University of Michigan ACCOUNTING

ACC 575

CHAPTER 4:

1)These are acts of omission or commission by the entity being audited, either intentional or unintentional, which are contrary to the prevailing laws and regulations.

1. 1. Fraud
   2. Misappropriation
   3. Noncompliance
   4. Defalcation

2. 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
   1. Objectivity
   2. Professional competence and due care
   3. Technical standards
   4. Confidence

3. 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?
   1. To act diligently in accordance with applicable technical and professional standards
   2. To be fair, intellectually honest and free of conflict of interest
   3. To become aware and understand relevant technical, professional and business developments
   4. To obtain professional knowledge and experience to enable them to fulfil their responsibilities

4. 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:
   1. Attainment of professional competence
   2. Maintenance of professional competence
   3. Application of professional competence
   4. Review of professional competence

5. The essence of the due care principle is that the auditor should not be guilty of:
   1. Bias
   2. Errors in judgement
   3. Fraud
   4. Negligence

6. The principle of confidentiality applies to:
   1. Professional accountants in public practice
   2. Professional accountants in commerce and industry
   3. Professional accountants in government
   4. All professional accountants

7. The principle of confidentiality imposes an obligation on professional accountants to refrain from:
   1. Disclosing confidential information to another party even if client authorizes the disclosure
   2. Using confidential information acquired as a result of professional and business relationships to their personal advantage or the advantage of the third parties
   3. Disclosing information to defend themselves in case of litigation
   4. Responding to an inquiry or investigation conducted by the Professional Regulatory Board of Accountancy

8. A CPA should not disclose confidential information obtained during an audit engagement in which one of the following situations?
   1. When the security of the state requires
   2. With the consent of the client
   3. In defense of himself when sued by his client
   4. To a successor auditor without the client’s permission

9. Which of the following is considered a violation of rules on confidentiality?
   1. The CPA discloses information to protect his own interest in the course of legal proceedings
   2. The CPA discloses information to a successor auditor after obtaining the client’s permission
   3. The CPA discloses information to another CPA in compliance with a quality control review conducted by the BOA
   4. The CPA divulges information disclosed to him by a prospective client.

10. In which of the following circumstances would a CPA be bound by the ethics to refrain from disclosing any confidential information obtained during course of a professional engagement?
    1. The CPA is issued summon enforceable by the court order which orders the CPA to present confidential information
    2. A major stockholder of a client company seeks accounting information from CPA after the management declined to disclose the requested information
    3. Confidential client information is made available with the client’s permission
    4. An inquiry by the PRC and the CPA needs the disclosure to defend himself

11. The principle of professional behaviour requires a professional accountant to
    1. Be straightforward and honest in performing professional services
    2. Be fair and should not allow prejudice or bias, conflict of interest or influence of others to override objectivity

1. 3. Perform professional services with due care, competence and diligence
   4. Act in a manner consistent with the good reputation of the profession and refrain from any conduct which might bring discredit to profession

12. Which of the following most accurately states how objectivity has been defined by the Code of Ethics?
    1. Being honest and straight forward in all professional and business relationships.
    2. A state of mind that permits the provision of an opinion without being affected by influences that compromise professional judgement
    3. A combination of impartiality, intellectual honesty and a freedom from conflict of interest
    4. Avoiding facts and circumstances that could reduce the public confidence in the professional accountant’s report

13. 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?
    1. Integrity
    2. Objectivity
    3. Confidentiality
    4. Professional behaviour

14. Independence is required whenever a professional accountant performs:
    1. Professional services
    2. Assurance services
    3. Non-assurance services
    4. Tax consultancy services

15. 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 scepticism had been compromised.
    1. Independence in fact
    2. Independence in appearance
    3. Independence in mind
    4. Inherent independence

16. This occurs as a result of the financial or other interests of a professional accountant or of an immediate or close family member.
    1. Self-interest threat
    2. Self-review threat
    3. Advocacy threat
    4. Familiarity threat

17. Acting for an audit client in the resolution of a dispute or litigation would most likely create
    1. Self-interest threat
    2. Intimidation threat
    3. Advocacy threat
    4. Familiarity threat

18. The preparation of accounting records of financial statements for an audit client will most likely create
    1. Self-interest threat
    2. Self-review threat
    3. Intimidation threat
    4. Familiarity threat

19. Accepting gift or undue hospitality from an assurance client would create most likely create
    1. Familiarity threat
    2. Self-review threat
    3. Advocacy threat
    4. Intimidation threat

20. Using the same senior personnel on an assurance engagement over a long period of time would most likely create
    1. Intimidation threat
    2. Advocacy threat
    3. Familiarity threat
    4. Self-interest threat