ATBS EXAM (1) 2016-17
INCLUDING STANDARD SOLUTIONS IN ITALICS
1. Ethics and independence (20 credits)
a) Wilhelm (2006)1 discusses four ethical belief systems. Name and briefly describe two of
these systems.
Max. 6 credits (1 point for naming, 2 points for properly describing each belief system)
See Wilhelm 2006a.
Students should name and briefly describe two of the four:
• Deontology or theory of universal duty: only if an individual can say “yes” to the
question of whether a particular action should be chosen by everyone in a similar
situation should that action be considered morally correct. Student may but don’t
have to add that this is primarily based on Kant’s “categorical imperative”:
• Utilitarian ethics or teleology: This normative ethical theory refers to the principle
of greatest good for the greatest number of people. As such it requires
consideration of the CONSEQUENCES of our actions or rules. Students may but
don’t have to add that this approach was developed by Bentham and Mill
• Conventional moral rules or rule-utilitarianism: This approach refers to classic
moral rules, such as the Ten Commandments or the Golden Rule.
• Personal virtue ethics: Based on Aristotle’s claim to live one’s life virtuously, i.e., to
cultivate certain dispositions (virtues) that enable us to know the right thing to do.
So have a character that displays virtues such as honesty, openness, truthfulness,
etc.
b) According to Hayes et al., why is ethical behavior particularly important for the auditing
profession?
Max 4 credits.
See Hayes p. 77
The behavior of auditors has an impact on the economic well-being of society, so
dependence on public confidence is high. In order to remain in this position, auditors have
to keep demonstrating that public confidence is well founded by behaving ethically.
1
Wilhelm, W. J. (2006). Ethical reasoning for the business classroom: A decision making framework.
Journal of Applied Research for Business Instruction, 4 (2): 1-6.
1
, c) The auditing profession has recently taken multiple measures to increase audit quality.
For each of the below measures (i and ii) discuss the applicable threat(s) to the
fundamental principles that they may help mitigate. Motivate your answer.
i.Public interest entities in the European Union now have to switch audit firm
every ten years.
Max 5 credits.
Most prominently familiarity threat and self-interest threat in the final year. Plus
motivation.
Other answers to be evaluated icw motivation.
ii. In many countries around the world audit firms are now prohibited to offer non-
audit services (e.g., tax services) to their audit clients.
Max 5 credits.
Most prominently self-review threat and self-interest threat. Plus motivation.
Other answers to be evaluated icw motivation.
2. Audit risk and materiality (25 credits)
a) During audit planning, the auditor conducts a variety of risk assessment procedures and
relates discovered risks to the components of the audit risk model. Review the below risk
factors. For each risk factor, name the audit risk model component that is most likely
affected. Briefly motivate your answer.
i. The client lacks sufficient working capital to continue operations.
Max 5 credits
Inherent risk plus motivation.
ii. The assigned staff on the audit engagement lack some of the skills to identify actual
errors in an account balance when examining audit evidence accumulated.
Max 5 credits
Detection risk plus motivation.
iii. The client's accounting staff lack some of the skills to identify errors in an account
balance when conducting account reconciliations.
Max 5 credits
Control risk plus motivation.
2
INCLUDING STANDARD SOLUTIONS IN ITALICS
1. Ethics and independence (20 credits)
a) Wilhelm (2006)1 discusses four ethical belief systems. Name and briefly describe two of
these systems.
Max. 6 credits (1 point for naming, 2 points for properly describing each belief system)
See Wilhelm 2006a.
Students should name and briefly describe two of the four:
• Deontology or theory of universal duty: only if an individual can say “yes” to the
question of whether a particular action should be chosen by everyone in a similar
situation should that action be considered morally correct. Student may but don’t
have to add that this is primarily based on Kant’s “categorical imperative”:
• Utilitarian ethics or teleology: This normative ethical theory refers to the principle
of greatest good for the greatest number of people. As such it requires
consideration of the CONSEQUENCES of our actions or rules. Students may but
don’t have to add that this approach was developed by Bentham and Mill
• Conventional moral rules or rule-utilitarianism: This approach refers to classic
moral rules, such as the Ten Commandments or the Golden Rule.
• Personal virtue ethics: Based on Aristotle’s claim to live one’s life virtuously, i.e., to
cultivate certain dispositions (virtues) that enable us to know the right thing to do.
So have a character that displays virtues such as honesty, openness, truthfulness,
etc.
b) According to Hayes et al., why is ethical behavior particularly important for the auditing
profession?
Max 4 credits.
See Hayes p. 77
The behavior of auditors has an impact on the economic well-being of society, so
dependence on public confidence is high. In order to remain in this position, auditors have
to keep demonstrating that public confidence is well founded by behaving ethically.
1
Wilhelm, W. J. (2006). Ethical reasoning for the business classroom: A decision making framework.
Journal of Applied Research for Business Instruction, 4 (2): 1-6.
1
, c) The auditing profession has recently taken multiple measures to increase audit quality.
For each of the below measures (i and ii) discuss the applicable threat(s) to the
fundamental principles that they may help mitigate. Motivate your answer.
i.Public interest entities in the European Union now have to switch audit firm
every ten years.
Max 5 credits.
Most prominently familiarity threat and self-interest threat in the final year. Plus
motivation.
Other answers to be evaluated icw motivation.
ii. In many countries around the world audit firms are now prohibited to offer non-
audit services (e.g., tax services) to their audit clients.
Max 5 credits.
Most prominently self-review threat and self-interest threat. Plus motivation.
Other answers to be evaluated icw motivation.
2. Audit risk and materiality (25 credits)
a) During audit planning, the auditor conducts a variety of risk assessment procedures and
relates discovered risks to the components of the audit risk model. Review the below risk
factors. For each risk factor, name the audit risk model component that is most likely
affected. Briefly motivate your answer.
i. The client lacks sufficient working capital to continue operations.
Max 5 credits
Inherent risk plus motivation.
ii. The assigned staff on the audit engagement lack some of the skills to identify actual
errors in an account balance when examining audit evidence accumulated.
Max 5 credits
Detection risk plus motivation.
iii. The client's accounting staff lack some of the skills to identify errors in an account
balance when conducting account reconciliations.
Max 5 credits
Control risk plus motivation.
2
