Question 1

Which of the following is a strategy adopted internationally to limit the auditor's liability?

Accepted Answer

Changing the ownership structure of audit firms is a strategy that has been adopted internationally to limit the auditor's liability. For example, in some countries, audit firms operate as limited liability partnerships, where the partners have limited personal liability for the firm's actions. This reduces the risk of auditors facing large legal claims that could threaten their personal finances.

Question 2

Which of the following groups is responsible for developing international auditing standards?

Accepted Answer

The International Auditing and Assurance Standards Board (IAASB) is responsible for developing international auditing standards. The International Accounting Standards Board (IASB) develops international accounting standards, the International Organization of Securities Commissions (IOSCO) is a global body of securities regulators, and the Organization for Economic Cooperation and Development (OECD) promotes economic development and trade.

Question 3

Which of the following is a positive area identified in the 2008 IFAC report "Financial Reporting Supply Chain-Current Perspectives and Directions"?

Accepted Answer

The report identifies the need for greater transparency in financial reporting as a positive area for improvement.

Question 4

Which of the following is a factor influencing the probability that an auditor will report a detected error or irregularity?

Accepted Answer

Independence of the auditor is a critical factor influencing the probability that an auditor will report a detected error or irregularity. If the auditor is not independent, there may be pressure to not report the error to avoid upsetting the client or jeopardizing a continued business relationship. The other options may also impact the auditor's ability to report an error or irregularity, but independence is the most significant factor.

Question 5

Why is international harmonization of auditing standards important?

Accepted Answer

International harmonization of auditing standards is important to assure international capital markets that auditing is consistent across companies. This promotes trust and confidence in financial reporting, which is essential for global investment and economic growth. Consistency in auditing also helps to prevent fraudulent activities and financial misstatements.

Option A is incorrect because harmonization with international accounting standards is important for the preparation of financial statements, not auditing.

Option B is incorrect because the independence of external auditors is ensured through regulations and ethical standards, not harmonization of auditing standards.

Option D is incorrect because although international harmonization of auditing standards may reduce the authority of individual governments, this is not the primary reason for its importance.

Question 6

What is the focus of Section 404 of the Sarbanes-Oxley Act?

Accepted Answer

Section 404 of the Sarbanes-Oxley Act requires companies to attest to the reliability of their internal controls over financial reporting in their annual reports. This section also requires a public accounting firm to attest to the effectiveness of the company's internal controls.

Question 7

What term is used to refer to the probability that an accounting error or irregularity is detected and reported?

Accepted Answer

The answer of What term is used to refer to...

Question 8

Which of the following terms is NOT defined by statute in the Companies Act of the United Kingdom?

Accepted Answer

The term "Accountant" is not specifically defined in the Companies Act of the United Kingdom, whereas terms like "Auditor" and "Independence" have specific definitions or contexts within the Act.

Question 9

Which of the following is NOT a factor influencing the probability that an auditor will detect an accounting error?

Accepted Answer

The answer of Which of the following is NOT a...

Question 10

If an auditor breaks a contractual obligation, such as failing to complete an audit within the time frame specified in the engagement letter, what kind of liability does the auditor face?

Accepted Answer

If an auditor breaks a contractual obligation, they may face civil liability, which means they could be sued for damages resulting from their breach of contract. Criminal liability would only be applicable if the auditor engaged in fraudulent or illegal activity, and professional sanctions would only be applicable after an investigation by professional bodies such as the PCAOB or AICPA.

Question 11

Which group is responsible for setting and developing auditing standards in the United Kingdom?

Accepted Answer

The Auditing Practices Board (APB) was responsible for setting and developing auditing standards in the United Kingdom. However, it's important to note that the APB has since been replaced by the Audit and Assurance Council of the Financial Reporting Council (FRC).

Question 12

Why was the issuance of International Standard on Auditing 13 (ISA 13) considered so important to harmonization of auditing standards?

Accepted Answer

The issuance of ISA 13 was considered important because it provided guidance on the form and content of the audit report, which helped to harmonize auditing standards internationally. It did not require all multinational corporations to adopt international auditing standards by 2008 and did not specify the form and content of the annual report. While it does require the auditor to express an opinion on whether the statements give a true and fair view of corporate performance, this is not the main reason for its importance in harmonizing auditing standards.

Question 13

In what countries would one expect auditing standards to evolve based on the needs perceived by the auditing profession?

Accepted Answer

Countries that follow common law are the ones where auditing standards are expected to evolve based on the needs perceived by the auditing profession. This is because common law countries rely heavily on case law and judicial interpretation, which allows room for auditors to develop standards in response to the changing needs of the profession. In contrast, code law countries have more prescriptive legal frameworks that may limit the ability of auditors to influence the development of auditing standards, while membership in the European Union or having strong accounting laws may not necessarily correlate with the evolution of auditing standards based on the needs perceived by the profession.

Question 14

What does ISA 700 say about the interpretation of an audit opinion?

Accepted Answer

ISA 700 states that the audit opinion enhances the credibility of the financial statements of the corporation. It does not guarantee future viability, assure no errors have been made, or address how management has operated the corporation.

Question 15

According to international auditing standards, if audit work has been limited in its scope, the auditors have had a disagreement with management, or there is significant uncertainty associated with the financial statements, what kind of audit opinion should be rendered?

Accepted Answer

A qualified opinion is issued when auditors encounter limitations in scope, disagreements with management, or significant uncertainties that do not pervasively affect the financial statements.

Question 16

According to the International Auditing Practices Committee, financial statements have conformed to International Financial Reporting Standards (IFRS) if:

Accepted Answer

According to the International Auditing Practices Committee, financial statements have conformed to IFRS if they have complied with all requirements and interpretations of the IFRIC. This means that compliance with at least 75% or one-half of the provisions is insufficient to fully conform to IFRS. Compliance with U.S. GAAP is not relevant in determining conformity to IFRS.

Question 17

The Fourth Directive of the European Commission:

Accepted Answer

The Fourth Directive of the European Commission requires that the auditor's report include whether the financial statements present a "true and fair view." This directive aimed at harmonizing the format, content, and qualification requirements for statutory auditors across the European Union. It did not mandate specific educational or degree requirements for auditors, nor did it require auditors to be officers or employees of the company being audited.

Question 18

In an effort to harmonize international auditing standards on a regional level, the European Union has issued directives pertaining to this end. Its Eighth Directive caused the United Kingdom to change the country's long-held standard for individuals wishing to be auditors. Which of the following is a new requirement for auditors in the UK?

Accepted Answer

The answer of In an effort to harmonize international auditing...

Question 19

In China, who is responsible for regulating auditing practice?

Accepted Answer

The answer of In China, who is responsible for regulating...

Question 20

In what area is external auditing consistent internationally?

Accepted Answer

The answer of In what area is external auditing consistent...

Quiz 11: Auditing and Corporate Governance: An International Perspective