Question 1

The fundamental principles of professional ethics for accountants require auditors to maintain objectivity. The term 'objectivity' in the code refers to a auditor's ability to:

Accepted Answer

Objectivity in the context of professional ethics for accountants and auditors refers to the ability to maintain professional judgments without being influenced by bias, conflicts of interest, or undue influence from others. This ensures that auditors can perform their duties impartially and with integrity.

Question 2

Auditors are allowed which of the following forms of advertising?

Accepted Answer

The answer of Auditors are allowed which of the following...

Question 3

Which of the following statements is not True with respect to audit committees?

Accepted Answer

Audit committees are not required for all companies.

Question 4

Which of the following is not one of the three parts of the IESBA's Code of Ethics?

Accepted Answer

The IESBA's Code of Ethics consists of three parts: (1) the fundamental principles and a conceptual framework, which apply to all professional accountants, (2) guidelines for professional accountants in public practice, and (3) guidelines for professional accountants in business. There is no specific section dedicated to "professional services requiring accountancy skills" as described in option A.

Question 5

Where there are differences between the IESBA code and the standards issued by a member body of the IFAC, professional accountants must:

Accepted Answer

Professional accountants must comply with the more stringent requirements and guidance when there are differences between the IESBA Code and the standards issued by a member body of the IFAC, unless prohibited by law or regulation. This ensures the highest standard of ethics and professionalism is maintained.

Question 6

An example of an 'indirect financial interest' in a client would be ownership of a client's stock by the auditor's:

Accepted Answer

An indirect financial interest typically refers to a financial interest in a client that is held through a mutual fund, trust, or other intermediary that gives the holder no control over the choice of investments. Ownership of a client's stock by a nondependent grandparent would be considered an indirect interest because it does not directly influence the auditor's financial situation or decisions. Ownership by a spouse or dependent child is generally considered a direct financial interest due to the close financial relationship and potential for direct influence on the auditor's financial well-being.

Question 7

The IESBA Code of Ethics permits an audit firm to do both bookkeeping and auditing for the same client if three criteria are met. Which of the following is not one of those criteria?

Accepted Answer

The IESBA Code of Ethics does not specify that the client is required to file an annual report, including audited financial statements, as a criterion for an audit firm to do both bookkeeping and auditing for the same client. The key criteria involve the practitioner not assuming the role of an employee or manager, the client accepting full responsibility for the financial statements, and considerations related to whether the client is a public interest entity.

Question 8

An increasing number of public companies require shareholders to approve the selection of a new audit firm or the continuation of the existing audit firm because:

Accepted Answer

Shareholders are considered more objective than management in the selection or continuation of audit firms because they have a vested interest in the integrity and independence of the audit process, without the potential conflicts of interest that management might face.

Question 9

Section 140 of the IESBA's Code of Ethics requires CPAs to maintain the confidentiality of client information. The code would be violated if an auditor disclosed information without a client's consent as a result of a:

Accepted Answer

A, C, and D are exceptions where confidentiality may be breached under specific circumstances: legal requirements, court orders, or professional obligations such as peer reviews. However, disclosing information due to a request by a client's largest stockholder without the client's consent would violate the confidentiality requirement.

Question 10

A professional accountant may accept a referral fee for recommending a client to another accountancy firm, but should:

Accepted Answer

The answer of A professional accountant may accept a referral...

Question 11

Section 290 requires a cooling off period of how long before a key audit partner can resume work on audits for a public interest entity after reaching the maximum period of association?

Accepted Answer

The answer of Section 290 requires a cooling off period...

Question 12

In which of the following circumstances would an auditor be bound by the fundamental principles to refrain from disclosing any confidential information about a client?

Accepted Answer

An auditor is bound by the fundamental principles of confidentiality and should refrain from disclosing any confidential information about a client to a major stockholder without the client's consent.

Question 13

Interpretations of the IESBA's Code of Ethics are dominated by the concept of:

Accepted Answer

The IESBA's Code of Ethics emphasizes the identification and evaluation of threats to compliance with the fundamental ethical principles and the application of safeguards to eliminate the threats or reduce them to an acceptable level, hence "threats to ethical principles" is a dominant concept.

Question 14

Generally, loans between an audit firm or a member of the firm and an audit client are prohibited because they create a financial relationship. Which of the following is not an exception to this rule?

Accepted Answer

Loans between an audit firm or a member of the firm and an audit client are generally prohibited because they create a financial relationship that could impair independence. Exceptions to this rule include home mortgages (B), loans fully collateralized by cash deposits at the same financial institution (C), and automobile loans (D) made under normal lending procedures, as these are considered to not impair independence if they are made under conventional terms. Unsecured loans guaranteed by the audit client (A) do not fall under these exceptions and would impair the auditor's independence.

Question 15

Section 290 indicates that materiality is a consideration for evaluating an auditor's:

Accepted Answer

The answer of Section 290 indicates that materiality is a...

Question 16

Which of the following is not a violation of one or more of the fundamental principles of the IESBA?

Accepted Answer

B, C, and D are violations of the IESBA Code of Ethics. A is not a violation because the auditor was not the one driving and the incident does not directly relate to the auditor's professional conduct or competence.

Question 17

In which of the following instances would the independence of the auditor most likely not be considered to be impaired? The auditor has been engaged to audit:

Accepted Answer

Owning an apartment in a cooperative apartment house being audited, where the auditor is not part of the management, does not directly impair the auditor's independence. The auditor's financial interest is not directly tied to the audit's outcome, unlike the other options where financial interests or management roles could compromise independence.

Question 18

Part A of the IESBA code requires professional accountants to comply with certain fundamental principles. Which of the following is not a fundamental principle addressed in Part A?

Accepted Answer

The IESBA Code of Ethics for Professional Accountants outlines fundamental principles that accountants are expected to adhere to, such as Integrity, Professional Competence and Due Care, and Professional Behavior. Planning and Supervision, while important in the practice of professional accounting, is not listed as a fundamental principle in Part A of the IESBA Code.

Question 19

Identify and describe each of the three parts to the IESBA's Code of Ethics.

Accepted Answer

The answer of Identify and describe each of the three...

Question 20

Discuss the ways in which the accounting profession can ensure it conducts itself in a professional manner by highlighting safeguards and procedures that can be put in place to reduce or eliminate threats to ethical conduct.

Accepted Answer

The answer of Discuss the ways in which the accounting...

Quiz 2: Professional Ethics, Legal Liability, Audit Responsibilities and Objectives