51-102 THE CPA'S PROFESSIONAL RESPONSIBILITIES
69. A close business relationship between a firm or a member of the audit team, or a member of that individual's immediate family, and the audit client or its management may create A. Self-interest and intimidation threats B. Self-review and familiarity threats C. Advocacy and self-review threats D. Self-interest and self-review threats
A
72. Which of the following would not generally create a threat to independence? A. The purchase of goods and services from an assurance client by the firm (or from a financial statement audit client by a network firm) or a member of the assurance team provided that the transaction is in the normal course of business and on an arm's length basis. B. A partner or employee of the firm or a network firm serves as Company Secretary for a financial statement audit client. C. Determining which recommendations of the firm should be implemented. D. Reporting, in a management role, to those charged with governance.
A
75. The following statements relate to the provision of taxation, internal audit or IT Systems services to audit clients. Which is false? A. Preparing calculations of current and deferred tax liabilities (or assets) for an audit client for the purpose of preparing accounting entries that will be subsequently audited by the firm creates a self-interest threat. B. A self-review threat may be created when a firm, or network firm, provides internal audit services to an audit client. C. 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 create a self-review threat. D. The provision of services in connection with the assessment, design, and implementation of internal accounting controls and risk management controls does not create a threat to independence provided that firm or network firm personnel do not perform management functions.
A
90. The following statements relate to the provision of legal services to an audit client. Which is incorrect? A. The provision of legal services to an audit client involving matters that would not be expected to have a material effect on the financial statements may create a self-review threat. B. Legal services to support an audit client in the execution of a transaction (e.g., contract support) may create a self-review threat. C. Acting for an audit client in the resolution of a dispute or litigation in such circumstances when the amounts involved are material in relation to the financial statements of the audit client would create advocacy and self-review threats so significant no safeguards could reduce the threats to an acceptable level. D. The appointment of a partner or an employee of the firm or network firm as General Counsel for legal affairs to an audit client would create self-review and advocacy threats that are so significant no safeguards could reduce the threats to an acceptable level.
A
92. Which of the following threats to independence may be created by family and personal relationships between a member of the assurance team and a director, an officer, or an employee of the assurance client in a position to exert direct and significant influence over the subject matter information of the assurance engagement? A. Self-interest, familiarity or intimidation threats B. Self-review, familiarity, or advocacy threats C. Advocacy, familiarity or self-review threats D. Self-interest, advocacy or self-review threats
A
96. As defined in PSQC 1, __________ is a process comprising an ongoing consideration and evaluation of the firm's system of quality control, including a periodic inspection of a selection of completed engagements, designed to provide the firm with reasonable assurance that its system of quality control is operating effectively. A. Monitoring B. Inspection C. Engagement quality control review D. Supervision
A
99. For audits of financial statements of listed entities, the engagement partner should not issue the auditor's report until the completion of the A. Engagement Quality Control Review B. Management Review C. Engagement Team Review D. Engagement Partner Review
A
71. Which of the following threats to independence is created when a member of the assurance team participates in the assurance engagement while knowing, or having reason to believe, that he is to, or may, join the assurance client sometime in the future? A. Intimidation threat B. Self-interest threat C. Self-review threat D. Familiarity threat
B
67. Jayson, CPA, was offered the engagement to audit W Corporation for the year ended December 31, 2016. He had served as a director of W Corporation until December 31, 2014, and his spouse currently owns 6,000 of the 100,000 outstanding share capital of W Corporation. Jayson disassociated from W Corporation prior to being offered the engagement. Moreover, the engagement does not cover any period that includes Jayson's association or employment with W Corporation. Under the code of ethics, Jayson should A. Accept the engagement. B. Let a partner from the same office accept and conduct the engagement. C. Refuse the engagement because he had served as a director. D. Refuse the engagement because of his spouse's stock ownership.
D
91. When a close family member of a member of the assurance team is a director, an officer, or an employee of the assurance client in a position to exert direct and significant influence over the subject matter information of the assurance engagement, threats to independence may be created. If the threats are other than clearly insignificant, which of the following safeguards can be applied to reduce the threats to an acceptable level? I. Removing the individual from the assurance team. II. Where possible, structuring the responsibility of the assurance team so that the professional does not deal with matters that are within the responsibility of the close family member. III. Policies and procedures to empower staff to communicate to senior levels within the firm any issue of independence and objectivity that concerns them. A. I and II only B. II and III only C. I and III only D. I, II, and III
D
95. The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to A. Anticipate before performing any fieldwork whether an unqualified opinion can be expressed. B. Enable the CPA firm to attest to the reliability of the client. C. Satisfy the CPA firm's duty to the public concerning the acceptance of new clients. D. Minimize the likelihood of association with clients whose management lacks integrity.
D
89. What threat to independence may be created when the fees generated by the assurance client represent a large proportion of the revenue of an individual of the firm? A. Self-review threat B. Familiarity threat C. Self-interest threat D. Advocacy threat
C
52. Which part of the Code establishes the fundamental principles of professional ethics for professional accountants and provides a conceptual framework that professional accountants shall apply to identify threats to compliance with the fundamental principles, evaluate the significance of the threats identified, and apply safeguards, when necessary, to eliminate the threats or reduce them to an acceptable level? A. Part A. B. Part B. C. Part C. D. Part D.
A
53. The threat that a professional accountant will be deterred from acting objectively because of actual or perceived pressures from the client is known as A. Intimidation threat B. Familiarity threat. C. Self-interest threat. D. Advocacy threat.
A
55. Familiarity threat could be created under the following circumstances except A. A professional accountant accepting gifts from a client whose value is inconsequential or trivial. B. Senior personnel having a long association with the assurance client. C. A director or officer of the client or an employee in a position to exert significant influence over the subject matter of the engagement having recently served as the engagement partner. D. A member of the engagement team having a close or immediate family member who is a director or officer of the client.
A
56. This threat to independence occurs when a member of the assurance team has recently performed services for an assurance client that directly affect the subject matter information of the assurance engagement (e.g., valuation services). A. Self-review threat. B. Advocacy threat. C. Self-interest threat. D. Familiarity threat.
A
57. Which of the following circumstances may create advocacy threat for a professional accountant in public practice? A. The firm promoting shares in an audit client. B. A firm issuing an assurance report on the effectiveness of the operation of financial systems after designing or implementing the systems. C. A firm being threatened with dismissal from a client engagement. D. A firm being concerned about the possibility of losing a significant client.
A
63. Financial interests may be held through an intermediary (for example, a collective investment vehicle, estate or trust). When control over the investment vehicle or the ability to influence investment decisions exists, the code defines that financial interest to be a/an A. Direct financial interest. B. Material direct financial interest. C. Indirect financial interest. D. Material indirect financial interest.
A
65. The concept of materiality is least important to an auditor when considering the A. Effects of a direct financial interest in the client upon the auditor's independence. B. Decision whether to use positive or negative confirmations of accounts receivable. C. Adequacy of disclosure of a client's illegal act. D. Discovery of weaknesses in a client's internal control.
A
66. A direct financial interest or a material indirect financial interest in the audit client of a member of the audit team or his immediate family member may create a significant self-interest threat. Which of the following safeguards would be least likely considered to eliminate the threat or reduce it to an acceptable level? A. Discuss the matter with those charged with governance of the audit client. B. Dispose of the direct financial interest prior to the individual becoming a member of the audit team. C. Dispose of the indirect financial interest in total or dispose of a sufficient amount of it so that the remaining interest is no longer material prior to the individual becoming a member of the audit team. D. Remove the member of the audit team from the audit engagement.
A
76. What threat to independence is created when the litigation support services provided to an audit client include the estimation of the possible outcome and thereby affects the amounts or disclosures to be reflected in the financial statements? A. Self-review threat B. Advocacy threat C. Intimidation threat D. Familiarity threat
A
78. When the total fees generated by an assurance client represent a large proportion of a firm's total fees, the dependence on that client or client group and concern about the possibility of losing the client may create a/an A. Self-interest threat B. Self-review threat. C. Intimidation threat D. Advocacy threat
A
80. These are fees 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. Fixed fees C. Predetermined fees D. Commissions.
A
82. As defined in the Code of Ethics, __________ is the communication to the public of information as to the services or skills provided by professional accountants in public practice with a view to procuring professional business. A. Advertising B. Publicity C. Solicitation D. Marketing professional services
A
85. The holding of media-covered events undertaken only to commemorate a professional accountant's anniversaries in public practice does not violate the rules on advertising and solicitation provided that such undertaking should be done only every _____ years of celebration. A. 5 B. 10 C. 20 D. 25
A
81. Which of the following threats to independence may be created when litigation takes place, or appears likely, between the firm or a member of the assurance team the assurance client? A. Self-interest or advocacy threat B. Advocacy or intimidation threat C. Self-interest or intimidation threat D. Familiarity or self-review threat
C
100. Who should take responsibility for the overall quality on each audit engagement? A. Engagement quality control reviewer B. Engagement partner C. Engagement team D. CPA firm
B
88. When a firm obtains an assurance engagement at a significantly lower fee level than that charged by the predecessor firm, or quoted by other firms, the self-interest threat created will not be reduced to an acceptable level unless I. The firm is able to demonstrate that appropriate time and qualified staff are assigned to the task. II. All applicable assurance standards, guidelines, and quality control procedures are being complied with. A. I only B. II only C. Both I and II D. Neither I nor II
C
59. Which of the following is an example of engagement-specific safeguards in the work environment? A. Advising partners and professional staff of those assurance clients and related entities from which they must be independent. B. Disclosing to those charged with governance of the client the nature of service provided and extent of fees charged. C. A disciplinary mechanism to promote compliance with the firm's policies and procedures. D. Published policies and procedures to encourage and empower staff to communicate to senior levels within the firm any issue relating to compliance with the fundamental principles that concerns them.
B
60. According to Section 240 of the Code of Ethics, fees charged for assurance engagements should be a fair reflection of the value of the work involved. In determining professional fees, the following should be taken into account, except A. The time necessarily occupied by each person engaged on the work. B. The outcome or result of a transaction or the result of the work performed. C. The skill and knowledge required for the type of work involved. D. The level of training and experience of the persons necessarily engaged on the work.
B
79. What threat to independence may be created if fees due from an assurance client for professional services remain unpaid for a long time, especially if a significant part is not paid before the issue of the assurance report for the following year? A. Advocacy threat B. Self-interest threat C. Intimidation threat D. Self-review threat
B
83. As defined in the Code of Ethics, __________ is the communication to the public of facts about a professional accountant which are not designed for the deliberate promotion of that professional accountant. A. Advertising B. Publicity C. Solicitation D. Marketing professional services
B
84. Which of the following statements concerning publicity is incorrect? A. 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. B. Professional accountants who author books or articles on professional subjects may state their name and professional qualifications; give the name of their organization; and give any information as to the services that the firm provides. C. Appropriate newspapers or magazines may be used to inform the public of the establishment of a new practice, of changes in the composition of a partnership of professional accountants in public practice, or of any alteration in the address of a practice. D. A professional accountant may develop and maintain a website in the Internet in such suitable length and style which may also include announcements, press releases, publications and such other necessary and factual information.
B
101. The engagement partner should take responsibility for the direction, supervision, and performance of the audit engagement in compliance with professional standards and regulatory and legal requirements, and for the auditor's report that is issued to be appropriate in the circumstances. Supervision includes the following, except A. Tracking the progress of the audit engagement. B. Addressing significant issues arising during the audit engagement, considering their significance, and modifying the planned approach appropriately. C. Informing the members of the engagement team of their responsibilities. D. Identifying matters for consultation or consideration by more experienced engagement team members during the audit engagement.
C
51. Which of the following statements best explains why the CPA profession has found it essential to establish ethical standards and means for ensuring their observance? A. Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts. B. Ethical standards that emphasize excellence in performance over material rewards establish a reputation for competence and character. C. A distinguishing mark of a profession is its acceptance of responsibility to the public. D. A requirement for a profession is to establish ethical standards that stress primarily a responsibility to clients and colleagues.
C
61. In the case of audit engagements, it is in the public interest and, therefore, required by the Code that members of audit teams, firms and network firms shall be independent of audit clients. Independence requires A. Independence of mind only. B. Independence in appearance only. C. Both independence of mind and independence in appearance D. Either independence of mind or independence in appearance
C
70. When an immediate family member of a member of the assurance team is a director, an officer, or an employee of the assurance client in a position to exert direct and significant influence over the subject matter information of the assurance engagement, or was in such a position during the period covered by the engagement, the threats to independence can only be reduced to an acceptable level by A. Where possible, structuring the responsibilities of the assurance team so that the professional does not deal with matters that are within the responsibility of the immediate family member. B. Withdrawing from the assurance engagement. C. Removing the individual from the assurance team. D. Discussing the issue with those charged with governance, such as the audit committee.
C
73. The following forms of assistance to a financial statement audit client do not generally threaten the firm's independence, except A. Analyzing and accumulating information for regulatory reporting. B. Assisting in resolving account reconciliation problems. C. Authorizing or approving transactions. D. Assisting in the preparation of consolidated financial statements.
C
74. As defined in the Code, "a valuation comprises the making of assumptions with regard to future developments, the application of certain methodologies and techniques, and the combination of both in order to compute a certain value, or range of values, for an asset, a liability or for a business as a whole." Which of the following threats may be created when a firm or a network firm performs valuation for an audit client that is to be incorporated in the client's financial statements? A. Advocacy threat B. Familiarity threat C. Self-review threat D. Intimidation threat
C
97. Which element of a system of quality control is addressed by the establishment of policies and procedures designed to provide the firm with reasonable assurance that it has sufficient personnel with the competence, capabilities, and commitment to ethical principles? A. Monitoring B. Leadership responsibilities for quality within the firm C. Human resources D. Engagement performance
C
68. A loan, or guarantee of a loan, to the firm from an audit client that is a bank or a similar institution, would not create a threat to independence provided I. The loan, or guarantee, is made under normal lending procedures, terms and requirements. II. The loan is immaterial to both the firm receiving the loan and the audit client. A. I only B. II only C. Neither I nor II D. Both I and II
D
54. Which of the following will not create self-interest threat for a professional accountant in public practice? A. The possibility of losing a significant client. B. Direct financial interest in the assurance client. C. Undue dependence on total fees from a client. D. Preparing the original data used to generate records that are the subject matter of the assurance engagement.
D
58. The following circumstances may create intimidation threats, except A. Being threatened with dismissal or replacement in related to a client engagement. B. Being pressured to reduce inappropriately the extent of work performed in order to reduce fees. C. Being threatened with litigation. D. A member of the assurance team being, or having recently been, a director or officer of the client.
D
62. When the professional accountant determines that appropriate safeguards are not available or cannot be applied to eliminate the threats to independence or reduce them to an acceptable level, the professional accountant shall I. Eliminate the circumstance or relationship creating the threats. II. Decline or terminate the audit engagement. A. I only B. II only C. Neither I nor II D. Either I or II
D
64. Holding a financial interest in an audit client may create a self-interest threat. The existence and significance of any threat created depends on I. The role of the person holding the financial interest. II. Whether the financial interest is direct or indirect. III. The materiality of the financial interest. A. I and II only. B. I and III only. C. II and III only. D. I, II, and III.
D
77. The recruitment of senior management for an assurance client, such as those in a position to affect the subject matter of the assurance engagement, may create the following current or future threats to independence, except A. Self-interest threat B. Familiarity threat C. Intimidation threat D. Self-review threat
D
86. A professional accountant in public practice is allowed to A. Refer to, use or cite actual or purported testimonials by third parties. B. Publish services in billboard (e.g., tarpaulin, streamers, etc.) advertisements. C. Publish and compare fees with other CPAs or CPA firms or compare those services with those provided by another firm or CPA practitioner. D. Inform interested parties through any medium that a partnership or salaried employment of an accountancy nature is being sought.
D
87. After evaluating the significance of the threat created by an actual or threatened litigation, the following safeguards should be applied to reduce the threat to an acceptable level, except A. Disclosing to the audit committee, or others charged with governance, the extent and nature of the litigation. B. If the litigation involves a member of the assurance team, removing that individual from the assurance team. C. Involving an additional professional accountant in the firm who was not a member of the assurance team to review the work or otherwise advise as necessary. D. Withdraw from, or refuse to accept, the assurance engagement.
D
93. The following circumstances create advocacy threats for a professional accountant in public practice except A. Promoting shares in an audit client. B. Acting as an advocate on behalf of an audit client in litigation or disputes with third parties. C. Acting as campaign manager for the president of a client who is running for a public office. D. A member of the assurance team having a significant close business relationship with an assurance client.
D