Deck 3: Auditor Independence

Question 1

Complete the statement below on the overall objectives of the external auditor in conducting an audit of financial statements by filling in the gaps with terms from the following selection:
• absolute
• all
• an applicable financial framework
• express an opinion
• international Standards on Auditing
• material
• provide a guarantee
• reasonable
-The overall objective of the external auditor is to obtain ________________ assurance about whether the financial statements are free from ________________ misstatement, whether due to fraud or error, thereby enabling the auditor to ________________ on whether the financial statements are prepared in all material respects in accordance with________________.

Answer 1

Reasonable , Material , Express an opinion , International standards in auditing.

Question 2

Staff of audit firms should be asked annually to confirm whether or not they have any financial or personal connection with audit clients.

Answer 2

True

Question 3

The audit partner for a listed entity audit cannot remain as statutory auditor for more than five years and the role must be rotated among other partners in the firm.

Answer 3

False

Question 4

Audit firms should not accept consultancy work from audit clients.

Question 5

Audit files should be subject to a second partner review after the audit is completed to ensure that the firm's procedures have been complied with and that the audit opinion is valid.

Question 6

The auditor may be faced with threats to their ethical principles. Consider the three statements below and decide which of these present an ethical threat to an audit firm, type the words 'ethical threat' and 'not a threat' beside the statements.
-The son of the engagement partner on the audit of Wibble plc has accepted a job as technical manager in the engineering division

Question 7

The auditor may be faced with threats to their ethical principles. Consider the three statements below and decide which of these present an ethical threat to an audit firm, type the words 'ethical threat' and 'not a threat' beside the statements.
-An audit client has suggested that the audit firm of Tickett & Run should base part of the audit fee on the profits of the client company

Question 8

The auditor may be faced with threats to their ethical principles. Consider the three statements below and decide which of these present an ethical threat to an audit firm, type the words 'ethical threat' and 'not a threat' beside the statements.
-The audit firm has been asked to carry out an internal audit review and to advise their client on how to set up an internal audit department.

Question 9

Which of the following is not a fundamental principle of the IFAC Code of Ethics? ?

A) Objectivity
B) Confidentiality
C) Independence
D) Professional behaviour

Question 10

Auditors must comply with relevant laws and regulations and not do anything which might bring their profession into disrepute

Question 11

Integrity can be defined as the auditor not allowing any conflict of interest, bias or influence of others to override their choice of actions.

Question 12

Auditors may use information obtained during the course of their professional work for personal use as long as they do not breach of their duty of confidentiality by disclosing it to others.

Question 13

Auditors must keep technically up to date so as to give appropriate advice to clients

Question 14

Which type of threat is this: The audit firm prepares the corporation tax computations for the client for inclusion in the financial statements.

A) Not an ethical threat
B) Self review threat
C) Self interest threat
D) Advocacy threat
E) Intimidation threat

Question 15

Which type of threat is this?
The management wish to not disclose the company's ownership of offshore companies in tax havens because there is an intermediary firm of lawyers in the tax haven acting as nominees. The audit firm supports this view.

A) Not an ethical threat
B) Self review threat
C) Self interest threat
D) Advocacy threat
E) Intimidation threat

Question 16

Which type of threat is this? ?
The audit firm has been invited to carry out extensive consultancy work on strategic planning for the business which will earn them a large fee provided the audit goes smoothly without any problems.

A) Not an ethical threat
B) Self review threat
C) Self interest threat
D) Advocacy threat
E) Intimidation threat

Question 17

Which type of threat is this? ?
The audit firm has been asked to represent the client at a tax tribunal to argue the case for the client's treatment of certain profits on contracts. The amount of tax involved is significant.

A) Not an ethical threat
B) Self review threat
C) Self interest threat
D) Advocacy threat
E) Intimidation threat

Question 18

You have taken over as lead engagement partner on a major client audit. A member of the audit team comes to you and discloses that in the previous year many of the audit tests weren't actually carried out but were recorded as having been done by the then audit manager. That person has subsequently left the firm and is now the financial controller of the client. What actions might you take in respect of what you have been told?

A) None because it is an unsupported allegation and nothing bad seems to have happened in the meantime.
B) Change the whole audit team to make sure no one who worked on last year's audit is the current year's audit and perform the audit as in previous years.
C) Report the allegations to the Ethics Partner and wait and see what they recommend otherwise carry on with the audit as in previous years.
D) Change the audit procedures to be carried out this year and pay special attention to those areas where audit work was allegedly not carried out last year.

Question 19

Which of the following would be part of an audit firm's internal control environment in respect of audit and assurance services?

A) Appointing an Ethics Partner who is also the senior engagement partner for several key clients' audits.
B) Establishing policies and procedures defining independence and requiring partners and staff to disclose financial interests in clients.
C) Establishment of a policy for audit partners to develop close social relationships with senior members of client management in order to obtain consultancy and advisory work.
D) Seconding staff to work for clients in specialist or other roles in order to facilitate closer ties with the client
E) All of the above

Question 20

You are a partner in a medium-sized firm of auditors and one of your clients is Bolting Brothers Ltd a firm of fish processors. Bolting Brothers is owned jointly by Bill and Ted Bolting. You have a very good relationship with each of them and they trust you to be fair and equitable as you have advised them for many years both in the business and in connection with their private financial affairs. They have fallen out over the future direction of their business and have decided to split the business and go their separate ways. Both of them have come to you and asked you to advise them on the split of the business. What should you do?

A) They trust you and you know the business well so the easiest thing to do is to advise them and ensure the split is done properly from a financial and taxation point of view
B) Decide which of the brothers you should advise and recommend that the other one seek advice from another audit partner in your firm.
C) Tell them you can't advise either of them and recommend they each go to another firm.
D) Recommend both brothers each seek advice from another audit partner in your firm and act as an advisor and source of information to both.