Q.1 Which of the following is a fundamental principle of professional ethics for auditors?
Profitability
Objectivity
Competitiveness
Flexibility
Explanation - Objectivity is a core ethical principle ensuring auditors remain unbiased and impartial during their work.
Correct answer is: Objectivity
Q.2 Integrity in auditing primarily means:
Being profitable
Being straightforward and honest
Following client instructions
Maximizing efficiency
Explanation - Integrity requires auditors to be truthful, honest, and straightforward in all professional activities.
Correct answer is: Being straightforward and honest
Q.3 Professional competence in auditing refers to:
Keeping fees low
Maintaining knowledge and skill
Agreeing with client views
Being flexible in standards
Explanation - Auditors must maintain professional knowledge and skills to provide competent services to clients.
Correct answer is: Maintaining knowledge and skill
Q.4 Which ethical principle requires auditors to avoid conflicts of interest?
Confidentiality
Objectivity
Integrity
Professional behavior
Explanation - Objectivity means avoiding bias and conflicts of interest while forming judgments.
Correct answer is: Objectivity
Q.5 Confidentiality in auditing means:
Sharing information with colleagues
Not disclosing client information without authority
Discussing issues openly in meetings
Maintaining written notes
Explanation - Auditors must not disclose client information unless legally required or authorized by the client.
Correct answer is: Not disclosing client information without authority
Q.6 Which of the following is NOT a fundamental principle of ethics under the Code of Ethics?
Integrity
Objectivity
Professional competence
Profit maximization
Explanation - Profit maximization is not an ethical principle; integrity, objectivity, competence, confidentiality, and behavior are.
Correct answer is: Profit maximization
Q.7 Professional behavior requires auditors to:
Promote their services aggressively
Comply with laws and avoid discrediting the profession
Always agree with management
Reduce audit fees
Explanation - Professional behavior ensures compliance with relevant laws and avoidance of actions that discredit the profession.
Correct answer is: Comply with laws and avoid discrediting the profession
Q.8 Which body issues the Code of Ethics for auditors in many countries?
World Bank
IFAC
WTO
IMF
Explanation - The International Federation of Accountants (IFAC) issues the Code of Ethics for professional accountants.
Correct answer is: IFAC
Q.9 If an auditor owns shares in the client company, which principle is at risk?
Integrity
Objectivity
Professional competence
Confidentiality
Explanation - Owning shares in a client company threatens objectivity due to self-interest.
Correct answer is: Objectivity
Q.10 Which type of threat arises when an auditor is too sympathetic to a client’s interests?
Familiarity threat
Self-interest threat
Advocacy threat
Intimidation threat
Explanation - Familiarity threat arises when auditors are too close to or sympathetic with clients, impairing objectivity.
Correct answer is: Familiarity threat
Q.11 Advocacy threat in auditing arises when:
The auditor promotes a client’s position
The auditor fears client pressure
The auditor has a personal interest
The auditor lacks skill
Explanation - Advocacy threat arises if the auditor promotes or defends a client’s position, impairing independence.
Correct answer is: The auditor promotes a client’s position
Q.12 Which of the following is a safeguard against ethical threats?
Accepting gifts
Rotation of audit partners
Ignoring conflicts
Reducing audit evidence
Explanation - Rotating audit partners helps reduce familiarity threats and ensures objectivity.
Correct answer is: Rotation of audit partners
Q.13 Intimidation threat occurs when:
An auditor is afraid of losing a client
An auditor owns shares in a client
An auditor promotes client interests
An auditor lacks competence
Explanation - Intimidation threat arises when auditors are deterred from acting objectively due to actual or perceived pressures.
Correct answer is: An auditor is afraid of losing a client
Q.14 Which principle ensures that auditors update their skills regularly?
Integrity
Objectivity
Professional competence
Confidentiality
Explanation - Professional competence requires auditors to maintain knowledge and skill to provide quality service.
Correct answer is: Professional competence
Q.15 Which principle is violated if an auditor discloses client trade secrets without permission?
Integrity
Confidentiality
Objectivity
Professional behavior
Explanation - Confidentiality ensures auditors do not disclose client information without authority.
Correct answer is: Confidentiality
Q.16 Auditors must refuse assignments if:
They are not independent
The client requests it
The fees are high
The firm is busy
Explanation - If independence is compromised, auditors must refuse or withdraw from the assignment.
Correct answer is: They are not independent
Q.17 Which of the following best describes self-interest threat?
Fear of client pressure
Close relationship with client
Financial interest in client
Lack of knowledge
Explanation - Self-interest threat occurs when the auditor has financial or other interests in the client entity.
Correct answer is: Financial interest in client
Q.18 An auditor advertising services in a misleading manner violates:
Integrity
Objectivity
Professional behavior
Confidentiality
Explanation - Professional behavior requires auditors to avoid actions that discredit the profession, including misleading advertising.
Correct answer is: Professional behavior
Q.19 Ethics in auditing are important because they:
Maximize audit fees
Protect auditor reputation and public trust
Reduce working hours
Help in marketing services
Explanation - Ethical standards ensure credibility of auditors and maintain public trust in financial reporting.
Correct answer is: Protect auditor reputation and public trust
Q.20 If an auditor accepts a gift from a client, it may create:
Self-interest threat
Familiarity threat
Advocacy threat
Intimidation threat
Explanation - Accepting gifts creates self-interest threat as it may impair independence.
Correct answer is: Self-interest threat
Q.21 The primary role of professional ethics in auditing is to:
Enhance client profits
Guide auditors in decision-making
Promote competition
Reduce workload
Explanation - Ethical principles guide auditors in maintaining integrity, objectivity, and professional conduct.
Correct answer is: Guide auditors in decision-making
Q.22 Which of the following is a professional misconduct for auditors?
Maintaining independence
Accepting a bribe
Ensuring confidentiality
Updating knowledge
Explanation - Accepting bribes compromises integrity and independence, constituting professional misconduct.
Correct answer is: Accepting a bribe
Q.23 Which principle requires auditors to avoid any action that may discredit the profession?
Integrity
Objectivity
Professional behavior
Competence
Explanation - Professional behavior ensures auditors avoid actions that harm the profession’s reputation.
Correct answer is: Professional behavior
Q.24 Failure to comply with ethical standards can lead to:
Improved client relations
Disciplinary action
Reduced workload
Higher income
Explanation - Non-compliance with ethical standards may result in disciplinary actions by professional bodies.
Correct answer is: Disciplinary action
Q.25 Which of the following is a safeguard within the firm against ethical threats?
Client pressure
Rotation of audit staff
Accepting high fees
Ignoring threats
Explanation - Rotation of staff helps mitigate familiarity threats and maintain independence.
Correct answer is: Rotation of audit staff