Question 1

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

Accepted Answer

ISA 13 provides guidance on the form and content of the audit report, which is important for harmonization of auditing standards because it ensures that auditors around the world are communicating their opinions in a uniform manner. This helps to increase transparency and comparability in financial reporting across borders. The other answer choices are incorrect: A is not true, B is not directly related to auditing standards, and D is already a requirement in most countries' auditing standards.

Question 2

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

The answer of According to international auditing standards, if audit...

Question 3

In China, who is responsible for regulating auditing practice?

Accepted Answer

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

Question 4

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 2008 IFAC report identified "More transparency in reporting" as a positive area in the financial reporting supply chain.

Question 5

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

The auditor faces civil liability, as they have breached a contractual obligation. Criminal liability would not apply unless there was a deliberate fraud or criminal activity involved. Professional sanctions may also be imposed by regulatory bodies, but this is not the immediate consequence of a breach of contract.

Question 6

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 concepts such as "Independence" have specific definitions or are addressed within the context of the Act, particularly in relation to audit and financial reporting requirements.

Question 7

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 adopted internationally to limit the auditor's liability. For example, in the UK, audit firms can operate as limited liability partnerships (LLPs), which limit the personal liability of the partners for any claims or losses arising from the audit engagement. This allows audit firms to take on larger clients without the risk of significant financial exposure.

Question 8

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

Accepted Answer

Section 404 of the Sarbanes-Oxley Act requires companies to include in their annual reports an assessment of the effectiveness of their internal control over financial reporting. This provides assurance to investors and stakeholders that the company has reliable financial reporting in place.

Question 9

Why is international harmonization of auditing standards important?

Accepted Answer

International harmonization of auditing standards is important to assure international capital markets that auditing has been consistent across companies. This helps enhance the credibility of financial reporting and promotes investor confidence in global capital markets. It also facilitates cross-border investments by providing greater transparency and comparability in financial reporting practices.

Question 10

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 financial reporting standards, the International Organization of Securities Commissions (IOSCO) develops global securities regulations, and the Organization for Economic Cooperation and Development (OECD) aims to promote economic development and cooperation among its member countries.

Question 11

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." Therefore, choice B is the correct answer. Choice A is incorrect because the Fourth Directive does not address educational or training prerequisites for auditors. Choice C is incorrect because the Fourth Directive does not mandate that new auditors hold a university degree in accountancy. Choice D is incorrect because the Fourth Directive requires that the auditor of the company be independent and not an officer or employee of the company being audited.

Question 12

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

Accepted Answer

Auditing standards would be likely to evolve based on the needs perceived by the auditing profession in countries that follow common law systems. In common law systems, the development of legal and regulatory frameworks tends to be driven by the needs and practices of professional communities, rather than being imposed by formal legislative or governmental channels. As auditing is a profession that has developed extensively in common law countries, it is likely that auditing standards will continue to evolve in response to the perceived needs of practitioners in these contexts.

Question 13

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

Accepted Answer

According to ISA 700, the audit opinion is an expression of the auditor's professional judgement on the financial statements. It provides an independent and reasonable assurance that the financial statements are free from material misstatements, whether due to fraud or error. The opinion increases the credibility of the financial statements and enhances the confidence of users such as shareholders, lenders, and suppliers. However, it does not guarantee the future viability of the corporation, assure readers that no errors have been made in the financial statements, or tell shareholders about management's efficiency.

Question 14

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 crucial factor that influences the probability of reporting a detected error or irregularity. If an auditor lacks independence, they may be hesitant to report a detected error or irregularity due to fear of losing clients or approval from management. On the other hand, an independent auditor is more likely to report any errors or irregularities they detect without any external influence. While the other factors listed may also play a role, independence is the most important factor in this context.

Question 15

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 16

In what area is external auditing consistent internationally?

Accepted Answer

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

Question 17

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 International Financial Reporting Standards (IFRS) if they have complied with all requirements and interpretations of the International Financial Reporting Interpretations Committee (IFRIC).

Question 18

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 19

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 20

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...

Quiz 14: Comparative International Auditing and Corporate Governance