Question 1

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

Accepted Answer

A)  accounting risk
B)  audit risk
C)  audit quality
D)  transaction risk C

Question 2

Under Securities and Exchange Commission regulations,who may be a member of an audit committee for a listed company?

Accepted Answer

A)  any member of the corporate board of directors
B)  any member of the corporate board of directors who is not a Certified Public Accountant (CP
A)  
C)  only members of the corporate board of directors who do not have a material interest in the company
D)  any manager or director of the corporation C

Question 3

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

A)  Auditors must be members of a recognized professional association,such as the ICAEW.
B)  New entrants to the auditing profession must hold a university degree in accountancy.
C)  Auditors may now be a citizen of any country in the European Union rather than just the UK.
D)  New members of the auditing profession must have a university degree. D

Question 4

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

Accepted Answer

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.

Question 5

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

Accepted Answer

A)  regulatory agencies in the host country
B)  management
C)  board of directors
D)  common shareholders

Question 6

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

Accepted Answer

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

Question 7

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

Accepted Answer

A)  accountant
B)  auditor
C)  independence
D)  None of these terms is defined in the Companies Act of the U.K.

Question 8

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

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.

Question 9

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

Accepted Answer

A)  code law countries
B)  members of the European Union
C)  countries that follow common law
D)  countries with strong accounting laws

Question 10

A recent survey of multinational corporations found that the Sarbanes-Oxley Act had the effect of increasing the percentage of U.S.companies with a financial expert on the audit committee from 65% to:

Accepted Answer

A)  67%
B)  70%
C)  75%
D)  95%

Question 11

Which of the following is a limitation of SEC requirements for audit committee membership?

Accepted Answer

A)  The additional responsibilities make service on the committee less desirable to competent directors.
B)  External auditors are unwilling to report to an independent audit committee.
C)  The audit committee compromises the external auditor's independence.
D)  Only the United Kingdom and the United States require audit committees,putting corporations in these countries at a disadvantage.

Question 12

Why is international harmonization of auditing standards important?

Accepted Answer

A)  to be consistent with harmonized international accounting standards
B)  to ensure the independence of external auditors of multinational corporations
C)  to assure international capital markets that auditing has been consistent across companies
D)  to reduce the authority of individual governments to enact accounting laws

Question 13

According to the 2004 Management Barometer Survey conducted with senior executives of MNCs,in addition to internal control effectiveness,which was the next highest area in need of improvement?

Accepted Answer

A)  security controls
B)  internal audit effectiveness
C)  fraud programs
D)  financial processes

Question 14

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

Accepted Answer

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

Question 15

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

A)  management control
B)  corporate governance
C)  internal auditing
D)  government regulation

Question 16

What are the two main theories of corporate governance?

Accepted Answer

A)  audit reliance and board of directors' responsibility
B)  agency and stakeholder
C)  common law and code law
D)  internal auditing and external auditing

Question 17

Which of the following is NOT a key driver of audit quality based on the 2008 U.K.FRC publication "The Audit Quality Framework"?

Accepted Answer

A)  the composition of a company's audit committee
B)  the culture within an audit firm
C)  the effectiveness of the audit process
D)  the skills and personal qualities of audit partners and staff

Question 18

Auditors in the United Kingdom sometimes include disclaimers of liability in their audit reports. According to the U.S.Securities and Exchange Commission,how effective is this approach to limiting civil liabilities?

Accepted Answer

A)  It has no effect when included in the financial statements of U.S.companies.
B)  It effectively caps the damage awards that will be made in U.S.civil courts.
C)  It limits who can bring civil action in cases involving the audit of U.S.companies.
D)  It limits both civil and criminal liability against auditors of U.S.companies.

Question 19

In China,who is responsible for regulating auditing practice?

Accepted Answer

A)  Chinese Institute of Certified Public Accountants (CICP
A)  
B)  government,through local audit bureaus
C)  Chinese stock exchange
D)  Auditing Practices Board (AP
B)

Question 20

Who may bring civil litigation against an auditor?

Accepted Answer

A)  only the client company
B)  only shareholders
C)  the client company and shareholders
D)  It depends on a country's laws governing auditor liability.

Exam 14: Comparative International Auditing and Corporate Governance