Professional safeguards

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. What actions can audit firms take if they want to ensure that they are competent to audit banks and financial institutions? (i) Provide training courses for staff in financial instruments; (ii) Decline the engagement; (iii) Recruit staff with relevant experience; or (iv) Engage experts to assist with valuation

  2. Which of these is not an appropriate response to an increased risk of material misstatement at the overall entity level?

  3. How can auditors justify to clients an increase in audit fees at the present time? (i) More experienced staff should be used due to higher risks; (ii) More supervision (by partners) is required; (iii) We may be liable for negligence in relation to this audit so need to charge more to cover the extra risk; (iv) More time will be spent reviewing going concern issues

  4. Which of the following is an appropriate action to take when a client who owes outstanding fees is experiencing severe financial difficulties?

  5. What should an audit firm do when a client asks them to provide a negative assurance report on a profit forecast?

  6. What reviews would you advise in the case of the audit of a bank?

  7. What Chinese Walls would you advise audit firms to introduce? (i) Training on the importance of confidentiality; (ii) Password protection for audit files/access to servers; (iii) Restriction of access to insolvency department; (iv) Code names for sensitive (eg. listed) insolvency clients

  8. You are the audit partner of X Co. and Y Co. You are aware that Y is experiencing financial difficulties and will not be able to pay an amount it owes to X, which will mean that X will not be a going concern. What should you do?

  9. Why should auditors send a new engagement letter to long-standing clients?

  10. What is the purpose of disclaimer clauses in audit reports?