1. A partner of Alam & Co proposes to offer Rupsha Steel Ltd, an audit client, a new type of advisory service. No provision of the ICAB Code of Ethics deals with this service specifically. The partner argues that, as the Code contains no rule prohibiting it, the service can start without further analysis. Which response is most consistent with the nature of the ICAB Code?

A) The firm should apply the closest listed prohibition mechanically, because the Code is rules-based and gaps are filled by analogy to it
B) Silence in the Code does not mean permission; the firm must identify, evaluate and address threats, applying the spirit of the Code
C) The service is permitted, because a framework of principles restricts a firm where a specific listed rule applies to it
D) The firm must first obtain written clearance from ICAB, because a situation not covered by the Code cannot be assessed by the firm

Correct: B difficult IESBA Code Section 120

The ICAB Code incorporates the IESBA Code and is a framework of principles that members must follow in spirit as well as letter. Where no rule addresses a situation, the member still has to identify threats to the fundamental principles, evaluate them and address them, or decline the service. The partner's argument treats the Code as a rules-based list of prohibitions, which would leave any new service permitted by default. Equally, no prior ICAB clearance is required and mechanical analogy to a rule replaces judgement with a rules-based approach.

2. During planning of the audit of Meghna Foods Ltd, the engagement partner learns that the audit senior has been a close personal friend of the client's chief financial officer since university. The partner records the threat as acceptable because the senior has confirmed in writing that her judgement will not be affected. How should the partner's evaluation be assessed under the IESBA Code?

A) Adequate: an acceptable level is reached when the individual concludes in good faith that compliance is unimpaired, and a written note records it
B) Adequate: the Code requires the engagement partner's own professional judgement, with no reference to how others would perceive the matter
C) Deficient: the friendship is an intimidation threat, so the evaluation should concentrate on whether the CFO could pressure the senior
D) Deficient: acceptability is judged by whether a reasonable and informed third party would see compliance as unimpaired, not by her own assurance

Correct: D difficult IESBA Code Section 120

The conceptual framework defines an acceptable level by reference to what a reasonable and informed third party, weighing all the specific facts and circumstances, would conclude about compliance with the fundamental principles. An individual's own statement of unaffected judgement is relevant evidence but cannot settle the question, and the partner must go on to address the threat if it is not acceptable, for example by reassigning the senior. The tempting view that the evaluation rests on the partner's own judgement alone ignores the third party test. A close personal friendship is mainly a familiarity threat, not intimidation.

3. Three situations arise at Alam & Co. (a) The firm prepared the draft financial statements of Surma Pharma Ltd, which its audit team will now audit. (b) The firm's corporate finance team is marketing newly issued shares of Teesta Energy Ltd to investors. (c) The engagement partner of Padma Textiles Ltd has led its audit for ten years and works closely with the finance director. Which option correctly identifies the principal threat in each situation?

A) (a) self-review, as the firm audits its own work; (b) self-interest, as it earns fees on the issue; (c) familiarity, from long association
B) (a) self-review, as the firm audits its own work; (b) advocacy, as it promotes the client; (c) intimidation, from the finance director
C) (a) self-interest, as the firm earns fees twice; (b) advocacy, as it promotes the client; (c) familiarity, from long association
D) (a) self-review, as the firm audits its own work; (b) advocacy, as it promotes the client; (c) familiarity, from long association

Correct: D difficult IESBA Code Section 120

Auditing financial statements that the firm itself prepared is a self-review threat, because the team evaluates its own judgements. Marketing a client's shares to investors means promoting the client's position, which is an advocacy threat. Ten years of close contact between the engagement partner and the finance director is the classic source of a familiarity threat, being too sympathetic to the client's interests. Self-interest would arise from a financial interest in the client, and intimidation from actual or perceived pressure, neither of which is described in the facts.

4. Alam & Co audits Karnaphuli Cement Ltd, which is listed on the Dhaka Stock Exchange. Total fees from the client and its controlled subsidiaries, against the firm's total fees, were: year 1 CU 5.6 million of CU 40.0 million; year 2 CU 7.5 million of CU 46.0 million; year 3 CU 8.8 million of CU 52.0 million. In year 3 the client itself paid CU 7.3 million and its subsidiaries CU 1.5 million. What does the IESBA Code require for the year 3 audit?

A) No action beyond monitoring, because the 15% test applies only from the third year and fees stayed below 20% in each of the three years of the engagement
B) Disclose the dependence to those charged with governance and arrange an external accountant's review, as fees exceeded 15% in years 2 and 3
C) Disclose to those charged with governance, with an outside review needed if fees stay above 15% for a third consecutive year in a row
D) No action, because the 15% test applies to the client alone, which was 14.0% in year 3 (CU 7.3 million of CU 52.0 million), so no threshold applied

Correct: B complex IESBA Code Section 410

For a public interest entity such as a listed company, the Code looks at total fees from the client and the entities it controls, as a proportion of the firm's total fees. The proportions are 14.0% in year 1, 16.3% in year 2 and 16.9% in year 3. Fees above 15% for two consecutive years (years 2 and 3) require disclosure to those charged with governance and a review by an accountant outside the firm, either before or after the opinion is issued. Using the client alone gives 14.0%, but subsidiaries must be included. The Code sets no fixed percentage for entities that are not public interest entities.

5. Mr Hasan was engagement partner on the audit of Rupsha Steel Ltd, a listed company, for the seven years ended 30 June 2018 to 30 June 2024 inclusive. Alam & Co applies the IESBA Code rotation rules for a public interest entity. His colleague asks for the earliest financial year-end for which Mr Hasan could again act as engagement partner. Which answer is correct?

A) Year ending 30 June 2030, as a five-year cooling-off (2025 to 2029) applies, during which he cannot influence the audit at all
B) Year ending 30 June 2027, as a two-year cooling-off applies, matching the period for other key audit partners on the audit team
C) Year ending 30 June 2028, as a three-year cooling-off applies, matching the period for the engagement quality reviewer role
D) Year ending 30 June 2029, as the five-year cooling-off is counted from the 2024 audit year itself, ending with the 2028 year

Correct: A complex IESBA Code Section 540

The Code limits a key audit partner of a public interest entity to seven cumulative years, and an engagement partner must then observe a cooling-off period of five consecutive years. The cooling-off period starts with the first year after his last audit, 2025, so it covers 2025 to 2029 and he can return for the year ending 30 June 2030. The two-year and three-year periods apply to other key audit partners and to the engagement quality reviewer respectively. Counting the 2024 year itself as part of the five years shortens the period by one year.

6. Alam & Co is asked to quote fees on four unrelated proposals. Which proposed fee arrangement is permitted under the IESBA Code, subject to evaluating the resulting self-interest threat?

A) A fee of 1% of the assessed value of investment property that an audit client will carry at that value, as valuation is separate
B) A review engagement fee of 8% of reviewed profit before tax, since a review gives less assurance than an audit and is not caught
C) An audit fee of CU 1.5 million plus CU 150,000 if the audit report is signed unmodified, as a modest bonus is acceptable if disclosed
D) A fee of 10% of tax savings, for tax planning advice to a private company that receives no audit or assurance service from the firm

Correct: D difficult IESBA Code Section 410

The Code does not allow a contingent fee for an audit or review engagement, so a bonus tied to an unmodified report and a fee based on reviewed profit are both prohibited whatever the size or disclosure. A contingent fee for a service to an audit client is also prohibited where its amount depends on a judgement about a material amount in the financial statements, as with a valuation the client will report. A success-based fee for tax planning to a client that receives no audit or assurance from the firm is not prohibited, but the self-interest threat must still be evaluated.

7. Padma & Co's annual monitoring review of 20 completed audit files found that in 5 files the team had not documented its evaluation of threats to independence from non-audit services. The managing partner suggests that a 75% compliance rate is acceptable and that the five engagement partners should simply update their files. What does ISQM 1 require the firm to do?

A) Wait for next year's review to see whether the exceptions recur, since a trend is needed before any deficiency can be evaluated
B) Treat the five as isolated engagement errors, since a 75% rate shows the system is operating effectively, and have the files updated
C) Report the five exceptions to ICAB at once, since any deficiency in the ethical requirements response must be notified before remediation
D) Investigate root causes, evaluate the severity and pervasiveness of the deficiency in the ethical requirements response, and remediate it

Correct: D complex ISQM 1

ISQM 1 requires the firm to evaluate monitoring findings to decide whether deficiencies exist, and then to investigate root causes, evaluate severity and pervasiveness and design remedial actions. It sets no compliance-rate threshold below which findings can be ignored, and 5 of 20 files (25%) is a significant exception rate for the ethical requirements component. Updating the files corrects the engagements but not the cause in the system. The standard does not require immediate reporting to ICAB, and waiting for recurrence delays remediation of a known deficiency.

8. During the audit of Surma Pharma Ltd, the audit senior finds consultancy payments of CU 12 million to a firm with no apparent services. Evidence suggests that the payments may have funded a bribe to a licensing official. The finance director insists the payments are legitimate and offers no further evidence. The amount is material. What should the engagement partner do next under the IESBA Code?

A) Report the suspicion to the relevant authority at once, as suspected bribery of an official overrides confidentiality without further steps
B) Discuss it with management and those charged with governance, assess their response, then decide on further action, including disclosure
C) Resign from the engagement immediately and inform the incoming auditor, as the refusal shows that management lacks integrity and honesty
D) Treat it as a possible misstatement, as bribery law does not affect recorded amounts, so the non-compliance provisions are not engaged

Correct: B complex IESBA Code Section 360

Where an auditor becomes aware of suspected non-compliance with laws and regulations, the Code requires first an understanding of the matter and discussion with management and, where appropriate, those charged with governance. The auditor then assesses whether the response is appropriate and, if not, determines further action, such as disclosure to an appropriate authority or withdrawal. Reporting at once skips the discussion stage. A bribe to secure a licence can affect the entity's ability to continue operating, so it is not outside the provisions, and immediate resignation also skips the required steps.

9. A firm's new brochure contains four statements. (1) Our four partners are Fellow Chartered Accountants of ICAB. (2) We are the most experienced audit firm in Bangladesh. (3) Clients of Firm X receive weaker audits than ours. (4) Our company audit fees start at CU 80,000. Which assessment is correct under the professional behaviour requirement of the IESBA Code?

A) Statement 3 alone breaches it, as a disparaging comparison; the claim in statement 2 is acceptable promotional language in marketing
B) Statements 2 and 3 breach it, as an exaggerated claim and a disparaging comparison; statements 1 and 4 are factual and fair
C) Statements 2, 3 and 4 breach it; quoting a starting fee misleads clients, while statement 1 is a factual qualification only
D) Statements 1, 2 and 3 breach it; naming the partners' qualifications is itself self-promotion that the Code restricts too

Correct: B difficult IESBA Code R115.2

The professional behaviour principle prohibits marketing that makes exaggerated claims about services, qualifications or experience, and disparaging references or unsubstantiated comparisons to the work of others. A claim to be the most experienced firm in the country is an exaggerated claim the firm cannot substantiate, and stating that another firm's audits are weaker is a disparaging comparison. A statement of the partners' actual qualifications and a factual indication of fees are honest and truthful and do not breach the Code. Treating the claim of being the most experienced firm as harmless promotional language ignores the prohibition.

10. Karim Rahman & Co has been invited to tender for the audit of Surma Pharma Ltd. The managing director says the current auditors resigned after a fee dispute and asks the firm not to contact them, to avoid delay. The firm has no other information about the circumstances. What should the firm do before deciding whether to accept?

A) Contact the current auditors directly without the client's knowledge, since the Code obliges a proposed auditor to obtain their reasons
B) Accept the appointment, then write to the current auditors, since the Code requires communication after the appointment is confirmed
C) Request permission to contact the current auditors and, if refused, find the facts by other reasonable means, weighing the refusal
D) Accept on the managing director's explanation, since a fee dispute is a commercial matter and no enquiry of the current auditors is required

Correct: C difficult IESBA Code Section 320

An accountant asked to replace another must determine whether there are reasons, professional or other, for not accepting, and should ask the client's permission to communicate with the existing accountant. If communication is not possible, the firm must take reasonable steps to obtain information about possible threats by other means, such as enquiries of third parties or background checks on senior management, and treat the refusal as a matter to weigh. Contacting the current auditors without consent would expose them to a confidentiality breach, and accepting first removes the chance to decline.

11. Karim Rahman & Co is engaged by Dhaka Data Services Ltd, which is not an audit client, to report under ISAE 3402 on the design and operating effectiveness of controls at its service centre. The engagement partner asks which part of the IESBA Code sets the independence requirements for this engagement. What is the correct answer?

A) Part 4B, as this is an assurance engagement other than audit or review; its independence requirements differ from Part 4A
B) Part 4A, as every engagement under an IAASB standard is treated as an audit-type engagement needing the full audit independence rules
C) Part 3, as the client is not an audit client, so the general framework for accountants in public practice applies to independence
D) Part 1, as the fundamental principles and conceptual framework suffice and no separate independence provisions exist outside an audit

Correct: A difficult IESBA Code Part 4B

The IESBA Code has Part 4A for independence in audit and review engagements and Part 4B for assurance engagements other than audit and review, such as ISAE 3402 and ISAE 3000 reports. The degree of independence required is highest for an audit, so Part 4B differs from Part 4A in its requirements but still contains specific independence requirements that apply the conceptual framework. Part 3 deals with accountants in public practice generally, not independence, and Part 1 sets out the fundamental principles and framework without removing the separate independence provisions.

12. On the audit of Teesta Energy Ltd, the audit senior ran an analytics tool over the journal population and it reported no unusual manual journals. The senior had earlier noted several large manual journals posted late at night by the finance director but, as the tool did not flag them, performed no further work. The manager approved this because the tool had worked in previous audits. Which bias does this illustrate and which action best mitigates it?

A) Groupthink, as the manager endorsed the senior's approach; arrange training on the tool's functions at the next annual CPD cycle
B) Anchoring bias, weighting the tool's first output too heavily; re-run the same tool on a differently structured journal population
C) Automation bias, favouring the tool's output despite contrary information; consult an expert on the tool and seek challenge
D) Confirmation bias, favouring evidence that supports an initial view of low risk; obtain a signed written representation from management

Correct: C difficult IESBA Code 120.12

The IESBA Code describes automation bias as a tendency to favour output from automated systems even when human reasoning or contradictory information questions its reliability. The senior's own observation of unusual journals is exactly the contradictory information that was set aside, and the Code suggests mitigation through advice from experts, consulting others for challenge, and training on bias. Re-running the same tool does not address the problem, and a management representation is not a mitigation of the team's own bias. Groupthink is about suppressed challenge in a group, not deference to a tool.

13. An audit manager at Alam & Co pasted the Padma Textiles Ltd payroll listing, with employee names, national ID numbers and salaries, into a free public generative AI tool to summarise anomalies. The tool's terms allow the provider to retain and reuse inputs. The engagement letter does not mention AI tools, and no one at the client was told. Which statement best describes the ethical position under the IESBA Code?

A) The manager has breached due care only, since AI tools are acceptable if the output is verified and confidentiality covers publication
B) There is no breach, as the data stayed inside a software tool and confidentiality is breached when a person reads the information
C) The manager breached confidentiality by disclosing identifiable client data to a third party without authority; later review cannot cure it
D) The manager has created an objectivity threat, as reliance on an external tool means the audit judgement no longer rests with the team

Correct: C difficult IESBA Code Section 114

The confidentiality principle requires accountants to protect information acquired in the course of work, including when using technology, and not to disclose it to third parties without proper authority or a legal or professional right or duty. Uploading identifiable personal and salary data to a tool whose provider can retain and reuse inputs is a disclosure to a third party that nobody authorised, and checking the AI output afterwards does not reverse it. The firm should treat it as an incident, inform the engagement partner and consider notifying the client. Competence and objectivity are separate principles and not the primary breach here.

14. Nusrat, a second-year ICAB student at Alam & Co, is assigned alone to test the valuation of a derivative portfolio at Agrani Finance Ltd, a task beyond her training. She fears that admitting this will harm her prospects. She plans to copy last year's working paper and rely on the manager's later review to catch any errors. Which view is correct under the ICAB Code?

A) The Code applies to students; due care requires her to tell her senior of her limits so that training or supervision is arranged
B) Her plan is acceptable, because the Code binds qualified members and the manager's later review is the safeguard for inexperience
C) Her plan is acceptable, because copying last year's file shows diligence and a review by the manager removes any risk to competence
D) She should decline the task without explanation, because competence permits work where an accountant is already fully qualified

Correct: A difficult ICAB Code of Ethics

The ICAB Code applies to students as well as full members, and the principle of professional competence and due care requires work to be done with the skills and diligence the task needs. When a task exceeds her knowledge, the proper response is to tell her senior so that training, closer supervision or specialist help is arranged. A later review is a check on the work, not a replacement for being competent to perform it, and copying a prior-year paper does not demonstrate diligence. Refusing without explanation also fails, since learning under supervision is accepted.

15. A complaint alleges that the engagement partner of Meghna Foods Ltd, a listed company, who is a member of ICAB, breached the independence provisions of the ICAB Code of Ethics. Which statement correctly describes who may take disciplinary action against the partner as a member, and why?

A) The Registrar of Joint Stock Companies and Firms, because the Companies Act 1994 gives the Registrar disciplinary control over professional body members
B) The Bangladesh Financial Intelligence Unit, because independence breaches by auditors are predicate offences under the Money Laundering Prevention Act 2012
C) ICAB, through its disciplinary process, as it adopts and enforces the Code of Ethics for members; BSEC supervises the company's securities-law compliance
D) BSEC, because it regulates listed companies and therefore also disciplines the members who audit them for breaches of the Code of Ethics

Correct: C difficult Bangladesh Chartered Accountants Order 1973

ICAB, the professional body for chartered accountants in Bangladesh, adopts the Code of Ethics based on the IESBA Code and enforces it against its members through disciplinary procedures, which is one of the most important roles of a professional body. BSEC is the securities regulator and supervises listed companies' disclosure and governance compliance, but it does not enforce the professional Code of Ethics against ICAB members. The Financial Intelligence Unit handles suspicious transaction reports under the money laundering legislation, and the Registrar maintains company records. Neither has disciplinary control over members of ICAB.

16. The senior partner of Dhaka Assurance LLP is explaining to new trainees why professional accountants need an ethical code. Which explanation is correct?

A) Accountants hold positions of trust and are relied on by clients and the community
B) A code makes sure that all accountants charge the same fees for similar services to clients
C) Only clients rely on the work of accountants, so only clients would ever need such a code
D) A code removes the need for accountants to exercise any professional judgement in their work

Correct: A difficult ICAB Code of Ethics

Accountants need an ethical code because they hold positions of trust and people rely on their expertise. The reliance extends beyond clients to other people associated with them and the general community, and accountants act in the public interest. A code does not set fees, is not limited to clients and does not replace professional judgement.

17. A discussion paper compares a rules-based ethical code with a principles-based one. Which statement is correct?

A) A rules-based code is more flexible, since it can be applied to any situation that arises
B) A rules-based code gives better protection to users, since every situation is covered by it
C) Principles are flexible and need threats evaluated; rules tend to remove that need
D) A principles-based framework contains no rules, so it cannot be enforced through discipline

Correct: C difficult ICAB Code of Ethics

A code based on principles is more flexible in a rapidly changing environment, allows broad interpretation and encourages accountants to evaluate and address threats. A rules-based system tends to remove the need to evaluate, as accountants can simply check whether certain rules are being met. No set of rules covers every potential situation, and the principles-based codes can still contain some rules and be enforced.

18. A trainee at an ICAB member firm is asked to list the fundamental principles of the ICAB Code of Ethics. Which list is correct?

A) Integrity, independence, competence and due care, confidentiality, and profit for the firm
B) Integrity, objectivity, professional competence and due care, confidentiality, professional behaviour
C) Honesty, objectivity, due care, secrecy, independence, and a duty to the firm of the member
D) Integrity, objectivity, scepticism, confidentiality and charging professional fees fairly to clients

Correct: B difficult ICAB Code of Ethics

The five fundamental principles are integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. Independence is not one of the five but is a key requirement when performing audit and other assurance engagements. Profitability, scepticism and fees are not fundamental principles.

19. A firm applying the conceptual framework in the ICAB Code identifies a threat to compliance with the fundamental principles. Which sequence of steps does the Code expect?

A) Evaluate the threat, identify it afterwards, and then report it to the next audit client served
B) Identify the threat, report it to ICAB, and then decline every engagement for that same client
C) Identify the threat, ignore it if the amount is immaterial, and document the decision on file
D) Identify the threats, evaluate them, then eliminate or reduce them to an acceptable level

Correct: D difficult ICAB Code of Ethics

The guidance helps firms and members to identify threats to compliance with the fundamental principles, evaluate the threats identified, and address them by eliminating them or reducing them to an acceptable level, which may require safeguards. There is no automatic requirement to report to ICAB or decline the engagement, and threats are not ignored on the basis of amounts alone.

20. Three situations arise at audit clients: (1) the audit firm prepared the financial statements of Barishal Textiles Ltd; (2) Know-how plc says it will put the audit out to tender unless it receives an unmodified opinion; (3) the audit senior's brother is finance director of the client. Which classification of the threats is correct?

A) (1) self-review; (2) intimidation; (3) familiarity
B) (1) self-interest; (2) intimidation; (3) familiarity
C) (1) self-review; (2) advocacy; (3) familiarity
D) (1) management; (2) self-interest; (3) intimidation

Correct: A difficult ICAB Code of Ethics

Auditing financial statements prepared by the firm is a self-review threat. A client threatening replacement because of a disagreement over the opinion is an intimidation threat. A close family member in a key position at the client is a familiarity threat. Self-interest relates to financial interests in the client, and advocacy to promoting the client's position.

21. An audit firm designs and implements the accounting IT system of Gazipur Pharma Ltd, which it also audits. Which general category of threat does this most clearly give rise to, in the sense of doing work that should be done by management?

A) Familiarity
B) Advocacy
C) Management
D) Self-interest

Correct: C difficult ICAB Code of Ethics

A management threat arises when the firm does work that should be carried out by management, such as the design and implementation of IT systems. The firm may also face a self-review threat in auditing a system that it built, but the category described in the question is the management threat.

22. Which statement correctly describes independence in appearance under the Code?

A) A state of mind that lets a conclusion be expressed without being affected by compromising influences
B) Avoiding circumstances so significant that an informed third party would doubt the firm integrity
C) Having no financial relationship of any kind with any of the other clients of the firm at all
D) Showing agreement with management in meetings to keep up good relations with the client for fees

Correct: B difficult ICAB Code of Ethics

Independence in appearance is the avoidance of facts and circumstances that are so significant that a reasonable and informed third party would be likely to conclude that a firm's, or an audit team member's, integrity, objectivity or professional scepticism has been compromised. The state of mind described in the first option is independence of mind.

23. An audit firm finds that no safeguard can reduce a threat to independence at Cumilla Cement Ltd to an acceptable level. What is the only appropriate course of action?

A) Continue the engagement and disclose the threat in the audit report to the members at large
B) Continue the engagement if the engagement partner signs a declaration of independence for it
C) Reduce the audit fee until the threat has lessened to the point that it is then acceptable
D) Eliminate the interest or activity causing the threat, or decline or discontinue the work

Correct: D difficult ICAB Code of Ethics

Where no safeguard is available, it is only appropriate to eliminate the interest or activities causing the threat, or to decline or discontinue the engagement. A disclosure in the report, a declaration or a fee reduction does not remove the threat to independence.

24. Which of the following is an example of a safeguard within the work environment, as opposed to one created by the profession, legislation or regulation?

A) Rotating senior personnel on the engagement
B) Continuing professional development requirements
C) Education and experience requirements for entry to the profession
D) Professional or regulatory monitoring and disciplinary procedures

Correct: A difficult ICAB Code of Ethics

Safeguards in the work environment include involving an additional accountant to review work, consulting an independent third party, rotating senior personnel, discussing ethical issues with those in charge of client governance, disclosing the nature of services and fees to those charged with governance, and involving another firm to perform or re-perform part of the engagement. The others are safeguards created by the profession, legislation or regulation.

25. For how long must an audit firm and its team be independent of a client in respect of an audit engagement?

A) Only on the day on which the audit report is signed and dated by the engagement partner
B) From the start of work to the signing of the report; for a recurring audit, until the contract ends
C) Only during the fieldwork visits made to the premises of the client by the audit team members
D) From the date the accounts are approved until one year after that date of approval by the board

Correct: B difficult ICAB Code of Ethics

The team and the firm should be independent during the period of the engagement, which runs from the commencement of work until the signing of the final report. For a recurring audit, independence may only cease on termination of the contract between the parties. Independence is therefore not limited to the signing date or to fieldwork visits.