the fundemantal principles of professional ethics
A new auditor must contact the predecessor auditor to ask if there is any reason the engagement should not be accepted. A : True B : False
a
In order for external auditors to rely on the work of the internal auditors, they consider whether the internal audit function acts with due professional care. How is the characteristic of due professional care defined? A : work is properly planned, documented, and supervised B : necessary skills and training C : ability to freely communicate with the external auditors without interference from client management D : ability to act independently
a
Q 2.63: Whose responsibility is it to ensure that a company's financial statements are fairly presented and provide a true and fair view of the company? A : company's directors B : company's external auditors C : company's senior management D : company's shareholders
a
Under what law can a client establish that the auditor owed them a duty of care? A : under both tort law and contract law B : under contract law, but not under tort law C : under only civil law D : under tort law, but not under contract law
a
When professional accountants attain a level of competence and keep up to date with changes in regulations and standards, what ethical principle are they adhering to? A : professional competence B : objectivity C : professional behaviour D : confidentiality
a
Which fundamental ethical principle requires professional accountants to comply with ongoing professional development (education)? A : professional competence B : integrity and due care C : objectivity D : professional behaviour
a
Which of the following does a client have to prove in order to establish that the auditor has been negligent? A : All of the choices are correct. B : The client suffered a loss. C : There is a relationship between the breach of the duty of care and the loss. D : There was a breach of the duty of care.
a
Which of the following information would NOT be found in the board of directors' minutes? A : plans for all asset purchases B : decisions regarding the strategic direction of the company C : sales of major investments D : amount of dividends declared
a
Which of the following is NOT an example of an advocacy threat? A : Assurance staff owns shares in the client. B : Assurance staff represents the client in a legal dispute. C : Assurance staff represents the client in negotiations with a third party. D : Assurance staff encourages others to buy shares being sold by a client.
a
Which of the following is NOT considered by the external auditor when deciding on whether or not to rely on the work completed by internal audit? A : confidentiality B : due professional care C : technical competence D : objectivity
a
Which of the following is NOT considered to be a role of the board of directors? A : overseeing the activities of shareholders B : representing the shareholders C : ensuring the company is run to benefit shareholders D : overseeing the activities of management
a
Which of the following is NOT considered when the auditor assesses client integrity? A independence of the external auditor B appropriateness of the client's interpretation of the accounting rules C reputation of the client's management and directors D client's attitude to risk exposure
a
Which of the following is NOT one of management's responsibilities described in the engagement letter? A : The audit of the financial statements. B : The recording of transactions and events. C : Proper classification of financial information. D : Preparation of the financial statements.
a
Which of the following is correct when describing engagement letters? A : Engagement letter includes an explanation of the scope of the audit. B : Engagement letters are updated every three years. C : Engagement letter is prepared by the client. D : Engagement letter confirms the obligations of only the external auditors.
a
Which of the following is true if an auditor has exercised due care during the course of an audit? A : The auditor has properly planned, executed, and documented their work. B : The auditor can be found negligent. C : The auditor can be sued for damages by a third party. D : The auditor can be sued for damages by the client.
a
Which of the following is required to establish that an auditor has been negligent? Select all that apply. A : There was a breach of the duty of care. B : A loss was suffered as a consequence of that breach. C : A duty of care was owed by the auditor. D : The auditor was not independent. E : The auditor acted in the best interest of the public.
a b c
What must be demonstrated in order for a third party to be successful in suing an auditor for negligence? Select all that apply. A : there was a breach of the duty of care B : a duty of care existed C : there were quantifiable damages D : auditors were aware the third party was going to rely on the financial statements E : individual accounting records such as the general ledger were relied on
a b c d
Which of the following is a responsibility of management as outlined in the engagement letter? Select all that apply. A : allow the auditor unrestricted access to personnel and documents as needed B : preparation of financial statements in accordance with the appropriate financial reporting framework C : selection of appropriate accounting policies in accordance with the appropriate financial reporting framework D : implementation and maintenance of adequate internal controls to ensure financial statements are free from material misstatement E : provide an assessment of the effectiveness of key internal controls
a b c d
How can auditors avoid litigation? Select all that apply. A : meet with the client's audit committee to discuss significant issues identified during the audit B : perform the accounting and the auditing for the client C : ensure compliance with ethical regulations D : ensure compliance with auditing standards E : hire competent staff
a c d e
When assessing the integrity of a publicly listed company during the client acceptance/continuance decision, the external auditor would assess the reputation of (Select all that apply.) A the president of the client. B all of the shareholders of the client. C the members of the external audit team. D the client's chief financial officer. E the client's audit committee members.
a d e
Which of the following describes the fundamental ethical principle of professional behaviour? Select all that apply. A : Members maintain the reputation of the profession. B : Members should be unbiased and not allow a conflict of interest or the influence of others to impair their decision process. C : Members must take care to complete each task thoroughly, document all work, and finish on a timely basis. D : Members must maintain their ability to serve the public interest. E : Members must comply with accounting and auditing rules and regulations.
a d e
Who does the external auditor have a professional link with during an audit engagement? Select all that apply. A : client's shareholders B : client's human resources team C : exchange commission D : board of directors E : client's internal audit team
a d e
2.46: Which of the following are examples of an intimidation threat? Select all that apply. A : Undue pressure by the client to reduce audit hours to reduce fees paid. B : The client offering gifts to the members of the assurance team. C : The threat that the client will use a different assurance firm next year. D : The assurance team encourages others to purchase shares of the client. E : Having the assurance firm represent the client in a legal dispute.
a-c
Which of the following are rules that incorporate the principles of professional ethics? Select all that apply. A : Fee quotes are only provided to a client if there is adequate knowledge of the work to be performed. B : Firm names can claim superiority over other professional accounting firms. C : Advertising must be in good taste. D : The new auditor is required to contact their lawyer before accepting an engagement. E : Contingency fees are permitted for the preparation of tax returns.
a-c
Q 2.38: Which of the following would be an example of a safeguard to the familiarity threat? Select all that apply. A : policies regarding socializing with client personnel B : minimizing the provision of non-audit services to assurance clients C : partner and staff rotation policies D : avoidance of fee dependence E : education regarding acceptance of gifts from assurance clients
a-c-e
Q 2.40: Which of the following describes a reporting issuer for the purposes of the audit independence standard? Select all that apply. A : A private company with a market value of total assets greater than $10 million. B : A public company with market capitalization greater than $10 million. C : A private company with net income of $10 million. D : A public company with a book value of total assets greater than $10 million. E : A public company with market capitalization between $5 million and $10 million.
a-d
If a public accountant becomes aware that another designated accountant has breached the rules of professional conduct, the public accountant must contact the relevant institute to inform them of the breach (before or after) contacting the other accountant.
after
Employees who evaluate and make recommendations to improve risk management, internal control procedures, and elements of the governance process are part of the A : executive members of the board of directors for the company. B : internal audit team of the company. C : senior management of the company. D : external audit team of the company.
b
For an audit committee to be effective, which of the following should be true regarding its composition? A : should have some business ties to the company B : should consist of only non-executive members C : should be integrated with the financial reporting function D : should consist of at least two directors who are financially literate
b
If the internal audit function properly plans, documents, and supervises the work completed, this enhances the A : objectivity of the internal audit function. B : ability of the internal auditors to act with due professional care. C : communication of the internal audit function. D : technical competence of the internal audit function
b
In Canada, if a professional accountant claims to possess qualifications that they do not possess, what is this is a violation of? A : integrity B : professional behaviour C : professional competence D : confidentiality
b
Members with seniority have an obligation to ensure their juniors are adequately trained. This is part of the principle of A : objectivity. B : integrity and due care. C : professional competence. D : professional behaviour.
b
Patrick Franklin, CPA is a senior manager at the accounting firm H&Y. His wife, Annette, is the CFO of JKJ Incorporated. The president of JKJ has asked Patrick to perform the audit. What type of threat to independence may this situation create? A : self-review threat B : familiarity threat C : self-interest threat D : intimidation threat
b
When determining whether to continue or accept a client, the auditor assesses client integrity. Which of the following would NOT be a consideration? A : reputation of the client's directors B : client's technical training and ability C : client's willingness to allow the auditor full access to information D : client's attitude to risk exposure and management
b
Which case introduced the concept of foreseeable third parties? A : Ultramares Corp v. Touche B : Hedley Byrne & Co v. Heller and Partners Ltd. C : Hercules Management Ltd. V. Ernst & Young D : Haig v. Bamford
b
Which fundamental ethical principle describes the obligation of all members to not allow their personal feelings or prejudices to influence their professional judgement? A : confidentiality B : objectivity C : integrity D : competence
b
Which of the following are NOT covered in the rules of professional conduct? A : communication with predecessor B : objectivity C : fees and pricing D : advertising
b
Which of the following does NOT describe the role of an audit committee? A oversees financial reporting B oversees the board of directors C oversees the accounting of the company D oversees the audit of the financial statements
b
Which of the following does NOT ensure professional competence and due care of the external auditors? A : ensuring staff has the appropriate knowledge B : having competent senior management C : providing staff with access to any necessary independent experts D : having staff available to complete the audit
b
Which of the following is NOT true about fees a professional accountant can charge? A : Fees cannot be significantly lower than the fees charged by the predecessor firm. B : Contingency fees can be charged for the preparation of income tax returns. C : An accountant must have adequate knowledge of the work to be completed before giving a fee quote. D : Contingency fees cannot be charged for an audit.
b
Which of the following is a client acceptance decision, but not a client continuance decision? A : Assessing the appropriateness of the client's interpretation of accounting rules. B : Assessing the reasons provided by the client for switching audit firms. C : Assessing the reputation of the key stakeholders. D : Assessing the client's attitude to the implementation and maintenance of internal controls.
b
Which of the following questions would an accountant ask during the first step when following the framework for solving ethical dilemmas? A : What are the alternatives available? B : Do I have all the information I need? C : Will any parties be harmed or benefit from the issue identified? D : Who are the parties involved?
b
Which of the following would be an appropriate professional accounting firm name? A : Quality First Accountants B : Wilson and Young Accountants C : Best and Brightest Accountants D : Customers First Accountants
b
Which of the following would be considered a threat to a fundamental principle of professional ethics? A : Client gives permission to contact the previous auditor. B : Client is aggressive in its interpretation of the accounting rules. C : Client maintains and implements effective internal controls. D : Client acts with integrity.
b
Who is responsible for ensuring that there are adequate internal controls in place so that the prepared financial statements are free from material misstatement? A : external auditor B : client's management C : client's lawyer D : partner of the external audit firm
b
2.174: In what ways can an auditor gain information relevant to the client acceptance or continuance decision? Select all that apply. A examine internal controls implemented by the client B review prior-period financial statements C read news articles about the client D perform an Internet search on the company E communicate with the previous auditor You selected B : review prior-period financial statements got it correct You selected E : communicate with the previous auditor got it correct You selected A : examine internal controls implemented by the client got it wrong also other answer is C : read news articles about the client not selected by you also other answer is D : perform an Internet search on the company not selected by you
b c d e
Which of the following factors are considered by the auditor when assessing client integrity? Select all that apply. A independence of the client's senior management B client's willingness to pay a fair amount for the audit work C reputation of the client's management and directors D technical training and ability of the client's employees E client's attitude to maintaining internal controls
b c e
To avoid litigation, auditors can implement certain policies and procedures. These policies and procedures ensure (Select all that apply.) A : ethical and independence issues are identified and dealt with after the audit is completed. B : appropriate procedures are followed when accepting a new client. C : adequate fees are charged for the audit work. D : all work is fully documented. E : appropriate staff is allocated to clients.
b d e
The framework for solving ethical dilemmas suggests that the first step is to A : decide on appropriate action. B : identify the ethical issues. C : determine who is affected by the outcome of the dilemma. D : identify the likely alternatives.
b totalde 4 step var
When an assurance firm minimizes the provision of non-audit services to assurance clients, they are implementing a safeguard to which type of threat to independence? Select all that apply. A : advocacy threat B : self-interest threat C : intimidation threat D : familiarity threat E : self-review threat
b- e
Which of the following describe responsibilities of the audit committee? Select all that apply. A : recommending the internal auditors B : overseeing the audit C : recommending ways to improve control procedures D : pre-approving all non-audit services to be provided to the entity by the external auditor E : resolving any differences between the auditor and management
b-d-e
Ethics are the standards of........... that promote human welfare or the overall public "good".
behavior
.51: What threat can occur when an accounting firm is believed to act, or acts, on behalf of its assurance client? A : familiarity threat B : advocacy threat C : self-interest threat D : intimidation threat
c
Employees of the company who also hold a position on the board of directors are known as A non-executive directors. B shareholders. C executive directors. D senior management.
c
How can the external auditors be impacted if a company has an effective internal audit function? A : External auditors will likely increase the extent of their audit procedures. B : External auditors can rely on the internal auditors to issue the opinion on the fair presentation of the financial statements. C : External auditors can modify the nature and timing of their procedures and reduce the extent of their testing. D : External auditors can allow the internal auditors to collect sufficient appropriate evidence to support the audit opinion.
c
If an assurance client indicates that they will hire a different accounting firm next year if their accounting estimates or accounting policies are not considered reasonable, this may be what type of threat to independence? A : self-interest threat B : advocacy threat C : intimidation threat D : familiarity threat
c
In Canada, if a professional accountant uses information acquired from a client to purchase shares, this is a violation of which fundamental ethical principle? A : integrity B : professional behaviour C : confidentiality D : professional competence
c
Partner and staff rotation policies are a safeguard to which type of threat to independence? A intimidation threat B self-interest threat C familiarity threat D self-review threat
c
Q 2.34: Which of the following describes independence in appearance? A : making a decision free from bias B : ability to act with integrity C : belief that independence has been achieved D : ability to act with objectivity
c
What action should an audit firm take if an independence threat appears insurmountable? A : Accept the client and contact lawyers to inform them of the threat. B : Accept the client but include the threat of independence in the engagement letter. C : Decline the audit engagement. D : Decline the audit engagement unless the client agrees to increase the fees to compensate for the threat of independence.
c
What does the Ultramares doctrine state? A : Auditors owe a duty of care to everyone. B : Auditors have liability for an indeterminate time to an indeterminate class. C : Auditors are not liable for ordinary negligence to parties with whom they do not have a contractual agreement. D : Auditors are contractually liable to the client.
c
What is the first stage of an audit? A : providing a fee quote B : gaining an understanding of the client C : deciding to accept or continue the audit engagement D : examining the financial statements
c
When a client creates an effective audit committee, this corporate governance structure provides a safeguard to which type of threat to independence? A : familiarity threat B : advocacy threat C : intimidation threat D : self-interest threat
c
When the external auditor intends to use the work of the internal auditors, they will consider the objectivity of the internal audit function. How is this objectivity of the internal auditors defined? A : Internal audit function properly plans and documents their work. B : Internal auditors are able to communicate with the external auditors without interference from client management. C : Internal audit function has a high level of independence from the rest of the company. D : Internal auditors have the necessary skills and training.
c
Which CAS (Canadian Auditing Standard) provides guidance on the preparation of engagement letters? A : CAS 21 B : CAS 120 C : CAS 210 D : CAS 12
c
Which case furthered the foreseeable third-party concept and ruled that since the auditors knew the audited financial statements were being provided to potential investors, the auditors were liable to these unidentified third-party users? A : Ultramares Corp v. Touche B : Hercules Management Ltd. V. Ernst & Young C : Haig v. Bamford D : Hedley Byrne & Co v. Heller and Partners Ltd.
c
Which of the following describes negligence under tort law? A : Auditor completed the work at a standard above that of a reasonable auditor. B : Auditor completed the work at a standard of a reasonable auditor. C : Auditor completed the work at a level below that of a reasonable auditor. D : Auditor complied with the auditing standards.
c
Which of the following is NOT an example of an auditor exercising due care when conducting an audit? A : documenting each stage in the audit process B : diligent in applying technical standards C : accepting an engagement when there is an independence threat D : diligent in applying professional standards
c
Which of the following is an example of a breach of contract? A : Auditor did not properly document the work completed. B : Auditor withdraws from the audit without cause before the work is completed. C : Auditor completed less testing than a reasonable auditor would have completed. D : Auditor did not comply with the auditing standards.
c
Which of the following is true if an auditor withdraws from an audit without cause and before completing the audit engagement? A : The client has no course of action against the auditor and the client just needs to hire a new auditor. B : The client can sue under tort law for negligence. C : The client can sue for breach of contract. D : The professional accounting body will force the auditor to complete the audit.
c
Which of the following is true regarding contact with the predecessor auditor? A : The predecessor auditor will always give all the information to the new auditor. B : The predecessor is contacted during the audit engagement. C : The predecessor is asked if there is a reason the engagement should not be accepted. D : The predecessor is not required to talk to the new auditor.
c
Which of the following would NOT assist the auditor in avoiding litigation? A : Implementing policies and procedures to ensure appropriate staff is assigned to the client. B : Ensuring compliance with ethical regulations. C : Following up on insignificant weaknesses in the client's internal control procedures from a previous years' audit. D : Implementing policies and procedures to ensure all work is fully documented.
c
Which of the following would NOT violate the rules of professional conduct? A : naming the firm "Quality First Accounting" B : charging contingency fees for the preparation of tax returns C : contacting the predecessor auditor D : advertise as the "best accounting firm"
c
Which of the following would describe a typical non-executive director? A : a full-time employee of the company B : meets continually with external auditors throughout the year C : involvement is limited to preparing for and attending board meetings D : responsible for the daily operations of the company
c
Who would NOT be defined as third-party users of the financial statements? A : company's suppliers (short-term creditors) B : company's bank C : shareholders D : potential investors of the company
c
Whose responsibility is it to ensure that the financial statements are relevant, reliable, comparable, understandable, and fairly presented? A : assurance firm B : audit partners C : those charged with governance D : exchange commission
c
Which of the following accurately describes an engagement letter? Select all that apply. A : prepared during the first stage in the client acceptance/continuance decision process B : prepared by the external auditor and acknowledged by the client after the audit is completed C : confirms obligations of both the client and the auditor D : purpose is to avoid any misunderstandings between the auditor and their client E : updated every year for legal liability purposes
c d e
Which of the following statements are correct regarding legal liability? Select all that apply. A : Audit staff members can sue the auditors for negligence. B : Third parties can sue the auditors for breach of contract. C : Clients can sue the auditors for breach of contract. D : Clients can sue the auditors for negligence. E : Third parties can sue the auditors for negligence.
c d e
: A subcommittee of the board of directors that enhances auditor independence and ensures the auditors have access to all necessary information is called an A : independence committee. B : internal audit committee. C : accounting committee. D : audit committee.
d
A breach of contract falls under the responsibility of which law? A civil law B audit engagement law C tort law D contract law
d
ABC Company has decided to go public and they need to hire external auditors. Who is responsible for the appointment of the external auditors? A : company's management B : company's lawyers C : company's president and CFO D : company's shareholders
d
If an accounting firm's staff owns a material amount of shares in an assurance client, this may be a threat to what type of independence? A : familiarity threat B : self-review threat C : advocacy threat D : self-interest threat
d
Keith Frost, CPA is feeling an extreme amount of pressure from his client, Shel Incorporated, to reduce audit fees substantially this year. What type of independence threat might this be? A : self-interest threat B : advocacy threat C : familiarity threat D : intimidation threat
d
What is the main purpose of an engagement letter? A : Document the fees to be charged by the auditor. B : To document the auditor's responsibility for the preparation of the financial statements. C : To detail the audit work that will take place. D : To avoid any misunderstandings between the auditor and their client.
d
When the client (plaintiff) and the auditor (defendant) can both be proven to have been negligent, this is called A : individual negligence. B : management negligence. C : audit negligence. D : contributory negligence.
d
Which of the following actions does NOT need to be taken by an auditor before accepting a new client? A prepare an engagement letter B assess independence of external audit team members C consider threats to compliance with the fundamental principles of professional ethics D gain an understanding of key internal controls
d
Which of the following is NOT considered a fundamental ethical principle for professional accountants? A : objectivity B : confidentiality C : professional behaviour D : professional conduct
d
Which of the following is NOT considered a self-interest threat to auditor independence? A : a material financial interest in the client B : fee dependence C : a loan to the client outside of normal lending terms D : representing the client in negotiations with a third party
d
Which of the following would NOT be considered a self-review threat to auditor independence? A : An assurance team member has recently been a director of the client. B : Information prepared for the client and then assured by the auditor. C : Performing internal audit services and then providing assurance. D : Assurance team members owning shares in the client.
d
Who has the responsibility to form an opinion on the fair presentation of the financial statements prepared by a company? A : internal auditors of the company B : company's management C : company's board of directors D : external auditors of the company
d
Q 2.8: Which of the following describes the fundamental ethical principle of integrity and due care? Select all that apply. A : Members should be unbiased and not allow a conflict of interest or the influence of others to impair their decision process. B : Members must keep up to date with changes in regulations and standards. C : Members must act diligently and comply with technical and professional standards. D : Members should not be associated with information that is materially false or misleading. E : Members must take care to complete each task thoroughly, document all work, and finish on a timely basis.
e-c-d
Auditor independence is important for compilation engagements. A True B False
false
Professional accountants are allowed to use information they have obtained as a result of their employment to their advantage. A : True B : False
false
When a company has an audit committee, the audit committee has the ultimate responsibility for the fair presentation of the financial statements. A True B False
false
The role of internal audit is determined by those charged with..........
governance
Independent directors are also called '' executive directors or non-executive directors '''.
non-executive directors
The external auditor has the responsibility to form a(n)........... on the fair presentation of the financial statements prepared by their client.
opinion
The obligation that all members of the profession comply with rules and regulations and ensure that they maintain the reputation of the profession and its ability to serve the public interest is known as
professional behavior
he body of rights, obligations, and remedies applied by courts in civil proceedings to provide relief for persons who have suffered harm from the wrongful acts of others is called...... law.
tort
Implementing policies and procedures to ensure that appropriate staff are allocated to clients is one way to assist the auditor in avoiding litigation. A True B False
true