FAR EASTERN UNIVERSITY

Institute of Accounts Business and Finance

ASSURANCE PRINCIPLES, PROFESSIONAL ETHICS & GOOD GOVERNANCE

QUIZ NO. 3 – QUALITY CONTROLS AND CODE OF ETHICS PARTS A & B

TEST I. TRUE OR FALSE. Select the correct answer for each question. Write the letter of your choice on the answer sheet. (2 points each)

a. – Only statement 1 is correct c. – Both statements are correct

b. – Only statement 2 is correct d. – Both statements are incorrect

1. S1: The objective of the firm is to establish and maintain a system of quality control to provide it with reasonable assurance that
the firm and its personnel comply with professional standards and regulatory and legal requirements; and reports issued by the
firm or engagement partners are appropriate in the circumstances. True
S2: The firm can appropriately delegate to an audit manager the operational responsibility for the firm’s system of quality control.
False
2. S1: The firm does not need to incorporate the requirements of ethical conduct in its operations since it is understood that each
CPA has already a personal responsibility to comply with Code of Professional Conduct for Professional Accountants. False
S2: PSQC requires the CPAs to be always independent with respect to its clients. False
3. S1: The firm shall establish policies and procedures designed to provide it with reasonable assurance that it is notified of breaches
of independence requirements, and to enable it to take appropriate actions to resolve such situations. True
S2: At least annually, the firm shall obtain written confirmation of compliance with its policies and procedures on independence
from all firm personnel required to be independent by relevant ethical requirements. True
4. S1: The CPA in public practice is required to accept all clients that seek to engage the services of such CPA provided both parties
agree to the level of fee to be charged by the CPA in exchange for the sought services. False
S2: The identity and role of the engagement partner should be communicated to key members of the client management and
those in charged with governance. True
5. S1: Engagement performance element of the system of quality control includes providing for policies and procedures that provide
reasonable assurance regarding the consistent delivery in the quality of engagement rendered by the firm to its clients. True
S2: Engagement quality review is required to top ten engagements of the firm. False
6. S1: An engagement partner of an audit of a subsidiary of the client can be an engagement quality reviewer for the audit of the
parent company to which such subsidiary belongs. False
S2: Generally, engagement quality reviewer comes from outside of the firm (called the suitably qualified external person). False
7. S1: The firm shall establish a monitoring process designed to provide it with reasonable assurance that the policies and procedures
relating to the system of quality control are relevant, adequate, and operating effectively. True
S2: In monitoring procedures of the firm, the engagement quality reviewer can be the same person who shall perform inspection
of the engagements. False
8. S1: The firm shall communicate at least annually the results of the monitoring of its system of quality control to engagement
partners and other appropriate individuals within the firm, including the firm’s chief executive officer or, if appropriate, its
managing board of partners. True
S2: In communicating the results of the firm’s monitoring procedures, the firm includes the description of the monitoring
procedures performed, the conclusions drawn from the monitoring procedures, where relevant, description of systemic,
repetitive or other significant deficiencies and of the actions taken to resolve or amend the deficiencies and the identity of the
engagement team that caused the deficiencies noted. False
9. S1: Some firms operate as part of a network and, for consistency, may implement some of their monitoring procedures on a
network basis. True
S2: Consultation includes discussion at the appropriate professional level, with individuals within or outside the firm who have
specialized expertise. True
10. S1: The engagement partner should take responsibility for the overall quality on each audit engagement to which that partner is
assigned. True
S2: Ethical requirements relating to audit engagements comprise Parts A, B and C of the Philippine Code. False
11. S1: In relation to acceptance and continuance procedures for prospective audit client, the successor auditor initiates the
communication with the predecessor auditor. True
S2: The predecessor auditor should not voluntarily provide information about the client to the successor auditor. True
12. S1: The circumstances in which professional accountants operate may create specific threats to compliance with the fundamental
principles. It is impossible to define every situation that creates threats to compliance with the fundamental principles and specify
the appropriate action. True
S2: When a professional accountant identifies threats to compliance with the fundamental principles and, based on an evaluation
of those threats, determines that they are not at an acceptable level, the professional accountant shall determine whether
appropriate safeguards are available and can be applied to eliminate the threats or reduce them to an acceptable level. True

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 13. S1: A professional accountant may inadvertently violate a provision of the Code of Ethics. Such an inadvertent violation is already
considered to having compromised the professional accountant’s compliance with the fundamental principles since such actions
are not aligned with the fundamental principles. False
S2: A professional accountant may be required to resolve a conflict in complying with the fundamental principles. True
14. S1: When a professional accountant is confronted with a situation involving ethical conflict, the professional accountant must
immediately resign from the firm or employing organization. False
S2: In ethical conflict resolution, it may be in the best interests of the professional accountant to document the substance of the
issue, the details of any discussions held, and the decisions made concerning that issue. True
15. S1: The principle of integrity imposes an obligation on all professional accountants not to compromise their professional or
business judgment because of bias, conflict of interest or the undue influence of others. False
S2: The phases of professional competence include attainment of professional competence and maintenance of professional
competence. True
16. S1: Diligence encompasses the responsibility to act in accordance with the requirements of an assignment, carefully, thoroughly
and on a timely basis. True
S2: The need to comply with the principle of confidentiality continues even after the end of relationships between a professional
accountant and a client or employer. True
17. S1: A CPA holds a share of stock under his own name with an assurance client out of a million shares outstanding of the said client.
It is acceptable since the CPA holds only an immaterial amount of interest over the client. False
S2: When a member of the assurance team had recently been employed by the client in a position to exert significant influence
over the subject matter of the engagement, a familiarity threat arises. False
18. S1: Safeguards that may eliminate or reduce threats to an acceptable level fall into two broad categories: (a) Safeguards created
by the profession, legislation or regulation; and (b) Safeguards in the work environment. True
S2: The same team providing management consulting to a client can be the same team rendering assurance services for the same
client. False
19. S1: Immediate family member include spouse (or equivalent) and children who are dependents of the professional accountant.
True
S2: A professional accountant feeling pressured to agree with the judgment of a client employee because the employee has more
expertise on the matter in question gives rise to familiarity threat. False
20. S1: A member of the assurance team being, or having recently been, employed by the client in a position to exert significant
influence over the subject matter of the engagement gives rise to self-review threat. True
S2: A professional accountant in public practice shall not knowingly engage in any business, occupation, or activity that impairs or
might impair integrity, objectivity or the good reputation of the profession and as a result would be incompatible with the
fundamental principles. True

TEST II. MULTIPLE CHOICE. Select the letter that corresponds to the best answer. (1 point each)
1. Immediate family includes:
a. parent.
b. sibling.
c. non-dependent child.
d. spouse.
2. Which statement is incorrect regarding the Code of Ethics for Professional Accountants in the Philippines?
a. Professional accountants refer to persons who are registered in the PRC as Certified Public Accountants (CPA) and who hold
a valid certificate issued by the Board of Accountancy.
b. Where a national statutory requirement is in conflict with a provision of the IFAC Code, the IFAC Code requirement prevails.
c. The Code of Ethics for Professional Accountants in the Philippines is mandatory for all CPAs and is applicable to professional
services performed in the Philippines on or after June 30, 2008.
d. Professional accountants should consider the ethical requirements as the basic principles which they should follow in
performing their work.
3. The attainment of professional competence can be fulfilled by a combination of:
I. Period of work experience
II. High standard of professional education
III. High standard of general education
IV. Training and examination in professionally relevant subjects
What should be the logical pattern of the foregoing development for a professional accountant?
a. III, II, IV, I
b. III, I, II, IV
c. II, III, IV, I
d. II, III, I, IV
4. Which of the following is least likely the basis of determining audit fees?
a. The skill and knowledge required for the type of work involved.
b. The degree of responsibility and urgency that the work entails.
c. The expected outcome of the engagement.
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 d. The required level of training and experience of the persons engaged on the work.
5. Which of the following is a distinguishing mark of the accountancy profession?
a. A drive to excellence
b. Acceptance of the responsibility to act in the public interest
c. Professional objectivity
d. Professional skepticism
6. Which statement is incorrect regarding the Code of Ethics for Professional Accountants in the Philippines?
a. 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.
b. The code is divided into two parts, part A and part B.
c. Part A applies to all professional accountants unless otherwise specified.
d. Part B applies only to those professional accountants in public practice.
7. 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:
a. Objectivity
b. Professional competence and due care
c. Professional behavior
d. Integrity
8. Which of the following is not one of the fundamental principles of ethical conduct for professional accountants?
a. Integrity
b. Confidentiality
c. Loyalty
d. Professional competence and due care
9. 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 commercial bank?
a. Objectivity
b. Professional behavior
c. Confidentiality
d. Integrity
10. Which of the following is required to comply with the fundamental principle of professional competence and due care?
a. A professional accountant should not allow bias, conflict of interest or undue influence of others to override professional or
business judgment.
b. A professional accountant should act diligently and in accordance with technical and professional standards when providing
professional services.
c. A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the
profession.
d. The accountant should observe fair dealings and truthfulness.
11. The Code of Professional Ethics states, in part, that a CPA should maintain integrity and objectivity. Objectivity refers to the CPA's
ability to
a. determine accounting practices that were consistently applied.
b. maintain an impartial attitude on all matters which come under his review.
c. determine the materiality of items.
d. insist on all matters regarding audit procedures.
12. Which of the following statements about conceptual framework of the code of ethics is incorrect?
a. A conceptual framework that requires a professional accountant to identify, evaluate, and address threats to compliance
with the fundamental principles, rather than merely comply with a set of specific rules which may be arbitrary is in the public
interest.
b. As a concern to public interests, the professional accountant should comply with a set of specific rules rather than arbitrarily
identify, evaluate, and address threats to compliance with fundamental principles.
c. If identified threats are other than clearly insignificant, a professional accountant should appropriately apply safeguards to
eliminate the threats or reduce them to an acceptable level.
d. The Code provides a framework to assist a professional accountant to identify, evaluate and respond to threats to
compliance with the fundamental principles.
13. Which of the following is true of the conceptual framework approach?
a. It is impossible to define every situation that creates specific threats and specify the appropriate mitigating action.
b. A professional accountant should take qualitative but not quantitative factors into account when considering the significance
of a threat.
c. A professional accountant should take quantitative but not qualitative factors into account when considering the significance
of a threat.
d. All inadvertent violations of the code of Ethics, irrespective of their nature and significance, always compromise compliance
with the fundamental principles.
14. Which of the following appropriately describes an advocacy threat?
a. The professional accountant may be deterred from acting objectively by threats, actual or perceived.
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 b. Because of a close relationship, a professional accountant becomes too sympathetic to the interests of others.
c. The professional accountant provides a position or opinion to the point that subsequent objectivity may be compromised.
d. The professional accountant needs to reevaluate his previous judgment.
15. A threat that prevents the professional accountant from acting objectively by threats, actual or perceived.
a. Self-interest
b. Familiarity
c. Intimidation
d. Advocacy
16. A financial interest beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which the
individual or entity has no control.
a. Indirect financial interest
b. Financial instrument
c. Direct financial interest
d. Clients’ monies
17. Financial interest means:
a. Any bank account which is used solely for the banking of clients’ monies.
b. Any monies received by a professional accountant in public practice to be held or paid out on the instruction of the person
from whom or on whose behalf they are received.
c. A financial interest beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which
the individual or entity has no control.
d. An equity interest or other security, debenture, loan or other debt instrument of an entity, including rights and obligations
to acquire such an interest and derivatives directly related to such interest.
18. Safeguards created by the profession, legislation or regulation, include the following, except
a. Educational, training and experience requirements for entry into the profession.
b. Continuing education requirements.
c. Legislation governing the independence requirements of the firm.
d. Policies and procedures that emphasize the assurance client’s commitment to fair financial reporting.
19. Which of the following fundamental principles is compromised when a professional accountant is associated with reports or
returns that are significantly misleading?
a. Integrity
b. Competence and due professional care
c. Objectivity
d. Professional behavior
20. 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:
a. Must immediately resign from the engagement or the employing entity.
b. Should weigh the consequences of each possible course of action.
c. Should consult with other appropriate persons within the firm or employing organization for help to finally resolve the
matter.
d. The professional accountant may wish to obtain professional advice from the relevant professional body without breaching
confidentiality if significant conflict cannot be resolved.
21. The primary reason why a CPA firm sets up polices and procedures for quality control in its staff development is to
a. Reasonably assure that staff personnel will have the required knowledge to carry out professional responsibilities.
b. Comply with continuing education requirement currently imposed on all staff members.
c. Establish the level of staff knowledge of accounting and auditing.
d. Provide a continuing forum for staff to exchange experiences and ideas related to firm policies and procedures.
22. The nature and extent of a CPA firm’s quality control policies and procedures depend on
A b c d
The CPA firm’s size Yes Yes Yes No
The nature of the CPA firm’s practice Yes Yes No Yes
Cost-benefit consideration Yes No Yes Yes
23. The least important evidence of a CPA firm's evaluation of its system of quality controls would concern the CPA firm's policies and
procedures with respect to
a. Employment (hiring).
b. Confidentiality of audit engagements.
c. Assigning personnel to audit engagements.
d. Determination of audit fees.
24. In pursuing a CPA firm’s quality control objectives, a CPA firm may maintain records indicating which partners or employees of
the CPA firm were previously employed by the CPA firm’s clients. Which quality control objective would this be most likely to
satisfy?
a. Professional relationship. c. Independence.
b. Supervision. d. Advancement.
25. In pursuing its quality control objectives with respect to assigning personnel to engagements, a firm of independent auditors may
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 use policies and procedures such as
a. Designating senior qualified personnel to provide advice on accounting or auditing questions throughout the engagement.
b. Requiring timely identification of the staffing requirements of specific engagements so that enough qualified personnel can be
made available.
c. Establishing at entry level a policy for recruiting that includes minimum standards of academic preparation and accomplishment.
d. Requiring auditing personnel to have current accounting and auditing literature available for research and reference purposes
throughout the engagement.
26. Which of the following is not likely a quality control procedure on consultation?
a. Identifies areas and specialized situations where consultation is required and encourage personnel to consult with or in use
authoritative sources on other complex matters.
b. Designates individuals as specialists to serve as authoritative sources and define their authority in consultative situations.
c. Assigns an appropriate person or persons to be responsible for assigning personnel to audits.
d. Specifies the extent of documentation to be provided for the result of consultation in those areas and specialized situations
where consultation is required.
27. Monitoring, as an element of quality control policies of a firm, requires:
a. Providing reasonable assurance that the firm’s other quality control policies and procedures are effectively operating.
b. Designates individuals as specialists to serve as authoritative sources and define their authority in consultative situations.
c. Ensuring that personnel are sufficiently directed, supervised and their work being reviewed adequately.
d. Identify the right personnel to be assigned in an audit engagement.
28. Which of the following quality control procedures is a monitoring activity?
a. Evaluates the firm’s independence and its ability to serve the prospective client
b. Reviews and tests compliance with the firm’s general quality control policies and procedures.
c. Designates individuals as specialists to serve as authoritative sources and define their authority in consultative situations.
d. Monitors continuing professional education programs and maintain appropriate records, both on a firm and an individual
audit engagement basis.
29. Before accepting an audit engagement, you as the successor auditor would least likely make specific inquiries of the previous
auditor regarding
a. Facts that might bear on the integrity of management.
b. The degree of cooperation the previous auditor received from the client’s lawyer.
c. An inquiry regarding disagreements with management as to auditing procedures.
d. The predecessor auditor’s understanding as to the reasons for the change of auditors.
30. The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of
an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter’s resolution, the CPA firm’s
procedures should enable the assistant to
a. Refer the disagreement to the PICPA’s Quality Review Committee.
b. Document the details of the disagreement with the conclusion reached.
c. Discuss the disagreement with the entity’s management or its audit committee.
d. Report on the disagreement to an impartial peer monitoring team.

End of Examination

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