Deck 2: Governance and the Auditor

Question 1

The best practice recommendations for audit committees states that the audit committee should consist of:

A) an independent chairperson who is not chairperson of the board.
B) both executive and non-executive directors.
C) at least one independent director.
D) at least five members

Answer 1

A

Question 2

Which of these is a type of public sector performance audit?
A) audit of a program or activity in a single entity

A) protective security audit
B) follow-up audit
C) all of the above are types of public sector performance audits

Answer 2

D

Question 3

The types of operational audit reports issued by an internal auditor are:

A) financial report or compliance report.
B) varied, and are based on auditor judgment of how best to present the findings.
C) examination report, review report or compilation report.
D) unqualified, qualified, adverse or a disclaimer of opinion.

Answer 3

B

Question 4

The Australian Stock Exchange (ASX) listing rules require an audit committee to be established by:

A) all companies.
B) all companies on the S&P/ASX 300 Index.
C) all companies on the S&P/ASX 500 Index.
D) all companies on the S&P/ASX All Ordinaries Index.

Question 5

The Australian National Audit Office (ANAO) reports directly to:

A) the Commonwealth Parliament.
B) the ASIC.
C) the Commonwealth Parliament
D) the ATO

Question 6

Which of these is not a function of the Australian National Audit Office (ANAO)?

A) auditing the statements of government bodies
B) commenting on government policy
C) carrying out performance audits
D) all are functions of the ANAO

Question 7

The COSO enterprise risk management integrated framework has four categories of risk objectives which are:

A) strategic, operations, reporting and business unit.
B) strategic, control activities, reporting and business unit.
C) strategic, control activities, reporting and compliance.
D) strategic, operations, reporting and compliance.

Question 8

The conformance aspect of enterprise governance covers all these issues except:

A) the roles of the chair of the board and top management.
B) resource use
C) internal control structures.
D) the adequacy and reasonableness of compensation schemes for executives.

Question 9

Earnings management occurs when:

A) income and expenses are managed to influence the performance of the entity.
B) financial statements and transactions are manipulated to influence perceptions about the entity.
C) executive salaries are increased surreptitiously by including the raises in late night meetings.
D) earnings are manipulated to improve the company's tax position.

Question 10

The SEC proposal on audit committees did not require:

A) the audit committee to be directly responsible for the hiring of an independent auditor.
B) the audit committee to be directly responsible for the oversight of an independent auditor.
C) the audit committee to be directly responsible for the internal auditor.
D) the names of the committee members to be disclosed in the annual report.

Question 11

Incentives for earnings management are inherent in the management structure but are least likely to originate from:

A) high positive cash flows.
B) political considerations.
C) executive remunerations.
D) situations including financial distress.

Question 12

The audit committee should report to the board of directors on which of these matters?

A) the use of experts by the independent auditor.
B) recommendations for the appointment or removal of an auditor.
C) audit procedures carried out by the independent auditor.
D) all of the above

Question 13

Operational auditing:

A) has a main purpose of helping management to improve the entity's effectiveness and efficiency
B) refers to an entity's financial operations
C) is historical in focus
D) all of the above are correct

Question 14

Enterprise governance is perceived as a model that can be applied to:

A) corporations.
B) not-for-profit organisations.
C) the public sector.
D) all of the above.

Question 15

The approach that has been suggested for operational audits is:

A) the risk based audit approach
B) the value-for-money audit approach
C) the process audit approach
D) all three of the above approaches have been suggested for operational audits

Question 16

The key benefit to management of there being an internal audit function is that:

A) It provides assurance to management that the organisation is complying with its legal requirements.
B) External audit costs are reduced.
C) It provides assurance to management that fraudulent activities will be detected.
D) It aids management in the areas of risk management, control and governance processes.

Question 17

The statement that best describes internal auditing is:

A) an activity located within an entity, primarily to detect fraud.
B) an independent and objective assurance activity within an entity.
C) an accounting function located within an entity.
D) an activity to reduce risk.

Question 18

Which of these is not one of the key trends in auditing as identified by the 2007.PricewaterhouseCoopers study?

A) a widening role for internal audit in managing risk
B) an emerging 'capability crisis' among internal audit staff
C) fewer younger people entering the audit profession
D) rotational staffing as a key strategy to refresh and renew talent

Question 19

An audit specifically designed to investigate the value of strategic initiatives such as mergers and acquisitions, prospectuses and investment decisions is known as:

A) a performance audit
B) a forensic and probity audit
C) a due diligence audit
D) a social audit

Question 20

The audit trinity concept refers to:

A) external audit, internal audit, audit committee
B) conformance, performance, assurance
C) past, current and future approaches
D) none of the above

Question 21

The independence of the Auditor General is:

A) assured by the houses of Parliament.
B) prescribed by the Auditor General Act 1997 (Cwlth).
C) prescribed by the Australian Constitution.
D) approved by the Governor General.

Question 22

Describe the essential components of enterprise risk management (ERM) as put forward by the Committee of Sponsoring Organisations (COSO of the Treadway Commission.

Question 23

The Auditor General must report on an exception basis if:

A) all the necessary information and explanations were obtained.
B) proper accounting records have been kept.
C) records have not been made available for inspection.
D) records have been retained for at least 10 years.

Question 24

The Auditor General's powers to gather information are legislated. These powers do not include the power to:

A) direct a person to provide any information.
B) obtain information under oath.
C) access private property.
D) all of the above are legislated powers of the Auditor General.

Question 25

For consolidated financial statements, the Auditor General must report:
A) the name of a subsidiary for which he/she has not acted as an auditor.

A) the procedures and methods used in arriving at amounts for consolidations.
B) all of the above.
B) the name of a subsidiary for which the financial statements have not been qualified.

Question 26

What is the objective of a performance audit of a public sector entity?

Question 27

Describe the two sides of the enterprise governance framework.

Question 28

What is the definition of internal auditing put forward by the Institute of Internal Auditors? Discuss the key components of the definition.

Question 29

The Auditor General is appointed by:

A) the Parliament.
B) the Prime Minister.
C) the Joint Committee of Public Accounts and Audit.
D) the Governor General on the recommendation of the responsible minister.

Question 30

1. What is meant by the term Earnings Management?
2. Why has the focus on earnings management increased in recent years?
3. What incentives might there be for companies to engage in earnings management?

Question 31

How has the role of the internal auditor changed since the advent of the Sarbanes-Oxley Act in the USA in 2002?

Question 32

The Joint Committee of Public Accounts and Audit (JCPAA) is not charged with:

A) inquiring into matters raised by the auditor-general and referred to it by the houses of Parliament.
B) examine the accounts of the receipts and expenditure of the Australian government.
C) examine the financial affairs of Australian government authorities.
D) reporting to the Prime Minister.

Question 33

Explain the difference between external and internal auditors.

Question 34

What are the main objectives of the audit committee?
Companies listed on the S&P/ASX All Ordinaries Index are subject to a listing rule obliging them to have an audit committee. What does the ASX suggest should be the makeup of an audit committee?