ILLUSTRATIVE QUIZZERS : CODE OF ETHICS

1. 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.

2. The following are the attributes of a profession. Which is not?

A. Systematic body of theory and professional authority
B. Regulative code and culture
C. Maintenance of high integrity and infallible performance
D. Community sanction

3. Society has attached a special meaning to the term “professional”. A professional is

A. someone who has passed a qualifying exam to enter the job market
B. a person who is expected to conduct himself or herself at a higher level that the
requirements of society’s laws or regulations
C. any person who receives pay for the services performed
D. someone who has both an education in the trade and on-the-job experience
received under an experienced supervisor

4. Which statement is incorrect regarding the 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 national statutory requirement is in conflict with a provision of
the IFAC Code, the IFAC Code requirement prevails.
C. The IFAC Code of Ethics for Professional Accountants is composed of four parts.
D. Professional accountants should consider the ethical requirements as the basic
principles which they should follow in performing their work.

5. When a professional accountant performs services in a country other than the home country
and differences on specific matters exist between ethical requirements of the two countries,
the following provisions should be applied
A. When the ethical requirements of the country in which the services are being performed
are less strict than the Code of Ethics of the Philippines, then the Code of Ethics of the
Philippines should be applied.
B. When the ethical requirements of the country in which services are being performed are
stricter than the Code of Ethics of the Philippines, then the ethical requirements in the
country where services are being performed should be applied.
C. When the ethical requirements of the home country are mandatory for services
performed outside that country and are stricter, then the ethical requirements of the
home country should be applied.
D. Any of the above.

6. The principle of professional behavior requires a professional accountant to

A. Be straightforward and honest in performing professional services.
B. Be fair and should not allow prejudice or bias, conflict of interest or influence of others to
override objectivity.
C. Perform professional services with due care, competence and diligence.
D. Act in a manner consistent with the good reputation of the profession and
refrain from any conduct which might bring discredit to the profession.
7. 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.

8. 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.

9. 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 services.
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 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.

10. If an audit firm discovers threats to independence with respect to an audit engagement,
the code indicates that the firm should
A. Immediately resign from the engagement.
B. Notify the appropriate regulatory body.
C. Document the issue.
D. Evaluate the significance of the threats and apply appropriate safeguards to reduce
them to an acceptable level.

11. Circumstances that threaten the ability of a professional accountant in business to perform
duties with the appropriate degree of professional competence and due care include the
following, except:
A. Insufficient time for properly performing or completing the relevant duties
B. Incomplete, restricted or otherwise inadequate information for performing the duties properly
C. Sufficient experience, training and/or education
D. Inadequate resources for the proper performance of the duties

12. Which statement is incorrect regarding employed professional accountants?

A. Employed professional accountants owe a duty of loyalty to their employer as well
as to the profession; therefore there may be no time that the two will be in conflict.
B. A professional accountant, particularly one having authority over others, should give due
weight for the need for them to develop and hold their own judgment in accounting
matters and should deal with difference of opinion in a professional way.
C. When undertaking significant tasks for which a professional accountant has not had
sufficient specific training or experience, he or she should not mislead the employer as
to the degree of expertise or experience he or she possesses, and where appropriate,
 expert advice and assistance should be sought.
D. A professional accountant is expected to present financial information fully, honestly
and professionally and so that it will be understood in its context.

13. The following statements pertain to provisions of Part 2 of the IFAC Code of Ethics for
professional accountants. Which is incorrect?
A. A professional accountant shall not allow a conflict of interest to compromise professional or
business judgment.
B. When the professional accountant knows or has reason to believe that the information
with which the accountant is associated is misleading, the accountant shall take
appropriate actions to seek to resolve the matter.
C. Acting without sufficient expertise creates a self-review threat to compliance with
the principle of professional competence and due care.
D. A professional accountant shall not offer, or encourage others to offer, any inducement
that is made, or which the accountant considers a reasonable and informed third party
would be likely to conclude is made, with the intent to improperly influence the behavior
of the recipient or of another individual.

14. With regard to marketing professional services, the code indicates that
A. Direct marketing is prohibited.
B. Marketing is allowed if lawful.
C. Marketing should be honest and truthful.
D. Marketing of audit services is prohibited.

15. Which of the following is a “self-review” threat to member independence?

A. An engagement team member has a spouse that serves as CFO of the attest client.
B. A second partner review is required on all attest engagements.
C. An engagement team member prepares invoices for the attest client.
D. An engagement team member has a direct financial interest in the attest client.

16. According to the standards of the profession, which of the following circumstances will
prevent a CPA performing audit engagements from being independent?
A. Obtaining a collateralized automobile loan from a financial institution client.
B. Litigation with a client relating to billing for consulting services for which the amount is
immaterial.
C. Employment of the CPA’s spouse as a client’s director of internal audit.
D. Acting as an honorary trustee for a not-for-profit organization client.

17. A client company has not paid its 2020 audit fees. According to the Code of Professional
Conduct, for the auditor to be considered independent with respect to the 2021 audit, the
2020 audit fees must be paid before the
A. 2020 report is issued
B. 2021 report is issued
C. 2021 field work is started
D. 2022 field work is started

18. Which of the following is an example of a safeguard implemented by the client that
might mitigate a threat to independence?
A. Required continuing education for all attest engagement team members.
B. Required second partner review of an attest engagement.
C. An effective corporate governance structure.
D. Management selection of the CPA firm.

19. May a CPA hire for the CPA’s public accounting firm a non-CPA systems analyst
who specializes in developing computer systems?
A. Yes, provided the CPA is qualified to perform each of the specialist’s tasks.
 B. Yes, provided the CPA is able to supervise the specialist and evaluate the specialist’s
end product.
C. No, because non-CPA professionals are not permitted to be associated with CPA firms in public
practice.
No, because developing computer systems is not recognized as a service performed by public
accountants.

20. According to the ethical standards of the profession, which of the following acts is generally
prohibited?
A. Issuing a modified report explaining a failure to follow a governmental regulatory
agency’s standards when conducting an attest service for a client.
B. Revealing confidential client information during a quality review of a professional
practice by a team from the Board of Accountancy (BOA).
C. Accepting a contingent fee for representing a client in an examination of the client’s
tax return by the Bureau of Internal Revenue (BIR).
D. Retaining client records after an engagement is terminated prior to completion
and the client has demanded their return.

21. Which statement is incorrect regarding professional fees?

A. Professional fees should normally be computed on the basis of appropriate rates
per hour or per day for the time of each person engaged in performing professional
services.
B. The appropriate rates should be based on the fundamental premise that the
organization and conduct of the professional accountant in public practice and the
services provided to clients are well planned, controlled and managed.
C. It is for each professional accountant in public practice to determine the appropriate rates.
D. It is not proper for a professional accountant in public practice to charge a
client a lower fee than has previously been charged for similar services

22. According to the ethical standards of the profession, which of the following acts is generally
prohibited?
A. Purchasing a product from a third party and reselling it to a client.
B. Writing a financial management newsletter promoted and sold by a publishing company.
C. Accepting a commission for recommending a product to an audit client.
D. Accepting engagements obtained through the efforts of third parties.

23. 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
B. Intimidation threat
C. Advocacy threat
D. Familiarity threat

24. 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 a professional accountant who took part in the assurance engagement
to 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.

25. When a professional accountant learns of a material error or omission in a tax return of a
prior year, or of the failure to file a required tax return, the professional accountant has a
responsibility to do the following, except
A. Promptly advise the client or employer of the error or omission and
recommend that disclosure be made to the revenue authorities.
B. Immediately inform the revenue authorities.
C. Take reasonable steps to ensure that the error is not repeated in subsequent tax
returns if the professional accountant concludes that a professional relationship with the
client or employer can be continued.
D. Inform the client or the employer that it is not possible to act for them in
connection with that return or other related information submitted to the authorities if the
client or the employer does not correct the error.

26. Which of the following is incorrect regarding independence?

A. Independence consists of independence of mind and independence in appearance.
B. Independence of mind 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 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.

27. 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 compliance with fundamental principles may be created by previous services
provided to the audit client.

28. According to Code of Ethics, audit teams are required to be independent of the audit
client during the engagement period and during which other period?
A. The fiscal year following the period covered by the financial statements.
B. The period covered by the financial statements.
C. The calendar years that includes any part of the period covered by the financial statements.
D. The two years prior to the period covered by the financial statements.

29. On June 1, 2020, a CPA obtained a personal loan from a financial institution client for whom
the CPA provided compilation services. The loan was fully secured and considered material to
the CPA’s net worth. The CPA paid the loan in full on December 31, 2021. On April 3, 2021, the
client asked the CPA to audit the client’s financial statements for the year ended December 31,
2021. Is the CPA considered independent with respect to the audit of the client’s December 31,
2021 financial statements?
A. Yes, because the loan was fully secured.
B. Yes, because the CPA was not required to be independent at the time the loan was
granted.
 C. No, because the CPA had a loan with the client during the period of a professional engagement.
D. No, because the CPA had a loan with the client during the period covered by the financial
statements.

30. Long association may create familiarity and self-interest threats. An example of an
action that might eliminate the familiarity and self-interest threats created by an individual
being involved in an audit engagement over a long period of time would be rotating the
individual off the audit team. Which of the following is incorrect regarding the rules on
rotation according to IFAC Code of Ethics for Professional Accountant?
A. For entities not publicly traded, the firm shall determine an appropriate period to address
possible threats.
B. For public interest entity, when the individual acted as the engagement partner for seven
cumulative years, the cooling-off period shall be five consecutive years.
C For public interest entity, when the individual acted in a combination of key audit partner
roles and served as the engagement partner for four or more cumulative years, the
cooling-off period shall be five consecutive years.
D. For public interest entity, where the individual has been appointed as responsible for the engagement
quality control review and has acted in that capacity for seven cumulative years, the cooling-off period
shall be two consecutive years.