ETHICS LEARNING PROGRAMME SAMPLE PAPER 2013

Transcription

1 ETHICS LEARNING PROGRAMME SAMPLE PAPER 2013 QUESTIONS Question 1 Are the following statements about compliance with the ICAEW Code of Ethics true or false? (1) Provisional ICAEW members cannot be subject to disciplinary action until they attain full membership of ICAEW. (2) An ICAEW member who holds 45% of the voting rights of a limited liability partnership engaged in public accounting practice (55% being held by non-icaew members) is required to comply with the ICAEW Code of Ethics. A Statement (1) is true, statement (2) is false B Statement (1) is true, statement (2) is true C Statement (1) is false, statement (2) is true D Statement (1) is false, statement (2) is false Question 2 ICAEW has received a complaint against one of its member firms from a member of the general public. Which ONE of the following best describes the action that is then taken by the ICAEW? A ICAEW must investigate the complaint fully before determining further appropriate action B The member firm is debarred by ICAEW from accepting new client appointments pending a decision about the complaint C No further action is necessary as ICAEW is not obliged to investigate complaints lodged by members of the general public D The complaint must be lodged immediately with ICAEW s Disciplinary Committee

2 Question 3 The Auditing Practices Board has five ethical standards. Which ONE of the following is the title of Ethical Standard 1 (ES1)? A Confidentiality, Competence and Professional Behaviour B Objectivity, Professional Behaviour and Independence C Competence, Integrity and Confidentiality D Integrity, Objectivity and Independence Question 4 Those who are required to comply with the ICAEW s Code of Ethics should not allow themselves to be biased or unduly influenced in any way in the provision of services to clients, employers and others. The sentence above best describes which ONE of the following fundamental ethical principles? A Objectivity B Professional competence C Confidentiality D Integrity Question 5 Which ONE of the following does NOT reflect the fundamental principle of integrity? A Taking corrective action B Demonstrating independence C Showing consistency D Being open and adaptable Question 6 Are the following statements about a professional audit engagement true or false? (1) Independence is a personal behavioural characteristic concerning the state of mind of a professional auditor. (2) Objectivity relates to the particular circumstances surrounding an audit engagement. A Statement (1) is true, statement (2) is false B Statement (1) is true, statement (2) is true

3 C Statement (1) is false, statement (2) is true D Statement (1) is false, statement (2) is false

4 Question 7 Are the following statements true or false? (1) In order to ensure compliance with the fundamental ethical principle of professional competence a professional accountant is permitted to use the services of an external expert. (2) A professional accountant who is not highly skilled in tax may nevertheless accept a complex tax engagement, provided that a member of the same firm is technically capable of providing the service. A Statement (1) is true, statement (2) is false B Statement (1) is true, statement (2) is true C Statement (1) is false, statement (2) is true D Statement (1) is false, statement (2) is false Question 8 In respect of the principle of confidentiality, which ONE of the following statements is NOT true? A If not prohibited by law, a professional accountant has the right to disclose confidential information if required to comply with ICAEW quality review procedures B Confidential information may be disclosed to third parties if the disclosure can be justified in the public interest and is not contrary to law and regulations C The only laws that absolutely require a professional accountant to disclose confidential information are those relating to terrorism D A professional accountant has the right to disclose confidential information in order to protect his or her own interests in legal proceedings Question 9 Are the following statements about the principle of confidentiality true or false? (1) The need for a professional accountant to comply with the principle of confidentiality in respect of a client ceases once the professional relationship between the accountant and the client is terminated. (2) A professional accountant should not use special knowledge which could only have been acquired with access to confidential information. A Statement (1) is true, statement (2) is false B Statement (1) is true, statement (2) is true C Statement (1) is false, statement (2) is true D Statement (1) is false, statement (2) is false

5 Question 10 Are the following statements true or false? (1) A professional accountant who makes a disparaging reference to a competitor in advertising material is likely to breach the fundamental ethical principle of professional competence. (2) In order to comply with the fundamental principle of professional behaviour, professional accountants should conduct themselves with courtesy and consideration. A Statement (1) is true, statement (2) is false B Statement (1) is true, statement (2) is true C Statement (1) is false, statement (2) is true D Statement (1) is false, statement (2) is false Question 11 Which TWO of the following are NOT recognised threats to the ICAEW s fundamental ethical principles? A Self-determination B Self-review C Influence D Familiarity Question 12 Are the following statements about advocacy threats true or false? (1) Promoting shares in a client company does not represent an advocacy threat. (2) Investing in the shares of a client company does represent an advocacy threat. A Statement (1) is true, statement (2) is false B Statement (1) is true, statement (2) is true C Statement (1) is false, statement (2) is true D Statement (1) is false, statement (2) is false

6 Question 13 Which ONE of the following statements about fees contingent on a client s results is correct? A Audit and assurance engagements should never be undertaken by a professional accountant on a contingent fee basis B A professional accountant is prohibited from undertaking any work for a client, whether assurance or non-assurance, on a contingent fee basis C In the case of audit firms with listed clients, only 10% of the fee is permitted to be negotiated on a contingent fee basis D Any engagement between a professional accountant and a client may be undertaken on a contingent fee basis Question 14 A firm of accountants is undertaking some assurance work for a client which focuses upon the effectiveness of the client s financial systems. Two years previously, the firm had advised the client on the design and implementation of those financial systems. Which ONE of the following best describes the type of ethical threat to the firm of accountants? A Independence B Self-review C Integrity D Advocacy Question 15 According to corporate governance best practice, key audit partners and senior managers should rotate themselves off audit engagements at specified intervals. Once a partner or manager has left an engagement in this way, how many years must elapse before he or she can return to the engagement? A Three years B Five years C Seven years D Ten years

7 Question 16 Which ONE of the following groups of fundamental ethical principles is most likely to apply in cases of conflicts of interest? A Confidentiality, professional behaviour and integrity B Objectivity, confidentiality and professional behaviour C Integrity, confidentiality and objectivity D Professional competence, objectivity and integrity Question 17 Rowan LLP has accepted the appointment as auditor of Beech Ltd, subject to correspondence with the outgoing firm of accountants, Sycamore LLP, which recently resigned the audit engagement. Rowan has requested Beech s board of directors to authorise the contact with Sycamore. The board of directors, however, has refused to authorise the contact on the grounds that Beech s relationship with Sycamore had deteriorated to the point where the Sycamore partner could not be relied upon to provide unbiased information about the reasons for their resignation from the audit. Beech s finance director is a Chartered Accountant. Which ONE of the following is the most appropriate course of action for Rowan to take? A Contact Sycamore without Beech s authorisation B Consult ICAEW s arbitration services C Decline the engagement D Make a complaint to ICAEW about Beech s finance director

8 Question 18 Kay is sales director of an unlisted company which is in dispute over unpaid VAT with HMRC. At a recent board meeting, Nadia, the company s finance director, presented an assessment of the dispute and advised the board that the company is likely to be required to pay 1.3 million to settle the dispute. Kay was not convinced by Nadia s calculations or by her presentation. At a family party she asks her brother-in-law, John, about the issues involved, presenting the situation as an imaginary case. John is a Chartered Accountant, a member of ICAEW, who works as a tax manager for Ash & Co LLP, a local firm of accountants. Which ONE of the following would be the most acceptable course of action for John to take in response to Kay s questions about the case? A Insist that Kay describes the real case underlying the hypothetical case before answering her questions B Respond to Kay s questions, but ensure that Kay understands that his opinion is given purely in the context of this particular theoretical situation C Refuse to answer questions at the party, but ask Kay to put the questions in writing to the senior tax partner of Ash & Co LLP D Refuse to answer questions, but take the opportunity to gain new business for Ash & Co LLP by sending out marketing material to Kay s company Question 19 Edward is an audit manager at Willow LLP. Willow s new senior partner, Laurence, is aggressively pursuing a policy of increasing Willow s share of the local audit market. Laurence has instructed Edward to bid for new audit work at any level of fees required to undercut the competition. Which ONE of the following fundamental ethical principles is LEAST likely to be breached by Laurence s approach to increasing Willow s market share? A Professional behaviour B Professional competence C Objectivity D Confidentiality

9 Question 20 Sumac Partners has recently concluded the audit of Magnolia Ltd, and has submitted its fee invoice in respect of audit services provided. The finance director of Magnolia has authorised payment of two-thirds of the invoiced amount only, arguing that the audit was conducted inefficiently by inexperienced staff. Sumac Partners disputes the finance director s claims. They also have time sheets and documentary evidence to back up that the work they did was carried out by appropriate staff to a sufficient and appropriate level. Sumac Partners has custody of some of Magnolia s payroll records and also its board minutes. According to the ICAEW Code of Ethics, which ONE of the following is an appropriate course of action to be taken by Sumac Partners in respect of the unpaid element of the fee invoice? A Resign from the audit, write off the bad debt and refuse to have any further involvement with Magnolia B Exercise a lien to retain Magnolia s records, refusing to release them until the unpaid element of the fee invoice is paid C Register a complaint about Magnolia s finance director, and any other Chartered Accountants employed by Magnolia, with the ICAEW D Inform Magnolia that the records will be destroyed at the end of seven days, unless payment of the outstanding amount is received Question 21 Linden LLP, a firm of Chartered Accountants in public practice, has recently engaged an advertising agency. The agency has produced a first draft of a newspaper advertisement, as follows: Need an accountant? Two good reasons for choosing Linden LLP: (1) Special offer: 20% off fees in the first year! (2) Free one-hour initial consultation! Which, if either, of the reasons given in the advertisement would be acceptable in marketing professional services in accordance with the ICAEW Code of Ethics? A (1) only B Both (1) and (2) C (2) only D Neither (1) nor (2)

10 Question 22 The senior partner of Conifer LLP has just received a letter from the Serious Organised Crime Agency (SOCA) asking for information about one of Conifer s audit clients, Pine plc. The letter states that Pine and its directors are under investigation on suspicion of money laundering. Which ONE of the following actions should Conifer LLP take upon receipt of this letter? A Inform Pine s directors and obtain their permission to provide the information B Respond immediately to SOCA s letter providing the information requested C Take legal advice to determine the appropriate course of action D Refuse SOCA s request in accordance with the ethical principle of confidentiality Question 23 Oak LLP has provided audit services to its client, Lime Industries plc, for several years. Recently, Lime s directors have been developing plans for a major expansion of the business, and they have asked Oak to provide corporate finance services, including the identification of possible acquisition targets. Which ONE of the following pairs of threats to fundamental ethical principles is most likely to arise from Oak s involvement in the provision of corporate finance services to Lime? A Advocacy and self-review B Intimidation and independence C Self-interest and influence D Familiarity and objectivity

11 Question 24 Cedar plc is a UK company listed on the London Stock Exchange. For several years, Eucalyptus LLP, a firm of Chartered Accountants, has provided audit services to Cedar, and it is intended that this arrangement should continue for the foreseeable future. Cedar has now invited Eucalyptus to tender for the provision of tax services. The tax services that are the subject of the tender include the following: (1) Calculation of current and deferred tax liabilities for inclusion in Cedar s financial statements. (2) Review of the corporation tax returns prepared by Cedar s tax department. Which of the above services could be provided by Eucalyptus to Cedar without contravening the ICAEW Code of Ethics? A Neither (1) nor (2) B Both (1) and (2) C (1) only D (2) only Question 25 Dipesh is a Chartered Accountant employed as financial controller by Hemlock Ltd, an unlisted company. Hemlock s year end is 31 December 20X5 and the deadline for completion of the company s annual financial statements is 15 March 20X6. On 18 February 20X6, Hemlock s finance director calls Dipesh in to her office and tells him that the board has decided to bid for a major contract. As part of its bid, Hemlock is required to submit its most recent financial statements by the deadline date of 28 February 20X6. The finance director does not want to include financial statements that are over a year out of date. She informs Dipesh that they will now need to sign off on the completed financial statements by 26 February 20X6 at the latest. Which ONE of the following pairs of threats to the fundamental ethical principles is most likely to be relevant to Dipesh in this situation? A Self-interest and intimidation B Familiarity and intimidation C Self-interest and advocacy D Advocacy and familiarity

12 Question 26 Are the following statements relating to the scope of the ICAEW Code of Ethics true or false? (1) Professional accountants in business are expected to further the interests of their employers. Therefore, no advocacy threat can ever exist for professional accountants in business. (2) For employees in business, the ICAEW Code of Ethics applies only to paid work as employees. Where voluntary, unpaid, work is undertaken outside normal working hours (for example, serving on the finance committee of a school) the Code does not apply. A Statement (1) is true, statement (2) is false B Statement (1) is true, statement (2) is true C Statement (1) is false, statement (2) is true D* Statement (1) is false, statement (2) is false Question 27 Wilfred is a financial accountant at Poplar plc, a listed company. Poplar is about to enter negotiations with the bank for the renewal of its overdraft facility. The bank s decision will be based in part on the company s most recent management accounts. The finance director, who has a forceful personality, has asked Wilfred to delay recognition of depreciation charges on recently-acquired assets in order to increase both profits and assets in the management accounts. Which ONE of the following is the most appropriate initial action for Wilfred to take in the circumstances? A Discuss the matter again with the finance director, documenting all conversations and retaining any relevant correspondence B Make a complaint about the finance director to the ICAEW C Request an interview with the head of Poplar s audit committee to explain the problem and to ask for advice D Comply with the finance director s instruction in accordance with the Code of Ethics requirement to further the aims of his employer

13 Question 28 Peter, a professional accountant, works in the procurement department of Juniper plc, a listed company. One of Peter s personal friends, Mary, has recently started work as a sales manager for a company which has supplied goods to Juniper in the past. Mary is currently negotiating a new contract to supply goods to Juniper and she has asked Peter for favourable discount terms. The amount of discount under discussion would not be material to either Juniper or to Mary s company, but winning the discount would be helpful to Mary s career prospects. Which ONE of the following is the most appropriate course of action for Peter to take? A Grant the discount to Mary s company on the grounds that it is immaterial B Decline to negotiate further with Mary and ask a senior colleague to take over the negotiation instead C Refuse to negotiate at all with Mary, and place the order with another company D Offer to take Mary out for dinner, at his own expense, in exchange for her dropping the request for additional discount Question 29 George has been financial accountant for a charity for several years. A member of his team, Charlotte, has been in post since George joined the charity. George and his other team members find Charlotte very difficult to work with, but she has performed reasonably well technically, and the charity has been unable to find grounds to dismiss her. Charlotte has just been to see George to tell him that she has obtained an offer of employment from a company, subject to the receipt of a satisfactory reference. The charity has a policy of supplying only minimal, factual, information in employee references. George has consistently opposed this policy, arguing that employees have a right to expect more than this from their employer. Which ONE of the following courses of action will be most appropriate for George to take in respect of the reference? A Write a reference letter that emphasises Charlotte s technical ability, but omits any negative opinion, in order to avoid subsequent legal action for defamation B Refuse to provide Charlotte with a reference letter as it would be impossible to be honest about her performance C Write a reference letter that provides an honest appraisal of the difficulties experienced by the team in work with Charlotte D Write a minimal, factually-based reference letter in compliance with the charity s stated policy in respect of references

14 Question 30 The board of Maple Ltd is considering a proposal to reward all staff with an annual bonus based upon reported profit before tax. Which ONE of the following categories of ethical threat might this bonus create for the professional accountants employed by Maple? A Self-interest B Objectivity C Familiarity D Advocacy