Corporate Governance and Accountability
Exam Practice Tests
Course Introduction
Corporate Governance and Accountability explores the structures, processes, and mechanisms by which corporations are directed and controlled, emphasizing the roles and responsibilities of key participants such as boards of directors, executives, shareholders, and other stakeholders. The course examines frameworks and best practices for ensuring accountability, ethical behavior, transparency, and alignment of interests within organizations. Through case studies and current events, students analyze regulatory environments, corporate scandals, and reforms both locally and globally, gaining insights into how effective governance can drive organizational performance, mitigate risks, and promote long-term sustainability.
Recommended Textbook
Auditing Assurance Services and Ethics in Australia 10th Edition by Alvin Arens
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Chapter 1: Demand for audit and assurance services
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Sample Questions
Q1) To do an audit, the auditor needs information in a verifiable form and some criteria by which to evaluate that information.(A)What information and criteria would an independent public accounting firm use when auditing a company's financial statements? (B)What information and criteria would a taxation auditor use when auditing that same company's tax return? (C)What information and criteria would an internal auditor use when performing a performance audit to evaluate whether the company's computerised payroll processing system is operating efficiently and effectively?
Answer: (A)The information used by a public accounting firm in a financial statement audit is the financial information in the company's financial statements.The criteria used are applicable accounting standards. (B)The information used by a taxation auditor is the financial information in the auditee's annual tax return.The criteria are the relevant tax legislation and interpretations. (C)The information used by an internal auditor when performing a performance audit of the payroll system could include various items such as the number of errors made, costs incurred by the payroll department, and number of payroll records processed each month.The criteria would consist of company standards for departmental efficiency and effectiveness.
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Chapter 2: Auditors legal environment
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Sample Questions
Q1) In the Columbia Coffee and Tea case, the auditors were found to owe a duty of care to a third party because:
A) the criteria established in Al Saudi Banque were satisfied.
B) of a statement contained in the auditor's manual.
C) the party and its intended reliance were known.
D) all of the above
Answer: B
Q2) The Columbia Coffee and Tea judgement:
A) sought to apply a common sense approach.
B) endorsed the judgement made in the AGC case.
C) was applied by the High Court in its Esanda decision.
D) all of the above
Answer: A
Q3) An auditor failing to report to ASIC a contravention of the Corporations Act by a client is an example of:
A) a securities violation.
B) criminal liability.
C) a breach of common law.
D) contributory negligence.
Answer: B
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Chapter 3: Audit quality and ethics
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Sample Questions
Q1) Discuss the role and responsibility of the audit committee.
Answer: The audit committee is a subcommittee of a company's board of directors who are not part of the management of the company.The responsibility of the audit committee includes the following:
.financial reporting
.internal control and risk management establishing and continually monitoring a framework and processes for compliance with laws, standards, best practice guidelines and the entity's code of conduct
.reviewing reports to regulators
.reviewing related-party transactions
.management information systems
.prevention, detection, and investigation of fraud and irregularities considering the scope and quality of the external audit
In regard to the external auditor, the audit committee decides auditor nominations and the scope of services the audit firm is to perform, discusses with the auditor the progress of the audit and its findings, and assists in resolving conflicts between the auditor and management.
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Chapter 4: Audit responsibilities and objectives
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Sample Questions
Q1) What is the objective in testing for cut-off?
A) that no transactions of the current period have been delayed and recorded in a future period
B) whether all of the current period's transactions are recorded
C) whether transactions are recorded in the proper period
D) that no transactions from the prior period are included in the current period's balances
Q2) To adequately plan the appropriate audit evidence to gather, Australian auditing standards require the auditor to gain an understanding of:
A) the client's procedural manuals.
B) the client's organisation charts.
C) the client's internal controls.
D) all of the above
Q3) The audit objective of posting and summarisation is associated with the management assertion of presentation and disclosure.
A)True
B)False
Q4) What are the responsibilities of management in regard to their declaration in the financial reports? Discuss.
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Chapter 5: Audit evidence
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Sample Questions
Q1) An auditor would be LEAST likely to use confirmations in connection with the examination of:
A) shareholders' equity.
B) property, plant, and equipment.
C) long-term debt.
D) inventories.
Q2) Factors affecting the persuasiveness of an audit sample size and items to select relate to:
A) proper selection of the items in the sample.
B) adequate sample size.
C) sufficiency of the evidence.
D) all of the above
Q3) Ratios and other analytical procedures need to be recalculated manually by the auditor each time an adjusting entry is made to the client's statements.
A)True
B)False
Q4) When an analytical procedure reveals no unusual fluctuations, discuss what this means for the audit.
Q5) Why are analytical procedures often called attention directing?
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Chapter 6: Audit planning and documentation
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Sample Questions
Q1) The purpose of requiring communication between the predecessor and successor auditor is to:
A) help the successor audit evaluate whether to accept the engagement.
B) help the client by facilitating the change of auditors.
C) ensure that information which is provided to ASIC will be accurate.
D) allow the predecessor to disclose information which would otherwise be confidential.
Q2) Public accounting firms must accept every audit engagement.
A)True
B)False
Q3) For prospective clients that have previously been audited by another firm, the new auditor is required to communicate with the previous auditor.
A)True
B)False
Q4) Notations on working papers are accomplished by the use of:
A) tick marks.
B) cross reference numbers.
C) the auditor's initials.
D) sticky notes.
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Chapter7: Materiality and risk
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Sample Questions
Q1) In situations in which the auditor believes the chance of financial failure or loss is high, and there is a corresponding increase in engagement risk for the auditor, acceptable audit risk should:
A) remain the same.
B) be reduced.
C) be increased.
D) be calculated using a computerised statistical package.
Q2) Discuss how auditors use the audit risk model when planning an audit.
Q3) Discuss each of the five steps in applying materiality in an audit, and identify the audit phase(s)in which each step is performed.
Q4) Unlike control risk and inherent risk, planned detection risk and required audit evidence will vary from cycle to cycle.
A)True
B)False
Q5) Most auditors would use a higher inherent risk for inventory when:
A) inventory turnover slowed during the year.
B) obsolete inventory has been identified.
C) there is a large number of errors in the previous year.
D) both A and C
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Chapter 8: Internal control and control risk
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Sample Questions
Q1) Adequate documents and records are important for effective internal control.Discuss each of the five principles that dictate the proper design and use of documents and records.
Q2) Describe three inherent limitations of internal control.
Q3) Which of the following is NOT a type of audit evidence used in assessing internal control?
A) checking approval of customer sales orders
B) matching prices on sales invoices against a standard price list
C) observing staff performing their duties
D) observing the inventory count
Q4) Discuss 'monitoring activities' and give an example.
Q5) A major control available in a small company, which might not be feasible in a large company, is:
A) a wider segregation of duties.
B) a voucher system.
C) the owner-manager's personal interest and close relationship with the personnel.
D) fewer transactions to process.
Q6) Describe the three key concepts (assumptions)in the study of internal control.
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Chapter 9: Fraud auditing
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Sample Questions
Q1) Discuss the role and responsibilities of the audit committee.
Q2) When risks of material misstatements due to fraud are identified, how should auditors adjust their audit approach?
Q3) Which option below best explains the concept of premature revenue recognition?
A) adjusting sales returns to increase sales
B) sales from the next period are recorded in the current period
C) sales from the previous period are recorded in the current period
D) cut-off errors
Q4) To reduce fraud incidence, management should build a positive culture and work environment by implementing programs and initiatives to increase employee morale.Which of the following is NOT an example of the above? Employees should be encouraged
A) to obtain advice internally when matters of conflict arise.
B) by linking their remuneration to the final profit figure.
C) to support the entity's values and code of conduct.
D) to contribute to their work environment.
Q5) Many organisations have a 'whistle-blowing' process for employees to report actual or suspected wrongdoing.
A)True
B)False
Page 11
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Chapter 10: The impact of information technology on the audit process
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Sample Questions
Q1) Discuss the circumstances that may exist in a 'network environment' which may challenge traditional general CIS controls.
Q2) Internal control is ineffective when computer programmers:
A) request physical security be provided for program files.
B) design documentation for computerised systems.
C) have access to actual programs used to produce accounting information.
D) participate in computer software acquisition decisions.
Q3) Describe four common audit tasks that can be simplified by the use of microcomputers in practice.
Q4) Identify the three categories of application controls and give one example of each.
Q5) When might an auditor decide NOT to reduce assessed control risk even if internal controls are adequate?
A) The cost of the study and tests of controls will exceed the savings from reduced substantive procedures.
B) A qualified opinion will be issued.
C) The auditor plans to rely on the controls and reduce substantive testing.
D) all of the above
Q6) Provide five examples of different IT environments the auditor may encounter.
Page 12
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Chapter 11: Overall audit plan and audit program
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Sample Questions
Q1) Contrast the circumstances in which the auditor would choose not to test controls with those in which he or she would perform tests of controls.
Q2) When designing an audit program for tests of details of balances, the auditor should make assumptions about inherent risk and control risk, as well as predictions concerning the outcome of tests of controls, substantive tests of transactions, and analytical procedures.
A)True
B)False
Q3) If an auditor performs substantive tests of final balances before the year end, he or she must check activities in the period between the date of this work and the year-end.This period is known as the:
A) roll forward.
B) pre-balance date period.
C) interim period.
D) continuous period.
Q4) List the nine balance-related audit objectives in the verification of the ending balance in accounts receivable and provide one specific useful audit procedure for each of the objectives.
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Chapter 12: Audit of the sales and collection cycle: Tests of controls
and substantive tests of transactions
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Q1) Which of the following documents is mainly related to cash receipts?
A) customer order
B) credit note
C) cash receipt
D) all of the above
Q2) One of the key internal controls to prevent invalid (fictitious)transactions in the sales and collection cycle is to:
A) include a list of customer numbers in the computer files.
B) have the bank reconciliation done by someone who is independent of the treasury function.
C) include the sales price list of all products in the computer files.
D) account for the integrity of the numerical sequence of sales orders.
Q3) Which of the following is a document prepared by the seller for recording the description, quantity, and related information for goods ordered by a customer?
A) bill of lading
B) remittance advice
C) sales order
D) customer order
Q4) Discuss what is meant by 'proof of cash receipts' and explain its purpose.
Page 14
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Chapter 13: Completing tests in the sales and collection cycle:
Accounts receivable
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Q1) Discuss the circumstances in which it is acceptable to use negative confirmation requests.
Q2) The primary purpose of accounts receivable confirmation is to satisfy the:
A) accuracy and cutoff objectives.
B) existence objective.
C) existence and cutoff objectives.
D) existence, accuracy, and cutoff objectives.
Q3) When customers do NOT respond to positive confirmation requests, auditors:
A) cannot complete the engagement and must issue a disclaimer.
B) cannot express an unqualified opinion.
C) must examine supporting documents.
D) must rely on inquiry of client.
Q4) Assess control risk for accounts receivable is part of which phase of the audit?
A) Phase I
B) Phase II
C) Phase III
D) Phase IV
Q5) In the audit of accounts receivable, list the factors that affect the planned detection risk for tests of details of balances.
Q6) Describe how the auditor tests the rights objective for accounts receivable. Page 15
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Chapter 14: Audit sampling
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Sample Questions
Q1) Discuss the four factors that affect the auditor's acceptable risk of incorrect acceptance (ARIA).
Q2) When the computed upper deviation rate is greater than the tolerable deviation rate in attributes sampling, one possible appropriate course of action is to increase sample size.
A)True
B)False
Q3) Which one of the following BEST describes what the auditor means by the rate of occurrence in the audit sampling plan?
A) the frequency with which a certain characteristic occurs within a population
B) the dollar range within which the true population total can be expected to fall
C) the degree of confidence that the sample is representative of the population
D) the number of errors that can reasonably be expected to be found in a population
Q4) An auditor using non-statistical sampling cannot:
A) determine a point estimate for the population.
B) mathematically measure the precision of the point estimate.
C) draw a random sample.
D) do any of the above.
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Chapter 15: Audit of transaction cycles and financial statement balances I
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Sample Questions
Q1) Identify the analytical procedures for the payroll and personnel cycle to test for possible misstatements.
Q2) A comparison of the current year's inventory turnover ratio with that of previous years may indicate the presence of obsolete inventory.
A)True
B)False
Q3) What is the overall objective in the audit of accounts payable?
A) to determine if the balance accurately stated
B) to determine if the balance is understated
C) to determine if the balance is fairly stated and properly disclosed
D) to determine if the balance is overstated
Q4) Commission expense is calculated as a percentage of sales and compared with previous years.
A)True B)False
Q5) The reliability of the perpetual inventory master file will affect the extent of the auditor's physical examination of inventory.
A)True B)False
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Chapter 16: Audit of transaction cycles and financial statement balances II
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Sample Questions
Q1) Cash account is primarily affected by which transactions in the acquisitions and payment cycle?
A) expenses
B) accounts payable
C) both A and B
D) none of the above
Q2) State each of the seven specific balance-related audit objectives for property, plant, and equipment additions, and, for each objective, describe one common test of details of balances.
Q3) Which of the following misstatements will normally be discovered as part of the audit of the bank reconciliation?
A) payment for raw materials that were not received
B) payments on loans debited directly to the bank account but not entered in the client's records
C) payment to an employee for more hours than he or she worked
D) all of the above
Q4) Discuss how analytical review can be a useful audit technique in the audit of cash balances.
Q5) What are the most important objectives when auditing dividends payable?
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Chapter 17: Completing the audit
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Q1) The management representation letter is prepared on the client's letterhead, addressed to the audit firm, and signed by the chief executive officer and chief financial officer.
A)True
B)False
Q2) If, during the completion phase of the audit, the auditor determines that he or she has not obtained sufficient evidence to draw a conclusion about the fairness of the client's financial statements, there are two choices: either additional evidence must be obtained or a disclaimer of opinion must be issued.
A)True
B)False
Q3) To ensure that the audit meets the public accounting firm's standard of performance:
A) a financial disclosure checklist is used for every engagement.
B) an audit engagement checklist is completed.
C) the working papers are reviewed by another member of the audit firm.
D) it is common to gather more evidence than is actually necessary.
Q4) What are the three conditions required for the existence of a contingent liability?
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Chapter 18: Audit reporting
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Q1) The appropriate date for the report is the one on which the auditor completes the most important auditing procedures in the field.
A)True
B)False
Q2) Whenever an auditor issues a standard unmodified opinion, the implication is that the auditor:
A) is satisfied that the report is prepared and presented fairly in all material respects in accordance with an applicable accounting framework.
B) does not believe the report is prepared or presented fairly in all material respects in accordance with an applicable accounting framework.
C) does not know if the report is prepared and presented fairly in all material respects in accordance with an applicable accounting framework.
D) is satisfied that the report is prepared and presented fairly except for a specific aspect of it.
Q3) What are the two main causes of scope limitations?
Q4) What are the two conditions under which a qualified opinion may be issued?
Q5) Under what conditions is a disclaimer of opinion issued?
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Chapter 19: Other auditing and assurance engagements
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Sample Questions
Q1) When performing a review of interim information for a public company, the accountant ordinarily does not perform tests of the accounting records, independent confirmations, or physical examinations.
A)True
B)False
Q2) In a bicameral parliament, the Auditor-General reports directly to both chambers simultaneously.
A)True
B)False
Q3) The assurance standards define three levels, or types, of engagements.State these three types of assurance engagements.
Q4) Current professional auditing standards prohibit external auditors from using internal auditors for direct assistance on external audits.
A)True
B)False
Q5) Discuss the primary purpose of the auditor's evaluation of internal control in (1)an external audit of historical financial statements and (2)a performance audit.
Q6) Discuss each of the three phases of a performance audit.
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