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


A) Governance not in name but in spirit
B) Limited liability for directors and senior management
C) More transparency in reporting
D) Good relation of remuneration to performance

E) B) and C)
F) A) and D)

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The Fourth Directive of the European Commission:


A) aims at harmonizing the educational and training prerequisites necessary to become a statutory auditor.
B) requires that the auditor's report include whether the financial statements present a "true and fair view."
C) mandates for the new members of the auditing profession to hold a university degree in accountancy.
D) requires that the auditor of the company to be the officer or employee of the company being audited.

E) All of the above
F) A) and B)

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Which of the following is a main function of internal auditing in multinational corporations?


A) Preparing the annual report to corporate shareholders
B) Selecting independent members for the board of directors
C) Helping external auditors with the financial statement audit
D) Monitoring risks and assessing their effect on the company

E) B) and D)
F) C) and D)

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


A) It enhances the credibility of the financial statements of corporation.
B) It guarantees the future viability of the corporation.
C) It assures readers that no errors have been made in the financial statements.
D) It tells shareholders that management has operated the corporation efficiently.

E) All of the above
F) C) and D)

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A

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


A) Regulation of the external auditing profession was reduced.
B) CPAs were no longer allowed to provide external audit services for multinational corporations.
C) Reputation for being the watchdogs of financial reporting integrity was reduced.
D) External auditors were required to sit on the boards of directors of multinational corporations.

E) A) and B)
F) None of the above

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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?


A) Management control
B) Corporate governance
C) Internal auditing
D) Government regulation

E) B) and C)
F) All of the above

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What is an audit committee?


A) It is a group of audit firms that develop national or international standards for auditing practice.
B) It is a subset of a corporate board of directors with oversight of the auditing function.
C) It is the team of external auditors (i.e. CPAs) that conducts audit testing and prepares the audit report.
D) It is a management group responsible for negotiating the audit engagement with a public accounting firm.

E) B) and C)
F) All of the above

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Which of the following is NOT a concern identified in the 2008 IFAC report "Financial Reporting Supply Chain-Current Perspectives and Directions"?


A) Governance in name, but not in spirit
B) Overregulation
C) The development of a checklist mentality
D) Trend towards less disclosure and transparency in business and financial reporting

E) C) and D)
F) None of the above

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Auditors in the United States may form limited liability partnerships. What does this mean for civil liability of auditors?


A) It allows negligent auditors to escape civil litigation for their failures.
B) Auditors are limited to serving clients that agree not to pursue litigation for audit negligence.
C) The personal wealth of partners who are not negligent is protected from litigation against the audit firm.
D) It has no impact on civil liability because it provides limitations only on criminal liability.

E) None of the above
F) B) and C)

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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?


A) Sudden increase in world trade
B) High-profile corporate scandals
C) Significant decline in world trade
D) Expansion of the European Union membership

E) A) and B)
F) All of the above

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


A) Accountant
B) Auditor
C) Independence
D) None of the above terms is defined in the Companies Act of the UK.

E) B) and C)
F) None of the above

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A

The Institute of Chartered Accountants in New Zealand (ICANZ) proposed a policy of proportionate liability to replace the country's existing "joint and several liability" approach. Why was the proposal denied?


A) Proportionate responsibility for damages cannot be determined objectively.
B) Fairness to the defendants was not relevant to ensuring fairness to the injured party.
C) Large auditing firms would be paying proportionately higher damage awards than small firms.
D) Such a policy is inconsistent with harmonization of international auditing standards.

E) B) and D)
F) C) and D)

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In China, who is responsible for regulating auditing practice?


A) Chinese Institute of Certified Public Accountants (CICPA)
B) Government, through local audit bureaus
C) Chinese stock exchange
D) Auditing Practices Board (APB)

E) A) and B)
F) A) and C)

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B

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


A) The government
B) Board of directors
C) Society as a whole
D) All of the above

E) C) and D)
F) A) and B)

Correct Answer

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


A) Decreasing the amount of disclosure in financial statements
B) Limiting the amount of foreign direct investment in audit firms
C) Increasing dependence of auditors on management of the company
D) Changing the ownership structure of audit firms

E) All of the above
F) C) and D)

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In proposed PCAOB Rule 4012, "Inspection of Foreign Registered Public Accounting Firms" issued for comment in December 2007, which of the following is NOT one of the broad principles upon which the board may place full reliance on the inspection program of qualified non-U.S. auditor oversight entities?


A) Transparency of the oversight system
B) Adequacy and integrity of the oversight system
C) Rigidity of professional standards mandated by the oversight system
D) Independence of the oversight system's source of funding

E) A) and B)
F) A) and C)

Correct Answer

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


A) It required all multinational corporations to adopt international auditing standards by 2008.
B) It specified the form and content of the annual report.
C) It provided guidance on the form and content of the audit report.
D) It requires the auditor to express an opinion on whether the statements give a true and fair view of corporate performance.

E) A) and B)
F) B) and C)

Correct Answer

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


A) International Accounting Standards Board (IASB)
B) International Auditing and Assurance Standards Board (IAASB)
C) International Organization of Securities Commissions (IOSCO)
D) Organization for Economic Cooperation and Development (OECD)

E) C) and D)
F) A) and D)

Correct Answer

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The Canadian Institute of Chartered Accountants (CICA) has taken a principles-based approach to auditor independence, whereas the Federation des Experts Comptables Europeens (FEE) has taken a conceptual approach. What is the difference?


A) The principles-based approach has been effective, but the conceptual approach has not.
B) The principles-based approach offers more flexibility in compliance than the conceptual approach does.
C) The principles-based approach gives specific rules and prohibitions that must be followed, but the conceptual approach asks auditors to focus on the aim of independence rather than rules.
D) The conceptual approach is only theoretical and hasn't yet been applied, whereas the principles-based approach is currently in practice.

E) All of the above
F) A) and B)

Correct Answer

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


A) Requirement that all members of the board of directors be independent of the corporation.
B) It addresses the need for a consistent set of international auditing standards.
C) Attesting to the reliability of internal controls in the annual report.
D) This defines the membership in the Public Company Accounting Oversight Board (PCAOB) .

E) A) and D)
F) B) and D)

Correct Answer

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