Deck 20: The Audit Expectations Gap and Audit Quality

Question 1

Which of the following best describes the audit expectation gap?

A) Auditors are performing in a manner which is at variance with the beliefs and desires of others who are party to or interested in the audit.
B) The expectation that the primary focus of an audit is detecting fraud.
C) Audits are of a lower quality than shareholders expect given how much they cost.
D) The level of assurance provided by an audit should be "almost certain".

Answer 1

Auditors are performing in a manner which is at variance with the beliefs and desires of others who are party to or interested in the audit.

Question 2

What has been seen as a primary contributor to the perception that auditors lack competence?

A) Failure of auditors to undertake continuing professional development
B) Reluctance of professional bodies to take disciplinary action against auditors
C) Increasing complexity of business
D) Lack of regulation of who can undertake auditing duties

Answer 2

Increasing complexity of business

Question 3

According to ISA 240 - The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements who has primary responsibility for the detection of fraud?

A) Auditors
B) Management
C) Regulators
D) Directors

Answer 3

Management

Question 4

Why has it been argued that accounting professional bodies have not been more active in addressing the deficiencies in audit standards?

A) They do not see the promulgation and enforcement of standards as their role.
B) They believe the auditing standards are appropriate and do not need to change.
C) Introducing rigorous standards may add to the potential liability of their members.
D) All of the above.

Question 5

Auditors have been criticized in the past for not paying enough attention to the issue of going concern. How has ISA 570 - Going Concern addressed this expectation gap?

A) Auditors must get external verification that the entity is a going concern.
B) Auditors must look at a longer time frame when assessing going concern.
C) Auditors must qualify the accounts if there is significant uncertainty that the entity is a going concern.
D) Auditors must specifically obtain sufficient appropriate audit evidence about management's use of the going concern assumption.

Question 6

Which of the following was NOT identified by the FRC's 2008 Audit Quality Framework as being a driver for achieving quality?

A) The culture within audit firms
B) The auditing standards
C) The personal qualities of audit partners
D) None of the above, they were all identified as drivers.

Question 7

Which audit firms are required to publish a transparency report in accordance with the provisions of Article 13 of the EU Audit Regulations?

A) All entities providing an audit service
B) Statutory auditors of one or more public interest entities
C) The "big four" accounting firms
D) Auditors of companies with combined revenues of £10 million or greater.

Question 8

In the UK who is responsible for monitoring the quality of audits of listed entities and major public interest entities?

A) The FRC's Audit Quality Review Team (AQRT)
B) The Department of Business, Energy & Industrial Strategy (BEIS)
C) An independent panel of auditors drawn from the large audit firms
D) The accounting professional bodies