Two d. Four
Preparing Accounting Records and Financial Statements
62. If firm, or network firm, personnel provide assistance
involving making 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 on audit client in resolving account
reconciliation problems.
63. These 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.
Preparing Accounting Records and Financial Statements –
Audit Clients that are not Listed Entities
64. 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.
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d. Determining and posting journal entries without
obtaining the approval of the audit client.
Valuation Services
65. In which of the following clients performing valuation
services material to financial statements creates a self-
review threat that would be so significant that no such
services shall be provided?
a. Public interest entities audit clients
b. Not public interest entities audit clients
c. Both a and b
d. Neither a nor b
66. Valuation services may be performed to other than
public interest audit clients, except when
a. The valuation service has a material effect on the
financial statements
b. The valuation involves a significant degree of
subjectivity
c. Both a and b
d. Either a or b
Taxation Services
67. Taxation services may create self-review and advocacy
threats. However, which of the following taxation
services generally does not create such threats?
a. Tax return preparation.
b. Tax calculations for the purpose of preparing the
accounting entries
c. Tax planning and other tax advisory services
d. Assistance in the resolution of tax disputes
IT Systems Services
68. 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 c. Intimidation threat
b. Self-review threat d. Familiarity threat
Recruiting Senior Management
69. The recruitment of senior management for an assurance
client, such as those in a position to affect the subject
of the assurance engagement may least likely create
a. Self-interest threat c. Intimidating threat
b. Advocacy threat d. Familiarity threat
Fees and pricing
70. 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 as
significantly lower fee level that that charged by
the predecessor firm, or quoted by other firms.
d.A court or other public authority established fees.
PART C: PROFESSIONAL ACCOUNTANTS IN BUSINESS
Section 300 – Introduction
71. Under the code of professional ethics, circumstances
that may create self-interest threats for those
professional accountants in business include:
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I. Financial interests, loans or guarantees.
II. Incentive compensation arrangements.
III. Inappropriate personal use of corporate assets.
IV. Concern over employment security.
V. Commercial pressure from outside the employing
organization.
a. I, II, III c. I, II, III and V
b. I, II, III and IV d. All of the above
72. Statement 1: For professional accountants in business,
circumstances that may create self-review threats
include, business decisions or data being subject to
review and justification by the same professional
accountant in business responsible for making those
decisions or preparing that data.
Statement 2: For professional accountants in business,
when furthering the legitimate goals and objectives of
their employing organizations professional accountants
in business may promote the organization’s position,
provided any statements made are neither false nor
misleading. Such actions generally would not create an
advocacy threat.
a. True, True c. False, True
b. True, False d. False, False
73. Under the code of professional ethics, circumstances
that may create familiarity threats for professional
accountants in business include the following, except:
a. A professional accountant in business in a position
to influence financial or nonfinancial reporting or
business decisions having an immediate or close
family member who is in a position to benefit from
that influence.
b. Long association with business contacts influencing
business decisions.
c. Acceptance of a gift or preferential treatment,
unless the value is clearly insignificant.
d. A dominant personality attempting to influence the
decision making process, for example with regard
to the awarding of contracts or the application of an
accounting principle.
Section 310 – Potential Conflicts
74. A professional accountant in business should support
the legitimate and ethical objectives established by the
employer and the rules and procedures drawn up in
support of those objectives. Nevertheless, where
compliance with the fundamental principles is
threatened, a professional accountant in business must
consider a response to the circumstances.
The significance of threats arising from such pressures,
such as intimidation threats, should be evaluated and,
if they are other than clearly insignificant, safeguards
should be considered and applied as necessary to
eliminate them or reduce them to an acceptable level.
a. True, True c. False, True
b. True, False d. False, False
75. Examples of safeguards against threats created by
potential conflict between the employing organization
and the professional obligations to comply with the
fundamental principles include the following, except
a. Obtaining advice where appropriate from within the
employing organization, an independent
professional advisor or a relevant professional body.
b. The existence of a formal dispute resolution process
within the employing organization.
c. Seeking legal advice.
d. All of the above are safeguards.
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Section 320 – Preparation and Reporting of
Information
76. A professional accountant in business should prepare or
present business information fairly, honestly and in
accordance with relevant professional standards so that
the information will be understood in its context.
Threats to compliance with the fundamental principles,
for example self-interest or intimidation threats to
objectivity or professional competence and due care,
may be created where a professional accountant in
business may be pressured to become associated with
misleading information or to become associated with
misleading information through the actions of others.
a. True, True c. False, True
b. True, False d. False, False
77. When a professional accountant in business faces
threats to compliance with the fundamental principles,
he or she shall do the following, except
a. Evaluate the threats and, if they are other than
clearly insignificant, safeguards should be
considered and applied as necessary to eliminate
them or reduce them to an acceptable level.
b. Safeguards may include consultation with superiors
within the employing organization, for example, the
audit committee or other body responsible for
governance, or with a relevant professional body.
c. Where it is not possible to reduce the threat to an
acceptable level, a professional accountant in
business should refuse to remain associated with
information they consider is or may be misleading.
d. The professional accountant in business may not
wish to seek legal advice or resign.
Section 330 – Acting with Sufficient Expertise
78. The fundamental principle of professional competence
and due care requires that a professional accountant in
business should only undertake significant tasks for
which the professional accountant in business has, or
can obtain, sufficient specific training or experience.
(Choose the incorrect statement.)
a. A professional accountant in business should not
intentionally mislead an employer as to the level of
expertise or experience possessed, nor should a
professional accountant in business fail to seek
appropriate expert advice and assistance when
required.
b. Identify and evaluate threats, such as: insufficient
time for properly performing or completing the
relevant duties; incomplete, restricted or otherwise
inadequate information for performing the duties
properly; insufficient experience, training and/or
education; and inadequate resources for the proper
performance of the duties.
c. The significance of the threats should be evaluated
and, if they are other than clearly insignificant,
safeguards should be considered and applied as
necessary to eliminate them or reduce them to an
acceptable level.
d. Where threats cannot be eliminated or reduced to
an acceptable level, professional accountants in
business should consider whether to refuse to
perform the duties in question and may not be
clearly communicated.
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Section 340 – Financial Interests
79. Professional accountants in business may have financial
interests, or may know of financial interests of
immediate or close family members, that could, in
certain circumstances, give rise to threats to compliance
with the fundamental principles. For example, self-
interest threats to objectivity or confidentiality may be
created through the existence of the motive and
opportunity to manipulate price sensitive information in
order to gain financially.
A professional accountant in business should neither
manipulate information nor use confidential information
for personal gain.
a. True, True c. False, True
b. True, False d. False, False
Section 350 – Inducements
80. A professional accountant in business or an immediate
or close family member may be offered an inducement
or may make an offered of inducement, such as, gifts,
hospitality, preferential treatment and inappropriate
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appeals to friendship or loyalty. Offers of inducements
may create threats to compliance with the fundamental
principles. (Choose the incorrect statement)
a. Self-interest threats to objectivity or confidentiality
are created where an inducement is made in an
attempt to unduly influence actions or decisions,
encourage illegal or dishonest behavior or obtain
confidential information.
b. Intimidation threats to objectivity or confidentiality
are created if such an inducement is accepted and
it is followed by threats to make that offer public
and damage the reputation of either the
professional accountant in business or an
immediate or close family member.
c. A professional accountant in business should not
offer an inducement to improperly influence
professional judgment of a third party.
d. If evaluated threats are other than clearly
insignificant, safeguards should not be considered
and applied as necessary to eliminate them or
reduce them to an acceptable level.
End of AT.3221
AT.3221