Week 6

Question 1

Which of the following statements is correct?

Answer 1

Ethics is principally an attitude of mind.

Question 2

Ethics require:

Answer 2

Knowledge of moral principles.
Skill in applying moral principles.
The development of virtues within the individual.

Question 3

Which of the following is an example of deontological ethics?

Answer 3

The principle of beneficence.

Question 4

Which of the following is an example of utilitarianism?

Answer 4

Greatest benefit for the greatest number.

Question 5

If an audit firm considers that it behaves ethically because it always follows the provisions of APES 110, this is an example of:

Answer 5

Deontological ethics.

Question 6

Which of the following is not an ethical attribute of an external auditor?

Answer 6

Client advocacy.

Question 7

Competence as an independent auditor includes all of the following except:

Answer 7

guaranteeing the accuracy of the work performed.

Question 8

Which of the following is not a principle of professional conduct as defined by APES 110?

Answer 8

True and fair reporting.

Question 9

APES 110:

Answer 9

es auditors to act in the public interest.

Question 10

Auditors are required to complete engagements competently. Competency embraces all of the following except:

Answer 10

an unbiased mental attitude.

Question 11

Which of the following situations would be a breach of confidentiality?

Answer 11

Allowing a potential purchaser of your audit practice to review your audit working papers.

Question 12

Which of the following statements is correct?

Answer 12

The auditor who retains copies of client records must return the original records upon request.

Question 13

Vintage Ltd has a year-end of 30 June 20X0. The audit work was completed and the auditor’s report signed on 3 September 20X0. On 1 October, the company requested the current auditor to resign so that the auditor of their parent company could take over the audit. The current auditors wrote a resignation letter dated 10 October that was received by the company on 15 October. This letter advised that the auditor’s resignation was effective from 3 September 20X0. The resignation letter was also forwarded to the Australian Securities and Investments Commission (ASIC), requesting its confirmation of the resignation. ASIC approved the resignation in a letter dated 31 October.

The effective date of the resignation is:

Answer 13

31 October 20X0.

Question 14

Williams & Associates is a small firm with three partners. The audit partner, being the only registered company auditor in the firm, retired from the firm on 31 August 20X0. On this date the partner wrote a letter to the Australian Securities and Investments Commission (ASIC) requesting permission to resign as auditor of all of his clients. ASIC gave its consent to the resignation effective from 31 October 20X0. The auditor of the audit clients in the period from 31 August to 31 October is:

Answer 14

the retiring partner.

Question 15

Which of the following is not an ethical decision-making model?

Answer 15

IFAC model.

Question 16

Which of the following is not a step in the American Accounting Association ethical decision-making model?

Answer 16

Determine under what conditions you would allow exceptions to your stand.

Question 17

Independence means that the auditor:

Answer 17

must be impartial with respect to the client.

Question 18

An auditor is independent if they are:

Answer 18

independent in fact and in appearance.

Question 19

Which of the following most completely describes auditor independence?

Answer 19

Performing the audit with integrity and objectivity.

Question 20

Which of the following is a correct statement with respect to a listed company?

Answer 20

The Australian Securities and Investments Commission will only allow the auditor to resign other than at the annual general meeting in exceptional circumstances.

Question 21

Which of the following statements is not true?

Answer 21

The auditor has a right to attend and be heard at all board meetings.

Question 22

To emphasise auditor independence from management, many entities follow the practice of:

Answer 22

having the auditor report to the entity’s audit committee.

Question 23

Emma Jones is about to begin a recurring annual audit engagement. As the continuing auditor, her independence would ordinarily be considered to be impaired if the previous year’s audit fee:

Answer 23

has not been paid and will not be paid for at least twelve months.

Question 24

It would not be appropriate for the auditor to initiate discussion with the audit committee concerning:

Answer 24

details of the procedures that the auditor intends to apply.

Question 25

Rebecca Lane was offered the engagement to audit Beachside Ltd for the year ended 30 June 20X2. She had served as a director of Beachside Ltd until 30 June 20X0 and her spouse currently owns 1000 of the 10 000 outstanding shares of Beachside Ltd. She should:

Answer 25

refuse the engagement because of her spouse’s share ownership.

Question 26

Under APES 110, an auditor may not:

Answer 26

have any joint, closely held investment with any director of an audit client.

Question 27

The ethical rules state that independence of the external audit firm is considered to be impaired if:

Answer 27

an immediate relative of one of the partners is the beneficial owner of shares forming a material part of the share capital of the client.

Question 28

An auditor strives to achieve independence in appearance to:

Answer 28

maintain public confidence in the auditor.

Question 29

One of the partners in your audit firm holds one per cent of the shares in an audit client. This is not material to the partner’s wealth. This is a breach of:

Answer 29

both APES 110 and the Corporations Act 2001.

Question 30

Which of the following circumstances would not be considered by the Australian Securities and Investments Commission (ASIC) to be ‘exceptional’ for them to allow the auditor of a public company to resign outside of the company’s annual general meeting?

Answer 30

A negligence claim has been filed against the auditor by the company.

Question 31

Bernard & Associates has audited the financial report of Basset Pty Ltd (Basset) for several years and had always been paid promptly for services rendered. Last year’s audit invoices have not been paid because Basset is experiencing cash flow difficulties and the current year’s audit is scheduled to commence in one week. With respect to the past due audit fees, Bernard & Associates should:

Answer 31

inform Basset’s management that the past due audit fees may be considered an impairment
of auditor independence.

Question 32

In which of the following instances would the independence of the auditor most likely not be considered to be impaired?

Answer 32

He or she has been retained as the auditor of a company from which the auditor purchased his or her latest motor vehicle at normal list price.

Question 33

You are the auditor of Express Travel Ltd, a large travel agent that also handles all your audit firm’s travel arrangements on normal commercial rates and provides excellent service. The chief financial officer of Express Travel Ltd has asked if you could help them overcome an economic downturn by recommending their services to your other audit clients. However, he has also said that he will understand if you are not able to do so. What type of threat to your independence does this request constitute?

Answer 33

Advocacy.

Question 34

You are the auditor of Blue Haze Ltd and are nearing the completion of the audit work for the current year when the audit senior, Travis Dean, advises you that he has been offered a job at Blue Haze Ltd as soon as the current audit is finished. What type of threat to the auditor’s independence does this situation constitute?

Answer 34

Self-interest.

Question 35

You are the auditor of Speed Ltd and the chief financial officer has stated that he is concerned that you are taking up too much of his staff’s time asking unnecessary questions for the audit. Further, he has indicated that your chances of getting the engagement to review the implementation of their new computer system engagement will be greatly improved if you keep your questioning of staff to a minimum during the current audit. What type of threat to your independence does this situation constitute?

Answer 35

Intimidation.

Question 36

Audit firm rotation has been introduced:

Answer 36

in Europe by the European Parliament.

Question 37

APES 110 would be violated if an auditor accepted a fee for services and the fee was:

Answer 37

payable after a specified finding was attained in a review of a financial report.

Question 38

An acceptable audit fee arrangement is to:

Answer 38

quote a fixed fee for an audit, based on an estimate of the total costs to be incurred.

Question 39

When a bid price for audit services by an audit firm is quoted at an unreasonably low level to win the tender, with any unrecovered audit costs recovered subsequently through other services or by other means, it is called:

Answer 39

low-balling.

Question 40

Which of the following best describes the role of corporate governance?

Answer 40

An independent board of directors holds the management team accountable to shareholders and other constituents.

Question 41

Corporate governance procedures generally involve policies concerning which of the following matters?

Answer 41

Compensation arrangements for senior management and non-executive directors.
Ensuring the board of directors is composed of persons with an appropriate mix of skills and experience.
Nomination of and communication with the external auditors.

Question 42

The audit committee of a publicly held company should be made up of:

Answer 42

members of the board of directors who are not employees.

Question 43

Which of the following is not a requirement of the ASX Corporate Governance Council Principles and Recommendations?

Answer 43

The audit committee should consist of at least five members.

Question 44

The external auditor will normally report to the audit committee on all the following matters except:

Answer 44

the audit firm’s staffing of the job.

Question 45

Which of the following is not one of the key areas covered by the OECD Principles of Corporate Governance?

Answer 45

Responsibilities of the auditor.