Ethics for Accounting

Ethics: Theories

Multiple Choice. Determine the correct answer from the given choices.

1. A CPA who is engaged to prepare an income tax return has a duty to prepare it in such a manner that the tax is

a. The legal minimum

b. Computed in conformity with generally accepted accounting principles

c. Supported by the client's audited financial statements

d. Not subject to change upon audit

2. Under which of the following circumstances would the independence of a CPA be considered impaired if the CPA, who is also an attorney, serves as auditor and provides legal services to the same client?

a. When the CPA, as legal agent, consummates a business acquisition for the client

b. When the CPA's audit fees and legal fees are not billed separately

c. When the CPA uses legal expertise to research a question of income tax law

d. When the legal services consist of an analysis of the terms of a lease agreement

3. In which of the following circumstances would a CPA be bound by ethics to refrain from disclosing any confidential information obtained during the course of a professional engagement?

a. The CPA is issued a summons enforceable by a court order which orders the CPA to present confidential information

b. A major stockholder of a client company seeks accounting information from the CPA after management declined to disclose the requested information

c. Confidential client information is made available as part of a quality review of the CPA's practice by a peer review team authorized by the PICPA

d. An inquiry by a disciplinary body of CPA society requests confidential client information

4. Which of the following is not prohibited by the Code of Ethics for Professional Accountants in the Philippines?

a. Advertising and solicitation of clients

b. Payment of commission to obtain a client

c. Receiving a contingent fee on a tax case before the Bureau of Internal Revenue

d. Offering employment to staff member of another CPA without first informing the CPA

5. A practicing CPA is allowed by the CPA Code of Ethics to do the following, except

a. Announce the change in office location in a newspaper

b. List his firm name in a building lobby directory in good taste and modest size

c. Include his tax account number and membership in PICPA on his stationery

d. List his office telephones in the PLDT directory to box or bold type

6. Which of the following is not one of the grounds for proceeding against a CPA?

a. Gross negligence or incompetence in the practice of his profession

b. Engaging in public practice while being employed in a private enterprise

c. Insanity

d. Immoral or dishonorable conduct

7. The CPA profession deemed it necessary to establish a Code of Ethics and a mechanism to its enforcement because

a. An ethical code that stresses the CPA's responsibility to clients and colleagues is a prerequisite to success

b. A requirement of law provides that CPAs establish a code of ethics

c. Acceptance of responsibility to the public is a distinguishing mark of a profession

d. The establishment of flexible ethical standards provides self-protection for CPAs e. None of the above

8. When a company has charged auditors, according to the Professional Standards

a. The successor auditor has the responsibility to initiate contact with the predecessor auditor to ask about the client before the engagement is accepted, the predecessor has no responsibility to initiate this contact, even when aware of matters bearing on the integrity of management

b. The predecessor must respond fully to all inquiries made by the successor auditor

c. The successor must discuss with the predecessor matters bearing on engagement prior to accepting the engagement

d. The successor may choose not to attempt any communication with the predecessor auditor

9. During the course of an audit, the independent CPA is often called upon to give informal advice on many diverse questions. This type of service differs from management advisory services in that this type on services is informal and therefore

a. The CPA does not make any warranties with respect to the competence of the extemporaneous

b. The CPA is not exposed to liability as a consequence of the extemporaneous advice

c. No presumption should exist that all pertinent facts have been identified and considered

d. No presumption should exist that the advice will impact upon the operations of the business enterprise

10. Which of the following is prohibited by the Code of Ethics for Professional Accountants in the Philippines?

a. Use of a firm name which includes the name of retired partner

b. Announcement in a newspaper of the opening of a public accounting office

c. Engaging in civic activities during business hours

d. Accepting an engagement or employment which one cannot reasonably expect to complete or discharge with professional competence

11. In the preparation of an income tax return, the CPA is expected to

a. Take a position of client advocacy

b. Take a position of independent neutrality

c. Present the taxable net income in the audited financial statements conform with the taxable net income in the income tax return

d. Present the expenses in the audited financial statements conform with the deductions in the income tax return

12. Which of the following is prohibited by the Code of Professional Ethics?

a. Use of a firm name which indicates specialization

b. Listing educational attainment in application for employment

c. Use of partnership name for a limited period by one of the partners in a public accounting firm after the death or withdrawal of all other partners

d. Holding as an investment 10 of 1,000 outstanding shares in a commercial corporation which performs bookkeeping services

13. Metilla, a non-CPA, has a law practice. Metilla has recommended one of his clients to Gevera, CPA. Gevera has agreed to pay Metilla 10% of the fee for services rendered by Gevera to Metilla's client. Who, if anyone, is in violation of the Code of Ethics?

a. Both Metilla and Gevera

b. Only Metilla

c. Neither Metilla nor Gevera

d. Only Gevera

14. Jade, CPA performs accounting services for Pryce Tower. Tower wishes to offer its shares to the public and asks Jade to audit the financial statements prepared for registration purposes. Jade refers Tower to Ryan, CPA, who is more competent in the area of registration statements. Ryan performs the audit of Tower's financial statements and subsequently thanks Jade for the referral by giving Jade a portion of the audit fee collected. Jade accepts the fee. Who, if anyone, has violated professional ethics?

a. Only Jade

b. Only Ryan

c. Both Jade and Ryan

d. Neither Jade nor Ryan

15. Inclusion of which of the following in a promotional brochure published by a CPA firm would most likely to result in a violation of the Code of Ethics?

a. Names and addresses, telephone numbers, number of partners, office hours, foreign language competence, and date the firm was established

b. Services offered and fees for such services, including hourly rates and fixed fees

c. Educational and professional attainments, including date and place of certification, degrees received and membership in professional associations

d. Names, addresses and telephone numbers of the firm's clients, including the number of years served.

16. Which of the following is allowable under the rules against advertising?

a. A news item relating to a technical paper read by a CPA at a seminar

b. A bold listing of the CPA's name and address in a telephone directory

c. An announcement as to the taxation services by the CPA

d. A letter to trade chamber offering audit services at reduced group rates

17. Ethically, the auditor could

a. Advertise only as to his expertise in preparing income tax returns

b. Base his audit fee on a percentage of the proceeds of his client's stock issue

c. Own preferred stock in a corporation which is an audit client

d. Perform an examination for a financially distressed client at less than his customary fees

18. The CPA firm should not

a. Render management consulting services to an audit client

b. Apply for a position with another firm without informing his present employer

c. Advise clients and professional contracts of the opening of a new office

d. Describe himself as tax expert or management consulting specialist

19. An auditing firm is allowed to offer employment to an employee of another CPA in a public practice if the CPA

a. Inform the other CPA in public practice prior to making the offer

b. Makes the offer verbally to an employee who is not a CPA

c. Makes the offer on behalf of an audit client

d. Has an executive search staff that is involved in personnel placement

20. The following act when committed by a CPA constitutes a violation of the Code of Ethics. Which is it?

a. Rendering management services to a company which is at the same time an audit client

b. Offering a position with higher salary to a staff member of another CPA

c. Charging a professional fee on the savings gained by a client on a tax case

d. Answer not given.

21. The Code of Ethics provides that when a CPA is required to express an opinion on combined or consolidated financial statements which include a subsidiary, branch, or other component audited by independent public accountant, the CPA may

a. Insist on auditing any such component which the CPA deems necessary to warrant the expression of an opinion

b. Insist only on performing a review of any such component

c. Not insist on auditing any such component but may request copies of all working papers relevant to the other independent public accountant's examinations

d. Not insist on auditing any such component or reviewing working papers belonging to the other independent public accountant.

22. A CPA accepts an engagement for a professional service without violating the rules of Professional Conduct if the service involves

a. The preparation of cost projections for submission to a government agency as an application for a rate increase, and the fee will be paid if there is a rate increase

b. Tax preparation, and the fee will be based on whether the CPA signs the tax return prepared

c. A litigatory, and the fee is not known but it is to be determined by a district court

d. Tax return preparation and the fee is to be based on the amount of taxes saved

23. Contingent fees charged by CPAs engaged in tax practice are permitted under the rules of professional conduct because

a. This practice establishes fees which are commensurate with the value of the services

b. Attorneys in tax practice customarily set contingent fees

c. Determination by taxing authorities are a matter of judicial proceedings which do not involve third parties

d. The consequences are based upon findings of judicial proceedings or the findings of tax authorities

24. Which of the following would be considered a contingent fee? A fee based upon

a. Percentage of the acquisition

b. Amount of taxes saved

c. Percentage of the total amount of bond issue

d. The amount of insurance settlement e. All of the above

25. A CPA examines the financial statements of a local bank. According to the Code of Ethics, the appearance of independence ordinarily would not be impaired if the CPA

a. Serves on the bank's committee that approves loans

b. Owns several shares of the bank's common stock

c. Obtains a short-term loan from the bank

d. Uses the bank's timesharing computer service to solve client-related problems

26. The objectives of the Revised Accountancy Law are the following, except:

a. Standardization and regulation of accounting education.

b. Examination of registration of certified public accountants.

c. Supervisions, control and regulation of the practice of accountancy.

d. Integration of accountancy profession.

27. Which of the following is the least function of the Board of Accountancy?

a. Determination of the minimum requirements leading to the admission of candidates to the CPA examinations.

b. Preparation of the contents of the CPA licensure examinations and rating of the examination papers.

c. Regulation of the practice of accountancy.

d. Supervision of the accredited professional organizations of CPAs.

28. A CPA certificate is evidence of

a. Recognition of independence

b. Basic competence at the time the certificate is granted.

c. Culmination of the educational process.

d. Membership in the PICPA.

29. Under Section 20 of RA 9298, the Certificate of Registration shall bear the signature of the following, except:

a. The chairperson of the Professional Regulation Commission

b. The chairman of the Board of Accountancy

c. The members of the Board of Accountancy

d. The person named in the Certificate of Registration

30. Which of the following is not one of the grounds for proceedings against a CPA?

a. Gross negligence or incompetence in the practice of his profession.

b. Engaging in public practice while being employed in a private enterprise.

c. Insanity

d. Immoral or dishonored conduct.

31. The Accountancy Law provides that all working papers made during an audit shall be the property of the auditor. These working papers shall include the following, except:

a. Schedules and memoranda made by the CPA and his staff.

b. Working papers prepared and submitted by the client.

c. Excerpts or copies of documents furnished the auditor.

d. Reports submitted by the CPA to the client.

32. Which statement is incorrect regarding Continuing Professional Education (CPE)?

a. CPE refers to the inculcation, assimilation and acquisition of knowledge, skills, proficiency and ethical and moral values, after the initial registration of a professional that raise and enhance the professional's technical skills and competence.

b. The total CPE credit units required for CPAs shall be ninety (90) units for three (3) years, provided that a minimum of fifteen (15) credit units shall be earned in each year.

c. Any excess credit units in one year may be carried over to the succeeding years within the three-year period.

d. CPE credit units shall be granted only to accredited programs and providers.

33. The following statements relate to the Philippine Accountancy Act of 2004. Which statement is false?

a. The Professional Regulation Commission has the authority to remove any member of the Board of Accountancy for negligence, incompetence, or any other just cause.

b. Any candidate who fails in two complete CPA Board Examinations shall be disqualified from taking another set of examinations unless he/she submits evidence to the satisfaction of the Board that he/she enrolled in and completed at least twenty-four (24) units of subject given in the licensure examination.

c. All licensed certified public shall obtain and use a seal of a design prescribed by the Board bearing the registrar's name, registration number and title.

d. After two years, subject to certain conditions, the Board of Accountancy may order the reinstatement of a CPA whose certificate of registration has revoked.

34. A certificate of accreditation shall be issued to certified public accountants in public practice only upon showing, in accordance with rules and regulations promulgated by the Board and approved by the Commission, that such registrant has acquired how many years of meaningful experience in any of the areas of public practice?

a. One

b. Two

c. Three

d. Four

35. Which of the following is not an objective of requiring registration of individual Certified Public Accountants and Firms or Partnerships of CPAs engaged in public accounting practice?

a. The required registration will give equal opportunities to CPAs in the practice of their profession.

b. It will enable the Board of Accountancy to formulate and implement rules and regulations more effectively for the enhancement and maintenance of high professional, ethical, and technical standards of the accounting profesion.

c. To protect the public against fraud, deception, unethical practices and from the consequences of ignorance, incompetence and incapacity in the practice of public accounting.

d. It will help PRC and BOA to identity and improve corresponding sanctions and penalties on individual CPAs.

36. In contrast with the Auditing Standards and Practices Council, the Auditing and Assurance Standards Council has how many members?

a. 15 members (including Chairman), compared to the ASPC's 17 members.

b. 14 members (including Chairman), compared to the ASPC's 17 members.

c. 17 members (including Chairman), compared to the ASPC's 15 members.

d. 17 members (including Chairman), compared to the ASPC's 14 members.

37. The IRR had the following provisions regarding the registration and accreditation of CPAs engaged in the practice of public accountancy. Which statement is incorrect?

a. A CPA shall practice only under an individual, firm or partnership name allowed in accordance with Philippine laws and shall not include any fictitious name, indicates specialization or is misleading as to the type of organization.

b. A partner surviving the death or withdrawal of all the other partners in a partnership may continue to practice under the partnership name for a period of at least two (2) years after becoming a sole proprietor.

c. Under no circumstances shall the correspondent relationship, membership or business dealings with foreign CPAs be a scheme for the foreign CPAs to engage in practice of public accountancy in the Philippines who/which under the present laws are limited to Filipino CPAs.

d. The Board shall duly authenticate all applications for registration received in proper form and as necessary recommend to the Commission the approval or denial thereof not later than 90 days after receipt of applications and related documents.

38. The continuing professional education program mentioned in the IRR shall have the following objectives, except:

a. To raise and maintain the professional's capability for delivering professional services.

b. To promote the general welfare of the public.

c. To provide and ensure the continuous education of accountancy students with the latest trends in the profession brought about by modernization and scientific and technological advancement.

d. To attain and maintain the highest standards and quality in the practice of the profession.

39. Mrs. Leslie, CPA has released a 1,200 page book on Auditing Problems. Technically, her work falls under "authorship" for purposes of CPA credits. Credits earned by Mrs. Leslie must be claimed:

a. Within six days from date of publication.

b. Within six months from date of publication.

c. Within 1 year from date of publication.

d. Within 3 years from date of publication.

40.A CPA must earn at least 60 credit units for three years, with a minimum of 15 credit units earned per year. Excess credit units, if any, shall not be carried over to the next three-year period, except:

a. Credit units earned for serving as professorial chair.

b. Credit units earned for authoring an article of national significance.

c. Credit units earned for an invention of significance to the profession.

d. Credit units earned for doctoral or masteral degrees.

41.A registered professional shall be permanently exempted from CPE requirements upon reaching the age of

a. 56 years old

b. 60 years old

c. 65 years old

d. 70 years old

42.The Board of Accountancy shall be composed of a chairman and

a. Eight (8) members

b. Seven (7) members

c. Six (6) members

d. Nine (9) members

43.This shall constitute in a person involved in decision making requiring professional knowledge in the science of accounting, or when such employment or position requires that the holder thereof must be a Certified Public Accountant.

a. Practice in Commerce and Industry

b. Practice in Public Accountancy

c. Practice in Education/Academe

d. Practice in the Government

44.Which is the following most describes the function of AASC?

a. To monitor full compliance by auditors to PSAs.

b. To promulgate auditing standards, practices, and procedures that shall be generally accepted by the accounting profession in the Philippines.

c. To assists the Professional Regulation Board of Accountancy in conducting administrative proceedings on erring CPAs in audit practice.

d. To understand continuing research on both auditing and financial accounting in order to make them responsive to the needs of the public.

45.The auditing standards, practices, and procedures promulgated by Auditing and Assurance Standard Council (AASC) shall include the following, except:

a. Definition of the nature and extent of the auditor's responsibilities.

b. Guidance to the auditor in carrying out his duties enabling the auditor to express an opinion on the reliability of the representation on which the auditor is reporting.

c. Description of specific audit procedures for special engagements.

d. Special provision, where appropriate, to meet the needs of the small enterprises.

46.Nine out of 14 regular member of AASC shall come from which of the following:

a. Board of Accountancy

b. Accredited Professional Organization (APO)

c. Independent auditing firms

d. ACPAPP

47.The following statements relate to the CPA examination ratings. Which statement is incorrect:

a. To pass the examination, candidate should obtain a generally weighted average of 75% and above, with no rating in any subject less than 65%.

b. Candidates who obtain a rating of 75% and above in at least four subjects shall receive a conditional credit for the subjects passed.

c. Conditioned candidates shall take an examination in the remaining subject within two years from the preceding examination.

d. Candidates who fail in four complete CPA Examinations shall no longer be allowed to take the examination in fifth time.

48.Which of the following is not one of the penalties that can be imposed by the Professional Regulation Board of Accountancy?

a. Reprimand

b. Suspension of CPA Certificate

c. Revocation of CPA Certificate

d. Fine or imprisonment

49.Following statements relate to the Professional Regulation Board of Accountancy. Which statement is correct?

a. The board consists of a Chairman and Five members.

b. The chairman and members are appointed by the President of the Philippines upon recommendation of the Accredited Professional Organization (APO).

c. No person shall be appointed a member of the Board unless he is a citizen of the Philippines as a duly registered CPA and has been in the practice of accountancy for at least ten years.

d. The Professional Regulation Commission may remove from the Board any member whose certificate to practice has been revoked or suspended.

50.In all of the following situations except one, a person is deemed to be engaged in the professional accounting practice. Which is the exception?

a. Performing audits or verification of financial transactions and records for more than one client.

b. Teaching accounting courses in a collegiate program leading to the degree of Bachelor of Science in Accountancy.

c. Employment as controller or a private business enterprise regardless of whether such employment requires that the holder thereof should be a CPA.

d. Appointment to an accounting position in the government and civil service eligibility as a CPA is a pre-requisite.

51.No person shall serve the Professional Regulatory Board of Accountancy for more than

a. 3 years

b. 8 years

c. 9 years

d. 12 years

52.The lead engagement partner should be rotated after a pre-defined period, normally no more than

a. 2 years

b. 3 years

c. 5 years

d. 7 years

53.A person is not considered in the practice of accountancy in education if in an educational institution, he teaches

a. Humanities

b. Financial Accounting

c. Management Advisory Services

d. Business Law

54.A council created by the Professional Regulation Commission upon the recommendation of the Board of Accountancy to assist the BOA in the promulgation of accounting standards is known as

a. Education Technical Council

b. Auditing and Assurance Standards Council

c. CPE Council

d. Financial Reporting Standards Council

55.All of the following are objectives of RA 9298, except one. Which is it?

a. Standardization and regulation of accounting education

b. Examination for registration of certified public accountants

c. Integration of the accountancy profession

d. Supervision, control and regulation of the practice of accountancy in the Philippines

56.All of the following are qualifications of members of the Professional Regulatory Board of Accountancy, except one. Which is it?

a. Must be a naturalized citizen of the Philippines

b. Must be a duly Certified Public Accountant with at least 10 years of work experience in any scope of practice

c. Must be of good moral character

d. Must not have any pecuniary interest in an institution that offers review classes in preparation for the CPA Licensure Examination

57.Which of the following is correct regarding the composition of the FRSC?

a. The FRSC shall be composed of 15 members plus a Chairman

b. The Chairman should have been or presently a senior practitioner in public accountancy

c. Eight members are from the accredited professional organization

d. The Bureau of Internal Revenue is not represented in the FRSC

58.Which of the following regarding RA 9298 is incorrect?

a. Members of the Board shall not serve for more than 12 years

b. Members of the Board shall be appointed by the PRC

c. Members of the Board shall serve for 3 years per term

d. Members of the Board shall be selected from 3 nominees of PRC out of 5 nominees of PICPA

59.How many days shall the Board submit to the Commission the ratings obtained by each candidate?

a. 10

b. 60

c. 1

d. 15

60.Which of the following is incorrect regarding some provisions in RA 9298?

a. Any candidate who fails in two complete exams shall be disqualified from taking another set of exams unless he/she has enrolled in a refresher course

b. All successful candidates shall be required to take an oath of profession before any member of the Board or any government official authorized by the Commission

c. A professional identification card bearing the registration number, date of issuance, expiry date, duly signed by the chairman of the board shall be issued to every registrant

d. The certificate of registration shall be issued to examinees who pass the licensure examination which shall bear the signature of the chairperson of the commission and the chairman and members of the board

61.The following statements relate to the Philippine Accountancy Act of 2004. Which statement is true? a. The Professional Regulation Commission has the authority to remove any member of the Board of Accountancy for negligence, incompetence, or any other just cause

b. Insanity is not a ground for proceeding against a CPA

c. A person shall be considered to be in the professional practice of accounting if, as an officer in a private enterprise, he makes decision requiring professional accounting knowledge even if his position does not require that the holder shoulder be a CPA

d. After two years, subject to certain conditions, the Board of Accountancy may order the reinstatement of a CPA whose certificate of registration has been revoked

62.A meaningful experience shall be considered as satisfactory compliance with the requirements of RA 9298 if it is earned in

a. commerce and industry and shall include significant involvement in general accounting, budgeting, tax administration and representing before his/her client before government agencies for tax matters.

b. academe and shall include teaching for at least three years or two trimesters in any subjects for accounting students.

c. government and shall include significant involvement in general accounting, budgeting, tax administration, liaison with the Commission on Audit and other private entities.

d. public practice and shall include at least one year as audit assistant and at least two years as auditor in charge of audit engagement covering full audit functions of significant clients.

63.Sino Swerte was eagerly waiting for the result of the CPA Licensure Examination. When the results were released, he saw the following percentages: Theory of Accounts, 80; Business Law and Taxation, 81; Management Services, 78; Auditing Theory, 79; Auditing Problems, 70; Practical Accounting I, 65; Practical Accounting II, 65. What is the appropriate result of the exam?

a. Passed, with conditional subject credits

b. Failed

c. Passed

d. Conditional

64.The CPA title was conceived and created, under the first accountancy law, for professional accountants engaged in which of the following:

a. Accounting education

b. Management accounting

c. public accounting

d. government accounting

65.A CPA certificate is evidence of:

a. Recognition of independence in mind

b. Basic competence at the time the certificate is granted

c. Culmination of the educational process

d. Membership in the PICPA