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ACCOUNTING ACC30010: Swinburne University of Technology Chapter 03 Testbank
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ACCOUNTING ACC30010: Swinburne University of Technology

Chapter 03 Testbank

 

1.

Which of the following statements is correct?

 
 
 

A. 

Ethics is concerned primarily with the wellbeing of your client.

 

 

B. 

Ethics is principally an attitude of mind.

 

 

C. 

Ethics is principally concerned with having a set of rules that must be complied with.

 

 

D. 

Ethics is concerned with creating an environment that allows entities to make an equitable profit.

 

 

 

 

 


 

 

2.

Ethics require:

 
 
 

A. 

knowledge of moral principles.

 

 

B. 

skill in applying moral principles.

 

 

C. 

the development of virtues within the individual.

 

 

D. 

All of the given answers are correct.

 

 

 

 

 


 

 

3.

Which of the following is an example of deontological ethics?

 
 
 

A. 

Egoism.

 

 

B. 

Utilitarianism.

 

 

C. 

The principle of beneficence.

 

 

D. 

Virtues.

 

 

 

 

 



y

 

 

4.

Which of the following is an example of utilitarianism?

 
 
 

A. 

Greatest benefit for the individual.

 

 

B. 

Do unto others as you would have them do unto you.

 

 

C. 

Greatest benefit for the greatest number.

 

 

D. 

Equal rights for all.

 

 

 

 

 



y

 

 

5.

If an audit firm considers that it behaves ethically because it always follows the provisions of APES 110, this is an example of:

 
 
 

A. 

Teleological ethics.

 

 

B. 

Virtue ethics.

 

 

C. 

Deontological ethics.

 

 

D. 

None of the given answers are correct.

 

 

 

 

 



y

 

 

6.

Which of the following is not an ethical attribute of an external auditor?

 
 
 

A. 

Independence.

 

 

B. 

Client advocacy.

 

 

C. 

Objectivity.

 

 

D. 

Concern for the public interest.

 

 

 

 

 



s

 

 

7.

Competence as an independent auditor includes all of the following except:

 
 
 

A. 

having the technical qualifications to perform an engagement.

 

 

B. 

possessing the ability to supervise and evaluate the quality of staff work.

 

 

C. 

guaranteeing the accuracy of the work performed.

 

 

D. 

doing additional research or consulting others.

 

 

 

 

 



s

 

 

8.

Which of the following is not a principle of professional conduct as defined by APES 110?

 
 
 

A. 

Professional behaviour.

 

 

B. 

True and fair reporting.

 

 

C. 

Integrity.

 

 

D. 

Professional competence and due care.

 

 

 

 

 



s

 

 

9.

APES 110:

 
 
 

A. 

prohibits tendering for an audit currently done by another audit firm.

 

 

B. 

encourages but does not require auditors to refrain from unwanted solicitation.

 

 

C. 

requires auditors to act in the public interest.

 

 

D. 

prohibits offers of employment to employees of another audit firm without notice.

 

 

 

 

 



s

 

 

10.

Auditors are required to complete engagements competently. Competency embraces all of the following except:

 
 
 

A. 

an unbiased mental attitude.

 

 

B. 

the technical qualifications of the audit staff.

 

 

C. 

the capacity to exercise judgment.

 

 

D. 

the ability to research subject matter and consult with others.

 

 

 

 

 



s

 

 

11.

Which of the following situations would be a breach of confidentiality?

 
 
 

A. 

Allowing a potential purchaser of your audit practice to review your audit working papers.

 

 

B. 

Allowing the Australian Securities and Investments Commission access to your audit working papers to conduct a statutory investigation.

 

 

C. 

Allowing the auditor of your client’s parent company access to your audit working papers.

 

 

D. 

All of the given answers are correct.

 

 

 

 

 



s

 

 

12.

Which of the following statements is correct?

 
 
 

A. 

Copies of client records incorporated into audit working papers must be returned to the client upon request.

 

 

B. 

Work sheets, in lieu of a general ledger, belong to the auditor and need not be furnished to the client upon request.

 

 

C. 

An extensive analysis of inventory prepared by the client at the auditor’s request are work papers which belong to the auditor and need not be furnished to the client upon request.

 

 

D. 

The auditor who retains copies of client records must return the original records upon request.

 

 

 

 

 



s

 

 

13.

Vintage Ltd has a year-end of 30 June 20X0. The audit work was completed and the auditor’s report signed on 3 September 20X0. On 1 October, the company requested the current auditor to resign so that the auditor of their parent company could take over the audit. The current auditors wrote a resignation letter dated 10 October that was received by the company on 15 October. This letter advised that the auditor’s resignation was effective from 3 September 20X0. The resignation letter was also forwarded to the Australian Securities and Investments Commission (ASIC), requesting its confirmation of the resignation. ASIC approved the resignation in a letter dated 31 October.

 

The effective date of the resignation is:

 

 
 
 

A. 

3 September 20X0.

 

 

B. 

10 October 20X0.

 

 

C. 

15 October 20X0.

 

 

D. 

31 October 20X0.

 

 

 

 

 



s

 

 

14.

Williams & Associates is a small firm with three partners. The audit partner, being the only registered company auditor in the firm, retired from the firm on 31 August 20X0. On this date the partner wrote a letter to the Australian Securities and Investments Commission (ASIC) requesting permission to resign as auditor of all of his clients. ASIC gave its consent to the resignation effective from 31 October 20X0. The auditor of the audit clients in the period from 31 August to 31 October is:

 
 
 

A. 

the retiring partner.

 

 

B. 

Williams & Associates.

 

 

C. 

Australian National Audit Office as nominee.

 

 

D. 

the next most senior partner of Williams & Associates.

 

 

 

 

 



s

 

 

15.

Which of the following is not an ethical decision-making model?

 
 
 

A. 

Laura Nash model.

 

 

B. 

Spiral model.

 

 

C. 

Mary Guy model.

 

 

D. 

IFAC model.

 

 

 

 

 




ics
 

 

16.

Which of the following is not a step in the American Accounting Association ethical decision-making model?

 
 
 

A. 

Define the ethical issues.

 

 

B. 

Identify the major principles, rules and values.

 

 

C. 

Assess the consequences.

 

 

D. 

Determine under what conditions you would allow exceptions to your stand.

 

 

 

 

 




ics
 

 

17.

Independence means that the auditor:

 
 
 

A. 

must be impartial with respect to the client.

 

 

B. 

must adopt the attitude of a detective during the audit.

 

 

C. 

has an obligation solely to third parties.

 

 

D. 

cannot provide any other professional services to an audit client.

 

 

 

 

 





 

 

18.

An auditor is independent if they are:

 
 
 

A. 

intelligent.

 

 

B. 

independent in fact and in appearance.

 

 

C. 

independent in fact and honest.

 

 

D. 

logical and consistent.

 

 

 

 

 





 

 

19.

Which of the following most completely describes auditor independence?

 
 
 

A. 

Performing an audit from the viewpoint of the public.

 

 

B. 

Avoiding the appearance of an interest in the affairs of an audit client.

 

 

C. 

Performing the audit with integrity and objectivity.

 

 

D. 

Accepting the responsibility of acting professionally.

 

 

 

 

 





 

 

20.

Which of the following is a correct statement with respect to a listed company?

 
 
 

A. 

The Australian Securities and Investments Commission does not have to be given notice of the removal of an auditor.

 

 

B. 

An auditor of a public company does not have to have the approval of the Australian Securities and Investments Commission to resign.

 

 

C. 

An auditor of a public company must be appointed within three months of incorporation.

 

 

D. 

The Australian Securities and Investments Commission will only allow the auditor to resign other than at the annual general meeting in exceptional circumstances.

 

 

 

 

 





 

 

21.

Which of the following statements is not true?

 
 
 

A. 

The auditor has a right of access to all books and records at all reasonable times.

 

 

B. 

The auditor must report all situations where inadequate records are being kept.

 

 

C. 

The auditor has a right to attend and be heard at all board meetings.

 

 

D. 

The auditor must review other information attached to the financial report to ensure consistency with the financial report.

 

 

 

 

 





 

 

22.

To emphasise auditor independence from management, many entities follow the practice of:

 
 
 

A. 

appointing a partner of the audit firm conducting the audit to the entity’s audit committee.

 

 

B. 

having the auditor report to the entity’s audit committee.

 

 

C. 

requesting that a representative of the auditor is on hand at the annual general meeting.

 

 

D. 

establishing a policy of discouraging social contact between employees of the entity and the audit staff.

 

 

 

 

 





 

 

23.

Emma Jones is about to begin a recurring annual audit engagement. As the continuing auditor, her independence would ordinarily be considered to be impaired if the previous year’s audit fee:

 
 
 

A. 

was only partially paid and the balance is being disputed.

 

 

B. 

has not been paid and will not be paid for at least twelve months.

 

 

C. 

has not been paid and the client has filed voluntary bankruptcy.

 

 

D. 

was settled by litigation.

 

 

 

 

 





 

 

24.

It would not be appropriate for the auditor to initiate discussion with the audit committee concerning:

 
 
 

A. 

the extent to which the work of internal auditors will influence the scope of the audit.

 

 

B. 

details of the procedures that the auditor intends to apply.

 

 

C. 

the extent to which change in the company’s organisation will influence the scope of the audit.

 

 

D. 

details of potential problems that the auditor believes might cause a modified opinion.

 

 

 

 

 





 

 

25.

Rebecca Lane was offered the engagement to audit Beachside Ltd for the year ended 30 June 20X2. She had served as a director of Beachside Ltd until 30 June 20X0 and her spouse currently owns 1000 of the 10 000 outstanding shares of Beachside Ltd. She should:

 
 
 

A. 

accept the engagement.

 

 

B. 

let her partner accept and conduct the engagement.

 

 

C. 

refuse the engagement because she had served as a director.

 

 

D. 

refuse the engagement because of her spouse’s share ownership.

 

 

 

 

 





 

 

26.

Under APES 110, an auditor may not:

 
 
 

A. 

be a member of the same club as any directors of an audit client.

 

 

B. 

perform bookkeeping services for any audit client.

 

 

C. 

perform advisory services for any audit client.

 

 

D. 

have any joint, closely held investment with any director of an audit client.

 

 

 

 

 





 

 

27.

The ethical rules state that independence of the external audit firm is considered to be impaired if:

 
 
 

A. 

the audit firm provides management advisory services to the client.

 

 

B. 

the audit partner purchases the client’s product at normal retail prices.

 

 

C. 

the audit firm has served as the external auditor for many years.

 

 

D. 

an immediate relative of one of the partners is the beneficial owner of shares forming a material part of the share capital of the client.

 

 

 

 

 





 

 

28.

An auditor strives to achieve independence in appearance to:

 
 
 

A. 

maintain public confidence in the auditor.

 

 

B. 

maintain an unbiased mental attitude.

 

 

C. 

comply with the Corporations Act 2001.

 

 

D. 

become independent in fact.

 

 

 

 

 





 

 

29.

One of the partners in your audit firm holds one per cent of the shares in an audit client. This is not material to the partner’s wealth. This is a breach of:

 
 
 

A. 

APES 110.

 

 

B. 

the Corporations Act 2001.

 

 

C. 

both APES 110 and the Corporations Act 2001.

 

 

D. 

neither APES 110 nor the Corporations Act 2001.

 

 

 

 

 





 

 

30.

Which of the following circumstances would not be considered by the Australian Securities and Investments Commission (ASIC) to be ‘exceptional’ for them to allow the auditor of a public company to resign outside of the company’s annual general meeting?

 
 
 

A. 

The company is not audited by the auditor of the parent company.

 

 

B. 

A negligence claim has been filed against the auditor by the company.

 

 

C. 

The auditor loses his/her independence.

 

 

D. 

The auditor’s health is failing.

 

 

 

 

 





 

 

31.

Bernard & Associates has audited the financial report of Basset Pty Ltd (Basset) for several years and had always been paid promptly for services rendered. Last year’s audit invoices have not been paid because Basset is experiencing cash flow difficulties and the current year’s audit is scheduled to commence in one week. With respect to the past due audit fees, Bernard & Associates should:

 
 
 

A. 

perform the scheduled audit and allow Basset to pay when the cash flow difficulties are alleviated.

 

 

B. 

perform the scheduled audit only after arranging a definite payment schedule and securing notes
 signed by Basset.

 

 

C. 

inform Basset’s management that the past due audit fees may be considered an impairment
 of auditor independence.

 

 

D. 

inform Basset’s management that the past due audit fees may be considered a loan on which
 interest must be imputed for financial report purposes.

 

 

 

 

 





 

 

32.

In which of the following instances would the independence of the auditor most likely not be considered to be impaired?

 
 
 

A. 

He or she has been retained as the auditor of a charitable entity in which the spouse of the auditor serves as treasurer.

 

 

B. 

He or she has been retained as the auditor of a company in which the auditor’s investment club owns a 10 per cent interest.

 

 

C. 

He or she has been retained as the auditor of a large manufacturing company that has loaned the auditor $6 000.

 

 

D. 

He or she has been retained as the auditor of a company from which the auditor purchased his or her latest motor vehicle at normal list price.

 

 

 

 

 





 

 

33.

You are the auditor of Express Travel Ltd, a large travel agent that also handles all your audit firm’s travel arrangements on normal commercial rates and provides excellent service. The chief financial officer of Express Travel Ltd has asked if you could help them overcome an economic downturn by recommending their services to your other audit clients. However, he has also said that he will understand if you are not able to do so. What type of threat to your independence does this request constitute?

 
 
 

A. 

Intimidation.

 

 

B. 

Self-interest.

 

 

C. 

Integrity.

 

 

D. 

Advocacy.

 

 

 

 

 





 

 

34.

You are the auditor of Blue Haze Ltd and are nearing the completion of the audit work for the current year when the audit senior, Travis Dean, advises you that he has been offered a job at Blue Haze Ltd as soon as the current audit is finished. What type of threat to the auditor’s independence does this situation constitute?

 
 
 

A. 

Intimidation.

 

 

B. 

Self-interest.

 

 

C. 

Self-review.

 

 

D. 

Advocacy.

 

 

 

 

 





 

 

35.

You are the auditor of Speed Ltd and the chief financial officer has stated that he is concerned that you are taking up too much of his staff’s time asking unnecessary questions for the audit. Further, he has indicated that your chances of getting the engagement to review the implementation of their new computer system engagement will be greatly improved if you keep your questioning of staff to a minimum during the current audit. What type of threat to your independence does this situation constitute?

 
 
 

A. 

Intimidation.

 

 

B. 

Self-interest.

 

 

C. 

Self-review.

 

 

D. 

Advocacy.

 

 

 

 

 





 

 

36.

Audit firm rotation has been introduced:

 
 
 

A. 

in Europe by the European Parliament.

 

 

B. 

in the United States by the Public Company Accounting Oversight Board.

 

 

C. 

in Australia by the Corporations Act 2001.

 

 

D. 

All of the given answers are correct.

 

 

 

 

 





 

 

37.

APES 110 would be violated if an auditor accepted a fee for services and the fee was:

 
 
 

A. 

fixed by a public authority.

 

 

B. 

based on a price quotation submitted in competitive bidding.

 

 

C. 

based on time spent at standard charge rates.

 

 

D. 

payable after a specified finding was attained in a review of a financial report.

 

 

 

 

 





 

 

38.

An acceptable audit fee arrangement is to:

 
 
 

A. 

accept the client’s corporate bond as part payment of an audit fee.

 

 

B. 

quote a fixed fee for an audit, based on an estimate of the total costs to be incurred.

 

 

C. 

quote a discounted fee on the expectation of performing other services for the client.

 

 

D. 

accept a reduced audit fee because the audit firm already performs a wide variety of other services for the client.

 

 

 

 

 





 

 

39.

When a bid price for audit services by an audit firm is quoted at an unreasonably low level to win the tender, with any unrecovered audit costs recovered subsequently through other services or by other means, it is called:

 
 
 

A. 

opinion shopping.

 

 

B. 

low-balling.

 

 

C. 

tender fixing.

 

 

D. 

kick-backs.

 

 

 

 

 





 

 

40.

Which of the following best describes the role of corporate governance?

 
 
 

A. 

Management decides which accounting principles are the most appropriate.

 

 

B. 

Shareholders vote to decide who should be members of the board of directors.

 

 

C. 

An independent board of directors holds the management team accountable to shareholders and other constituents.

 

 

D. 

Management is compensated based on the company’s profitability.

 

 

 

 

 





 

 

41.

Corporate governance procedures generally involve policies concerning which of the following matters?

 
 
 

A. 

Compensation arrangements for senior management and non-executive directors.

 

 

B. 

Ensuring the board of directors is composed of persons with an appropriate mix of skills and experience.

 

 

C. 

Nomination of and communication with the external auditors.

 

 

D. 

All of the given answers are correct.

 

 

 

 

 





 

 

42.

The audit committee of a publicly held company should be made up of:

 
 
 

A. 

representatives of the major shareholders.

 

 

B. 

the audit partner, the chief financial officer, the legal counsel and at least one outsider.

 

 

C. 

representatives from the client’s management, investors, suppliers and customers.

 

 

D. 

members of the board of directors who are not employees.

 

 

 

 

 





 

 

43.

Which of the following is not a requirement of the ASX Corporate Governance Council Principles and Recommendations?

 
 
 

A. 

The audit committee should consist only of non-executive directors.

 

 

B. 

The audit committee should consist of a majority of independent directors.

 

 

C. 

The audit committee should consist of at least five members.

 

 

D. 

The chair of the audit committee should not be the chair of the Board.

 

 

 

 

 





 

 

44.

The external auditor will normally report to the audit committee on all the following matters except:

 
 
 

A. 

the responsibilities assumed by the auditor.

 

 

B. 

deficiencies in the entity’s internal control.

 

 

C. 

the audit firm’s staffing of the job.

 

 

D. 

potential problems that could give rise to a modified auditor’s report.

 

 

 

 

 





 

 

45.

Which of the following is not one of the key areas covered by the OECD Principles of Corporate Governance?

 
 
 

A. 

Protection of shareholder’s rights.

 

 

B. 

Responsibilities of the board.

 

 

C. 

Disclosure and transparency.

 

 

D. 

Responsibilities of the auditor.

 

 

 

 

 





 

ACCOUNTING ACC30010: Swinburne University of Technology

Chapter 03 Testbank

 

1.

Which of the following statements is correct?

 
 
 

A. 

Ethics is concerned primarily with the wellbeing of your client.

 

 

B. 

Ethics is principally an attitude of mind.

 

 

C. 

Ethics is principally concerned with having a set of rules that must be complied with.

 

 

D. 

Ethics is concerned with creating an environment that allows entities to make an equitable profit.

 

 

 

 

 


 

 

2.

Ethics require:

 
 
 

A. 

knowledge of moral principles.

 

 

B. 

skill in applying moral principles.

 

 

C. 

the development of virtues within the individual.

 

 

D. 

All of the given answers are correct.

 

 

 

 

 


 

 

3.

Which of the following is an example of deontological ethics?

 
 
 

A. 

Egoism.

 

 

B. 

Utilitarianism.

 

 

C. 

The principle of beneficence.

 

 

D. 

Virtues.

 

 

 

 

 



y

 

 

4.

Which of the following is an example of utilitarianism?

 
 
 

A. 

Greatest benefit for the individual.

 

 

B. 

Do unto others as you would have them do unto you.

 

 

C. 

Greatest benefit for the greatest number.

 

 

D. 

Equal rights for all.

 

 

 

 

 



y

 

 

5.

If an audit firm considers that it behaves ethically because it always follows the provisions of APES 110, this is an example of:

 
 
 

A. 

Teleological ethics.

 

 

B. 

Virtue ethics.

 

 

C. 

Deontological ethics.

 

 

D. 

None of the given answers are correct.

 

 

 

 

 



y

 

 

6.

Which of the following is not an ethical attribute of an external auditor?

 
 
 

A. 

Independence.

 

 

B. 

Client advocacy.

 

 

C. 

Objectivity.

 

 

D. 

Concern for the public interest.

 

 

 

 

 



s

 

 

7.

Competence as an independent auditor includes all of the following except:

 
 
 

A. 

having the technical qualifications to perform an engagement.

 

 

B. 

possessing the ability to supervise and evaluate the quality of staff work.

 

 

C. 

guaranteeing the accuracy of the work performed.

 

 

D. 

doing additional research or consulting others.

 

 

 

 

 



s

 

 

8.

Which of the following is not a principle of professional conduct as defined by APES 110?

 
 
 

A. 

Professional behaviour.

 

 

B. 

True and fair reporting.

 

 

C. 

Integrity.

 

 

D. 

Professional competence and due care.

 

 

 

 

 



s

 

 

9.

APES 110:

 
 
 

A. 

prohibits tendering for an audit currently done by another audit firm.

 

 

B. 

encourages but does not require auditors to refrain from unwanted solicitation.

 

 

C. 

requires auditors to act in the public interest.

 

 

D. 

prohibits offers of employment to employees of another audit firm without notice.

 

 

 

 

 



s

 

 

10.

Auditors are required to complete engagements competently. Competency embraces all of the following except:

 
 
 

A. 

an unbiased mental attitude.

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ACCOUNTING ACC30010: Swinburne University of Technology Chapter 03 Testbank
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ACCOUNTING ACC30010: Swinburne University of Technology Chapter 03 Testbank 1. Which of the following statements is correct? A. Ethics is concerned primarily with the wellbeing of your client. B. Ethics is principally an attitude of mind. C. Ethics is principally concerned with having a set of rules that must be complied with. D. Ethics is concerned with creating an environment that allows entities to make an equitable profit. 2. Ethics require: A. knowledge of moral principles. B. skill in applying moral principles. C. the development of virtues within the individual. D. All of the given answers are correct. 3. Which of the following is an example of deontological ethics? A. Egoism. B. Utilitarianism. C. The principle of beneficence. D. Virtues. y 4. Which of the following is an example of utilitarianism? A. Greatest benefit for the individual. B. Do unto others as you would have them do unto you. C. Greatest benefit for the greatest number. D. Equal rights for all. y 5. If an audit firm considers that it behaves ethically because it always follows the provisions of APES 110, this is an example of: A. Teleological ethics. B. Virtue ethics. C. Deontological ethics. D. None of the given answers are correct. y 6. Which of the following is not an ethical attribute of an external auditor? A. Independence. B. Client advocacy. C. Objectivity. D. Concern for the public interest. s 7. Competence as an independent auditor includes all of the following except: A. having the technical qualifications to perform an engagement. B. possessing the ability to supervise and evaluate the quality of staff work. C. guaranteeing the accuracy of the work performed. D. doing additional research or consulting others. s 8. Which of the following is not a principle of professional conduct as defined by APES 110? A. Professional behaviour. B. True and fair reporting. C. Integrity. D. Professional competence and due care. s 9. APES 110: A. prohibits tendering for an audit currently done by another audit firm. B. encourages but does not require auditors to refrain from unwanted solicitation. C. requires auditors to act in the public interest. D. prohibits offers of employment to employees of another audit firm without notice. s 10. Auditors are required to complete engagements competently. Competency embraces all of the following except: A. an unbiased mental attitude. B. the technical qualifications of the audit staff. C. the capacity to exercise judgment. D. the ability to research subject matter and consult with others. s 11. Which of the following situations would be a breach of confidentiality? A. Allowing a potential purchaser of your audit practice to review your audit working papers. B. Allowing the Australian Securities and Investments Commission access to your audit working papers to conduct a statutory investigation. C. Allowing the auditor of your client’s parent company access to your audit working papers. D. All of the given answers are correct. s 12. Which of the following statements is correct? A. Copies of client records incorporated into audit working papers must be returned to the client upon request. B. Work sheets, in lieu of a general ledger, belong to the auditor and need not be furnished to the client upon request. C. An extensive analysis of inventory prepared by the client at the auditor’s request are work papers which belong to the auditor and need not be furnished to the client upon request. D. The auditor who retains copies of client records must return the original records upon request. s 13. Vintage Ltd has a year-end of 30 June 20X0. The audit work was completed and the auditor’s report signed on 3 September 20X0. On 1 October, the company requested the current auditor to resign so that the auditor of their parent company could take over the audit. The current auditors wrote a resignation letter dated 10 October that was received by the company on 15 October. This letter advised that the auditor’s resignation was effective from 3 September 20X0. The resignation letter was also forwarded to the Australian Securities and Investments Commission (ASIC), requesting its confirmation of the resignation. ASIC approved the resignation in a letter dated 31 October. The effective date of the resignation is: A. 3 September...
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