Which of the following statements best describes why the profession of certified public accountants

1 Which three of the following are reasons why the accounting profession needs ethicalcodes?A Accountants have access to confidential informationB Assurance providers claim to give an independent viewC The financial community relies on accountants

D The law requires it

A,B,C
There is no legal requirement for ethical codes.

2 ICAEW qualified auditors acting in the UK are subject to which two of the following?A IESBA Code of EthicsB ICAEW Code of EthicsC FRC's Ethical Standard

D The Code of Ethics set by the Governmen

2 B,C ICAEW qualified auditors acting in the UK are subject to the ICAEW Code and the
FRC's Ethical Standard

3 Which three of the following are stated fundamental principles of the IESBA Code?A IntegrityB ObjectivityC IndependenceD Confidentiality

E Courtesy

3 A,B,DIndependence and Courtesy (options C and E) are not fundamental principles of the

IESBA Code

`4 Which one of the following statements is correct?A The ICAEW Code of Ethics applies to its members only.B The ICAEW Code of Ethics applies to its members and employees of member firmsonly.C The ICAEW Code of Ethics applies to its members, employees of member firms andICAEW students.D The ICAEW Code of Ethics applies to its members, employees of member firms,

ICAEW students and all other members of UK accountancy bodies

4 C As per the ICAEW Code of Ethics, the Code applies to its members, employees of
member firms and ICAEW students

5 For each of the following statements concerning professional ethics, select whether theyare true or false.Prescriptive rules of ethical guidance are beneficial because they place the onus on theaccountant to actively consider independence in every given situation.A TrueB FalseA framework of ethical guidance allows principles to be applied to different situations, andis therefore effective in a situation that is changing rapidly.C TrueD FalseA framework of ethical guidance prevents accountants interpreting legalistic requirementsnarrowly, in order to circumvent ethical requirements.E True

F False

5 B,C,EThe first statement is false as following prescriptive rules of ethical guidance maybecome a mechanical process without due consideration given to the ethical principles

of each case. The other statements are true

6 Which three of the following bodies issue ethical guidance?A ICAEWB IESBAC IAASB

D FRC

6 A,B,D
The IAASB issues ISAs, but not ethical guidance

Which one of the following statements best describes ethical guidance in the UK?A Ethical guidance provides a set of rules which must be followed in all circumstances.B Ethical guidance is a framework containing a combination of rules and principles theapplication of which is dependent on the professional judgement of the assuranceprovider based on the specific circumstances.C Ethical guidance provides a set of principles which can be applied at the discretion ofthe assurance provider.

D Ethical guidance is a series of legal requirements

B Although there are some specific 'rules', the majority of ethical guidance is in the form
of principles, the spirit of which should be followed by the assurance provider.

For each of the following threats, select whether they are identified by the IESBA Code only,the FRC's Ethical Standard only or both the IESBA Code and the FRC's Ethical Standard.Self-interest threatA IESBA Code onlyB FRC's Ethical Standard onlyC BothManagement threatD IESBA Code onlyE FRC's Ethical Standard onlyF BothFamiliarity threatG IESBA Code onlyH FRC's Ethical Standard onlyI BothSelf-review threatJ IESBA Code onlyK FRC's Ethical Standard only

L Both

C,E,I,LBoth the IESBA Code of Ethics and the FRC's Ethical Standard identify the following fivethreats: self-interest, self-review, advocacy, familiarity and intimidation. TheFRC's Ethical Standard also identifies the management threat in addition; the IESBACode of Ethics does not specify a 'management threat' as such, but notes that the

assumption of 'management responsibilities' would create other threats.

Which three of the following are valid reasons why independence and objectivity areimportant to the assurance profession?A The public's expectations of accountantsB Public interest in financial informationC Tradition

D Credibility of published financial information

A,B,D
Tradition (option C) is not a valid reason why objectivity and independence matter.

There are two main approaches to a code of professional ethics: a rules-based ethical codeand a principles-based code.Indicate whether the following statements are true or false.A principles-based code requires a professional accountant to comply with a set of specificrules.A TrueB FalseA rules-based code requires a professional accountant to identify, evaluate and addressthreats to compliance with fundamental ethical principles.C TrueD FalseICAEW uses a rules-based approach.E True

F False

B,D,FA principles-based code does not contain specific rules for auditor compliance.A rules-based code does not require auditor adherence to a set of principles.

ICAEW uses a principles-based approach. SAMPLE PAPER

The ICAEW Code of Ethics provides guidance for members regarding their independence.For each of the following statements, select whether they are most likely to be true or false.The auditor should completely eliminate all threats to their independence.A TrueB FalseThe degree of required independence is higher for a non-audit engagement than for anaudit engagement.C TrueD FalseIf safeguards do not allow a threat to be sufficiently mitigated, then the auditor shoulddecline the engagement.E True

F False

B,D,EThe aim is not to completely eliminate all threats, but to either reduce them to anacceptable level or to eliminate them.The degree of required independence is higher for an audit engagement.If safeguards do not allow a threat to be sufficiently mitigated, then the auditor should

decline the engagement (or the interest/activity giving rise to the threat).

The ICAEW Code of Ethics provides guidance for members regarding their independence.For each of the following statements, select whether they are most likely to be true or false.If guidance is principles-based then it does not contain rules prohibiting certain activitiesA TrueB FalseIf guidance is based on general principles then it does not allow for particular or uniquesituations.C TrueD FalsePrinciples-based guidance may permit multiple correct responses in a given situation.E True

F False

B,D,EPrinciples-based guidance may contain rules for prohibitions, although its substantialcontent would be based on general principles.It is a major strength of principles-based guidance that its general principles may beapplied to unique situations, eg, situations for which a specific rule may not have beencreated under a rules-based approach.Principles-based guidance may permit multiple correct responses in a given situation.

Advocates of rules-based approaches see this as one of its principal defects.

The FRC's Ethical Standard gives examples of threats in its six classificatory categories.For each threat below, select the category into which they would most likely be placed.Auditing financial statements prepared by the firmA Familiarity threatB Self-review threatAn audit team member having family at the clientC Familiarity threatD Self-review threatMaking a loan to an audit clientE Familiarity threat

F Self-interest threat

B,C,FAuditing financial statements prepared by the firm represents a self-review threat – thefirm would be auditing ('reviewing') material that it had itself produced, and may beinclined to trust it more than if it had been produced by an entity that was independentof it.An audit team member having family at the client represents a familiarity threat – theaudit team would be overly familiar with the client. This is related to a self-review threatin the sense that both threats involve proximity to the information being audited;where the familiarity threat differs is that the information is prepared by someone elsebut with whom the auditor has a close relationship.Making a loan to an audit client represents a self-interest threat because the auditormay have an incentive not to do anything that could imperil the client's financialposition (such as modifying the audit opinion) lest this prejudice their ability to repay

the loan.