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| 1 | |
Which of the following statements best explains why public accounting, as a profession, promulgates codes of ethics and establishes means for ensuring their observance? |
| | A) | Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts. |
| | B) | A code of ethics that emphasize excellence in performance over material rewards establish individual reputations for competence and character. |
| | C) | A code of ethics is established so that users of accounting services know what to expect and accounting professionals know what behaviours are acceptable, and so that discipline can be applied when necessary. |
| | D) | A requirement for a profession is to establish a code of ethics that primarily stress responsibility to entities and colleagues. |
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| 2 | |
Rick, an independent practitioner, must make an ethical judgement related to the audit of an entity. If he primarily focuses on whether his decision might yield unfair advantages for some at the expense of others, he is using |
| | A) | A utilitarian perspective. |
| | B) | A rights-based approach. |
| | C) | A justice-based perspective. |
| | D) | Prohibitions in the IESBA Code of Ethics. |
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| 3 | |
During the audit of Moon Co., the auditor disagrees with management’s estimation of collectible accounts receivable. The possible misstatement amount is material. Which of the statements below should weigh more heavily for the auditor in this instance? |
| | A) | Moon management has the right to make company estimates. |
| | B) | Requiring an adjustment to the allowance for doubtful accounts would give stockholders access to fair and adequate information. |
| | C) | Accounts Receivable as stated by Moon Co. might turn out to be fully collectible. |
| | D) | The interests of Moon Co., the auditor, and the public should be weighed equally in the decision. |
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| 4 | |
Which of the following organizations sets the international Code of Ethics, including independence requirements, for accountants? |
| | A) | IAASB. |
| | B) | IESBA. |
| | C) | IASB. |
| | D) | IFAC. |
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| 5 | |
The IESBA Code of Ethics contains both fundamental ethical principles and a |
| | A) | List of violations that would cause the automatic suspension of a practitioner’s license. |
| | B) | Conceptual framework (threats and safeguards) supplemented with prohibitions to comply with the fundamental principles. |
| | C) | Description of practitioner procedures for responding to an inquiry from a trial board. |
| | D) | List of specific crimes that would be considered as acts discreditable to the profession. |
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| 6 | |
In which of the following situations would a practicioner’s independence be considered impaired according to the IESBA Code of Ethics?
1. The practitioner has a car loan from a bank that is an audit entity. The loan was made under the same terms available to all customers.
2. The practitioner has a direct financial interest in an audit entity, but the interest is maintained in a blind trust.
3. The practitioner owns a commercial building and leases it to an audit entity. The rental income is material to the practitioner. |
| | A) | 1 and 2. |
| | B) | 2 and 3. |
| | C) | 1 and 3. |
| | D) | 1, 2, and 3. |
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| 7 | |
A practitioner is aware that a client has ‘skimmed’ unrecorded cash receipts and thus not reported them to the tax authorities. If the accountant signs the entity’s tax return after preparing the return, he/she would be violating which fundamental principle(s) of IESBA Code of Ethics? |
| | A) | Confidentiality. |
| | B) | Integrity and Objectivity. |
| | C) | Independence. |
| | D) | Professional Competence and Due Care. |
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| 8 | |
Without first receiving consent from the client, a practitioner should not disclose confidential client information contained in its working papers to (a) |
| | A) | Another entity looking for benchmarking information. |
| | B) | Quality assurance inspection team. |
| | C) | Public disciplinary body. |
| | D) | Successor auditor on certain audit matters (if not prohibited by law). |
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| 9 | |
A violation of the IESBA Code of Ethics is most likely to occur when a practitioner |
| | A) | Issues an unmodified opinion on an entity’s financial statements when fees for the prior year audit have not been paid. |
| | B) | Has served as an honorary member of the board of directors of a charitable organization for which he or she audits the financial statements. |
| | C) | Arranges with a financial institution to collect notes issued by a client in payment of fees due. |
| | D) | Compiles the financial statements of an entity that employs the practitioner’s spouse as a bookkeeper. |
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| 10 | |
Which of the following is not considered a self-interest threat? |
| | A) | The firm have undue dependence on total fees from an audit client. |
| | B) | A member of the audit team has a direct financial interest in the audit client. |
| | C) | The practitioner has a loan under normal lending term from an audit client that is a bank. |
| | D) | A member of the audit team has entered into employment negotiations with the audit client. |
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| 11 | |
Which of the following is considered safeguard in the work environment for practitioners? |
| | A) | Regulatory monitoring of the profession. |
| | B) | Corporate governance regulations. |
| | C) | Firm policies and procedures that enable the identification of interests or relationships between the firm and clients. |
| | D) | Educational, training and experience requirements for entry into the profession. |
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| 12 | |
A practitioner, while performing an audit, strives to achieve independence in appearance in order to |
| | A) | Reduce risk and liability. |
| | B) | Perform an efficient and effective audit. |
| | C) | Become independent of mind. |
| | D) | Maintain public confidence in the profession. |
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| 13 | |
For which of the following services is an auditor not required to be independent? |
| | A) | Financial statement audits. |
| | B) | Financial statement reviews. |
| | C) | Any assurance service. |
| | D) | A compilation of financial statements. |
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| 14 | |
IESBA Code of Ethics prohibits certain interests and relationship for audits of public interest entities (PIEs). Which of the following interests and relationship is not prohibited? |
| | A) | Financial interests in the client. |
| | B) | Contingent audit fees. |
| | C) | A key audit partner serving for up to seven years. |
| | D) | Partners/employees serving as a client director or officer. |
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| 15 | |
In order to maintain independence from a public interest entity (PIE) audit client, the partner on the engagement must rotate off from the client |
| | A) | Every year. |
| | B) | Every 7 years. |
| | C) | Every 5 years. |
| | D) | There is no requirement for the partner to be reassigned from any PIE audit client after any specified period of time. |
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| 16 | |
Which of the following legal situations would be considered most likely to impair the auditor’s independence? |
| | A) | An expressed intention by the present management to commence litigation against the auditor, alleging deficiencies in audit work for the entity, although the auditor considers that there is only a remote possibility that such a claim will be fi led. |
| | B) | Actual litigation by the auditor against the entity for an amount not material to the auditor or to the financial statements of the entity arising out of disputes as to billings for management advisory services. |
| | C) | Actual litigation by the auditor against the present management, alleging management fraud or deceit. |
| | D) | Actual litigation by the entity against the auditor for an amount not material to the auditor or to the financial statements of the entity arising out of a dispute as to billings for tax services. |
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| 17 | |
A violation of the profession’s ethical standards is least likely to occur when a CPA |
| | A) | Purchases another practitioner’s accounting practice and bases the price on a percentage of the fees accruing from entities over a three-year period. |
| | B) | Receives a percentage of the amounts invested by the practitioner’s audit entities in a tax shelter with the entities’ knowledge and approval. |
| | C) | Has a public accounting practice and is president and sole stockholder of a corporation that engages in data processing services for the public. The practitioner often refers his audit entities to the data processing company. |
| | D) | Perform internal audit services for the audit client. |
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| 18 | |
IESBA Code of Ethics prohibits certain services for audits of public interest entities (PIEs). Which of the following services is not prohibited? |
| | A) | Provide accounting and bookkeeping services. |
| | B) | Recruiting directors/officers, or senior management who will have significant influence over accounting records or financial statements. |
| | C) | Provide services involving the design or implementation of IT systems that are not related to the entity’s financial reporting. |
| | D) | Assuming a management responsibility. |
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| 19 | |
Which of the following is not an element of a system quality control as defined by ISQC 1? |
| | A) | Monitoring. |
| | B) | Human resources. |
| | C) | Reliability. |
| | D) | Engagement performance. |
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| 20 | |
One of a practitioner firm’s basic objectives is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through |
| | A) | A system of quality control. |
| | B) | A system of peer review. |
| | C) | Continuing professional education. |
| | D) | Compliance with reporting standards. |
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