Question 1

What is auditor independence and why is it so important?

Accepted Answer

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Question 2

Can a public accounting firm accept an audit client if a principal within the firm has a direct shareholding in the prospective client?

Accepted Answer

The answer of Can a public accounting firm accept an...

Question 3

A familiarity threat can be reduced by:

Accepted Answer

Rotation of the lead auditor and review partner reduces the familiarity threat as it ensures that the same individuals are not involved in the audit engagement for prolonged periods of time, thus reducing the risk of becoming overly familiar with the client and potentially overlooking or ignoring issues. Rotation of the senior partner, audit team or audit firms may also help address familiarity threats, but rotating the lead auditor and review partner is considered the most effective approach.

Question 4

Which one of the following policies and procedures is NOT required by ASA 220 Quality Control for an Audit of a Financial Report and Other Historical Financial Information?

Accepted Answer

Remunerating the auditor fairly and responsibly is not specifically required by ASA 220. While fair remuneration for audit services is important and can impact the quality of the audit, it is not specifically mentioned as a requirement in this standard. The other options, acceptance and continuance of client relationships and specific engagements, ethical requirements (including independence), and leadership responsibilities for quality on audits are all specifically required by ASA 220.

Question 5

The auditor's ultimate defence where conflicts are sufficiently great so as to compromise objectivity is:

Accepted Answer

In situations where conflicts are so great that they compromise the auditor's objectivity and independence, the best option is for the auditor to resign. This is in line with APES 110, which requires auditors to maintain their independence and objectivity throughout the audit process. Whistle blowing may also be an option, but it should only be used if the auditor has exhausted all other avenues for resolving the conflict and believes that there is a significant risk to the public interest. The working papers may provide evidence to support the auditor's position, but they are not a defence against conflicts that compromise independence and objectivity.

Question 6

Which of the following is NOT a concern that may arise from an audit firm completing an audit for a substantially reduced fee?

Accepted Answer

A more efficient audit being conducted within a budgeted time frame could be a positive outcome, rather than a concern, as long as it does not compromise the quality of the auditing process. Therefore, option C is not a concern that may arise from an audit firm completing an audit for a substantially reduced fee. The other options, A, B, and D, are valid concerns that may arise from such a situation.

Question 7

A public accounting firm currently audits XYZ Co., a publicly listed company. The firm has been approached by XYZ Co. to also provide valuation services on all its Property, Plant and Equipment. Can the firm provide these services?

Accepted Answer

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Question 8

'Independence' in auditing means:

Accepted Answer

Independence in auditing means the auditor is impartial and takes an unbiased viewpoint. The auditor should not be financially dependent on the client, serve as an advocate for the client, or become too closely aligned with the client. The auditor's independence is critically important to maintain the credibility and trust in the audit process.

Question 9

The audit expectation gap is attributed to which of the following causes?

Accepted Answer

The audit expectation gap is attributed to all of the following causes: auditors' self-interest in protecting their profits, changes in social expectations, and complainants' self-interest seeking compensation.

Question 10

Many of the ethical values of society are NOT incorporated into laws because:

Accepted Answer

Many ethical values are subjective and can vary greatly among individuals, making it difficult to codify them into laws that are universally applicable and enforceable.

Question 11

Which one of the following is incorrect in relation to setting fees?

Accepted Answer

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Question 12

The disadvantage of including general statements in a code of professional ethics is:

Accepted Answer

General statements in a code of professional ethics are often difficult to enforce without minimum standards of ideal behavior. While identifying ideal conduct and emphasizing positive activities can be seen as benefits of including general statements, the lack of enforceability can be a significant disadvantage. Additionally, the number of general statements included is not necessarily relevant to their effectiveness.

Question 13

The agency view of the corporation emphasises:

Accepted Answer

The agency view of the corporation emphasises a control-oriented approach to governance, and addresses issues associated with the potential conflicts of interest of management (as the agents of the owners) in serving the interests of shareholders (as the owners of the corporation). It also seeks to implement mechanisms designed to curb managerial self-serving decisions and actions. Therefore, all of the above are correct.

Question 14

In the Code of Ethics for Professional Accountants, the advantage of general statements of ideal conduct, as opposed to specific rules of behaviour, is:

Accepted Answer

General statements of ideal conduct allow for a greater emphasis on positive behaviors and ethical values, rather than solely focusing on minimum standards of behavior. This approach allows for greater flexibility and adaptability in responding to complex ethical situations, and encourages accountants to aspire to the highest standards of integrity and professionalism. Specific rules of behavior, while easier to enforce, may not capture the full range of ethical considerations that can arise in accounting practice.

Question 15

If a public accounting firm is requested by a client of another audit firm to provide an opinion on the application of an accounting principle, the public accounting firm should:

Accepted Answer

The public accounting firm should advise the existing auditor as they have a duty to respect the relationships between clients and auditors. Refusing to give an opinion may harm the client's relationship with their auditor, while informing ASIC may not be necessary or appropriate in this situation.

Question 16

Section 324CH lists 19 relationships that establish a conflict of interest. Which relationship that the auditor may have with the client is NOT included?

Accepted Answer

The relationship where the auditor has an immaterial investment in an entity that has a controlling interest in the audited body is not included in the list of 19 relationships that establish a conflict of interest.

Question 17

Discuss the ways in which both the accounting profession and society itself encourages public accountants to conduct themselves in a professional manner, i.e. the factors that influence the ethical conduct of audit practitioners.

Accepted Answer

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Question 18

Many accounting firms have adopted policies known as improved business practices. Which of the following is NOT one of the above?

Accepted Answer

Increased professional indemnity insurance cover is not typically considered an improved business practice but rather a risk management strategy.

Question 19

The main reason for communication between the predecessor and successor auditor is to:

Accepted Answer

The main reason for communication between the predecessor and successor auditor is to determine any implications for the independence of the successor. This communication is important to ensure that the successor auditor can maintain their independence and provide an objective opinion on the financial statements. Other reasons, such as establishing the likelihood of fees being paid, satisfying ASIC requirements, or passing on working papers, may also be important, but they are not the primary reason for the communication between the two auditors.

Question 20

The Code of Ethics for Professional Accountants adopts a conceptual framework that involves:

Accepted Answer

The Code of Ethics for Professional Accountants adopts a conceptual framework that involves all of the choices listed. It includes a system of safeguards that reduce threats to an acceptable level, a framework for identifying, evaluating and resolving threats to the fundamental principles, and a principles approach because it is impossible to anticipate every situation that might generate an ethical problem for a professional accountant.

Quiz 3: Audit Quality and Ethics