Ethics and Governance Question Bank
Course Introduction
This course explores the fundamental principles of ethics and governance, focusing on their application in both public and private sector organizations. Students will examine ethical theories, frameworks for ethical decision-making, and the role of values in leadership. The course delves into the structures and processes that underpin good governance, including accountability, transparency, responsibility, and stakeholder engagement. Through case studies and real-world examples, participants will analyze ethical dilemmas, conflicts of interest, and strategies for promoting ethical conduct in organizational settings. By the end of the course, students will have a comprehensive understanding of the intersection between ethical considerations and effective governance practices.
Recommended Textbook
Auditing Assurance Services and Ethics in Australia 10th Edition by Alvin Arens
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Page 2
Chapter 1: Demand for audit and assurance services
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Sample Questions
Q1) Discuss the advantages and disadvantages of making auditing standards more specific.
Answer: Advantages: Provides clearer guidance for practitioners in complex areas such as evidence gathering.
Reduces some difficult decision making. Is more defensible in court.
Disadvantages: Makes auditing too mechanistic.
Reduces the ability to make sound professional judgement based on experience.
Q2) Review and approval of audit programs by the engagement partner is a characteristic of which of the six objectives of quality control?
A) professional development
B) leadership responsibilities
C) engagement performance
D) monitoring
Answer: C
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Chapter 2: Auditors legal environment
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Sample Questions
Q1) The AWA case and the Pacific Acceptance case discussed:
A) client acceptance.
B) the duty to inform management.
C) privity letters.
D) management representation letters.
Answer: B
Q2) Audit reports are an insufficient basis for financing decisions by a diligent financier because:
A) the audit report is out of date by the time of publication.
B) the auditor might be negligent.
C) an inappropriate audit opinion might be issued as a result of not complying with auditing standards.
D) an unqualified audit opinion might be issued when the financial statements are materially misstated.
Answer: A
Q3) An auditor holds office for a period of twelve months, with reappointment required annually.
A)True
B)False Answer: False
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Chapter 3: Audit quality and ethics
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Q1) Which one of the following is NOT one of the five fundamental principles of professional conduct set out in the Code of Ethics for Professional Accountants?
A) objectivity
B) continuing education
C) confidentiality
D) integrity
Answer: B
Q2) A factor to consider when setting fees for an engagement is the:
A) personal opinion of the lead auditor on the engagement.
B) time of all people engaged in the work.
C) opinion to be rendered as a result of the audit findings.
D) use of internal auditors.
Answer: B
Q3) The annual audit is the cornerstone of corporate governance.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Audit responsibilities and objectives
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Sample Questions
Q1) An auditor should recognise that the application of auditing procedures may produce evidential matter indicating the possibility of errors or fraud; therefore, an auditor should:
A) extend the work to audit most recorded transactions and records of an entity.
B) design audit tests to detect unrecorded transactions.
C) not depend on internal accounting control features that are designed to prevent or detect errors or irregularities.
D) plan and perform the engagement with an attitude of professional scepticism.
Q2) What reasoning would an auditor use when no material misstatements are discovered?
A) The audit was conducted in accordance with auditor judgement.
B) The audit was conducted in accordance with Australian auditing standards.
C) Misstatements are the responsibility of management.
D) The audit was conducted in accordance with Australian accounting standards.
Q3) When preparing the financial statements, it is acceptable for the auditor to prepare:
A) the footnotes for a client.
B) the statements for a client.
C) a draft of the statements and footnotes for a client.
D) a draft of the statements for a client.
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Page 6
Chapter 5: Audit evidence
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Sample Questions
Q1) An auditor has determined that the appropriate sample size for a particular audit procedure is 50.Which of the following methods can the auditor use to select the 50 items?
A) Select the 50 items with the largest dollar amounts.
B) Select the 50 items randomly.
C) Select one week and examine the first 50 items.
D) Use any combination of the above three methods.
Q2) Physical examination is usually more costly than observation.
A)True
B)False
Q3) Appropriateness of audit evidence can be improved by selecting a larger sample size or different population items.
A)True
B)False
Q4) Analytical procedures done in the planning phase typically use data aggregated at a high level.
A)True
B)False
Q5) What are the benefits to auditors of using computer software?
Q6) Why are analytical procedures often called attention directing?
Page 7
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Chapter 6: Audit planning and documentation
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Q1) Adjusting and reclassification entries are normally included in the current files of the auditor's working papers.
A)True
B)False
Q2) Good working papers should have common characteristics.Which one of the following is NOT one of those characteristics?
A) recording notations directly on the working paper schedules to explain the work done
B) noting the client staff member responsible for the particular area under review
C) putting the preparer's initials on the audit working papers
D) writing a conclusion
Q3) Because company policies are reflected in the financial statements, it is important that auditors:
A) include the primary accounting policies in the permanent file.
B) carefully evaluate basic policy decisions.
C) periodically review information on accounting policies to determine if there has been a change.
D) all of the above
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Chapter7: Materiality and risk
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Q1) The lower the dollar amount of the preliminary judgement of materiality, the less audit evidence is required.
A)True
B)False
Q2) A materiality level of $1 000 would require more audit evidence than would a materiality level of $100 000.
A)True
B)False
Q3) Which type of guidelines are suggested by AASB 1031?
A) relative
B) relevant
C) qualitative
D) quantitative
Q4) Auditors have difficulty applying the concept of materiality in practice because they often do not know who the users of the financial statements are or what economic decisions will be made.
A)True
B)False
Q5) Describe the audit risk model and each of its components.
Page 9
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Chapter 8: Internal control and control risk
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Sample Questions
Q1) Understanding components of internal control and assessing the level of control risk are primarily used by the auditor to:
A) determine whether procedures and records concerning the safeguarding of assets are reliable.
B) modify the initial assessments of inherent risk and preliminary judgements about materiality levels.
C) determine the nature, timing, and extent of substantive tests for financial statement assertions.
D) ascertain whether the opportunities to allow any person to both perpetrate and conceal irregularities are minimised.
Q2) The primary emphasis by auditors is on controls over:
A) account balances.
B) classes of transactions.
C) both A and B, because they are equally weighted.
D) both A and B, because they vary from client to client.
Q3) If employees are competent and trustworthy, other controls can be absent.
A)True
B)False
Q4) Describe three inherent limitations of internal control.
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Chapter 9: Fraud auditing
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Sample Questions
Q1) To reduce fraud incidence, management should build a positive culture and work environment by implementing programs and initiatives to increase employee morale.Which of the following is NOT an example of the above? Employees should be encouraged
A) to obtain advice internally when matters of conflict arise.
B) by linking their remuneration to the final profit figure.
C) to support the entity's values and code of conduct.
D) to contribute to their work environment.
Q2) Fraud is difficult to detect due to:
A) collusion.
B) the cost of detection.
C) the fraud triangle.
D) override of controls.
Q3) Which of the following factors is the most significant contributor to fraud risk?
A) poor hiring practices
B) collusion between employees and third parties
C) the industry in which the entity operates
D) overriding of internal controls
Q4) Discuss the role internal auditing can play in fraud prevention and detection.
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Chapter 10: The impact of information technology on the audit process
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Q1) IT can significantly impact an organisation's overall control risk.Which of the following risks would NOT be important from an auditing perspective?
A) the potential for material misstatement
B) use of unreliable information because of processing errors produced by the technology
C) the inability to retrieve important information because of IT systems failure
D) none of the above (i.e., they are all important)
Q2) Auditors usually evaluate the effectiveness of:
A) sales-cycle controls first.
B) application controls first.
C) general controls before application controls.
D) hardware controls first.
Q3) One key to a backup and contingency plan is to make sure that all critical copies of software and data files are backed up and stored off-premises.
A)True
B)False
Q4) Auditing around the computer is acceptable when general controls are strong. A)True B)False
12
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Chapter 11: Overall audit plan and audit program
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Sample Questions
Q1) Tests of controls are directed toward the control's:
A) efficiency.
B) effectiveness.
C) efficiency and effectiveness.
D) cost benefit ratio.
Q2) Contingent liabilities must be:
A) recorded on the balance sheet between current and long-term liabilities.
B) disclosed in the footnotes.
C) recorded in the ledger, or no disclosure is required.
D) material and imminent, or they should not even be mentioned.
Q3) Which one of the following types of evidence would NOT be obtained in tests of controls?
A) re-performance
B) inquiry of the client
C) documentation
D) physical examination
Q4) Discuss the assumptions and predictions an auditor needs to make when designing an audit program for tests of details of balances.Why are these assumptions and predictions necessary?
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Chapter 12: Audit of the sales and collection cycle: Tests of controls
and substantive tests of transactions
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Q1) The total of the individual account balances in the accounts receivable master file equals the:
A) balance of the sales account in the general ledger.
B) balance of the accounts receivable account in the general ledger.
C) total sales less the total cash received for the period.
D) total sales for the period.
Q2) It is common to test sales for proper classification as part of testing for: A) valuation.
B) completeness.
C) accuracy.
D) cutoff.
Q3) Discuss the four business functions that result in sales transactions in a typical sales and collection cycle; for each function, state the key documents and records involved.
Q4) An effective procedure to test the completeness objective for sales is to trace sales journal entries to copies of sales orders, shipping documents, and sales invoices.
A)True
B)False
Q5) Explain what a sales return and allowance means.
Page 14
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Chapter 13: Completing tests in the sales and collection cycle:
Accounts receivable
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Q1) The starting point for the evaluation of the allowance for doubtful debts is:
A) last year's audit findings.
B) a review of controls related to the auditee's credit policy.
C) an analysis of write-off authorisations.
D) the aged trial balance.
Q2) The most important test for the existence/occurrence objective for accounts receivable is:
A) internal control over balances confirmed.
B) ownership of the balances confirmed.
C) existence of the balances confirmed.
D) collectability of the balances confirmed.
Q3) Discuss the alternative procedures an auditor can perform to test the existence objective for accounts receivable when customers do not respond to confirmation requests.
Q4) The primary purpose of accounts receivable confirmation is to satisfy the:
A) accuracy and cutoff objectives.
B) existence objective.
C) existence and cutoff objectives.
D) existence, accuracy, and cutoff objectives.
Q5) Describe how the auditor tests the rights objective for accounts receivable.
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Chapter 14: Audit sampling
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Sample Questions
Q1) The factor that has the least effect on sample size is the difference between the tolerable deviation rate and estimated population deviation rate.
A)True
B)False
Q2) The auditor is concerned with the audited value rather than the error amount of each item in the sample when using:
A) ratio estimation.
B) monetary-unit sampling.
C) mean-per-unit estimation.
D) difference estimation.
Q3) Explain the rule used in monetary-unit sampling to decide whether the population is acceptable.
Q4) The major difference between monetary-unit sampling (MUS)and attributes sampling is that in MUS, the:
A) dollars are converted to occurrence rates.
B) rate of occurrence is converted to dollars.
C) measure is in dollars.
D) measure is the rate of occurrence.
Q5) Discuss what is meant by 'non-sampling risk'.
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Chapter 15: Audit of transaction cycles and financial statement balances I
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Q1) When an acquisition is on an FOB origin basis, the inventory and related accounts payable must be recorded in the current period if the goods were:
A) shipped prior to the balance sheet date.
B) both shipped and received prior to the balance sheet date.
C) paid for in advance.
D) received prior to the balance sheet date.
Q2) Most companies first recognise the liability related to the acquisition of goods at the time when the goods are received by the company.
A)True
B)False
Q3) What is the overall objective in the audit of accounts payable?
A) to determine if the balance accurately stated
B) to determine if the balance is understated
C) to determine if the balance is fairly stated and properly disclosed
D) to determine if the balance is overstated
Q4) Discuss each of the four business functions in a typical payroll and personnel cycle.
Q5) State the primary determinants of the amount of time needed to perform the physical observation of inventory.
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Chapter 16: Audit of transaction cycles and financial statement balances II
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Sample Questions
Q1) Identify three analytical procedures commonly performed for loans payable.
Q2) Information typically confirmed on liabilities to the bank includes the:
A) interest rate.
B) existence of security.
C) amount of the loan.
D) all of the above
Q3) Cash balance is important in the audit because of:
A) the potential for fraud.
B) the potential for error.
C) both A and B
D) none of the above
Q4) In verifying accumulated depreciation, the credits to accumulated depreciation are verified as part of the audit of depreciation expense, whereas the debits are normally tested as a part of the audit of:
A) asset acquisitions.
B) disposal of assets.
C) capital acquisitions.
D) accumulated depreciation.
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Q5) Discuss the internal controls related to owners' equity that are of concern to the auditor.
Chapter 17: Completing the audit
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Q1) A management representation letter is a written statement from a non-independent source and therefore:
A) can be regarded as sufficient evidence only if the auditor finds a strong internal control system.
B) can be regarded as sufficient evidence if the high-level corporate officials who sign it are trustworthy.
C) needs to be confirmed by an outside independent source such as a financial institution or law firm.
D) cannot be regarded as sufficient evidence.
Q2) State the two primary types of subsequent events that require consideration by management and evaluation by the auditor, and give two examples of each type.
Q3) The subsequent discovery of facts requiring the recall or reissuance of financial statements ________ from developments occurring after the date of the auditor's report.
A) will probably not arise
B) will not arise
C) will certainly arise
D) will probably arise
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Chapter 18: Audit reporting
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Q1) Whenever an auditor adds an emphasis of matter section to an unmodified audit report, the implication is that the auditor:
A) does not know if the report is presented fairly.
B) is satisfied that the report is presented fairly 'except for' a specific aspect of it.
C) does not believe the report is presented fairly.
D) is satisfied that the report is presented fairly.
Q2) A public accounting firm is associated with the financial report of its client:
A) only when it does a financial audit.
B) even if the firm only assists a client in preparing the financial report but does not do an audit.
C) only when it does attestation services, such as a review or an audit.
D) if it performs any services at all for the client.
Q3) An adverse opinion is issued when the auditor believes:
A) some parts of the financial report are materially misstated or misleading.
B) the audit firm is not independent.
C) the misstatements are material and pervasive to the financial report.
D) the financial report will be found to be misleading or misstated, if an adequate investigation is performed.
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Page 20
Chapter 19: Other auditing and assurance engagements
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Q1) Which of the following is NOT one of the general types of prospective financial statements included in the attestation standards?
A) forecasts
B) earnings estimates
C) projections
D) all of the above
Q2) Performance audit reports are submitted to shareholders, investors, and analysts.
A)True
B)False
Q3) Which of the following is a compliance element of the National Greenhouse Energy Reporting (NGER)audit framework?
A) the identification and measurement of emissions sources
B) record-keeping requirements
C) a registered corporation's business structure
D) all of the above
Q4) The assurance standards define three levels, or types, of engagements.State these three types of assurance engagements.
Q5) Discuss each of the three phases of a performance audit.
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