Question 1

What caused the U.S.Congress,the OECD,the International Federation of Accountants,and other organizations to enact stricter rules on corporate governance in recent years?

Accepted Answer

High-profile corporate scandals such as Enron, WorldCom, and Tyco, among others, brought to light the need for more stringent rules on corporate governance. These scandals undermined investor confidence and led to calls for greater accountability and transparency in the corporate world. The U.S. Congress, the OECD, and other organizations responded by enacting stricter rules on corporate governance to prevent future scandals and restore investor confidence.

Question 2

What act of the U.S.Congress advocated creating the Public Company Accounting Oversight Board,required financial statement certification by the CEO and CFO,and requires external auditors to report directly to an audit committee?

Accepted Answer

The Sarbanes-Oxley Act of 2002, also known as the Public Company Accounting Reform and Investor Protection Act, is the act of the U.S. Congress that created the Public Company Accounting Oversight Board, required financial statement certification by the CEO and CFO, and requires external auditors to report directly to an audit committee. The other options listed (Securities Act of 1933, Securities and Exchange Act of 1934, and Sherman Anti-Trust Act of 1890) do not include these specific provisions related to accounting and auditing requirements.

Question 3

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

Accepted Answer

C

Question 4

In Germany,who do external auditors consider as their clients?

Accepted Answer

External auditors in Germany consider all these entities as their clients because they serve the public interest, report to the board of directors, and ensure compliance with government regulations.

Question 5

What impact did the Asian financial market crisis in the late 1990s and the corporate scandals in the United States this century have on the auditing profession?

Accepted Answer

The Asian financial market crisis in the late 1990s and the corporate scandals in the United States this century (referring to the 21st century) had a negative impact on the reputation of the auditing profession. The scandals involving Enron, WorldCom, and others eroded public trust in the external auditors' ability to act as the watchdogs of financial reporting integrity. This led to increased scrutiny and demands for reform of auditing practices and regulations. However, there was no reduction in regulation of the external auditing profession, nor were CPAs prohibited from providing external audit services for multinational corporations. External auditors were not required to sit on the boards of directors of multinational corporations either.

Question 6

The OECD believes which group in a multinational corporation should oversee the financial reporting function to ensure that appropriate controls are in place to safeguard information integrity?

Accepted Answer

The OECD recommends that the board of directors oversee the financial reporting function in a multinational corporation as part of their responsibility to ensure effective internal control and risk management. This helps to ensure that appropriate controls are in place to safeguard information integrity and maintain public trust in the financial reporting process.

Question 7

In multinational corporations,to whom are the external auditors responsible according to OECD guidelines?

Accepted Answer

According to OECD guidelines, external auditors are responsible to the stockholders of the multinational corporation. The auditors are required to ensure that financial statements of the company are reliable and accurate. This information is used by stockholders to make investment decisions, and it's in their interest to receive reliable information.

Question 8

Why is litigation against external auditors,which is very common in the United States,virtually unknown in Japan?

Accepted Answer

The Japanese culture emphasizes on interpersonal harmony and avoiding confrontation. Therefore, it is unlikely for companies to sue their external auditors as it may result in conflicts or damage the relationship between the two parties. This is in contrast to the United States where litigation against external auditors is common due to the adversarial nature of the legal system. The other options are incorrect as they do not provide a valid explanation for the lack of litigation against external auditors in Japan.

Question 9

What reason has been given to explain the lack of well-developed auditing professions in less-developed economies?

Accepted Answer

In less-developed economies, investors are not major players and there is little need for audited financial statements because there are fewer shareholders and creditors. This results in a lack of demand for well-developed auditing professions.

Question 10

What term is used to describe the relationships between a company's management,its board,shareholders,and other stakeholders that create a structure through which the objectives of the company are set,attained,and monitored?

Accepted Answer

Corporate governance refers to the system of relationships and structures through which a company is directed and controlled. It involves balancing the interests of various stakeholders, including management, the board of directors, shareholders, and other stakeholders to ensure that the company is governed in the best interests of all. Management control is a narrower concept that refers to the processes and structures by which managers direct and control the operations of the company. Internal auditing is a function that examines and evaluates the company's operations, controls, and governance processes. Government regulation refers to the rules and regulations imposed by the government on companies and other entities to ensure that they operate in the public interest. While government regulation may be an important part of corporate governance, it is not the defining characteristic of the system.

Question 11

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 12

Why has corporate financial reporting in China not resembled reporting in Anglo-Saxon countries?

Accepted Answer

In China, there has traditionally been a greater emphasis on the social responsibilities of corporations, and this has been reflected in corporate financial reporting. The distinction between business functions and social service functions has been blurred in Chinese reporting entities, resulting in financial reports that do not resemble those in Anglo-Saxon countries.

Question 13

What explains the reason for the historically very low (1/3% to 1/2%)limit on allowance for doubtful accounts in China?

Accepted Answer

The primary customer in China was the government, which was presumed to have very good credit, leading to a low allowance for doubtful accounts.

Question 14

Recently enacted listing requirements of the New York Stock Exchange focuses attention on independent directors. How does the NYSE define an independent director?

Accepted Answer

The NYSE defines an independent director as someone who has no material relationship with the listed corporation, ensuring objectivity and lack of conflicts of interest.

Question 15

What is the primary role of external auditing in multinational corporations?

Accepted Answer

The primary role of external auditing in multinational corporations is to assure that financial statement information is of high quality, accurate and reliable. This helps to provide confidence to stakeholders such as investors, regulators, and creditors that the financial statements reflect the true financial position of the corporation.

Option A is incorrect because the preparation of the annual report to corporate shareholders is the responsibility of internal accounting and management.

Option B is incorrect because designing a working system of internal accounting controls is the responsibility of internal auditors and management.

Option D is incorrect because the selection of independent members for the board of directors is the responsibility of the nominating committee of the board of directors.

Question 16

What is the primary role of internal auditing in multinational corporations?

Accepted Answer

The primary role of internal auditing in multinational corporations is to monitor risks and assess their effect on the company. This includes identifying potential risks, evaluating controls, and providing recommendations to management on how to mitigate risks and improve business processes. While internal auditors may assist external auditors with the financial statement audit, this is not their primary role. They also do not typically prepare the annual report or select independent members for the board of directors.

Question 17

Who is considered to be the client for external auditors in the United Kingdom?

Accepted Answer

In the United Kingdom, external auditors are considered to be hired by the corporate shareholders who have a vested interest in ensuring the accuracy and reliability of the financial statements of the company. While the government may have some regulatory oversight of the auditing process, they are not considered to be the primary client. Similarly, while society as a whole may benefit from the accurate financial reporting of companies, they are not considered to be the direct client of the auditors.

Question 18

What is the first line of enforcement of legal and professional financial reporting standards?

Accepted Answer

External auditing serves as the first line of enforcement by ensuring that financial statements comply with legal and professional standards before they are published.

Question 19

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 tend to have auditing standards that evolve based on the needs perceived by the auditing profession, as opposed to being set by government regulators or statutory bodies. In contrast, code law countries would have auditing standards set by government regulators or statutory bodies, members of the European Union would have auditing standards set by both the auditing profession and government bodies, and countries with strong accounting laws may have auditing standards influenced by those laws but not necessarily solely evolving from the needs perceived by the auditing profession.

Question 20

According to OECD guidelines,what group is ultimately responsible for governing a multinational organization?

Accepted Answer

According to OECD guidelines, the board of directors is ultimately responsible for governing a multinational organization. They are responsible for setting the company's goals, strategies and policies, overseeing management decisions, and ensuring that the company complies with legal and ethical standards.

Quiz 14: Comparative International Auditing and Corporate Governance