LECTURE 1-INTERACTIVE LEARNING-ANSWERS

1 A distinguishing mark of the accountancy profession is its

acceptance of the responsibility to act in the public interest.
Therefore:
  The auditor must be careful of all public testimony.
  
The public interest always outweighs the confidentiality interest of
   the individual client or employer.
A professional accountant’s responsibility is not exclusively to
   satisfy the needs of an individual client or employer.
Irregularities in an audit must be reported to the public.
  

The Code of Ethics for Professional Accountants Section 290

2 suggests that independence in assurance services is required
because:
  It is in the public interest.
  
It assures client firm competence.
  
It assures through knowledge of the audit client’s industry.
  
It reduces threats to financial safeguards.
  

3 Which of the following is not correct about independence of mind?

  It permits the provision of an opinion without being affected by
   influences that compromise professional judgement.
It is the state of mind that creates confidence in the auditor.
  
It allows an individual to act with integrity.
  
It is the exercise of objectivity and professional scepticism.
  

Which of the following would be considered a self-interest threat?

4
  When a member of the assurance team was previously a director or
   officer of the assurance client.
Acting as the client’s advocate in a legal proceeding.
  
Potential employment with an assurance client.
  
A member of the assurance team has a close family member who is
   a director or officer of the assurance client.

5 Which of the following is not a safeguard created by the profession,

legislation or regulation?
  Professional monitoring processes.
  
Peer review of quality control.
  
Continuing education requirements.
  
Internal policies to monitor compliance with independence
   ethics.

The compromise or appearance of compromise of independence may

6 arise if:
  The auditor is paid a year’s past due billings from a client just before
   an audit requested by the client’s major banker.
In October 2000 the auditor financed his new million-dollar house
   with a loan from the client who is a mortgage lender.
The auditor’s second cousin is a major stockholder in the client being
   audited.
Fees due from a client for professional services remain unpaid
   for an extended period of time.

Based on the independence provisions of IFAC/MIA BY LAW, which

7 of the following is not true about an audit firm's services to audit
clients?
  Approval for tax services must be disclosed in the audit client's
   reports to the SC.
They cannot provide internal auditing outsourcing.
  
They can offer tax services unconditionally.
  
A non-audit partner reviewing the audit engagement must be rotated
   every five years.
8 Financial involvement with a client will affect independence and may
lead a reasonable observer to conclude that independence has been
impaired. Which of the following is not a form of financial
involvement with a client?
  Fees paid for audit engagement.
  
Financial interest in a joint venture with a client.
  
Loans to or from the client.
  
Financial interest resulting from being an administrator of a trust
   with a financial interest in the client.

9 ‘A professional accountant should not allow bias, conflict of interest

or undue influence of others to override professional or business
judgments’ is the definition of what ethics principle?
  Professional Behaviour.
  
Objectivity.
  
Professional competence and due care.
  
Integrity.
  

10 Safeguards for accepting an audit engagement shall be applied to

eliminate any threats or reduce them to an acceptable level. Which
of the following is not a reasonable safeguard for accepting an audit
engagement?
  Requesting a background check of key employees.
 
Obtaining necessary information from other sources.
 
Before accepting the engagement state that contact with the existing
  accountant will be requested.
Asking the existing accountant to provide known information on any
  facts or circumstances that the proposed accountant needs to be
aware of before deciding whether to accept the engagement.
11 Regarding auditor remuneration, a self-interest threat to
professional competence and due care is created if:
  The fee quoted is so low that it may be difficult to perform the
   engagement.
The auditor accepts a referral of a new client from an existing client.
  
A gift from a client is accepted.
  
A professional accountant in public practice solicits new work through
   advertising or other forms of marketing.

12 To safeguard against a self-interest threat to objectivity, a

professional accountant in public practice entrusted with money (or
other assets) belonging to others should do all the following except:
  At all times, be ready to account for those assets, and any income,
   dividends or gains generated.
Keep such assets separately from personal or firm assets.
  
Report all transactions to the person whose money is being
   held on a periodic basis.
Use such assets only for the purpose for which they are intended.
  

13 The state of mind that permits the expression of a conclusion

without being affected by influences that compromise professional
judgement, thereby allowing an individual to act with integrity and
exercise objectivity and professional scepticism, is called:
  Objectivity.
  
Independence in appearance.
  
Professional behaviour.
  
Independence of mind.
  

14 If a member of the audit team, a member of that individual’s

immediate family, or a firm has a direct financial interest or a
material indirect financial interest in the audit client then:
  The auditors should not participate in the audit, but only act as
   supervisors.
The auditor would have to hire outside auditors to help in the audit.
  
The self-interest threat created would be so significant that
   no safeguards could reduce the threat to an acceptable level.
The auditor may have to create new safeguards to counteract the
   threat.
 15 Providing certain non-assurance services to an audit client may
create a threat to independence so significant that no safeguards
could reduce the threat to an acceptable level. All the following are
examples of this type of non-assurance services except:
  Services that assume a management responsibility.
  
Internal audit services.
  
Tax preparation for chief executives.
  
Tax planning that impacts the financial statements.
  
5 Matching questions
1. Which of the following services are allowed by the MIA whenever a CA also
audits the company?

THE ANSWER
D. Services related to assessing the effectiveness of internal control over financial
reporting.

2. Which of the following statements is true when the CPA has been engaged to
perform an audit of financial statements?

THE ANSWER

F. The CA firm is engaged and paid by the client, but the primary beneficiaries of the
audit are those who rely on the financial statements.

3. Which of the following is(are) true concerning the Ethical Principles of the
Code of Professional Conduct?

THE ANSWER

G. I. They identify ideal conduct. YES

II. They are general ideals and difficult to enforce. YES

4. Which of the following statements best describes the enforceability of the

Interpretations of the Rules of Conduct?

THE ANSWER

E. The Interpretations are not enforceable, but a practitioner must justify departure
from them.

5. Which of the following statements is true? The CA firm will lose its
independence if:

THE ANSWER
B. a staff auditor providing audit services to the client acquires shares in that client.

Choices of answers

A. assisting the company in preparing certain SC registration statements

B. a staff auditor providing audit services to the client acquires stock in that
client.
C. Definitions
D. Services related to assessing the effectiveness of internal control over
financial reporting.
E. The Interpretations are not enforceable, but a practitioner must justify
departure from them.
F. The CA firm is engaged and paid by the client, but the primary beneficiaries of
the audit are those who rely on the financial statements.
G. I. They identify ideal conduct. YES
II. They are general ideals and difficult to enforce. YES