Code of Ethics

Tommy B. Buado, CPA

1. The Code of Ethics for Professional Accountants in the Philippines is approved by ______,
recommended for adoption by the _____.
A. BOA, PICPA
B. BOA, President of the Philippines
C. SEC, BOA
D. PICPA, BOA

2. Which of the following statements best describes why the profession of certified public
accountants has deemed it essential to promulgate a code of professional ethics and to
establish a mechanism for enforcing observation of the Code?
A. A pre-requisite to success is the establishment of an ethical code that primarily defines the
professional’s responsibility to clients and colleagues.
B. A distinguishing mark of a profession is its acceptance of responsibility to the public.
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.

3. The underlying reason for a code of professional conduct for any profession is
A. that it is required by congress
B. the need for public confidence in the quality of the service of the profession
C. that it provides a safeguard to keep unscrupulous people out
D. that it allows Professional Regulation Commission to have a yardstick to measure deficient
performance

4. Which of the following is not a modification made to IFAC Code of Ethics?

A. The term “corporation” was deleted from the definitions
B. The period of rotation of the lead engagement partner was changed from seven to five
years
C. The phrase “who are certified public accountants and who hold a valid certificate issued
by the Board of Accountancy” was added in the definition of professional accountant

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 D. The paragraph on advertising and solicitation was modified to include advertisements on
newspapers of national circulation.

5. Which of the following statements is/are true?

Statement 1: It is impractical to establish ethical requirements which apply to all situations
and circumstances that CPA’s may encounter
Statement 2: CPA’s should consider the ethical requirements as the basic principles which
they should follow in performing their work.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

6. Which of the following statements is/are true?

Statement 1: Professional accountants refer to persons who are registered in the PRC as CPA’s
and who hold a valid certificate issued by the BOA, whether they are in any sector of practice
of accountancy.
Statement 2: The Code of Ethics for Professional Accountants in the Philippines is mandatory
for all CPA’s.
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

7. The following definitions from the IFAC Code were modified to consider Philippine regulatory
requirements and circumstances, except
A. Firm
B. Professional accountants in public practice.
C. Professional accountants
D. Lead engagement partner

8. Which of the following statements best describes Integrity?

A. Be straightforward and honest in performing professional services.
B. Perform professional services with due care, competence and diligence
C. Do not compromise professional judgement because of bias, conflict of interest or undue
influence of others.
D. Do not use of disclose any such confidential information without proper and specific
authority or unless there is a legal or professional right or duty to disclose.

9. A CPA should not be associated with reports, returns, communications or other information
where they believe that the information:
A. Contains a materially false or misleading statement.

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 B. Contains statements or information furnished recklessly
C. Omits or obscures information required to be included where such omission or obscurity
would be misleading
D. All of these

10. The principle of professional competence and due care imposes which of the following
obligations on CPA’s?
A. To refrain from disclosing confidential information obtained as a result of professional and
business relationships without proper and specific authority unless there is a legal or
professional right or duty to disclose.
B. To comply with relevant laws and regulations and avoid any situation that may bring
discredit to the profession.
C. To act diligently in accordance with applicable technical and professional standards when
providing professional services.
D. Not to compromise professional or business judgment because of bias, conflict of interest
or undue influence of others.

11. According to the Code of Ethics, professional competence and due care may be divided into
two phases: attainment of professional competence and maintenance of professional
competence. The attainment of professional competence requires the following, except
A. initially a high standard of general education
B. a continuing awareness of and an understanding of relevant technical professional and
business developments.
C. specific education, training and examination in professionally relevant subjects
D. whether prescribed or not, a period of work experience

12. Which of the following is incorrect regarding professional competence?

A. Professional accountants may portray themselves as having the expertise or experience
they do not possess.
B. Professional competence may be divided into two separate phases.
C. The attainment of professional competence initially requires a high standard of general
education.
D. The maintenance of professional competence initially requires a continuing awareness of
development in the accountancy profession.

13. Competence as a CPA includes all of the following, except:

A. Having the technical qualifications to perform an engagement
B. Possessing the ability to supervise and evaluate the quality of staff work
C. Warranting the infallibility of the work performed
D. Consulting others if additional technical information is needed

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14. After beginning an audit of a new client, Ash, CPA, discovers that the professional competence
necessary for the engagement is lacking. Ash informs management of the situation and
recommends another CPA, and management engages the other CPA. Under these
circumstances:
A. Ash’s lack of competence should be considered to be a violation of generally accepted
auditing standards
B. Ash may request compensation from the client for any professional services rendered to
it in connection with the audit
C. Ash’s request for a commission from the other CPA is permitted because a more
competent audit can now performed
D. Ash may be indebted to the other CPA since the other CPA can collect form the client only
the amount the client originally agreed to pay Ash

15. Prior to beginning the field work on a new audit engagement in which a CPA does not possess
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 of industry expertise
C. Engage financial experts familiar with the nature of the industry
D. Obtain knowledge of matters that relate to the nature of the entity’s business

16. AAA Commercial Inc. engages the services of Al, CPA, to make a project study on the expanded
food vending operations of the corporation with the corresponding staffing and compensation
package for its executive staff. Al, however, has primarily auditing expertise and only in general
merchandising operations. Al may properly:
A. Accept the engagement and carry it out consistent with auditing standards
B. Accept the engagement but exercise due professional care
C. Accept the engagement and acquire the necessary competence or consult with
established authorities
D. Decline the engagement for lack of experience or competence in an entirely new line of
specialization

17. AAA Corporation recently entered into several transactions involving complex accounting
procedures. Joy, chief accountant was asked by the Corporation’s directors if he can properly
account for transactions. Joy does not possess the competence required under the
circumstances. Which of the following responses would not be a violation of the Code of
Personal Ethics?
A. Joy agrees to handle the accounting issues involved but does not engage an expert for
assistance or support
B. Joy represents that he is an expert on the complex accounting procedure, and agrees to
tackle the recording issues involved in the transactions
C. Joy engages an expert on the relevant accounting procedures in order to properly account
for the complex accounting procedures

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 D. All of the above choices are ethical responses

18. 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. Professional competence and due care
B. Professional behavior
C. Objectivity
D. Integrity

19. Objectivity in the Code refers to a CPA’s ability:

A. To independently distinguish between accounting practices that are acceptable and those
that are not.
B. To maintain an impartial attitude on all matters which come under the CPA’s review
C. To be unyielding in all matters dealing with auditing procedures
D. To independently choose between alternate accounting principles and auditing standards

20. A CPA should maintain objectivity and free of conflicts of interest when performing:
A. Audits, but not any other professional services
B. All attestation services, but not other professional services
C. All attestation and tax services, but not other professional services
D. All professional services

21. In which of the situations given below would disclosure by a CPA be in violation of the Code?
A. Disclosing confidential information in order to properly discharge the CPA’s
responsibilities in accordance with his profession’s standards
B. Disclosing confidential information in compliance with a subpoena issued by a court
C. Disclosing confidential information to another accountant interested in purchasing the
CPA’s practice
D. Disclosing confidential information in a review of the CPA’s professional practice by the
PICPA Quality Review Committee

22. The state of mind that permits the provision of an opinion without being affected by influences
that compromise professional judgment.
A. Professional skepticism
B. Independence in appearance
C. Objectivity
D. Independence of mind

23. The avoidance of facts and circumstances that are so significant a reasonable and informed
third party, having knowledge of all relevant information, would reasonably conclude a CPA’s
integrity, objectivity or professional skepticism had been compromised.
A. Principles of segregation

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 B. Independence in appearance
C. Independence in mind
D. Preemptive estoppel

24. 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
A. Self-interest threat
B. Self-review threat
C. Advocacy threat
D. Familiarity threat

25. Occurs when any product or judgment of a previous assurance engagement or non-assurance
engagement needs to be re-evaluated in reacting conclusions on the assurance engagement.
A. Self-interest threat
B. Self-review threat
C. Advocacy threat
D. Familiarity threat

26. 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.
A. Self-interest threat
B. Self-review threat
C. Advocacy threat
D. Familiarity threat

27. Occurs when a member of the assurance team was previously a director or officer of the
assurance client, or was an employee in a position to exert direct and significant influence over
the subject matter of the assurance engagement.
A. Self-interest threat
B. Self-review threat
C. Advocacy threat
D. Familiarity threat

28. 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
A. Self-interest threat
B. Intimidation threat
C. Advocacy threat
D. Familiarity threat

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29. Occurs when a member of the assurance team may be deterred from acting objectively and
exercising professional skepticism by threats, actual or perceived, form the directors, officers
or employees of an assurance client.
A. Self-interest threat
B. Intimidation threat
C. Advocacy threat
D. Familiarity threat

30. These are policies and procedures designed to eliminate or to reduce threats to fundamental
principles to an acceptable level.
A. International controls
B. Control activities
C. Safeguards
D. Segregation of duties

31. Regarding safeguards, the Code of Ethics focuses on:

A. Reducing or eliminating all threats to independence
B. Reducing all threats to independence
C. Eliminating all threats to independence
D. Reducing or eliminating threats to independence which are not clearly insignificant

32. Which of the following circumstances may create self-interest threats for a professional
accountant in public practice?
A. A financial interest in a client or jointly holding a financial interest with a client
B. Performing a service for a client that directly affects the subject matter of the assurance
engagement
C. Being threatened with litigation
D. Acting as an advocate on behalf of an assurance client in litigation or disputes with third
parties

33. The following are examples of circumstances that may create familiarity threats, except
A. Promoting shares in a listed entity when that entity is a financial statement audit client
B. Long association of senior personnel with the assurance client
C. A member of the engagement team having a close or immediate family relationship with a
director or officer of the client
D. A former partner of the firm being a director or officer of the client or an employee in a
position to exert direct and significant influence over the subject matter of the engagement

34. The following may create intimidation threats, except

A. Being threatened with dismissal or replacement in related to a client engagement
B. Being threatened with litigation

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 C. Being pressured to reduce inappropriately the extent of work performed in order to reduce
fees
D. A member of the assurance team being, or having recently been, a director or officer of the
client

35. In cases when the threat to independence is other than clearly insignificant and no safeguards
are available to reduce it to an acceptable level, which of the following actions should be taken?
I. Eliminating the activities or interests creating the threat
II. Refusing to accept or continue the assurance engagement
A. I only
B. II only
C. Either I or II
D. Neither I nor II

36. A direct financial interest or material indirect financial interest in the assurance client of a
member of the assurance team or his immediate family member may create a significant self -
interest threat. Which of the following safeguards would be least likely considered to eliminate
the threat or reduce it to an acceptable level?
A. Discuss the matter with those charged with governance of the assurance client
B. Dispose of the direct financial interest prior to the individual becoming a member of the
assurance team;
C. Dispose of the indirect financial interest in total or dispose of a sufficient amount of it so
that the remaining interest is no longer material prior to the individual becoming a member
of the assurance team; or
D. Remove the member of the assurance team from the assurance engagement.

37. A loan, or guarantee of a loan, to the firm from an assurance client that is a bank or a similar
institution, would not create a threat to independence provided
I. The loan, or guarantee, is made under normal lending procedures, terms and
requirements.
II. The loan is immaterial to both the firm and the assurance client.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

38. A loan, or guarantee of a loan, from an assurance client that is a bank or a similar institution,
to a member of the assurance tear or his immediate family, would not create a threat to
independence provided the loan, or a guarantee, is
A. Immaterial to the member of the assurance team or his immediate family
B. Immaterial to the assurance client

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 C. Immaterial to both the member of the assurance team or his immediate family and the
assurance client
D. Made under normal lending procedure, terms and requirements

39. The following forms of assistance to a financial statement audit client do not generally
threaten the firm’s independence, except
A. Analyzing and accumulating information for regulatory reporting
B. Assisting in resolving account reconciliation problems
C. Authorizing or approving transactions
D. Assisting in the preparation of consolidated financial statements

40. 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.

41. This is 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.
A. Advertising
B. Publicity
C. Solicitation
D. Marketing professional services

42. This is the communication to the public of facts about a professional accountant which are
not designed for the deliberate promotion of that professional accountant
A. Advertising
B. Publicity
C. Solicitation
D. Marketing professional services

43. In which of the following situations would a CPA be in violation of the rules of professional
ethics in determining professional fees?
A. A fee based on appropriate rates per hour or per day for the time of each person engaged
in performing professional services
B. A fee which is lower compared to the fee charged in the prior year for similar services
C. A fee based on appropriate rates per hour, where the appropriate rate is based on the
fundamental premise that the organization and conduct of the CPA and the services
provided to clients are well planned, controlled and manage
D. A fee that is based on 10% of the client’s adjusted net income for the current year

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44. Professional fees should be a fair reflection of the value of the professional services performed
for the client, taking into account:
A. The skill and knowledge required for the type of professional services involved.
B. The level of training and experience of the persons necessarily engaged in performing the
professional services.
C. The time necessarily occupied by each person engaged in performing the professional
services and the degree of responsibility that performing those services entails
D. All of the above

45. Which of the following actions by a CPA in public practice will not result in violation of the Code
of Ethics regarding commissions?
A. Accepting commission for referring a client to a third party.
B. Accepting commission for the referral of the products or services of others.
C. Receipt of referral fees by the referring CPA when no services are performed by the
referring accountant.
D. Entering into an arrangement for the purchase of the whole or part of an accounting
practice requiring payments to individuals formerly engaged in the practice or payments
to their heirs or estates.

46. The rendering of two or more types of professional services concurrently:

A. Is a violation of the Code of Ethics.
B. Would impair integrity, objectivity or independence, or the good reputation of the
profession.
C. Does not itself impair integrity, objectivity or independence.
D. Is inconsistent with the practice of public accountancy.

47. Which fundamental principle may be threatened when the CPA in public practice is asked to
provide a second opinion on the application of accounting, auditing, reporting or other
standards or principle to specific circumstances or transactions by, or on behalf of a company
or entity that is not an existing client?
A. Integrity
B. Professional competence and due care
C. Confidentiality
D. Professional behavior

48. A client seeking a second opinion does not permit the CPA to communicate with the existing
accountant. In such cases, the CPA should:
A. Issue a disclaimer of opinion due to a significant client-imposed scope limitation
B. Consider whether, taking all the circumstances into account, it is appropriate to provide
the opinion sought
C. Consider whether to issue a qualified opinion or disclaimer of opinion due to significant
client-imposed scope limitation

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 D. Communicate the client’s refusal activity directly to the existing accountant

49. Which of the following statements is/are true?

Statement 1: The legal form of the relationship with the employing organization, if any, has no
bearing on the ethical responsibilities incumbent on the professional accountant in business
Statement 2: A professional accountant in business has a responsibility to further all the
business aims of their employing organization
A. Only statement 1 is correct
B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

50. A CPA in business should maintain information for which he/she is responsible in manner that:
A. Describes clearly the true nature of business transactions, assets or liabilities
B. Classifies and records information in a timely and proper manner
C. Represents the facts accurately and completely in all material respects
D. All of these

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