Auditing Multiple Choice Questions

Disclosure Requirements

• Disclosure is required by law
• Disclosure is permitted by law but the auditor has not requested the client's permission
• The auditor suspects that the client has committed money-laundering offences

Threats to Objectivity

• Circumstances that constitute a threat to objectivity:
  • An employee of AB & Co owns shares in DEF Ltd but is not part of the audit team
  • The best friend of the engagement partner owns a significant indirect financial interest in DEF Ltd
  • The audit manager of DEF Ltd owns a small number of shares in DEF Ltd
  • The husband of the audit partner owns shares in DEF Ltd

Types of Internal Audit Assignments

• Value for money audit: examines the economy, efficiency, and effectiveness of activities and processes
• Regulatory compliance audit: monitors management's operations and ensures company policy is followed
• Fraud investigation: not an internal audit assignment
• IT audit: not an internal audit assignment

Threats Arising from Non-Audit Services

• Self-review threat: preparing a valuation report on a prospective acquisition target
• Advocacy threat: preparing a valuation report on a prospective acquisition target
• Familiarity threat: not applicable in this scenario
• Self-interest threat: not applicable in this scenario

Auditor's Duty of Confidentiality

• The principle of professional behavior imposes an obligation on all professional accountants to comply with relevant laws and regulations
• Threats to independence and objectivity include:
  • Undue dependence on an audit client
  • Overdue fees
  • Actual or threatened litigation
  • Associated firms: influences outside the practice
  • Family and other personal relationships
  • Beneficial interest in shares and other investments
  • Beneficial interest in trust
  • Trustee investments
  • Voting on audit appointment
  • Loans
  • Goods and services: hospitality
  • Provisions of other non-audit services

Classification of Threats to Objectivity

• Self-Interest threats
• Self-Review threats
• Advocacy threats
• Familiarity threats
• Intimidation Threats

Self-Interest Threats

• Examples of circumstances that create self-interest threats include:
  • A member of the assurance team having a direct financial interest in the assurance client
  • A firm having undue dependence on total fees from a client
  • A member of the assurance team having a significant close business relationship with an assurance client
  • A firm being concerned about the possibility of losing a significant client
  • A member of the audit team entering into employment negotiations with the audit client
  • A firm entering into a contingent fee arrangement relating to an assurance engagement

Engagement-Specific Work Environment Safeguards

• Examples of engagement-specific safeguards in the work environment include:
  • Having a PAPP who was not involved with the non-assurance service review the non-assurance work performed or otherwise advise as necessary
  • Having a PAPP who was not a member of the assurance team review the assurance work performed or otherwise advise as necessary
  • Consulting an independent third party, such as a committee of independent directors, a professional regulatory body or another PAPP
  • Discussing ethical issues with those charged with governance of the client
  • Disclosing to those charged with governance of the client the nature of services provided and extent of fees charged
  • Involving another firm to perform or re-perform part of the engagement
  • Rotating senior assurance team personnel

The Qualities of an Auditor

• The nine qualities which the Auditing Practices Board believes should characterize the auditor:
  • Accountability
  • Integrity
  • Objectivity and Independence
  • Competence
  • Rigour
  • Judgement
  • Clear, complete and effective communication
  • Association
  • Providing Value