FAR EASTERN UNIVERSITY

INSTITUTE OF ACCOUNTS, BUSINESS AND FINANCE

ASSURANCE PRINCIPLES, PROFESSIONAL ETHICS AND GOOD GOVERNANCE PRELIMINARY EXAMINATION

Multiple Choice

1)The single feature that most clearly distinguishes auditing, attestation, and assurance is

1. 1. Type of service.
   2. Training required to perform the service.
   3. Scope of services.
   4. CPA’s approach to the service.

2. Internal auditing often extends beyond examinations leading to the expression of an opinion on the fairness of financial presentation and includes audits of efficiency, effectiveness, and
   1. Internal control.
   2. Evaluation.
   3. Accuracy.
   4. Compliance.

3. To maximize independence, the director of internal auditing should report to the
   1. Audit committee.
   2. Controller.
   3. Chief financial officer.
   4. Director of information systems.

4. Which of the following statements is not true regarding the appropriateness of audit evidence?
   1. Relevance is enhanced by an effective information system.
   2. To be appropriate, evidence must be both valid and relevant.
   3. Validity is related to the quality of the client’s information system.
   4. Relevance must always relate to audit objectives.

5. Which of the following best describes “high level of assurance”?
   1. It refers to the professional accountant having obtained evidence based on procedures agreed upon between the practitioner and the intended users to be satisfied that findings be reported to the intended users.
   2. It refers to the professional accountant having obtained sufficient external and internal appropriate evidence to be satisfied that the subject matter is plausible in the circumstances.
   3. It refers to the professional accountant having obtained sufficient appropriate evidence to conclude that the subject matter conforms in all material respects with identified suitable criteria.
   4. It refers to the professional accountant having obtained sufficient evidence to conclude that he has no knowledge of any required modifications to be made in the financial statements in order for them to conform of prescribed criteria.

6. Operational auditing is mainly concerned about:
   1. Past protection provided by current internal control
   2. Future improvements for management goals
   3. Verification of fair presentation of financial data
   4. Accuracy of data of financial records.

7. Governmental effectiveness (program) auditing seeks to determine whether the desired results are being achieved and objectives are being met. The first step in the performance of such an audit would be:
   1. Identify the legislative intent of the program being audited
   2. Evaluate the system used to measure results.
   3. Determine the sampling frame to use in studying the system.
   4. Collect and analyze quantifiable data.

8. An independent audit
   1. Supports an internal audit.
   2. Negates an internal audit.
   3. Duplicates an internal audit.
   4. Complements an internal audit.

9. A report, separate from the financial statements, in which an entity provides third parties with qualitative information on the entity's commitments towards the environmental aspects of the business, its policies and targets in that field, its achievement in

managing the relationship between its business processes and environmental risk, and quantitative information on its environmental performance.

1. 1. Environmental performance report
   2. Annual report
   3. Environmental risk
   4. Special purpose audit report

10. Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements?
    1. It is difficult to prepare financial statements that fairly present a company’s financial position and changes in financial position and operations without the expertise of an independent auditor.
    2. It is management’s responsibility to make available independent aid in the preparation of the financial information shown in

the financial statements.

1. 3. The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.
   4. It is a customary courtesy that shareholders of a company receive an independent report on management’s status in

managing the affairs of the business.

11. A pervasive characteristic of a CPA’s role in a Management Consulting Services engagement is that of being a(n)
    1. Objective advisor.
    2. Computer specialist.
    3. Independent practitioner.
    4. Confidential reviewer.

12. An audit of financial statements is conducted in order to determine if the
    1. organization is operating efficiently and effectively.
    2. auditee is following specific procedures or rules set down by some higher authority.
    3. overall financial statements are stated in accordance with specified criteria.
    4. client entity prescribes a good internal control system

13. Which of the following statements does not describe a condition that creates a demand for auditing?
    1. Conflict between an information provider and a user can result in biased information.
    2. Information can have substantial economic consequences for a decision maker.
    3. Expertise is often required for information preparation and verification.
    4. Users can directly assess the quality of information.

14. Why does a company choose to have an independent auditor report on its financial statements?
    1. Independent auditors will always detect management fraud.
    2. The company’s management preparing the statements may have a vested interest in reporting certain results.
    3. Independent auditors guarantee the accuracy of the financial statements.
    4. An independent audit is designed to search for deficiencies in the company's internal controls.

15. Which of the following criteria is unique to the independent auditor’s attest function?
    1. general competence.
    2. familiarity with the particular industry in which each client operates.
    3. due professional care.
    4. independence.

16. Which of the following is responsible for an entity's financial statements?
    1. The entity's management.
    2. The entity's audit committee.
    3. The entity's internal auditors.
    4. The entity's board of directors.

17. A typical objective of an operational audit is for the auditor to
    1. determine whether the financial statements fairly present the client entity’s operations.
    2. evaluate the feasibility of attaining the client entity’s operational objectives.
    3. make recommendations to client for improving its performance.
    4. report on the entity’s relative success in maximizing its profits.

18. Which of the following types of audit uses laws and regulations as its criteria?
    1. Operational audit
    2. Financial statement audit
    3. Compliance audit
    4. Financial audit

19. Which of the following types of auditing is performed most commonly by CPAs on a contractual basis?
    1. Internal auditing
    2. Government auditing

1. 3. BSP bank audit
   4. External auditing

20. A CPA certificate is an evidence of
    1. recognition of independence.
    2. basic competence at the time the certificate is granted.
    3. culmination of the education process.
    4. membership in the PICPA.

21. A summary of findings rather than assurance is most likely to be issued on which engagement?
    1. Agreed-upon procedures
    2. Compilation
    3. Examination
    4. Review

22. Which of the following professional has primary responsibility for the performance of an audit?
    1. The managing partner of the firm
    2. The senior assigned to the engagement
    3. The manager assigned to the engagement
    4. The partner in charge of the engagement

23. Which of the following services provides the highest level of assurance to third parties about a company’s financial statements?
    1. Audit.
    2. Review.
    3. Compilation.
    4. Each of the above provides the same level of assurance.

24. The most common type of audit report contains a(n):
    1. adverse opinion.
    2. disclaimer of opinion.
    3. qualified opinion.
    4. unqualified opinion.

25. Because the client company pays the external auditor a professional fee, he
    1. is absolutely independent and may conduct an audit.
    2. may be sufficiently independent to conduct an audit.
    3. is never considered to be independent.
    4. must receive approval of the Securities and Exchange Commission before conducting an audit.

26. Assurance services involve which of the following?
    1. Relevance as well as reliability.
    2. Non-financial information as well as traditional financial statements.
    3. Electronic databases as well as printed reports.
    4. All of these.

27. The audit committee of the board of directors of a company is responsible for:
    1. hiring the auditor.
    2. preparing the financial statements.
    3. the audit workpapers.
    4. independence and obtaining evidence.

28. The review of a company’s financial statements by a CPA firm
    1. Is substantially less in scope of procedures than an audit
    2. Requires detailed analysis of the major accounts
    3. Has similar scope as an audit and adds similar credibility to the statements
    4. Culminates in issuance of a report expressing the CPA’s opinion as to the fairness of the statements

29. An operational audit differs in many ways from an audit of financial statements. Which of the following is the best example of these differences?
    1. The usual audit of financial statement covers the four basic financial statements whereas the operational audit is usually limited either the balance sheet or the income statement.
    2. The boundaries of an operation audit are often drawn from an organization chart and are not limited to a single accounting period.
    3. Operation audits do not ordinarily result in the preparation of a report.
    4. The operational audit deals with operating profit while financial audit considers both the operating and net profits.

30. The audit of historical financial statements should be conducted by the CPA professionals in accordance with
    1. Philippine Financial Reporting Standards.
    2. Philippine Standards on Auditing.

1. 3. the auditor’s judgment.
   4. the audit program.

31. It has the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the government, or any of its subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations and recommend measures to improve the efficiency and effectiveness of government operations
    1. The House of Representatives
    2. Securities and Exchange Commission
    3. Bangko Sentral ng Pilipinas
    4. Commission on Audit

32. The COA is composed of a chairman and two (2) commissioners called the Commission Proper.

The chairman of the COA and the two (2) commissioners shall be appointed by the President of the Philippines with consent of the Commission on Appointments for a term of seven (7) years without reappointment.

1. 1. Only Statement 1 is correct
   2. Only Statement 2 is correct
   3. Both statements are correct
   4. Both statements are incorrect

33. The chairman of the COA and the two (2) commissioners shall be natural-born citizens of the Philippines and, at the time of their appointment, at least thirty-five years of age, with not less than ten years of auditing experience, or members of the Philippine Bar who have been engaged in the practice of law for at least ten years, and must not have been candidates for any elective position in the elections immediately preceding their appointment.

At no time shall all Members of the Commission belong to the same profession.

1. 1. Only Statement 1 is correct
   2. Only Statement 2 is correct
   3. Both statements are correct
   4. Both statements are incorrect

34. The objectives of the Philippine Accountancy Act of 2004 are the following except:
    1. The standardization and regulation of accounting education.
    2. Examination for registration of certified public accountants.
    3. Supervision, control, and regulation of the practice of accountancy.
    4. Integration of accountancy profession.

35. A document under seal issued to an individual by the Professional Regulation Commission signifying that he has complied with all the legal and procedural requirements for such issuance including the passing of the licensure examination for Certified Public Accountants.
    1. Certificate of Accreditation
    2. Professional Identification Card
    3. Certificate of Registration
    4. Professional Seal

36. The following is deemed a practice of accountancy, except:
    1. Appointment to a position in the government that requires a CPA license as a prerequisite.
    2. Employment as budget officer in a local government unit regardless of the officer being a holder of a CPA license or not.
    3. Teaching professional subjects in a collegiate program leading to the degree of Bachelor of Science in Accountancy.
    4. Representing his clients before government agencies on tax and other matters related to accounting.

37. The following statements relate to RA 9298. Which statement is true?
    1. The Professional Regulation Commission has the authority to remove any member of the Board of Accountancy for negligence, incompetence, or any other just cause.
    2. Insanity is not a ground for proceeding against a CPA.
    3. A person shall be considered to be in the professional practice of accounting if, as an officer in a private enterprise, he makes decisions requiring professional accounting knowledge.
    4. After three years, subject to certain conditions, the Board of Accountancy may order the reinstatement of a CPA whose certificate of registration has been revoked.

38. The president of the Philippines appoints the members of the Board of Accountancy based on the recommendation submitted to the office of the president. Which of the following is an incorrect statement about the submission of nominations?
    1. The Accredited National Professional Organization of CPAs shall submit the names of its nominees to the PRC not later than 60 days prior to the expiry of the term of an incumbent chairman or member.
    2. There should be an adequate documentation to show the qualifications and primary field of professional activity of each nominee.
    3. The Accredited National Professional Organization of CPAs shall submit the names of its nominees to the PRC not later than 45 days prior to the expiry of the term of an incumbent chairman or member.

1. 4. If the Accredited National Professional Organization of CPAs fails to submit its own nominee(s) to the PRC within the prescribed period, the PRC, in consultation with the Board of Accountancy shall submit to the president of the Philippines a list of three nominees for each position.

39. Which of the following is not a qualification of a member of the Board of Accountancy?
    1. He must be a natural-born citizen and a citizen of the Philippines.
    2. He must not be a director or officer of the Accredited National Professional Organization of CPAs at the time of his appointment.
    3. He must be of good moral character and must not have been convicted of crimes involving moral turpitude.
    4. He must be a duly registered certified public accountant with at least ten years of experience in public accounting.

40. The following statements relate to the term of office of the chairman and members of the Board of Accountancy. Which of them is incorrect?
    1. The chairman and members of the Board of Accountancy shall hold office for a term of three years.
    2. Any vacancy occurring within the term of a member shall be filled up for the unexpired portion of the term only.
    3. Appointment to fill up an expired term is not to be considered as a complete term.
    4. The Board of Accountancy member who has served two successive complete terms as chairman or member shall be eligible for reappointment until the lapse of three years.

41. The Financial Reporting Standards Council which is the accounting standards setting body is composed of a chair and:
    1. Fourteen members
    2. Fifteen members
    3. Sixteen members
    4. Seventeen members

42. The chairman and the members of both Financial Reporting Standards Council and Auditing and Assurance Standards Council have a renewable term of:
    1. 4 years
    2. 2 years
    3. 3 years
    4. 5 years

43. Which of the following is not a requisite in applying for the CPA licensure examinations?
    1. Natural-born citizen of the Philippines
    2. Good moral character
    3. Holder of the degree of Bachelor of Science in Accountancy
    4. Has not been convicted of any criminal offense involving moral turpitude

44. Which of the following is incorrect?
    1. Candidates who fails to obtain a general average of 75% but obtains a rating of at least 75% in at least four subjects shall receive a conditional credit for the subjects passed.
    2. To successfully pass the licensure examination, the candidates should obtain a general weighted average of at least 75% with no rating lower than 65% in any subject.
    3. Conditional candidates shall take an examination in the conditional subject(s) within two years from the preceding examination.
    4. Candidates who failed in three complete examinations must enroll in refresher course consisting of twenty-four units of the subjects given in the licensure examination.

45. A CPA whose certificate of registration has been revoked:
    1. Can no longer be reinstated.
    2. is automatically reinstated as a CPA by the PRC after two years if he has acted in an exemplary manner.
    3. May be reinstated by the Professional Regulation Commission after two years if he has acted in an exemplary manner.
    4. May be reinstated as a CPA by the Board of Accountancy after two year if he has acted in an exemplary manner.

46. The Philippine Accountancy Act of 2004 provides that all working papers made during an audit shall be the property of the auditor. These working papers shall include the following, except:
    1. Working papers prepared by the CPA and his staff.
    2. Analysis and schedule prepared and submitted to the auditor by his client’s staff.
    3. Excerpts or copies of documents furnished to the auditor.
    4. Any report submitted by the auditor to his client.

47. Individual CPAs, Firms or Partnerships of CPAs, including partners and staff members thereof shall register with the BOA and the PRC. If the accreditation of Bobadilla, Valdez, Soliman and Co., CPAs, was renewed on September 30, 2017, the next renewal must be on or before:
    1. September 30, 2019
    2. September 30, 2020
    3. December 31, 2019
    4. December 31, 2020

48. In relation to revised Rules on Advertising adopted by BOA, which of the following statements is false:
    1. The use of the   name   of   an   international   accounting   firm affiliation/correspondence   other   than   a   notation that it is a “member/correspondent firm of that foreign firm” shall not be allowed so as to imply that the foreign firm is practicing in the Philippines.
    2. No firm or CPA practitioner shall identify the name of a client or items of a client’s business in advertising, public relations

or marketing material produced to promote his practice provided that the client gives its written consent.

1. 3. No firm or CPA practitioner shall use the term “Accredited” or any similar words or phrases calculated to convey the same

meaning if the claimed accreditation (BOA, SEC, BSP or IC) has expired.

1. 4. All advertisements must have prior review and approval in writing by the Board of Accountancy.

49. In relation to revised Rules on Advertising adopted by the BOA, all advertisements must have prior review and approval in

writing by the firm’s

1. 1. Risk Management Partner
   2. Managing Partner
   3. Both A and B
   4. Neither A nor B

50. According to Revised Rules on Advertising adopted by the BOA, the following form of advertising or publicity is prohibited:
    1. Publicity of the appointment or other activity in a matter of local or national importance or the award of any distinction to a professional accountant.
    2. Listing of professional accountant in directories.
    3. Publishing services in billboard (e.g., tarpaulin, streamers, etc.) advertisements.
    4. Stating the professional accountant’s name and his/her professional qualifications and name of the organization connected

with the professional accountant in the books or articles on professional subjects that he/she authored.

51. According to Revised Rules on Advertising adopted by the BOA, which of the following is not an acceptable practice related to advertising or publicity of professional accountants?
    1. A professional accountant may invite clients, staff or other professional accountants to attend training courses or seminars conducted for the assistance of staff. Other persons should not be invited to attend such training courses or seminars except in response to an unsolicited request.
    2. Booklets and other documents bearing the name of a professional accountant and giving technical information for the assistance of staff or clients may be issued to such persons, other professional accountants or other interested parties.
    3. Genuine vacancies for staff may be communicated to the public through any medium in which comparable staff vacancies normally appear.
    4. Publishing and comparing fees with other CPAs or CPA firms or comparing those services with those provided by another firm or CPA practitioner

52. Refers to the inculcation of advanced knowledge, skills, and ethical values in a post-licensure specialization or in an inter- or multidisciplinary field of study, for assimilation into professional practice, self-directed research and/or lifelong learning;
    1. Accreditation of Accounting Teacher
    2. Continuing Professional Development
    3. Training and Seminars
    4. Learning and Development

53. Which of the following is not represented in the Auditing and Assurance Standards Council?
    1. Board of Accountancy
    2. Commission on Audit
    3. Bureau of Internal Revenue
    4. Securities and Exchange Commission

54. How many CPD credit units must be accumulated by a registered accounting professional starting 2019?
    1. 100 credit units
    2. 120 credit units
    3. 140 credit units
    4. 1,000 credit units

55. The members of the Commission on Audit should
    1. Be a member of the bidding committee of the agency.
    2. Hold office for nine years without reappointment.
    3. Be a commissioner and an associate commissioner.
    4. Be a CPA or member of the Bar with ten years’ experience.

56. No person shall serve the Professional Regulatory Board of Accountancy for more than
    1. 3 years
    2. 6 years
    3. 9 years
    4. 12 years

57. The Accountancy Law provided that a CPA certificate may be suspended or revoked on grounds except
    1. Immoral or dishonorable conduct.
    2. Gross negligence or incompetence in the practice of profession.
    3. Refusal to accept an audit engagement with a government corporation.
    4. Conduct discreditable to the accounting profession.

58. The following shall be the requirements for the accreditation of Accounting Teachers:

1. Possession of relevant Master's degree. Any post-graduate degree program in business, accounting, taxation law, education and related fields earned from any graduate school duly recognized by the Commission on Higher Education (CHED) will qualify for this requirement.
2. Completion of 12 units of relevant education subjects from the CHED recognized schools.
3. A total of three years meaningful experience in actual accounting work either in the Public Practice, Commerce and Industry or Government sector.
4. Proof that the CPA has undergone Continuing Professional Education(CPE).
   1. I and IV only.
   2. I, II and IV only.
   3. I, III and IV only.
   4. I, II, III and IV.

59. Which of the following requirements below shall not apply to those CPAs already engaged in teaching as of the date of the effectivity of the rules regarding accreditation of accounting teachers?

1. Possession of relevant Master's degree. Any post-graduate degree program in business, accounting, taxation law, education and related fields earned from any graduate school duly recognized by the Commission on Higher Education (CHED) will qualify for this requirement.
2. Completion of 12 units of relevant education subjects from the CHED recognized schools.
3. A total of three years meaningful experience in actual accounting work either in the Public Practice, Commerce and Industry or Government sector.
4. Proof that the CPA has undergone Continuing Professional Education(CPE).
   1. I, II and III only.
   2. II, III and IV only.
   3. I, and IV only.
   4. II and III only.

60. Which of the following statements is incorrect regarding the 12 units of relevant education subjects requirements for the Accreditation of Accounting Teachers?
    1. For purposes of compliance, the 12 units may be earned either from the undergraduate education program or from a graduate degree program of any Higher Education Institution (HEI) duly   recognized by C H E D.
    2. The 12 units may also be earned from in-service or in-house trainings on these topics offered by schools or training centers.
    3. The 12 units can also be a combination of in-service trainings and units earned in an undergraduate or graduate education programs.
    4. CPAs who have passed the Teachers Board Exams and are already licensed Professional Teachers shall not be exempt from this requirement.

61. Which of the following is least likely the basis of determining audit fees?
    1. The skill and knowledge required for the type of work involved.
    2. The degree of responsibility and urgency that the work entails.
    3. The expected outcome of the engagement.
    4. The required level of training and experience of the persons engaged on the work.

62. Which of the following is not allowed by the revised code of ethics?
    1. A professional accountant in public practice may issue to client or, in response to an unsolicited request, to a non-client a factual and objectively worded of the services provided.
    2. Booklets and other documents bearing the name of a professional accountant and giving technical information for the assistance of staff or clients may be issued to such persons, other professional accountants or other interested parties.
    3. The use of the name of an international accounting firm affiliation/correspondence is generally allowed.
    4. A firm or CPA practitioner can continue to use the term “Accredited” or any similar words or phrase calculated to convey the same meaning if the claimed accreditation has not expired.

63. Which of the following is a distinguishing mark of the accountancy profession?
    1. A drive to excellence
    2. Acceptance of the responsibility to act in the public interest
    3. Professional objectivity
    4. Professional skepticism

64. Which statement is incorrect regarding the Code of Ethics for Professional Accountants in the Philippines?
    1. The objectives as well as the fundamental principles are of a general nature and are not intended to be used to solve a

professional accountant’s ethical problems in a specific case.

1. 2. The code is divided into two parts, part A and part
   3. Part A applies to all professional accountants unless otherwise specified.

1. 4. Part B applies only to those professional accountants in public practice.

65. A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession. This is a fundamental principle of:
    1. Objectivity
    2. Professional competence and due care
    3. Professional behavior
    4. Integrity

66. Which of the following is not one of the fundamental principles of ethical conduct for professional accountants?

1. 1. Integrity
   2. Confidentiality
   3. Loyalty
   4. Professional competence and due care

67. Which of the following is required to comply with the fundamental principle of professional competence and due care?

1. 1. A professional accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgment.
   2. A professional accountant should act diligently and in accordance with technical and professional standards when providing professional services.
   3. A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession.
   4. The accountant should observe fair dealings and truthfulness.

68. “A professional accountant should be straight-forward and honest in all his professional and business relationships.” This

description appropriately describes the fundamental principle of:

1. 1. Integrity
   2. Objectivity
   3. Confidentiality
   4. Professional behavior

69. It is essential that users of the audited financial statements regard CPA firms as

1. 1. competent.
   2. unbiased.
   3. technically proficient.
   4. All of the given choices.

70. The Code of Professional Ethics states, in part, that a CPA should maintain integrity and objectivity. Objectivity refers to the CPA's ability to

1. 1. determine accounting practices that were consistently applied.
   2. maintain an impartial attitude on all matters which come under his review.
   3. determine the materiality of items.
   4. insist on all matters regarding audit procedures.

71. Which of the following is not a fundamental principle in codes of ethics for professional accountants?

1. 1. Act in the client’s best interest
   2. Objectivity and independence
   3. Maintain the good reputation of the profession
   4. Maintain confidentiality

72. Which of the following is true of the conceptual framework approach?

1. 1. It is impossible to define every situation that creates specific threats and specify the appropriate mitigating action.
   2. A professional accountant should take qualitative but not quantitative factors into account when considering the significance of a threat.
   3. A professional accountant should take quantitative but not qualitative factors into account when considering the significance of a threat.
   4. All inadvertent violations of the code of Ethics, irrespective of their nature and significance, always compromise compliance with the fundamental principles.

73. Safeguards created by the profession, legislation or regulation, include the following, except

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

1. 2. Continuing education requirements.
   3. Legislation governing the independence requirements of the firm.
   4. Policies and procedures that emphasize the assurance client’s commitment to fair financial reporting.

74. As a resolution of the conflict in the application of fundamental principles, the auditor, after considering the ethical issues and relevant facts may do any of the following, except:

1. 1. Must immediately resign from the engagement or the employing entity.
   2. Should weigh the consequences of each possible course of action.
   3. Should consult with other appropriate persons within the firm or employing organization for help to finally resolve the matter.
   4. The professional accountant may wish to obtain professional advice from the relevant professional body without breaching confidentiality if significant conflict cannot be resolved.

75. A professional accountant may be associated with a tax return that

1. 1. contains a false or misleading statement.
   2. contains statements or information furnished recklessly or without any real knowledge of whether they are true or false.
   3. omits or obscures information required to be submitted and such omission or obscurity would mislead the revenue authorities.
   4. uses of estimates if such use is generally acceptable or if it is impractical under the circumstances to obtain exact data.

76. If the firm is involved in the preparation of accounting records or financial statements and those financial statements are subsequently the subject matter of an audit engagement of the firm, this will most likely create
    1. Self-interest threat
    2. Self-review threat
    3. Intimidation threat
    4. D. Familiarity threat

77. Which of the following is prohibited by the Code of Professional Ethics for CPAs?
    1. Use of a firm name which includes the name of a retired partner.
    2. Announcement in a newspaper of the opening of a public accounting office.
    3. Engaging in civic activities during business hours.
    4. Accepting an engagement or employment which one cannot reasonably expect to complete or discharge with professional competence

78. The CPA should not undertake an engagement if his fee is to be based upon
    1. A percentage of audited net income.
    2. Per diem rates plus expenses.
    3. The findings of a tax authority
    4. The complexity of the service rendered.

79. One of the advantages of the fixed fee (or flat sum) basis of billing a client is that the
    1. Fixed fee method is particularly effective for measuring charges for routine engagements.
    2. CPA’s compensation is more directly related to the quality of his service rather than to time spent.
    3. CPA is assured of avoiding a loss on the engagement even if he underestimates his costs.
    4. Client pays for exactly what he gets in terms of work performed.

80. A CPA purchased a stock in a client corporation and placed it in a trust as an educational fund for the CPA's minor child. The trust securities were not material to the CPA but were material to the child's personal net worth. Would the independence of the CPA be considered to be impaired with respect to the client?
    1. No, because the CPA would not be considered to have a direct financial interest in the client.
    2. No, because the CPA would not be considered to have a material indirect financial interest in the client.
    3. Yes, because the stock would be considered a direct financial interest and consequently, materiality is not a factor.
    4. Yes, because the stock would be considered an indirect financial interest that is material to the CPA's child

81. Which of the following least likely create a self-review threat?
    1. 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.
    2. A former officer, director or employee of the assurance client serve as a member of the assurance team.
    3. Assisting an audit client in matters such as preparing accounting records or financial statements.
    4. A firm, or network firm, provides internal audit services to an audit client.

82. Which of the following is required if the professional accountant uses experts who are not professional accountants?
    1. Experts who are not professional accountants need not be informed of ethical requirements because they are not members of the Accountancy profession.
    2. The ultimate responsibility for the professional service is assumed by the expert who is not a professional accountant.
    3. The professional accountant is discouraged to engage the services of experts who are not a professional accountant.

1. 4. The professional accountant must take steps to see that such experts are aware of ethical requirements.

83. Which of the following statements best explains why the CPA profession has found it essential to promulgate ethical standards and to establish means for ensuring their observance?
    1. Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts.
    2. Ethical standards that emphasize excellence in performance over material rewards establish a reputation for competence and character.
    3. A distinguishing mark of a profession is its acceptance of responsibility to the public.
    4. A requirement for a profession is to establish ethical standards that stress primarily a responsibility to clients and colleagues.

84. X Inc. engages the services of Mr. Borgs, 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. Borgs, however, has primarily auditing expertise and only in general merchandising operations. Mr Borgs may properly
    1. Accept the engagement and carry it out consistent with GAAS.
    2. Accept the engagement but exercise due professional care.
    3. Accept the engagement and acquire the necessary competence or consult with established authorities.
    4. Decline the engagement for lack of experience or competence in an entirely new line of specialization.

85. During the course of an audit engagement, the CPA needed additional studies and consultation with experts. This additional study and consultation is deemed to be
    1. An unusual practice which should have voided the audit engagement.
    2. Lack of competence on the part of the CPA.
    3. An appropriate part of the professional conduct of the audit engagement.
    4. Undertaken as a responsibility of management.

86. After beginning an audit of a new client, Gambit, CPA, discovers that the professional competence necessary for the engagement is lacking .Gambit informs management of the situation and recommends another CPA, and management engages the other CPA. Under these circumstances
    1. Gambit's lack of competence should be construed to be a violation of GAAS.
    2. Gambit may request compensation from the client for any professional services rendered to it in connection with the audit.
    3. Gambit's request for a commission from the other CPA is permitted because a more competent audit can now be performed.
    4. Gambit may be indebted to the other CPA since the other CPA can collect from the client only the amount the client originally agreed to pay Gambit.

87. On an audit engagement performed by a CPA firm with one office, at the minimum, knowledge of the relevant professional accounting and auditing standards should be held by
    1. The auditor with final responsibility for the audit.
    2. All professionals working upon the audit.
    3. All professional working upon the audit and the partner in charge of the CPA firm.
    4. All professionals working in the office.

88. A CPA who is seeking to sell an accounting practice must
    1. Not allow a peer review team to look at working papers and tax returns without permission from the client prior to consummation of the sale.
    2. Not allow a prospective purchaser to look at working papers and tax returns without permission from the client.
    3. Give all working papers and tax returns to the client.
    4. Retain all working papers and tax returns for a period of time sufficient to satisfy the statute limitations.

89. A CPA, wrote an article for publication in PICPA Accountants Journal. The Code of Professional Ethics would be violated if the CPA allowed the article to state that the CPA was
    1. Member of PICPA
    2. Professor at a school of professional accountancy
    3. Partner in a national CPA firm
    4. Practitioner specializing in providing tax services.

90. Ethically, the auditor could
    1. Advertise only as to his expertise in preparing income tax returns.
    2. Base his audit fee on a percentage of the proceeds of his client's stock issue.
    3. Own preferred stock in a corporation which is an audit client.
    4. Perform an examination for a financially distressed client at less than his customary fees.

91. Which of the following legal situations would be considered to impair the auditor's independence?
    1. An expressed intention by the present management to commence litigation against the auditor alleging deficiencies in audit work for the client, although the auditor considers that there is only a remote possibility that such a claim will be filed.
    2. Actual litigation by the auditor against the client for an amount not material to the auditor or to the financial statements of the client arising out of disputes as to billings for management advisory services.
    3. Actual litigation by the auditor against the present management alleging management fraud or deceit
    4. Actual litigation by the client against the auditor for an amount not material to the auditor or to the financial statements of the client arising out of disputes as to billings for tax services.