When threats to independence that are not clearly insignificant are identified?

REVIEWER (401) - COE

1. Which statement is incorrect regarding employed professional accountants?  When undertaking significant tasks for which a professional accountant has not had sufficient specific training or experience, he or she should not mislead the employer as to the degree of expertise or experience he or she possesses, and where appropriate, expert advice and assistance should be sought.  A professional accountant, particularly one having authority over others, should give due weight for the need for them to develop and hold their own judgment in accounting matters and should deal with difference of opinion in a professional way.  Employed professional accountants owe a duty of loyalty to their employer as well as to the profession, therefore there may be no time that the two will be in conflict.  A professional accountant is expected to present financial information fully, honestly and professionally and so that it will be understood in its context.

   Inhaltsverzeichnis Show

   • REVIEWER (401) - COE
   • When threats to independence that are other than those clearly insignificant are identified?
   • What are the threats to independence of an auditor?
   • What are five types of threats to independence?
   • What threats to independence are created when a contingent fee is charged by a firm in respect of an assurance engagement?

2. Which of the following is incorrect regarding confidentiality?  Confidentiality should always be observed by a professional accountant unless specific authority has been given to disclose information or there is a legal or professional duty to disclose.  Confidentiality requires that a professional accountant acquiring information in the course of performing professional services neither uses nor appear to use that information for personal advantage or for the advantage of a third party.  The duty of confidentiality ceases after the end of the relationship between the professional accountant and the client or employer.  Professional accountants have an obligation respect the confidentiality of information about a client's or employer's affairs acquired in the course of professional services.

3. Assurance engagement include the following, except  An engagement conducted to provide a high level of assurance that the subject matter conforms in all material respects with identified suitable criteria.  An engagement conducted to provide a moderate level of assurance that the subject matter is plausible in the circumstances.  An engagement in accordance with the Philippine Standard on Assurance Engagement(s) issued by the Philippine Auditing Standards and Practices Council as approved by the Board of Accountancy/Professional Regulation Commission.  An engagement to perform agreed-upon procedures.

4. Which statement is incorrect regarding long association of senior personnel with audit clients that are listed entities?  Using the same lead engagement partner on an audit over a prolonged period may create a familiarity threat.  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.

 The lead engagement partner should be rotated after a pre-defined period, normally no more than seven (7) years.  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.

1. If the firm is involved in the preparation of accounting records or financial statements and those financial statements are subsequently the subject matter of an audit engagement of the firm, this will most likely create  Self-review threat  Familiarity threat  Self-interest threat  Intimidation threat

2. These following services are considered to be a normal part of the audit process and do not, under circumstances, threaten independence, except  Drafting disclosure items.  Assisting in the preparation of consolidated financial statements.  Having custody of an assurance client's assets.  Analyzing and accumulating information for regulatory reporting.

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

4. The Rules of Conduct will ordinarily be considered to have been violated when the professional accountant represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representation that the  Fee was a competitive bid.  Actual fee would be substantially lower than the fees charged by other professional accountants for comparable services  Professional accountant would not be independent.  Actual fee would be substantially higher.

 Yes, No, Yes  Yes, Yes, Yes  Yes, Yes, No

1. Which of the following least likely create self-interest threat  Undue dependence on total fees from a client.  Having a close business relationship with a client.  Concern about the possibility of losing the engagement.  Being pressured to reduce inappropriately the extent of work performed in order to reduce the fees

2. Which of the following is least likely to create a threat to independence?  The fees generated by the assurance client represent a large proportion of the revenue of an individual partner.  When litigation takes place, or appears likely, between the firm or a member of the assurance team and the assurance client.  The firm charges a contingent fee to an assurance client.  Accepting gifts or hospitality, the value of which is clearly insignificant, from an assurance client.

3. A professional accountant in business should maintain information for which the professional accountant in business is responsible in a manner that, except  Classifies and records information in a timely and proper manner  Represents the facts accurately and completely in all material respects  Describe clearly the true nature of business transactions, assets or liabilities  Selecting accounting policies that would maximize the reported income or minimize the reported cost

4. A former officer, director or employee of the assurance client serves as a member of the assurance team. This situation will least likely create  Familiarity threat  Intimidation threat  Self-review threat  Self-interest threat

5. Which of the following is incorrect regarding professional competence?  Professional competence may be divided into two separate phases.  The maintenance of professional competence requires a continuing awareness of development in the accountancy profession.  The attainment of professional competence requires initially a high standard of general education.

 Professional accountants may portray themselves as having expertise or experience they do not possess.

1. Close family include the following, except  Non-dependent child  Spouse  Sibling  Parent

2. Examples of circumstances that may create familiarity threat least likely include  A member of the assurance team giving an immediate family member or close family member who is a director or officer of the assurance client.  A member of the assurance team having an immediate family member or close family member who, as an employee of the assurance client, is in a position to exert direct and significant influence over the subject matter of the assurance engagement.  A former partner of the firm being a director, officer of the assurance client or an employee in a position to exert direct and significant influence over the subject matter of the assurance engagement.  Promoting shares in a listed entity when that entity is a financial statement audit client

3. Examples of circumstances that may create self-interest threat include  All of the above  Contingent fees relating to assurance engagements  A loan to or form an assurance client or any of its directors or officers  A financial interest in a client or jointly holding a financial interest with a client

4. Examples of circumstances that may create self-review threat least likely include  A member of the assurance team being or having recently been a director of officer of that client.  Reporting on the operation of financial systems after being involved in their design or implementation.  The discovery of significant error during a re-evaluation of the work of the professional accountant in public practice.  Accepting gifts or preferential treatment from a client, unless the value is clearly insignificant.

5. The provision of accounting and bookkeeping services to audit clients in emergency or other unusual situations, when it is impractical for the audit client to make other arrangements, would not be considered to pose an unacceptable threat to independence provided:  The audit client accepts responsibility for the results of the work.  The firm, or network firm, does not assume any managerial role or make any managerial decisions.

6. Safeguards in the work environment, include the following except  Policies and procedures that will enable the identification of interests or relationships between the firm and members of the assurance team and assurance clients.  Firm leadership that stresses the importance of independence and the expectation that members of assurance teams will act in the public interest.  External review of the firm's quality control system.  Policies and procedures to implement and monitor quality control of assurance engagements.

7. The term receiving accountant includes the following, except  A professional accountant in public practice currently holding an audit appointment or carrying out accounting, taxation, consulting or similar professional services for a client.  A professional accountant in public practice to whom the client of the existing accountant has referred audit engagement.  Incorrect Response  A professional accountant in public practice who is consulted in order to meet the needs of the client.  A professional accountant in public practice to whom the existing accountant has referred tax engagement.

8. If a member of the assurance team, or their immediate family member receives, by way of, for example, an inheritance, gift or, as a result of a merger, a direct financial interest or a material indirect financial interest in the assurance client, a self-interest threat would be created. The following safeguards should be applied to eliminate the threat or reduce it to an acceptable level:  Neither disposing of the financial interest at the earliest practical date or removing the member of the assurance team from the assurance engagement.  Either disposing of the financial interest at the earliest practical date or removing the member of the assurance team from the assurance engagement.  Removing the member of the assurance team from the assurance engagement.  Disposing of the financial interest at the earliest practical date.

9. Occurs when a professional judgment needs to be re-evaluated by the professional accountant responsible for that judgment  Familiarity threat  Self-review threat  Self-interest threat  Advocacy threat

10. Safeguards in the client, include the following, except  A corporate governance structure such as an audit committee that provides appropriate oversight and communications regarding a firm's services.  Professional standards and monitoring and disciplinary processes.

 The assurance client has competent employees to make managerial decision.  Internal procedures that ensure objective choices in commissioning non-assurance engagements. 32. 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 create  Intimidation threat  Self-interest threat  Self-review threat  Familiarity threat

1. For assurance engagements provided to clients that are not audit clients, when the report is not expressly restricted for use by identified users, the following should be independent of the client --- The members of the assurance team; The firm; Network firms  Yes, No, Yes  Yes, Yes, No  Yes, Yes, Yes  Yes, No, No

2. Fees calculated on a predetermined basis relating to the outcome or result of a transaction or the result of the work performed.  Flat sum fees  Contingent fees  Retainer fees  Per diem fees

3. The communication to the public of facts about a professional accountant which are not designed for the deliberate promotion of that professional accountant.  Publicity  Solicitation  Advertising  Indirect promotion

4. Circumstances that threaten the ability of a professional accountant in business to perform duties with the appropriate degree of professional competence and due care include, except (NA WRONG SI MS ANI WAY EXCEPT IYA NABUTANG MURAG I CHANGE NA NIYA)  Insufficient time for properly performing or completing the relevant duties  Complex and voluminous information to be processed  Insufficient experience, training and/or education  Incomplete, restricted or otherwise inadequate information for performing the duties properly

Which of the following is the least required in attaining professional competence?

 Continuing awareness of development in the accountancy profession.

 Yes, Yes, No  Yes, Yes, Yes  Yes, No, No

1. A financial interest beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which the individual or entity has no control.  Indirect financial interest  Clients' monies  Financial instrument  Direct financial interest

2. Occurs when a professional accountant promotes a position or opinion to the point that subsequent objectivity may be compromised.  Self-interest threat  Advocacy threat  Familiarity threat  Self-review threat

3. The recruitment of senior management for an assurance client, such as those in a position to affect the subject of the assurance engagement may least likely create  Intimidation threat  Self-interest threat  Familiarity threat  Advocacy threat

4. The firm, or a network firm, may provide an audit client that is not a listed entity with accounting and bookkeeping services, including payroll services, of a routine or mechanical nature, provided any self- review threat created is reduced to an acceptable level. Examples of such services least likely include:  Preparing financial statements based on information in the trial balance.  Posting coded transactions to the audit client's general ledger.  Recording transactions for which the audit client has determined or approved the appropriate account classification.  Determining and posting journal entries without obtaining the approval of the audit client.

5. An inadvertent violation of the Independence rules as it relates to a financial interest in an assurance client would not impair the independence of the firm, the network firm or a member of the assurance team when:  The firm, and the network firm, has established policies and procedures that require all professionals to report promptly to the firm any breaches resulting from the purchase, inheritance or other acquisition of a financial interest in the assurance client.

 The disposal occurs at the earliest practical date after identification of the issue, or the professional is removed from the assurance team.  All of the three other choices.  The firm, and the network firm, promptly notifies the professional that the financial interest should be disposed of.

1. The following loans and guarantees would not create a threat to independence, except  A loan from, or a guarantee thereof by, an assurance client that is a bank or a similar institution, to the firm, provided the loan is made under normal lending procedures, terms and requirements and the loan is immaterial to both the firm and the assurance client.  If the firm, or a member of the assurance team, makes a loan to an assurance client, that is not a bank or similar institution, or guarantees such an assurance client's borrowing.  A loan from, or a guarantee thereof by, an assurance client that is a bank or a similar institution, to a member of the assurance team or their immediate family, provided the loan is made under normal lending procedures, terms and requirements.  Deposits made by, or brokerage accounts of, a firm or a member of the assurance team with an assurance client that is a bank, broker or similar institution, provided the deposit or account is held under normal commercial terms.

2. The term professional accountant in public practice includes the following, except  A firm of professional accountants in public practice.  Professional accountants employed in the public sector having managerial responsibilities.  A sole proprietor providing professional services to a client.  Each partner or person occupying a position similar to that of a partner staff in a practice providing professional services to a client.

3. Direct financial interest is a financial interest: owned directly by and under the control of an individual or entity (including those managed on a discretionary basis by other); beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which the individual or entity has no control; beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which the individual or entity has control  No, Yes, No  Yes, No, No  Yes, No, Yes  Yes, Yes, Yes

4. The existing accountant, on receipt of the communication from the proposed professional accountant in public practice, should not  Report the fact, that the permission is not granted, to the proposed professional accountant in public practice.  Reply, preferably in writing, advising whether there are any professional reasons why the proposed professional accountant in public practice should not accept the appointment.  Ensure that the client has given permission to give details of this information to the proposed professional accountant in public practice.

 Professional fees should normally be computed on the basis of appropriate rates per hour or per day for the time of each person engaged in performing professional services.  It is for each professional accountant in public practice to determine the appropriate rates.  The appropriate rates should be based on the fundamental premise that the organization and conduct of the professional accountant in public practice and the services provided to clients are well planned, controlled and managed.

1. An inadvertent violation of the rules on family and personal relationships would not impair the independence of a firm or a member of the assurance team when:  Additional care is given to reviewing the work of the professional.  The firm has established policies and procedures that require all professionals to report promptly to the firm any breaches resulting from changes in the employment status of their immediate or close family members or other personal relationships that create threats to independence. Either the responsibilities of the assurance team are re-structured so that the professional does not deal with matters that are within the responsibility of the person with whom he or she is related or has a personal relationship, or, if this is not possible, the firm promptly removes the professional from the assurance engagement.  All of the three other choices.

2. Financial interest means  A financial interest beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which the individual or entity has no control.  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.  An interest in an equity 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.  Any bank account which is used solely for the banking of clients' monies.

3. A CPA-consultant, acting as an advisor to one of his audit client, is an example of  Self-review threat  Familiarity threat  Advocacy threat  Self-interest threat

4. The following statements are correct regarding independence, except  Independence in appearance is the avoidance of facts and circumstances that are so significant a reasonable and informed third party, having knowledge of all relevant information, including any safeguards applied, would reasonably conclude a firm's or a member of the assurance team's integrity, objectivity or professional skepticism had been compromised.  Independence consists of independence of mind and independence in appearance.  All of the three other choices are correct statements regarding independence

 Independence of mind is the state of mind that permits the provision of an opinion without being affected by influences that compromise professional judgment, allowing an individual to act with integrity, and exercise objectivity and professional skepticism.

1. The communication to the public of facts about a professional accountant which are not designed for the deliberate promotion of that professional accountant.  Publicity  Indirect promotion  Solicitation  Advertising

2. Which of the following is incorrect regarding confidentiality?  Confidentiality requires that a professional accountant acquiring information in the course of performing professional services neither uses nor appear to use that information for personal advantage or for the advantage of a third party.  Professional accountants have an obligation respect the confidentiality of information about a client's or employer's affairs acquired in the course of professional services  Confidentiality should always be observed by a professional accountant unless specific authority has been given to disclose information or there is a legal or professional duty to disclose.  The duty of confidentiality ceases after the end of the relationship between the professional accountant and the client or employer.

3. Direct financial interest is a financial interest: owned directly by and under the control of an individual or entity (including those managed on a discretionary basis by other); beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which the individual or entity has no control; beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which the individual or entity has control.  Yes, No, Yes  Yes, Yes, Yes  Yes, No, No  No, Yes, No

4. Advertising, as defined in the Code of Ethics, means

 The communication to the public of facts about a professional accountant which

are not designed for the deliberate promotion of that professional accountant.  The approach to a potential client for the purpose of offering professional services.

 Any of the above.  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.

1. The firm, or a network firm, may provide an audit client that is not a listed entity with accounting and bookkeeping services, including payroll services, of a routine or mechanical nature, provided any self-review threat created is reduced to an acceptable level. Examples of such services least likely include:  Posting coded transactions to the audit client's general ledger.  Recording transactions for which the audit client has determined or approved the appropriate account classification.  Determining and posting journal entries without obtaining the approval of the audit client. /  Preparing financial statements based on information in the trial balance.

2. 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 create  Familiarity threat  Intimidation threat  Self-review threat /  Self-interest threat

3. Which statement is incorrect regarding long association of senior personnel with audit clients that are listed entities?  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.  Using the same lead engagement partner on an audit over a prolonged period may create a familiarity threat.  The lead engagement partner should be rotated after a pre-defined period, normally no more than seven (7) years. /  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.

4. Examples of circumstances that may create self-review threat least likely include  A member of the assurance team being, or having recently been, an employee of the assurance client in a position to exert direct and significant influence over the subject matter of the assurance engagement.  Performing services for an assurance client that directly affect the subject matter of the assurance engagement.  Having prepared the original data used to generate records that are the subject matter of the engagement  Potential employment with a client. /

5. Which statement is incorrect regarding employed professional accountants?  A professional accountant, particularly one having authority over others, should give due weight for the need for them to develop and hold their own judgment in accounting matters and should deal with difference of opinion in a professional way.  Employed professional accountants owe a duty of loyalty to their employer as well as to the profession, therefore there may be no time that the two will be in conflict. /

 A professional accountant is expected to present financial information fully, honestly and professionally and so that it will be understood in its context.  When undertaking significant tasks for which a professional accountant has not had sufficient specific training or experience, he or she should not mislead the employer as to the degree of expertise or experience he or she possesses, and where appropriate, expert advice and assistance should be sought.

1. Certain corporate finance services may create advocacy or self-review threats; however, safeguards may be available to reduce these threats to an acceptable level. Examples of such services include the following, except  Assisting a client in developing corporate strategies.  Assisting in identifying or introducing a client to possible sources of capital that meet the client specifications or criteria.  Providing structuring advice and assisting a client in analyzing the accounting effects of proposed transactions.  Committing the assurance client to the terms of a transaction or consummating a transaction on behalf of the client. /

2. An inadvertent violation of the rules on family and personal relationships would not impair the independence of a firm or a member of the assurance team when:  All of the three other choices. /  Either the responsibilities of the assurance team are re-structured so that the professional does not deal with matters that are within the responsibility of the person with whom he or she is related or has a personal relationship, or, if this is not possible, the firm promptly removes the professional from the assurance engagement.  The firm has established policies and procedures that require all professionals to report promptly to the firm any breaches resulting from changes in the employment status of their immediate or close family members or other personal relationships that create threats to independence.  Additional care is given to reviewing the work of the professional.

3. Communication between the receiving accountant and existing accountant is not intended  To protect a professional accountant in public practice from accepting an appointment in circumstances where all the pertinent facts are not known.  To protect the minority proprietors of a business who may not be fully informed of the circumstances in which the change is proposed.  To protect the interests of the existing accountant when the proposed change arises from, or is an attempt to interfere with, the conscientious exercise of the existing accountant's duty to act as an independent professional.  To restrict the client's freedom to choose their professional advisers and to change to others. /

4. A professional accountant in business should maintain information for which the professional accountant in business is responsible in a manner that, except  Classifies and records information in a timely and proper manner  Selecting accounting policies that would maximize the reported income or minimize the reported cost /  Represents the facts accurately and completely in all material respects  Describe clearly the true nature of business transactions, assets or liabilities

5. Which of the following is least likely to create a threat to independence?  The fees generated by the assurance client represent a large proportion of the revenue of an individual partner.  Accepting gifts or hospitality, the value of which is clearly insignificant, from an assurance client. /  The firm charges a contingent fee to an assurance client.  When litigation takes place, or appears likely, between the firm or a member of the assurance team and the assurance client.

6. A combination of impartiality, intellectual honesty and a freedom from conflicts of interest.  Independence  Objectivity /  Independence of mind  Professional skepticism

7. The Rules of Conduct will ordinarily be considered to have been violated when the professional accountant represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representation that the  Fee was a competitive bid.  Actual fee would be substantially lower than the fees charged by other professional accountants for comparable services  Professional accountant would not be independent.  Actual fee would be substantially higher. /

8. If a member of the assurance team, or their immediate family member receives, by way of, for example, an inheritance, gift or, as a result of a merger, a direct financial interest or a material indirect financial interest in the assurance client, a self-interest threat would be created. The following safeguards should be applied to eliminate the threat or reduce it to an acceptable level:  Disposing of the financial interest at the earliest practical date.  Neither disposing of the financial interest at the earliest practical date or removing the member of the assurance team from the assurance engagement.  Either disposing of the financial interest at the earliest practical date or removing the member of the assurance team from the assurance engagement. /  Removing the member of the assurance team from the assurance engagement.

9. 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?  Four years  Two years /  One year  Three years

10. Assurance engagement include the following, except  An engagement conducted to provide a high level of assurance that the subject matter conforms in all material respects with identified suitable criteria.  An engagement conducted to provide a moderate level of assurance that the subject matter is plausible in the circumstances.  An engagement to perform agreed-upon procedures. /  An engagement in accordance with the Philippine Standard on Assurance Engagement(s) issued by the Philippine Auditing Standards and Practices Council as approved by the Board of Accountancy/Professional Regulation Commission.

11. Which of the following least likely create self-interest threat:  Being pressured to reduce inappropriately the extent of work performed in order to reduce the fees /  Undue dependence on total fees from a client.  Concern about the possibility of losing the engagement.  Having a close business relationship with a client.

12. 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

Preparing source documents or originating data, including decisions on evaluation assumptions), or making changes to such documents or data.

 Authorizing or approving transactions.  Assisting an audit client in resolving account reconciliation problems. /  Determining or changing journal entries, or the classifications for accounts or transactions or other accounting records without obtaining the approval of the audit clients

1. If the valuation services involves the valuation of matters material to the financial statements and the valuation involves a significant degree of subjectivity, the self-review threat created (choose the incorrect one)  The assurance team should withdraw from the audit engagement, if the team opted to perform the valuation services.  Could not be reduced to an acceptable level by the application of any safeguard.  Such valuation services should not be provided.  Could be reduced to an acceptable level by the application of safeguards. /

When threats to independence that are other than those clearly insignificant are identified?

What are the threats to independence of an auditor?

What are five types of threats to independence?

What threats to independence are created when a contingent fee is charged by a firm in respect of an assurance engagement?