ACA Professional Ethics (ICAEW Code) 3

Question 1

Independence of mind means the accountant:

Accepted Answer

Reaches conclusions without being affected by influences that compromise professional judgement

Answer

Independence of mind is the internal state of actually being objective — not allowing biases, conflicts of interest, or undue influence to compromise professional judgement, regardless of whether others perceive it.

Question 2

A 'cooling-off' period for audit partners of listed companies is required to prevent:

Accepted Answer

Familiarity threats developing over long association

Answer

Mandatory audit partner rotation and cooling-off periods are safeguards against familiarity threats, which can develop when a partner has a close relationship with client management over many years.

Question 3

Under the ICAEW Code, professional accountants in business have the same ethical obligations as those in practice. If a finance director is instructed to falsify accounts, they should:

Accepted Answer

Refuse and consider whistleblowing through appropriate channels

Answer

A finance director (accountant in business) must refuse instructions that would involve preparing misleading financial statements; depending on circumstances they may need to escalate internally or through external whistleblowing channels.

Question 4

Lowballing in professional fees refers to:

Accepted Answer

Setting an artificially low fee to obtain a new audit appointment, creating self-interest threats

Answer

Lowballing involves quoting an unrealistically low audit fee to win an appointment, which may create pressure to cut audit work below acceptable standards and creates a self-interest threat.

Question 5

Under the ICAEW Code, a financial interest in an audit client is identified as which type of threat?

Accepted Answer

Self-interest threat

Answer

A financial interest (e.g., holding shares in an audit client) creates a self-interest threat to independence and objectivity, as the accountant has a personal financial stake in the client's results.

ACA ICAEW Practice Test

ACA ICAEW Practice Test

ACA Professional Ethics (ICAEW Code) 3