Compliance and Auditing Ethics and Professional Standards 2

Question 1

Which type of auditor independence threat arises when an auditor has an excessive degree of familiarity or sympathy with a client due to a long-standing relationship?

Accepted Answer

Familiarity threat

Answer

A familiarity threat occurs when an auditor becomes too sympathetic to a client's interests due to a close or long relationship, potentially compromising their ability to act with objectivity.

Question 2

An auditor who accepts a contingent fee based on the outcome of their engagement faces which type of independence threat?

Accepted Answer

Self-interest threat

Answer

Contingent fees create a self-interest threat because the auditor's financial benefit is tied to the outcome of their work, which could bias their professional judgment.

Question 3

Under SEC auditor independence rules, which family relationship would most clearly impair independence when the family member holds a financial reporting oversight role at the audit client?

Accepted Answer

A spouse

Answer

SEC rules specify that a spouse or equivalent occupying a financial reporting oversight role at a client would impair auditor independence due to the closeness of the relationship.

Question 4

The 'cooling-off period' requirement in audit regulations refers to:

Accepted Answer

A waiting period before a former auditor can join a client in a key management position

Answer

Cooling-off periods require that a specified time (typically one year) pass before a senior auditor can accept a key management position at a client they recently audited, protecting independence.

Question 5

Which of the following best describes 'objectivity' in the context of internal auditing per IIA standards?

Accepted Answer

An unbiased mental attitude that allows internal auditors to perform engagements without compromising quality

Answer

Objectivity per IIA standards is an unbiased mental attitude that allows internal auditors to perform engagements and report results without quality compromises, believing in their own work product.

Compliance and Auditing Practice Test

Compliance and Auditing Practice Test

Compliance and Auditing Ethics and Professional Standards 2