CH13 CODE OF ETHICS AND REPUBLIC ACT 9298

b. A person who is expected to conduct himself or herself at a higher level than the requirements of society's laws or regulations.

1. 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 than 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

d. All CPAs in public practice, employed in private business and industry, in the government, and in education.

2. The code of professional ethics for CPAs promulgated by the Board of Accountancy applies to

a. All CPAs in public practice.

b. All CPAs in government.

c. All CPAs in public practice and employed in private business.

d. All CPAs in public practice, employed in private business and industry, in the government, and in education.

a. A distinguishing mark of a profession is its acceptance of responsibility to the public.

3. Which of the following statements best describes why the profession of certified public accountants 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 professionals responsibility to clients and colleagues.

c. A requirement of most 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.

a. The need for public confidence in the quality of service of the profession

4. The underlying reason for a code of professional conduct for any profession is

a. The need for public confidence in the quality of service of the profession

b. That it provides a safeguard to keep unscrupulous people out.

c. That it is required by federal legislation

d. That it allows licensing agencies to have a yardstick to measure deficient performance.

b. The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are those who rely on the financial statements.

5. Which of the following statements is true when the CPA has been engaged to perform an audit of financial statements?

a. The CPA firm is engaged and paid by the client; therefore, the firm has primary responsibility to be an advocate for the client.

b. The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are those who rely on the financial statements.

c. Should a situation arise where there is no convincing authoritative standard available, and there is a choice of actions which could impact a client's financial statements, the CPA is free to endorse the choice which is in the investors' interests.

d. The CPA firm's paramount concern should be the interest of the client.

d. A responsibility to protect exclusively the interest of a client or employer.

6. Which of the following is not one of the characteristics of a profession?

a. Mastery of a particular intellectual skill acquired by training and education

b. Adherence by its members to a common code of conduct

c. Acceptance of a duty to society as a whole.

d. A responsibility to protect exclusively the interest of a client or employer.

d. Confidence

7. In order to achieve the objectives of the accountancy profession, professional accountants have to observe a number of prerequisites or fundamental principles. The fundamental principles include the following, except

a. Objectivity

b. Professional Competence and due Care

c. Technical Standards

d. Confidence

b. To be fair, intellectually honest and free of conflict of interest.

8. The principle of professional competence and due care imposes certain obligations on professional accountants. Which of the following is not one of those obligations required by this principle?

a. To act diligently in accordance with applicable technical and professional standards.

b. To be fair, intellectually honest and free of conflict of interest.

c. To become aware and understand relevant technical, professional and business developments.

d. To obtain professional knowledge and experience to enable them to fulfill their responsibilities.

c. Warranting the infallibility of the work performed.

9. Competence as a certified public accountant 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.

b. Obtain knowledge of matters that relate to the nature of the entity's business

10. An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity should

a. Engage financial experts familiar with nature of the business entity

b. Obtain knowledge of matters that relate to the nature of the entity's business

c. Refer a substantial portion of the audit to another. CPA who will act as the principal auditor

d. First inform management that an unmodified opinion cannot be issued.

Attainment of professional competence: YES

Maintenance of professional competence: YES

11. Professional competence should include

Attainment of professional competence:

Maintenance of professional competence:

12. The phase of professional competence that requires a professional accountant to adopt a program designed to ensure quality control in the performance of professional services consistent with technical and professional standards is:

a. Attainment of professional competence

b. Maintenance of professional competence

c. Application of professional competence

d. Review of professional competence

13. 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.

14. The essence of the due care. principle is that the CPA should not be guilty of

a. Bias.

b. Errors in judgment.

c. Fraud

d. Negligence.

15. The principle of confidentiality applies to:

a. Professional accountants in public practice

b. Professional accountants in commerce and industry

c. Professional accountants in government

d. All professional accountants

16. The principle of confidentiality imposes an obligation on professional accountants to refrain from:

a. Disclosing confidential information to another party even if the client authorizes the disclosure.

b. Using confidential information acquired as a result of professional and business relationships to their personal advantage or the advantage of third parties.

c. Disclosing information to defend themselves in case of litigation

d. Responding to an inquiry or investigation conducted by the Professional Regulatory Board of Accountancy.

17. A CPA shall not disclose confidential information obtained during an audit engagement in which one of the following situations?

a. When the security of the state requires.

b. With the consent of the client.

c. In defense of himself when sued by his client.

d. To a successor auditor without the client's permission.

18. 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 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.

19. The confidential relationship will be violated if, without client's permission, the CPA provides working papers about a client to

a. A court of law which subpoenas them

b. Another CPA as part of PICPA's quality assurance review program

c. Another CPA firm which has just purchased the CPA's entire practice

d. An investigative or disciplinary body of the Board of Accountancy which is conducting a review of the CPA's practice.

20. Which one of the following statements is false?

a. Confidentiality is broken when an auditor is presented with a subpoena concerning an audit client.

b. Information that a CPA obtains from a client is generally not privileged.

c. When the Board of Accountancy conducts a review of the quality controls of another CPA firm, permission of the client is not needed to examine audit documentation.

d. A CPA firm which observes substandard audit documentation of another firm during a quality control review should immediately inform the firm being reviewed in order to rectify the deficiency.

21. Which of the following is considered a violation of rules on confidentiality?

a. The CPA discloses information to protect his own interest in the course of legal proceedings.

b. The CPA discloses information to a successor auditor after obtaining the client's permission.

c. The CPA discloses information to another CPA in compliance with a quality control review conducted by the Board of Accountancy.

d. The CPA divulges information disclosed to him by a prospective client.

22. 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.

23. In which of the following circumstances would a CPA be bound by ethics to refrain from disclosing any confidential information obtained during the course of a professional engagement?

a. The CPA is issued a summon enforceable by a court order which orders the CPA to present confidential information.

b. A major stockholder of a client company seeks accounting information from the CPA after the management declined to disclose the requested information.

c. Confidential client information is made available with the client's permission

d. An inquiry by the Professional Regulation Commission and the CPA needs the disclosure to defend himself

24. 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.

25. Identify the incorrect statement. "A professional accountant rendering tax service is entitled to put forward the best position in favor of a client or an employer, provided.

a. It does not impair the accountant's integrity and objectivity.

b. It is rendered with professional competence

c. It is consistent with the law.

d. The professional accountant assumes responsibility for the content of the tax return.

26. A professional accountant's name can be associated with information that:

a. Contains a misleading statement

b. Intentionally omits or obscures information.

c. Uses estimates.

d. Contains information without any real knowledge of whether they are true or false.

27. 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 professional accountant should apply

a. The ethical requirements of his or her home country

b. The ethical requirements of the country in which services are being performed.

c. The stricter of the two ethical requirements

d. The less strict ethical requirements

28. If the ethical requirements in the country in which a CPA firm practices are either more or less restrictive than the Philippine Code of Ethics, the CPA firm must follow

a. The Philippine Code of Ethics.

b. The ethical requirements of the country where the CPA practices

c. Whichever rules are less restrictive

d. Whichever rules are more restrictive

29. Which fundamental principle is seriously threatened by an engagement that is compensated based on the net proceeds on loans received by the client from a commercials bank?

a. Integrity.

b. Objectivity.

c. Confidentiality.

d. Professional behavior.

30. The Code of Professional Ethics states that a CPA should maintain integrity and objectivity. The term "objectivity" in the code refers to a CPA'S ability

a. To choose independently between alternate accounting

principles and auditing standards

b. To distinguish independently between accounting practices that are acceptable and those that are not.

c. To be unyielding in all matters dealing with auditing procedures

d. To maintain an impartial attitude on all matters that come under the CPA's review

31. One of the major differences between auditors and other professionals is that most professionals

a. Do not have to pass rigorous examination to be admitted in the profession.

b. Are not expected to act in the best interest of the public.

c. Need not be concerned about independence.

d. Do not need the confidence of the public.

32. Independence in auditing means

a. Not having any financial or economic relationship with the client.

b. Being an advocate of the assurance client.

c. Taking an unbiased viewpoint

d. Not having a loan to or from an assurance client.

33. Which of the following most accurately states how objectivity has been defined by the Code of Ethics?

a. Being honest and straight forward in all professional and business relationships.

b. A state of mind that permits the provision of an opinion without being affected by influences that compromise professional judgment.

c. A combination of impartiality, intellectual honesty and a freedom from conflict of interest.

d. Avoiding facts and circumstances that could reduce the public confidence in the professional accountant's report.

34. A CPA, while performing an audit, strives to achieve independence in appearance in order to

a. Reduce risk and liability

b. Become independent in mind.

c. Maintain public confidence in the profession.

d. Comply with the generally accepted standards of fieldwork

35. Holding a financial interest in an audit client may create a self-interest threat. The existence and significance of any threat created depends on:

a. The role of the person holding the financial interest,

b. Whether the financial interest is direct or indirect, and

c. The materiality of the financial interest

d. The type of opinion that the auditor expects to issue

36. The concept of materiality would be least important to an auditor in determining

a. Transactions that should be reviewed

b. The need for disclosing a particular transaction or event

c. The extent of audit work planned for particular account

d. The effect of an auditor's direct financial interest in a client

37. The primary factor that distinguishes a direct from an indirect financial interest is the

a. Materiality of the amount involve

b. Control over investment decisions

c. Risk associated with such investment

d. Relationship between the investor and investee.

38. Ultimately, the decision as to whether the CPA is independent or not, will be made by the

a. Client

b. Audit committee

c. Public

d. Auditor

39. The Philippine Code of Ethics for professional accountants requires independence

In appearance:

Of mind:

40. Independence is required whenever a professional accountant performs

a. Professional services.

b. Assurance services

c. Non-assurance services

d. Tax consultancy services

41. Not all engagements performed by professional accountants are assurance engagements. Other engagements frequently performed by professional accountants that are not assurance engagements include the following, except

a. Agreed-upon procedures

b. Compilation of financial or other information

c. Management consulting

d. Examination of prospective financial information

42. According to the principles of the Code of Ethics

a. All professional CPAs should maintain independence

b. All professional CPAs public practice should maintain independence

c. All professional CPAs in public practice should maintain

independence when providing assurance services

d. All professional CPAs in public practice should maintain independence when providing auditing, tax, and advisory services

43. It refers to the avoidance of facts and circumstances that are so significant that a reasonable and informed third party, having knowledge of all relevant information, including safeguards applied, would reasonably conclude a firm's or a member of the assurance team's integrity, objectivity or professional skepticism had been compromised.

a. Independence in fact

b. Independence in appearance

c. Independence of mind

d. Inherent independence

44. When CPAs are able to maintain their actual independence, it is referred to as independence in:

a. Conduct.

b. Appearance.

c. Fact.

d. Total.

45. If requested to perform a review engagement for a nonpublic entity in which an accountant has an immaterial direct financial interest, the accountant is

a. Independent and, therefore, may issue a review report.

b. Not independent and, therefore, may not issue a review report.

c. Not independent and, therefore, may issue a review report

d. Not independent and, therefore, inay not be associated with the financial statements.

46. The network firms are required to be independent of the client

a. For assurance engagements provided to an audit client

b. For assurance engagements provided to clients that are not audit clients, when the report is not expressly restricted for use by identified users

c. For assurance engagements provided to clients that are not audit clients, when the assurance report is expressly restricted for use by identified users

d. For non-assurance engagements

47. Which of the following should be independent of the financial statement audit client?

The members of the assurance team:

The firm:

Network firms:

48. For assurance engagements provided to clients that are not audit clients, when the assurance report is expressly restricted for use by identified users, the following should be independent of the client:

The members of the assurance team:

The firm:

Network firms:

49. Which of the following statements is not correct about independence requirements?

a. For assurance engagements provided to audit client, the members of the assurance team, the firm and network firms are required to be independent of the client.

b. For assurance engagements provided to non-audit clients, the members of the assurance team and the firm are required to be independent of the client.

c. For assurance engagements provided to non-audit clients, where the distribution of the assurance report is limited only to specified users, the members of the assurance team are required to be independent of the client.

d. For assurance engagements (provided to non-audit clients, where the distribution of the assurance report is limited only to specified users, the firm should independent of the client.

50. Which of the following professional services does not require independence?

a. Direct reporting engagements

b. Examination of financial forecast

c. Tax consultancy services

d. Assertion-based engagements

51. For which of the following professional services must CPAs be independent?

a. Management advisory services.

b. Audits of financial statements.

c. Preparation of tax returns.

d. All three of the above.

52. A CPA firm should decline an offer to perform consulting services engagement if

a. The proposed engagement is not accounting-related.

b. Recommendations made by the CPA firm are to be subject to review by the client.

c. Acceptance would require the CPA firm to make management decisions for an assurance client.

d. Any of the above is true.

53. The members of the assurance team and the firm should be independent of the assurance client during the period of the assurance engagement. For this purpose, the period of the engagement:

a. Starts when the assurance team begins to perform assurance services and ends when the assurance report is issued.

b. Starts when the assurance team begins to perform assurance services and ends when the fieldwork is completed.

c. Starts when the engagement letter is prepared and ends when the fieldwork is completed.

d. Starts when the engagement letter is prepared and ends when the assurance report is issued.

54. This occurs as a result of the financial or other interests of a professional accountant or of an immediate or close family member.

a. Self-interest threat

b. Self-review threat

c. Advocacy threat

d. Familiarity threat

55. This occurs when, because of a close relationship, a professional accountant becomes too sympathetic to the interests of others.

a. Self-interest threat

b. Self-review threat

c. Advocacy threat

d. Familiarity threat

56. According to the Code of Ethics, compliance with fundamental principles is potentially affected by self-interest, self-review, advocacy, familiarity and intimidation threats. Which of the following best describes "advocacy threat"?

a. This occurs when a firm or a member of the assurance team could benefit from financial interest in an assurance client.

b. This occurs when any product or judgment of a previous

engagement needs to be re-evaluated in reaching conclusions on the assurance engagement

c. This occurs when a member of assurance team was previously a director or officer of the assurance client.

d. This 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.

57. This occurs when any product or judgment of a previous assurance engagement or non-assurance engagement needs to be revaluated in reaching conclusions on the assurance engagement or 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 if the assurance engagement.

a. Self-interest threat

b. Self-review threat

c. Advocacy threat

d. Familiarity threat

58. This threat occurs when a member of the assurance team may be deterred from acting objectively and exercising professional skepticism by threats, actual or perceived, from the directors, officers or employees of an assurance client.

a. Intimidation threat

b. Familiarity threat

c. Advocacy threat

d. Self-interest threat

59. Which of the following circumstances would least likely create self-interest threat?

a. Contingent fees relating to assurance engagements

b. A direct financial interest or material indirect financial interest in an assurance client

c. A loan or guarantee to or from an assurance client or any of its directors or officers

d. Having a close personal relationship between a member of the assurance team and the assurance client, its directors, officers or employees.

60. Which of the following would least likely create "self-interest threat"?

a. Undue dependence on total fees from an assurance client

b. Concern about the possibility of losing the engagement

c. Having a close business relationships with an assurance client

d. Pressure to reduce inappropriately the extent of work performed in order to reduce fees

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

a. Financial interest in a client

b. Litigation involving professional accountant and a client

c. A former partner joins the assurance client

d. A former officer of a client is now a member of the assurance team

62. Examples of circumstances that may create self-review threat do not include

a. Preparation of original data used to generate financial

statements or preparation of other records that are the subject matter of the assurance engagement.

b. A member of the assurance team being, or having recently been, an employee of the assurance client in a position to exert direct and significant influence over the subject matter of the assurance engagement.

c. Performing services for an assurance client that directly affect the subject matter of the assurance engagement.

d. Potential employment with an assurance client.

63. Which of the following is an example of an intimidation threat that may affect the independence of the professional accountant?

a. Preparation of original data used to generate financial statements or preparation of other records that are the subject matter of the assurance engagement.

b. Threat of replacement over disagreement in the application of an accounting principle.

c. Dealing in, or being a promoter of, share or other securities in an audit client.

d. 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.

64. Acting for an audit client in the resolution of a dispute or litigation would most likely create

a. Self-interest threat

b. Intimidation threat

c. Advocacy threat

d. Familiarity threat

65. The preparation of accounting records or financial statements for an audit client will most likely create.

a. Self-interest threat

b. Self-review threat

c. Intimidation threat

d. Familiarity threat

66. Using the same senior personnel on an assurance engagement over a long period of time would most likely create

a. Intimidation threat

b. Advocacy threat

c. Familiarity threat

d. Self-interest threat

67. Accepting gifts or undue hospitality from an assurance client would most likely create

a. Familiarity threat

b. Self-review threat

c. Advocacy threat

d. Intimidation threat

68. Which of the following circumstances would least likely create familiarity threat?

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 team.

b. 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 apposition to exert direct and significant influence over the subject matter of the assurance engagement.

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 former director or officer of the assurance client joins the assurance team.

69. When the total fees generated by an assurance client represent a large proportion of a firm's total fees, the dependence on that client or client group and concern about the possibility of losing the client will most likely create:

a. Self-interest threat

b. Self-review threat

c. Intimidation threat

d. Familiarity threat

70. 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

b. Self-review threat

c. Intimidation threat

d. Familiarity threat

71. When threats to compliance with the fundamental principles that are other than those clearly insignificant are identified, the professional accountant should

a. Continue the engagement but with heightened level of professional skepticism

b. Downgrade the nature of engagement to one that does not require compliance with the fundamental principles

c. Assign more experienced staff to the engagement.

d. Apply appropriate safeguards to eliminate threats t or to reduce them to an acceptable level.

72. Safeguards fall into two broad categories. Safeguards created by the profession, legislation or regulation does not include

a. Educational, training and experience requirements for entry into the profession.

b. Continuing professional development requirements.

c. Corporate governance regulations.

d. Documented policies regarding identification of threats to compliance with the fundamental principles.

73. When the safeguards available are insufficient to eliminate the threats to independence or to reduce them to an acceptable level, or when a firm chooses not to eliminate the activities or interest creating the threat, the

only course of action available will be the

a. Issuance of an adverse opinion.

b. Issuance of qualified opinion or disclaimer of opinion.

c. Issuance of unmodified opinion with explanatory paragraph.

d. Refusal to perform, or withdrawal from, the assurance engagement.

74. Firm-wide safeguards in the work environment may include:

a. Leadership of the firm that stresses the importance of compliance with the fundamental principles.

b. Having appropriate body independent of management appoint the external auditor.

c. The creation of a corporate governance structure that provides appropriate oversight and communications regarding the firm's services.

d. Professional standards

75. Safeguards within the client's systems and procedures may include:

a. Involving another firm to perform or re-perform part of the assurance engagement.

b. Discussing independence issues with the audit committee or others charged with governance.

c. Policies and procedures to emphasize the assurance client's commitment to fair financial reporting.

d. Involving an additional professional accountant to review the work done or otherwise advise as necessary.

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

a. Created by the profession

b. Created within the client's systems and procedures

c. Created in the work environment

d. Created within the business community

77. Which of the following is not one of the safeguards in the work environment?

a. Using different partners and teams with separate reporting lines for the provision of non-assurance services to an assurance client.

b. Rotation of senior personnel

c. Documented internal policies and procedures requiring compliance with the fundamental principles.

d. Continuing professional education requirements

78. Which of the following statements about CPA's financial interest in a client is incorrect?

a. Immaterial indirect financial interest impairs the CPA's

independence

b. Immaterial direct financial interest impairs the CPA's independence

c. Material direct financial interest impairs the CPA's independence.

d. Material indirect financial interest impairs the CPA's independence.

79. Which of the following safeguards could address the threat created by a material direct financial interest in an assurance client?

Disposal of financial interest in total:

Disposal of sufficient amount of financial interest to make it immaterial:

Removing the member of the assurance team from the assurance client:

80. If a firm, or a network firm, has a material direct financial interest in an audit client of the firm, the self-interest threat created would be so significant no safeguards could reduce the threat to an acceptable level. The action appropriate to permit the firm to perform the engagement would be to.

a. Dispose of the financial interest

b. Dispose of a sufficient amount of it so that the remaining interest is no longer material

c. Either a or b

d. Neither a nor b

81. 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 the threat or reduce it to an acceptable level. Which of the following safeguards would not be appropriate?

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.

82. Close business relationships can be regarded as an indirect financial interest and therefore would impair the professional accountant's independence unless

a. The amount is immaterial

b. The relationship is insignificant

c. Both a and b

d. Neither a nor b

83. Close family members do not include:

a. Parents

b. Siblings

c. Non-dependent child

d. Spouse

84. Immediate family members include

a. Parent

b. Siblings

c. Non-dependent child

d. Spouse

85. Which of the following is required for loans not to impair the independence of the professional accountant?

The loan must not be material:

The loan must be obtained under normal lending procedures, terms and requirements:

The client must be a financial institution:

86. The following loans and guarantees will not impair 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 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, provided the loan is immaterial to both the firm and assurance client.

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. A loan to an assurance client that is not a bank or similar institution.

87 . An auditor's independence is considered impaired if the auditor has:

a. An immaterial, indirect financial interest in a client.

b. An outstanding balance on a credit card issued by a client.

c. An automobile loan from a client bank, collateralized by the automobile.

d. A joint, closely held business investment with the client that is material to the auditor's net worth.

88. A self-interest threat may be created, if fees due from an assurance client for professional services remain unpaid for a long time. Hence, professional fees for prior year's engagements must be paid before

a. The client engages the services of the professional accountant to audit the current year's financial statements.

b. The professional accountant formulates an opinion on the current year's financial statements.

c. The audit report on the current year's financial statements is issued.

d. The commencement of the current year's audit engagement.

89. A CPA is allowed to accept referral fee for recommending a client to another CPA if

a. The client approves of the transaction either before or after the event

b. The client pre-approves the transaction

c. Payment of the referral fee is disclosed to the client

d. None of the above are true. Referrals are never acceptable.

90. An auditor would be considered independent in which of the following instances?

a. The auditor's checking account is held at a client financial institution.

b. The auditor is also an attorney who acts as the client's general counsel.

c. An employee of the auditor donates service as treasurer of a charitable organization that is a client.

d. The client owes the auditor fees for two consecutive annual audits.

91. Which of the following activities would least likely impair the professional accountant's independence?

a. Serving as an officer or director of an audit client.

b. Determining which recommendation of the firm should be implemented

c. Being an honorary board member of an audit client.

d. Reporting, in a management role, to those charged with governance.

92. Which of the following would least likely be considered a violation of the independence?

a. Receiving a gift from an assurance client.

b. Providing tas preparation services

c. Providing legal services to an assurance client in legal dispute.

d. Providing bookkeeping services to an audit client that is listed in the stock exchange.

93. The Code of Ethics requires a cooling off period of how long before a member of an audit team can work for a client in a key management position?

A. One year

B. Two years

C. Three years

D. It is not specified, rather it is left to the individual auditor's discretion.

94. An engagement partner who is rotated in the audit of financial statements of listed entity can only participate in the audit engagement for the same client after a period of

a. Two years

b. Three years

c. Five years

d. Twelve months

95. A CPA firm should decline an offer to perform management advisory services engagement for a nonpublic company if

a. The CPA firm audits the financial statements of a subsidiary of the prospective client.

b. Recommendations made by the CPA firm are to be subject to review by the client.

c. Acceptance would require the CPA firm to make management decisions for an audit client.

d. The proposed engagement is not accounting-related

96. Which of the following will not normally impair the auditor's independence?

a. 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.

b. 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 some time in the future.

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 partner or an employee of the firm receives a token gift from an assurance client.

97. A member in public practice may not perform for a contingent fee any professional services for a client for whom the 'member or member's firm performs.

a. An audit

b. A review

c. Either an audit or review

d. Any service regardless of the specific nature of the service.

98. Contingent fee pricing of public accounting services is:

a. Never restricted in public accounting practice.

b. Considered an act discreditable to the profession.

c. Always strictly prohibited in public accounting practice.

d. Prohibited for clients for whom assurance services are provided.

99. In determining estimates of fees, an auditor may take into account each of the following, except the

a. Value of the service to the client

b. Degree of responsibility assumed by undertaking the engagement

c. Skills required to perform the service

d. Attainment of specific find

100. An auditor should not undertake an engagement if his fee is to be based upon

a. A percentage of audited net income

b. Per diem rates plus expenses

c. A fixed amount

d. The complexity of the service rendered