1.

According to the Philippine Code of Ethics, compliance with

fundamentals principles is potentially affected by self-interest, self-review,
advocacy, familiarity and intimidation threats. Which of the following best
described advocacy threat?
a. This occurs when a firm or a member of the assurance team,
promotes or may be perceived to promote, an assurance clients
position or opinion to the point that objectivity may, or maybe perceived
to be, compromised
b. This occurs when a firm or member of the assurance team could
benefit from financial interest in an assurance client
c. This occur when a member for an assurance team was previously a
director or officer of the assurance client
d. This occur when any product or judgment of a previous engagement
needs to be re-evaluated in reaching conclusions on the assurance
engagement

2. Which of the following circumstances would least likely create self-interest threat
a. Having a close personal relationship between a member of the
assurance team and the assurance client, its directors, officers or
employees
b. Contingent fees relating to assurance engagements
c. A loan or guarantee to or from an assurance client or any of its
directors or officers
d. A direct financial interest or material indirect financial interest in an
assurance client

3. Which of the following would most likely create a self-review threat

a. A former partner joins the assurance client
b. Financial interest in a client
c. Litigation involving professional accountant and a client
d. A former officer of a client is now a member of the assurance team

4. Which of the following would least likely create self-interest threat

a. Pressure to reduce inappropriately the extent of work performed in
order to reduce fees
b. Undue dependence on total fees from an assurance client
c. Having a close business relationship with an assurance client
d. Concern about the possibility of losing the engagement
5. Which of the following is an example of an intimidation threat that may affect the
independence of the professional accountant
a. A member of the assurance team having an immediate family
member or close family member who is a director or officer of the
assurance client
b. Preparation of original data used to generate financial statements or
preparation of other records that are the subject matter of the
assurance engagement
c. Dealing in, or being a promoter of, share or other securities in an
audit client
d. Threat of replacement over a disagreement with the application of an
accounting principle

6. Which of the following circumstances would least likely create familiarity threat
a. A former director or officer of the assurance client joins the
assurance team
b. A member of the assurance team having an immediate family
member or close family member who is a director or officer of the
assurance team
c. A former partner of the firm being a director, officer of the assurance
client or an employee in a position to exert direct and significant
influence over the subject matter of the assurance engagement
d. A member of the assurance team having an immediate family
member of close family member who as an employee of the assurance
client is in a position to exert direct and significant influence over the
subject matter of the assurance engagement

7. When threat to independence that are other than those clearly insignificant are
identified, the professional accountant should
a. Apply appropriate safeguards to eliminate threats to independence
or to reduce them to an acceptable level
b. Assigned more experienced staff to the assurance engagement
c. Continue the assurance engagement but with heightened level of
professional scepticism
d. Downgrade the nature of engagement to one that does not require
independence
8. Safeguards fall into two broad categories. Safeguards created by the profession,
legislation or regulation does not include
a. Documented policies regarding identification of threat to compliance
with fundamental principles
b. Corporate governance regulations
c. Educational, training and experience requirements for entry into the
profession
d. Continuing professional development requirements

9. The rotation of senior accounting personnel can be regarded as a safeguard

a. Created within business community c. In the work
environment
b. Created by the profession d. Within the client’s
system and procedures

10. Which of the following is not one of the safeguards in the work environment
a. Continuing professional education requirements
b. Using different partners and teams with separate reporting lines for
the provision of non-assurance services to an assurance client
c. Rotation of senior personnel
d. Documented internal policies and procedures requiring compliance
with the fundamental principles

11. Which of the following statements about CPAs financial interest in a client is
incorrect?
a. Material indirect financial interest impairs the CPAs independence
b. Immaterial indirect financial interest impairs the CPAs independence
c. Material direct financial interest impairs CPAs independence
d. Immaterial direct financial interest impairs the CPAs independence

12. 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. Consequently, the professional
accountant should apply appropriate safeguards in order to eliminate threat or
 reduce it to an acceptable level. Which of the following safeguards would not be
appropriate
a. Limit the participation of the member of the assurance team
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 prior to the individual
becoming member of the assurance team
d. 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.

13. Close family members do not include

a. Parents b. Siblings c. Non-dependent child
d. spouse

14. Which of the following activities would least likely impair the professional
accountant independence
a. Reporting, in a management role to those charged with governance
b. Serving as an officer or director of an audit client
c. Being an honorary member of an audit client
d. Determining which recommendation of the firm should be
implemented

15. The Philippine Code of Ethics requires that lead engagements partners of listed
entities be rotated at least once every
a. 2 years b. 3 years c. 5 years d. 7 years

16. Which of the following would least likely be considered violation of the
independence rules
a. Providing bookkeeping services to an audit client that is listed
b. Receiving a gift from an assurance client
c. Providing legal services to an assurance client in a legal dispute
d. Providing tax consultancy services to an assurance client

17. In determining estimates of fees, an auditor may take into account each of the
following, except
a. Attainment of specific findings
 b. Value of the service to the client
c. Degree of responsibility assumed by undertaking the engagement
d. Skills required to perform the service

18. The CPA should not undertake an engagement if his fee is to be based upon
a. A percentage of audited net income c. Per diem rates
plus expenses
b. The complexity of the service rendered d. The findings of a
tax authority

19. Which of the following will least likely impair independence

a. A partner or an employee of the firm receives a token gift from an
assurance client
b. An immediate family member of a member of the assurance team is
a director, an officer or an employee of the assurance client in a
position to exert direct and significant influence over the subject matter
of the assurance engagement
c. A partner or employee of the firm serves as an officer or as a director
on the board of an assurance client
d. A member of the assurance team participates in the assurance
engagement while knowing, or having reason to believe that he or she
is to , or may join the assurance client sometime in the future

20. In which of the following situations would a public accounting firm have violated the
Code of Ethics in determining fees
a. A fee based on the degree of responsibility that the service entails
b. A fee which is based upon the nature of the engagement rather than
upon the actual time spent on the engagement
c. A fee that will be established as a result of a bankruptcy proceedings
d. A fee based on whether or not the audit report leads to the approval
of client application for bank loan