Question 1

What is the position of the U.S. Securities and Exchange Commission (SEC) with respect to internal auditing?

Accepted Answer

A)  It requires all companies, including foreign enterprises, listed on U.S. stock exchanges to have an internal audit function. 
B)  Since 2000, the SEC has been silent with respect to internal auditing. 
C)  Internal auditing is recommended by the SEC, but it is not required for listed companies. 
D)  Only multinational companies are required to have internal auditing systems.

Question 2

If an auditor breaks a contractual obligation, such as failing to complete an audit within the time frame specified in the engagement letter, what kind of liability does the auditor face?

Accepted Answer

A)  Criminal liability 
B)  Civil liability 
C)  Professional sanctions 
D)  None of the above

Question 3

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

A)  Mid-level management 
B)  External auditors 
C)  Board of directors 
D)  Information systems department

Question 4

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

A)  Securities Act of 1933 
B)  Securities and Exchange Act of 1934 
C)  Sherman Anti-Trust Act of 1890 
D)  Sarbanes-Oxley Act of 2002

Question 5

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

Accepted Answer

A)  There was a lack of distinction between business functions and social service functions in Chinese reporting entities. 
B)  China has only recently become involved in international trade. 
C)  The concept of accounting was only introduced to China recently and therefore it has not had time to develop properly. 
D)  The 1960's Cultural Revolution eliminated the requirements that Chinese corporations provide information on business operations.

Question 6

What is the role of internal auditing?

Accepted Answer

A)  To substitute for the external auditor whenever possible 
B)  To provide assurance and consulting services to improve an organization's operations 
C)  To assist the audit committee in negotiations with the external auditor 
D)  To mediate disagreements between the external auditor and corporate management

Question 7

According to international auditing standards, if audit work has been limited in its scope, the auditors have had a disagreement with management, or there is significant uncertainty associated with the financial statements, what kind of audit opinion should be rendered?

Accepted Answer

A)  Disclaimer of opinion 
B)  Unqualified 
C)  Adverse 
D)  Qualified

Question 8

Which of the following is true of a conceptual approach to auditor independence?

Accepted Answer

A)  Its applicability goes beyond any specific situation and mandates a proactive approach based on clearly articulated principles. 
B)  It prohibits certain nonaudit services such as bookkeeping, valuations, actuarial, and internal audit outsourcing. 
C)  It requires audit committee prior approval for any service provided by the auditors. 
D)  It prevents the use of legalistic devices to avoid compliance.

Question 9

Which of the following is NOT a factor influencing the probability that an auditor will detect an accounting error?

Accepted Answer

A)  Competence of the auditor 
B)  Quality review and monitoring 
C)  Financial reporting requirements 
D)  Independence of the auditor

Question 10

How does the principle of "joint and several liability" affect auditors in countries where it is applied?

Accepted Answer

A)  This limits civil liability to only those people who conducted the audit negligently. 
B)  All partners in the accounting firm can be personally liable for the negligence of any one partner. 
C)  All audit partners are liable for the actions of the firm only up to the level of their investment in the firm. 
D)  It creates limited liability for auditors accused of wrong-doing by their clients.

Question 11

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

Accepted Answer

A)  Preparing the annual report to corporate shareholders 
B)  Designing a working system of internal accounting controls 
C)  Assuring that financial statement information is high quality 
D)  Selecting independent members for the board of directors

Question 12

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 13

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

A)  No material relationship with the listed corporation 
B)  Not a member of corporate management 
C)  Owns fewer than 10,000 shares of the corporation's stock 
D)  Does not meet regularly with the board of directors

Question 14

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

Accepted Answer

A)  Regulatory agencies in the host country 
B)  Regulatory agencies in the home country 
C)  Board of directors 
D)  Common shareholders

Question 15

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

Question 16

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 17

What is the meaning of the term audit expectation gap?

Accepted Answer

A)  The difference between what the public and financial statement users believe auditors are responsible for, and what auditors themselves believe to be their responsibilities 
B)  The difference between public expectations about the responsibilities and duties of the auditing profession and what the auditing profession actually provides 
C)  The gap between the expectations of society about auditors and the performance of auditors 
D)  All answers are correct

Question 18

An auditor may be subject to criminal liability under which of the following situations?

Accepted Answer

A)  He/she willingly participates in defrauding the company's stockholders. 
B)  He/she breaks a contract with the client. 
C)  He/she violates a rule on the manner of advertising allowed by the professional accounting and auditing association. 
D)  None of the above

Question 19

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

Accepted Answer

A)  Corporate shareholders 
B)  The government 
C)  Society as a whole 
D)  All of the above

Question 20

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

Exam 11: Auditing and Corporate Governance: An International Perspective