Deck 2: Governance and the Auditor

Question 1

Whose role is it to assist management to improve operational efficiency and effectiveness by monitoring the internal control and risk management systems?

A)The audit committee.
B)The external auditors.
C)The internal auditors.
D)All of the above.

Answer 1

C

Question 2

The audit committee should report to the board of directors on which of these matters?

A)The use of experts by the independent auditor.
B)Recommendations for the appointment or removal of an auditor.
C)Audit procedures carried out by the independent auditor.
D)All of the above.

Answer 2

B

Question 3

Governance is a concept that can be applied to:

A)not-for-profit organisations.
B)the public sector.
C)corporations.
D)all of the above.

Answer 3

D

Question 4

The best practice recommendations for audit committees states that the audit committee should consist of:

A)at least one member with financial expertise.
B)both executive and non-executive directors.
C)at least one independent director.
D)at least five members.

Question 5

The Auditor General has a legislative mandate to:

A)audit the financial statement of all entities controlled by the government except government business enterprises.
B)conduct a performance audit of all government agencies, authorities and companies other than government business enterprises.
C)audit the financial statement of all entities controlled by the government.
D)a and b.

Question 6

Earnings management occurs when:

A)income and expenses are managed to influence the performance of the entity.
B)financial statements and transactions are manipulated to influence perceptions about the entity.
C)executive salaries are increased surreptitiously by including the raises in late night meetings.
D)earnings are manipulated to improve the company's tax position.

Question 7

The conformance aspect of enterprise governance covers all these issues except:

A)the roles of the chair of the board and top management.
B)resource use.
C)internal control structures.
D)the adequacy and reasonableness of compensation schemes for executives.

Question 8

An effective audit committee:

A)improves the credibility and objectivity of the accountability process.
B)assists the directors in discharging their responsibilities with due care, diligence and skill.
C)fosters an ethical culture throughout the organisation.
D)all of the above.

Question 9

Incentives for earnings management are inherent in the management structure but are least likely to originate from:

A)executive remunerations.
B)situations including financial distress.
C)political considerations.
D)high positive cash flows.

Question 10

The approach that has been suggested for operational audits is:

A)the risk based audit approach.
B)the value-for-money audit approach.
C)the process audit approach.
D)all three of the above approaches have been suggested for operational audits.

Question 11

The Australian National Audit Office (ANAO) reports directly to:

A)the Commonwealth Parliament.
B)the ASIC.
C)the Commonwealth Parliament.
D)the ATO.

Question 12

The Australian Stock Exchange (ASX) listing rules require an audit committee to be established by:

A)all companies on the S&P/ASX All Ordinaries Index.
B)all companies on the S&P/ASX 500 Index.
C)all companies on the S&P/ASX 300 Index.
D)all companies.

Question 13

Which of these is a type of public sector performance audit?

A)Audit of a program or activity in a single entity.
B)Cross-entity audit, reviewing the same activity in a number of entities.
C)Audits of one or more Commonwealth partners.
D)All of the above are types of public sector performance audits.

Question 14

The COSO enterprise risk management integrated framework covers five components of internal control.Which of the following is not a component?

A)Governance and culture.
B)Strategy and objective-setting.
C)Performance.
D)Risk management.

Question 15

The statement that best describes internal auditing is:

A)an activity to reduce risk.
B)an activity located within an entity, primarily to detect fraud.
C)an independent and objective assurance activity within an entity.
D)an accounting function located within an entity.

Question 16

Operational auditing:

A)refers to an entity's financial operations.
B)is historical in focus.
C)has a main purpose of helping management to improve the entity's effectiveness and efficiency.
D)all of the above are correct.

Question 17

The types of operational audit reports issued by an internal auditor are:

A)financial report or compliance report.
B)varied, and are based on auditor judgment of how best to present the findings.
C)examination report, review report or compilation report.
D)unqualified, qualified, adverse or a disclaimer of opinion.

Question 18

The key benefit to management of there being an internal audit function is that:

A)It provides assurance to management that the organisation is complying with its legal requirements.
B)External audit costs are reduced.
C)It provides assurance to management that fraudulent activities will be detected.
D)It aids management in the areas of risk management, control and governance processes.

Question 19

Which of these is not one of the key trends in internal auditing as identified by the 2017 PricewaterhouseCoopers study?

A)A lack of alignment in views on the criticality and management of risks between management, the board and the internal audit.
B)The foundational capabilities of many internal audit functions are not strong enough to add sufficient value in today's areas of risk.
C)Fewer younger people entering the audit profession.
D)Internal audit does not have adequate tools to analyse business disruption or recommend resolution.

Question 20

The SEC proposal on audit committees did not require:

A)the audit committee to be directly responsible for the hiring of an independent auditor.
B)the audit committee to be directly responsible for the oversight of an independent auditor.
C)the audit committee to be directly responsible for the internal auditor.
D)the names of the committee members to be disclosed in the annual report.

Question 21

What is the definition of internal auditing put forward by the Institute of Internal Auditors? Discuss the key components of the definition.

Question 22

Which of these is not a function of the Australian National Audit Office (ANAO)?

A)Auditing the statements of government bodies.
B)Carrying out performance audits.
C)Commenting on government policy.
D)All are functions of the ANAO.

Question 23

The independence of the Auditor General is:

A)approved by the Governor General.
B)assured by the houses of Parliament.
C)prescribed by the Auditor General Act 1997 (Cwlth).
D)prescribed by the Australian Constitution.

Question 24

Describe the two sides of the enterprise governance framework.

Question 25

The Joint Committee of Public Accounts and Audit (JCPAA) is not charged with:

A)inquiring into matters raised by the auditor-general and referred to it by the houses of Parliament.
B)examining the accounts of the receipts and expenditure of the Australian government.
C)examining the financial affairs of Australian government authorities.
D)reporting to the Prime Minister.

Question 26

The Auditor General's powers to gather information are legislated.These powers do not include the power to:

A)access private property.
B)direct a person to provide any information.
C)obtain information under oath.
D)all of the above are legislated powers of the Auditor General.

Question 27

The Auditor General is appointed by:

A)the Parliament.
B)the Prime Minister.
C)the Joint Committee of Public Accounts and Audit.
D)the Governor General on the recommendation of the responsible minister.

Question 28

What is the objective of a performance audit of a public-sector entity?

Question 29

For consolidated financial statements, the Auditor General must report:

A)the name of a subsidiary for which he/she has not acted as an auditor.
B)the name of a subsidiary for which the financial statements have not been qualified.
C)the procedures and methods used in arriving at amounts for consolidations.
D)all of the above.

Question 30

The Auditor General must report on an exception basis if:

A)proper accounting records have been kept.
B)all the necessary information and explanations were obtained.
C)records have been retained for at least 10 years.
D)records have not been made available for inspection.

Question 31

What type of auditing helps management to improve effectiveness, efficiency and economy?

A)Functional auditing.
B)Operational auditing.
C)Financial statement auditing.
D)Performance auditing.

Question 32

Explain the difference between external and internal auditors.

Question 33

What are the main objectives of the audit committee? Companies listed on the S&P/ASX All Ordinaries Index are subject to a listing rule obliging them to have an audit committee.What does the ASX suggest should be the makeup of an audit committee?

Question 34

How has the role of the internal auditor changed since the advent of the Sarbanes-Oxley Act in the USA in 2002?