1.

What is expected of auditor in determining noncompliance by an entity to existing laws and

regulations? 
a. Whether an act constitutes noncompliance is a legal determination that is
ordinarily within the auditor’s professional competence. 
b. The auditor’s training, experience and understanding of the entity and its industry
cannot provide a basis for recognition that some acts coming to the auditor’s
attention may constitute noncompliance with laws and regulations. 
c. The determination as to whether a particular act constitutes or is likely to
constitute noncompliance is generally based on the understanding of the auditor
but ultimately can only be determined by an expert who is qualified to practice
law. 
d. In order to plan the audit, the auditor should obtain a general understanding of
the legal and regulatory framework applicable to the entity and the industry and
how the entity is complying with the framework. 
 
2. When the auditor becomes aware of information concerning a possible noncompliance
to laws or regulations, the auditor should appropriately: 
a. Obtain an understanding of the nature of the act and the circumstances in which
it has occurred, and evaluate the possible effect on the financial statements. 
b. Discuss his suspicion with the management. 
c. Ask management to determine whether a violation is really committed. 
d. Consult with the entity’s legal counsel as to what appropriate action the auditor
should do. 
 
3. If the auditor suspects that members of senior management, including members of the
board of directors, are involved in noncompliance to laws as regulations, and he believes
his report may not be acted upon, he would: a. Do nothing. 
b.Issue a disclaimer of opinion. 
b.Consider seeking legal advice. 
b.Make special investigation in order to fully determine the extent of client’s
noncompliance. 
 
4. Which of the following circumstances regarding the entity’s noncompliance to laws or
regulations may cause the auditor to resign from an engagement? 
a. The auditor is unable to determine whether noncompliance has occurred. 
b. If the auditor concludes that the noncompliance has a material effect on the
financial statements and has not been properly reflected in the financial
statements. 
c. When the entity does not take remedial action that he considers necessary in the
circumstances even when the noncompliance is not material to financial
statements. 
d. When the disclosure of the effect of noncompliance to legal authority is
necessary. 
 
5. Examples of the type of information that may come to the auditor's attention that may
indicate that noncompliance with laws or regulations has occurred least likely include 
a. Investigation by government departments or payment of fines or penalties. 
b. Sales commissions or agent's fees that appear reasonable in relation to those
ordinarily paid by the entity or in its industry or to the services actually received. 
c. Unusual transactions with companies registered in tax havens. 
d. Media comment. 
 
 
PSA 260 – Communications of Audit Matters with Those Charged with Governance 
 
1. Which statement is incorrect regarding PSA 260? 
a. The purpose of this PSA is to establish standards and provide guidance on
communication of audit matters arising from the audit of financial statements
between the auditor and those charged with governance of an entity. 
b. These communications relate to audit matters of governance interest as defined
in this PSA. 
 c. This PSA provides guidance on communications by the auditor to parties outside
the entity, for example, external regulatory or supervisory agencies. 
d. All the above statements are correct. 
 
2. Which statement is incorrect regarding the auditor’s communications of audit matters
with those charged with governance? 
a. The auditor should communicate audit matters of governance interest arising
from the audit of financial statements with those charged with governance of an
entity. 
b. Those charged with governance ordinarily are accountable for ensuring that the entity
achieves its objectives, financial reporting, and reporting to interested parties. 
c. “Audit matters of governance interest” are those that arise from the audit of
financial statements and, in the opinion of the auditor, are either important or
relevant to those charged with governance in overseeing the financial reporting
and disclosure process. 
d. Audit matters of governance interest include only those matters that have come
to the attention of the auditor as a result of the performance of the audit. 
 
 
3. The role of persons entrusted with the supervision, control and direction of an entity 
a. Governance  c.   Government 
b. Board of directors  d.   Management 
 
4. Which statement is correct regarding “audit matters of governance interest”? 
a. These are matters that arise from the audit of financial statements and, in the
opinion of the auditor, are either important or relevant to those charged with
governance in overseeing the financial reporting and disclosure process. 
b. These include only those matters that have come to the attention of the auditor
as a result of the performance of the audit. 
c. The auditor is required, in an audit in accordance with PSAs, to design
procedures for the specific purpose of identifying these matters. 
d. The auditor is not required to communicate these matters with those charged
with governance of an entity. 
 
5. Which statement is incorrect regarding the auditor’s communications of audit matters
with those charged with governance? 
a. The auditor should communicate audit matters of governance interest upon
completion of the engagement. 
b. The auditor’s communications with those charged with governance may be made
orally or in writing. 
c. When audit matters of governance interest are communicated orally, the auditor
documents in the working papers the matters communicated and any responses
to those matters. 
d. Ordinarily, the auditor initially discusses audit matters of governance interest with
management, except where those matters relate to questions of management
competence or integrity.