1st Set of Knowledge Check

1. 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

2. Not to compromise professional or business judgments because of bias, conflict of interest or undue
influence of others.

a) Integrity
b) Objectivity
c) Confidentiality
d) Professional Competence

3. The state of mind that permits the expression of a conclusion without being affected by influences that
compromise professional judgment, thereby allowing an individual to act with integrity, and exercise
objectivity and professional skepticism.

a) Integrity
b) Independence in Mind
c) Independence in Appearance
d) Independence

4. Attain and maintain professional knowledge and skill at the level required to ensure that a client or
employing organization receives competent professional service, based on current technical and
professional standards and relevant legislation.

a) Integrity
b) Objectivity
c) Confidentiality
d) Professional Competence

5. A CPA-lawyer, acting as a legal counsel to one of his audit client, is an example of

a) Self-interest threat
b) Self-review threat
c) Advocacy threat
d) Familiarity threat
2nd Set of Knowledge Check

6. These are circumstances that may lead to possible threats in preparation and presentation of information
through financial reports except:

a) Selecting or changing an accounting policy or method among two or more alternatives permitted
under the applicable financial reporting framework in order to misrepresent profit or loss
b) Determining the timing of transactions, for example, timing the sale of an asset near the end of the
year, in order to mislead
c) Determining the structuring of transactions in order to misrepresent assets and liabilities or
classification of cash flows
d) Prepare or present the information in accordance with a relevant reporting framework, where
applicable.

7. Which of the following is incorrect regarding integrity and objectivity?

a) Integrity implies not merely honesty but fair dealing and truthfulness.
b) The principle of objectivity imposes the obligation on all professional accountants to be fair,
intellectually honest and free of conflicts of interest.
c) Professional accountants serve in many different capacities and should demonstrate their
objectivity in varying circumstances.
d) Professional accountants should neither accept nor offer any gifts or entertainment.

8. 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.

9. Occurs when any product or judgment of a previous assurance engagement or non-assurance engagement
needs to be re-evaluated 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 of the assurance engagement.

a) Self-interest threat
b) Self-review threat
c) Advocacy threat
d) Familiarity threat

10. Fess calculated on a predetermined basis relating to the outcome or result of a transaction or the result of
the work performed.

a) Contingent fees
b) Retainer fees
c) Per diem fees
d) Flat sum fees
11. Which statement is incorrect regarding long association of senior personnel with audit clients that are listed
entities?

a) Using the same lead engagement partner on an audit over a prolonged period may create a
familiarity threat
b) The lead engagement partner should be rotated after a pre-defined period, normally no more than
seven (7) years
c) A partner rotating after a pre-defined period should not resume the lead engagement partner role
until a further period of time, normally two years, has elapsed
d) When audit client becomes a listed entity the length of time the lead engagement partner has
served the audit client in that capacity should be considered in determining when the partner
should rotated.

12. The term professional accountant in public practice includes the following, except

a) A sole proprietor providing professional services to a client.

b) Each partner or person occupying a position similar to that of a partner staff in a practice providing
professional services to a client.
c) Professional accountants employed in the responsibilities public sector having managerial
responsibilities.
d) A firm of professional accountants in public practice.

13. A professional accountant has a professional duty or right to disclose confidential information in each of the
following, except

a) To comply with technical standards and ethics requirements.

b) To disclose to BIR fraudulent scheme committed by the client on payment of income tax.
c) To comply with the quality review of a member body or professional body
d) To respond to an inquiry or investigation by a member body or regulatory body.

14. The partner may continue to serve as the lead engagement partner before rotating off the engagement for
how many years after audit client becomes a listed entity?

a) One year
b) Two years
c) Three years
d) Four years

15. A former officer, director or employee of the assurance client serves as a member of the assurance team.
This situation will least likely create

a) Self-interest threat
b) Self-review threat
c) Intimidation threat
d) Familiarity threat
16. Which of the following 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 relationship with an assurance client
d) Pressure to reduce inappropriately the extent of work performed in order to reduce fees
17. A combination of impartiality, intellectual honesty and a freedom from conflicts of interest.

a) Objectivity
b) Independence in mind
c) Professional skepticism
d) Independence

18. The principle of professional behavior requires a professional accountant to

e) Be straightforward and honest in performing professional services.

f) Be fair and should not allow prejudice or bias, conflict of interest or influence of others to override
objectivity.
g) Perform professional services with due care, competence and diligence.
h) Act in a manner consistent with the good reputation of the profession and refrain from any conduct
which might bring discredit to the profession.

19. Professional accountants may encounter problems in identifying unethical behavior or in resolving an ethical
conflict. When faced with significant ethical Issues, professional accountants should do the following, except

a) Follow the established policies of the employing organization to seek a resolution of such conflict
b) Review the conflict problem with the immediate superior if the organization's policies do not resolve
the ethical conflict.
c) If the problem is not resolved with the immediate superior and the professional accountant
determines to go to the next higher managerial level, the immediate superior need not be notified of
the decision.
d) Seek counseling and advice on a confidential basis with an independent advisor or the applicable
professional accountancy body or regulatory body to obtain an understanding of possible courses
of action.

20. Occurs when any product or judgment of a previous assurance engagement or non-assurance engagement
needs to be re-evaluated 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 of the assurance engagement.

a) Self-interest threat
b) Self-review threat
c) Advocacy threat
d) Familiarity threat

21. Occurs when a firm, or a member of the assurance team, promotes, or may be perceived to promote, an
assurance clients position or opinion to the point may, or may be perceived to be, compromised. Such may
be the case if a firm or a member of the assurance team were to subordinate their judgment to that of the
client.

a) Self-interest threat
b) Self-review threat
c) Advocacy threat
d) Familiarity threat
Post Test

22. Intimidation threat

a) is not a threat independence.

b) 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.
c) Occurs when, by virtue of a close relationship with an assurance dient, its directors, officers or
employees, a firm or a member of the assurance team becomes too sympathetic to the client's
interests.
d) 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.

23. Family and personal relationships between a member of the assurance team and a director, an officer or
certain employees, depending on their role, of the assurance client, least likely

a) Self-interest threat
b) Self-review threat
c) Intimidation threat
d) Familiarity threat

24. If a member of the assurance team, partner or former partner of the firm has joined the assurance client, the
significance of the self-interest, familiarity or intimidation threats created is least likely affected by

a) The position the individual has taken at the assurance client.

b) The amount of any involvement the individual will have with the assurance team.
c) The length of time that the individual was a member of the assurance team or firm.
d) The former position of the individual with the assurance team or firm.

25. Which of the following is incorrect regarding professional competence?

a) Professional accountants may portray themselves as having expertise or experience they do not
possess.
b) Professional competence may be divided into two separate phases.
c) The attainment of professional competence requires initially a high standard of general education.
d) The maintenance of professional competence requires a continuing awareness of development in
the accountancy profession.

26. 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 it the client or the employer does not
correct the error.

27. Occurs when a firm or member of the assurance team could benefit from a financial interest in, or other self-
interest conflict with, an assurance client.
 a) Self-interest threat
b) Self-review threat
c) Advocacy threat
d) Familiarity threat

28. Examples of close business relationships that may create self-interest and intimidation threat least likely
include

a) Having a material financial interest in a joint venture with the assurance client or a controlling
owner, director, officer or other individual who performs senior managerial functions for that client.
b) Arrangements to combine one or more services or products of the firm with one or more services or
products of the assurance client and to market the package with reference to both parties.
c) Distribution or marketing arrangements under which the firm acts as a distributor or marketer of the
assurance clients’ products or services, or the assurance client acts as the distributor or marketer
of the products or services of the firm.
d) The purchase of goods and services from an assurance client by the firm (or from an audit client by
a network firm) or a member of the assurance team, provided the transaction is in the normal
course of business and on an arm's length basis.

29. Using the same senior personnel on an assurance engagement over a long period of time may create a
familiarity threat. The significance of the threat will least likely depend upon;

a) The length or time that the individual has been a member of the assurance team.
b) The role of the individual on the assurance team.
c) The structure of the client.
d) The nature of the assurance engagement.

30. These following services are considered to be a normal part of the audit process and do not, under
circumstances, threaten independence, except

a) Analyzing and accumulating information for regulatory reporting.

b) Assisting in the preparation of consolidated financial statements.
c) Drafting disclosure items
d) Having custody of an assurance client's assets.

31. If firm, or network firm, personnel providing such assistance make management decisions, the self-review
threat created could not be reduced to an acceptable level by any safeguards. Examples of such managerial
decisions include the following, except

a) Determining or changing journal entries, or the classifications for accounts or transactions or other
accounting records without obtaining the approval of the audit clients
b) Authorizing or approving transactions.
c) Preparing source documents or originating data (including decisions on evaluation assumptions), or
making changes to such documents or data.
d) Assisting an audit client in resolving account reconciliation problems.

32. 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) Sell-review threat
c) Intimidation threat
d) Familiarity threat

33. Which statement is incorrect regarding activities incompatible with the practice of public accountancy?
 a) A professional accountant in public practice should not concurrently engage in any business,
occupation or activity which impairs or might impair integrity, objectivity or independence, or the
good reputation of the profession.
b) A professional accountant in public practice should not concurrently engage in any business,
occupation or activity which would be incompatible with the rendering of professional services.
c) The rendering of two or more types of professional services concurrently does by itself impair
integrity, objectivity or independence.
d) The simultaneous engagement in another business, occupation or activity unrelated to professional
services which has the effect of not allowing the professional accountant in public practice properly
to conduct a professional practice in accordance with the fundamental ethical principles of the
accountancy profession should be regarded as inconsistent with the practice of public accountancy.

34. Which of the following is not acceptable?

a) An appointment of a professional accountant in a matter of national importance was publicized.

b) A professional accountant writes a letter to another professional accountant seeking employment or
professional business
c) A professional accountant is listed in a directory that could reasonably be regarded as a
promotional advertisement for those listed therein.
d) A professional accountant who authored an article on professional subject, stated his name and
professional qualifications and gave the name of his organization.