Chapters 1 - 3

Question 1

Who is responsible for the internal control?

Answer 1

The directors have ultimate responsibility. The board must set up procedures of internal control and monitor them regularly to ensure that they are operating effectively.

Question 2

What kind of risk do internal auditors monitor?

Answer 2

Business risk.

Question 3

Limitation of Internal Auditors

Answer 3

They might be the employees of the company.

Question 4

Accountability

Answer 4

Accountability means holding those in charge accountable for their actions. In the context of a company, it means holding the directors who manage the company responsible for explaining their actions to the shareholders who own the company.

Question 5

Stewardship

Answer 5

Stewardship is when a person is responsible for taking care of something on behalf of another. This is known as a ‘Fiduciary Relationship’ and exists between directors and shareholders as directors are responsible for the management of the shareholders property.

Question 6

Agent & Principle

Answer 6

Agency is where an agent acts on behalf of a principle to perform tasks for them. In the context of a company, the directors are the agents of the shareholders (principles) who entrust them to manage the running of the business. This separation of ownership and management is often referred to as the ‘Agency Problem’.

Question 7

An Audit firm can ensure quality of work performed is at a high standard by

Answer 7

1.The firm must establish its own quality policies and
procedures
2. The firm will be subject to quality reviews by ACCA

Question 8

How long does an individual require to complete professional paper?

Answer 8

As long he/she wants to. There is no time constraint to it.

Question 9

“Based on our review, nothing has come to our attention that causes us to believe that the accompanying financial statements do not present fairly, in all material respects … in accordance with International Financial Reporting Standards.”

Answer 9

Limited level of assurance expressed negatively

Question 10

Professional Scepticism

Answer 10

To apply a questioning mind and to info and evidence.

Question 11

Who is ultimately responsible for ensuring that the annual financial statements of a listed company are prepared in accordance with IFRS and relevant legislation?

Answer 11

The BOD, you idiot!

Question 12

Who approves the appointment of an auditor?

Answer 12

Shareholders. Certain times may require directors to appoint in the next GM, yet require the approval of shareholders.

Question 13

Who is responsible of Corporate Governance?

Answer 13

The directors.

Question 14

What is OECD and when did it issue principles of corporate governance?

Answer 14

The Organisation of Economic Co-operation and Development. 1999.

Question 15

Poor controls in Corporate Governance leads to abuse of their position in the form of?

Answer 15

1. Excessive executive pay
2. Manipulation of result

Question 16

In CG, how should the shareholders be treated?

Answer 16

Equitably

Question 17

Activities of CG

Answer 17

Strategy planning and implementation, Appointment and Compensation of Executives, Compliance with laws and regulations, Engaging internal and external auditors and risk & internal control.

Question 18

Can the CEO and chairman be the same individual? And why?

Answer 18

Nope. Leads to decreased transparency and accountability. To prevent unfettered power

Question 19

Chairman in CG

Answer 19

Should be an Independent Non-Executive Director

Question 20

Who can be the head of Nominations Committee?

Answer 20

An INED. Not a chair/CEO

Question 21

Who can be the part of Audit Committees?

Answer 21

Atleast 3 INEDs. No executive should be part.

Question 22

What does the remuneration committee do?

Answer 22

Composed of INEDS, determines and sets the remuneration and compensation of EDs and Chairman .Board sets the remunerations of INEDs (As per AOA)

Question 23

What is the composition of an Audit Committee?

Answer 23

a) 3 Independent NEDs (2 for smaller Co.)
b) One member with recent and relevant financial experience
c) Competent relevance to the sector the Co. operates in

Question 24

Objective of the Audit Committee

Answer 24

Here, the external auditors are responsible and report to the shareholders and not the executive mgt
- Independence to External & Internal Auditors

Question 25

Pre-Approval for non audit services

Answer 25

Only in place for trivial matters.

Question 26

Whistle blowing

Answer 26

Whistleblowing is the act of reporting illegal, immoral, unsafe, or fraudulent activity within a company. Whistleblowers can be employees, contractors, suppliers, or auditors. Whistleblowers can raise concerns internally or externally.

Question 27

Primary Roles of Board of Directors

Answer 27

1. Risk Management
2. Internal Control

Question 28

What is crucial to high risk quality mgt?

Answer 28

Culture and behaviour

Question 29

What is not a principle of CG?

Answer 29

Auditor’s Accountability and Remuneration

Question 29

Liaise

Answer 29

Work together

Question 30

What kind of assurance do review engagements and audit reports give?

Answer 30

Negative assurance and positive assurance respectively.

Question 31

What are the two things in Internal Control?

Answer 31

1. Makes sure operations are run effectively
2. Auditors may be the employees of the company

Question 32

What is the auditor’s duty of confidentiality?

Answer 32

Disclose matters only if statutory is required.

Question 33

Chair/CEO are what kind of directors?

Answer 33

Executive directors.

Question 34

Director contracts should be reviewed to ensure notice periods of how long?

Answer 34

An year or less

Question 35

When does the independence is jeopardized?

Answer 35

When a director works for too long

Question 36

To be chair, you need to be?

Answer 36

Independent

Question 37

What is to be taken into consideration while setting the remuneration of the executive directors?

Answer 37

Workforce remuneration

Question 38

What should internal auditors not do?

Answer 38

1. Designing and implementing internal control procedures for deficiencies.
2. Authorizing transactions and conducting reconciliations

Question 39

The most appropriate response for outstanding fees?

Answer 39

Do not issue audit report until fees are received.

Question 40

Could tax return be a self review threat?

Answer 40

No, it cannot. Tax advise and provision for tax can.

Question 41

Advantages of establishing an audit committee?

Answer 41

1. Strengthens the internal audit function
2. The effectiveness of the internal audit function will improve as it will monitor and review its performance regularly

Question 42

Does the audit committee appoint an external auditor?

Answer 42

No, they give suggestions/recommendations on the process. Shareholders appoint the EA.

Question 43

Data analytics routines?

Answer 43

Are quicker than CAAT and are standardized and no need to restrict data for sampling.

Question 44

When should gifts be accepted?

Answer 44

If it is trivial and inconsequential to the recipients

Question 45

Process of development of ISA

Answer 45

1. Establishment of task force to develop draft standard
2. Discussion of proposed standard at a public meeting
3. Distribution of exposure draft for public comment
4. Consideration of comments received from public
5. Approval by IAASB members (2/3rd)

Question 46

Who has the responsibility for liaising with the shareholders?

Answer 46

All of the board of directors.

Question 47

Is internal audit function compulsory for non listed company?

Answer 47

No and the audit committee should consider one

Question 48

What is the responsibility of the directors regarding internal control?

Answer 48

Monitor and supervise them annually and also report about them to shareholders as per governance code.

Question 49

Is board always responsible for the prevention and detection of fraud?

Answer 49

Yes.