The level of AI literacy among New Zealand's learners varies significantly. The use of AI tools in assessments also shows a lack of consistency in ethical and responsible usage. This paper aims to lay the groundwork for understanding AI literacy and the ethical use of AI tools in assessments. The research has practical implications for educators, policymakers, and students. Currently, existing AI literacy frameworks have not been empirically tested, so the true nature of AI literacy in New Zealand is largely unknown. The authors propose a comprehensive study to evaluate and enhance AI literacy among higher education learners using a mixed-methods approach. This includes conducting a survey to assess students' familiarity with AI concepts, practical application skills, and understanding of ethical considerations within assessments. The survey findings are expected to illustrate the impacts of AI technologies on assessment equity, access, and quality. This will contribute to the development of a theory on the effective and ethical use of AI tools in academic assessments.