The auditor tests the quantity of materials charged to work-in-process by tracing these
quantities to:
A.perpetual inventory records.
B.cost ledgers.
C.material requisition forms.
D.receiving reports.
For dollar-unit sampling, the number of individual accounts tested is always:
A.greater than the sample size.
B.equal to the sample size.
C.less than or equal to the sample size.
D.greater than or equal to the sample size.
An auditor plans to examine a sample of 20 cheques for counter-signatures as
prescribed by the client’s internal control procedures. One of the cheques in the chosen
sample of 20 cannot be found. The auditor should consider the reasons for this
limitation and:
A.treat the missing cheque as a deviation for the purpose of evaluating the sample.
B.evaluate the results as if the sample size had been 19.
C.choose another cheque to replace the missing cheque in the sample.
D.treat the missing cheque in the same manner as the majority of the other 19 cheques
(i.e. countersigned or not).
Sarah Jones, an auditor, believes the industry-wide occurrence rate of client billing
errors is 3 per cent and has established a tolerable rate of 5 per cent. In the review of
client invoices to test that the invoice is properly checked and authorised, Jones should
use:
A.attribute sampling.
B.discovery sampling.
C.variable sampling.
D.stratified sampling.
Why is it important to establish performance audit criteria?
A.They are a basis for communication with management.
B.They indicate the scope of the performance audit.
C.They are a basis for developing audit programs and questionnaires.
D.All of the given answers are correct.
Which of the following is not explicitly a part of the IIA’s definition of internal
auditing?
A.Internal auditing is an objective assurance activity.
B.Internal auditing is a consulting activity.
C.Internal auditing should help an organisation accomplish its objectives.
D.Internal auditors should help external auditors complete the annual financial
statement audit.
Which of the following is an essential factor in evaluating the sufficiency of evidence?
The evidence must:
A.be well documented and cross-referenced in the audit documents.
B.be based on sources that are considered reliable.
C.bear a direct relationship to the audit objective.
D.be of sufficient quantity to enable the auditor to form an opinion.
Your audit client has not written inventory down to net realisable value in accordance
with approved accounting standards. The write-down would reduce current assets by 15
per cent and net profit before income tax by 11 per cent. What type of audit report
should you issue?
A.An unqualified opinion with an emphasis of matter paragraph.
B.A disclaimer of opinion.
C.An adverse opinion.
D.A qualified opinion.
Auditors can eliminate engagement risk:
A.under no circumstances.
B.by establishing policies for client acceptance and continuance.
C.by lowering audit risk.
D.by lowering materiality.
The independent auditor should acquire an understanding of the internal audit function
as it relates to the assessment of control risk because:
A.the audit programs, audit documents and reports of an internal auditor can often be
used as a substitute for the work of the independent auditor’s staff.
B.the procedures performed by the internal audit staff may eliminate the independent
auditor’s need for an extensive study and evaluation of internal control.
C.the work performed by internal auditors may be a factor in determining the nature,
timing and extent of the independent auditor’s procedures.
D.the understanding of the internal audit function is an important substantive test to be
performed by the independent auditor.
Which of the following best describes the reason why an independent auditor reports on
financial statements?
A.A management fraud may exist and it is more likely to be detected by independent
auditors.
B.Different interests may exist between the company preparing the statements and the
parties using the statements.
C.A misstatement of account balances may exist and is generally corrected as the result
of the independent auditor’s work.
D.A poorly designed internal control system may be in place.
The date of the management representation letter should coincide with the:
A.date of the auditor’s report.
B.balance date.
C.date of the latest subsequent event referred to in the notes to the financial report.
D.date of the engagement letter.
Contributory negligence means that:
A.the plaintiff failed to meet the standards of care for their own protection and therefore
is responsible for part of their own loss.
B.only the audit partner who signed the audit report is liable for the damages.
C.all partners in an audit firm are liable for the damages.
D.although the auditor is able to claim contribution from other parties, the auditor is
liable to pay the full amount of the loss if the other parties are unable to pay.
Which of the following statements is true?
A.The risk that material misstatement will not be prevented or detected on a timely
basis by the internal control can be reduced to zero by effective control activities.
B.Cash is more susceptible to theft than an inventory of coal because it has a greater
inherent risk.
C.Detection risk is a function of the efficiency of an auditing procedure.
D.The existing levels of inherent risk, control risk and detection risk can be changed at
the discretion of the auditor.
Which of the following sampling methods would be used to estimate a numerical
measurement of population, such as a dollar value?
A.Stop-or-go sampling.
B.Attribute sampling.
C.Random-number sampling.
D.Variables sampling.
An audit establishes the conformity of assertions with specified criteria. In an audit of a
financial report, the criteria by which financial report assertions are judged are:
A.the Ethical Rules of Conduct.
B.Australian Auditing Standards.
C.Listing Rules of the Australian Securities and Investments Commission.
D.applicable accounting standards.
As a result of tests of controls, an auditor found that they had assessed control risk as
too low (their planned reliance on internal control was too high). This assessment
occurred because the deviation rate in the sample was:
A.more than the risk of assessing control risk too low based on the auditor’s sample.
B.more than the auditor’s planned deviation rate.
C.less than the risk of assessing control risk too low based on the auditor’s sample.
D.less than the auditor’s planned deviation rate.
Proper segregation of duties calls for separation of the:
A.authorisation, recording and custodial functions.
B.authorisation, execution and payment functions.
C.receiving, shipping and custodial functions.
D.authorisation, approval and execution functions.
Which of the following is not one of the fundamental principles of professional ethics
underlying an audit?
A.Objectivity.
B.Integrity.
C.Knowledge.
D.Confidentiality.
Assurance services would include which of the following?
A.Working with a client to develop a more efficient method of processing financial
transactions.
B.Preparing a report representing a client’s position during a tax audit.
C.Assisting a client in identifying potential sources of capital for potential acquisitions.
D.Providing an opinion concerning the accuracy of statements made on a client’s web
site.
The auditor’s judgment concerning the overall fairness of the presentation of financial
position, results of operations, and cash flows is applied within the framework of:
A. Australian Auditing Standards which include the concept of materiality.
B. quality control.
C. the identified reporting framework.
D. the auditor’s assessment of the audited entity’s level of control risk.
As the acceptable level of detection risk increases, an auditor may change the:
A.assessed level of control risk from less than high to high.
B.assurance provided by tests of controls by using a larger sample size than planned.
C.timing of substantive tests from year-end to an interim date.
D.nature of substantive tests from less effective to more effective procedures.
Audit working papers are used to record the results of the auditor’s evidence-gathering
procedures. When preparing working papers the auditor should remember that working
papers should be:
A.kept on the client’s premises so that the client can have access to them for reference
purposes.
B.the primary support for the financial report being audited.
C.considered as a part of the client’s accounting records that are retained by the auditor.
D.designed to meet the circumstances and the auditor’s needs on each engagement.
Which of the following is not a factor affecting the independent auditor’s judgment as to
the quantity, type and content of audit working papers?
A.The need, in the particular circumstances, for supervision and review of the work
performed by any assistants.
B.The nature and conditions of the client’s records and internal control.
C.The expertise of client personnel and their expected audit participation.
D.The type of financial report, schedules, or other information upon which the auditor
is reporting.
Professional standards relevant to operational auditing have been promulgated by all of
the following except the:
A.Institute of Internal Auditors.
B.Auditing and Assurance Standards Board.
C.Australian National Audit Office.
D.Australian Securities and Investments Commission.
The accuracy of information included in footnotes that accompany the audited financial
report of a company whose shares are traded on a stock exchange is the primary
responsibility of the:
A.independent auditor.
B.stock exchange officials.
C.Securities and Exchange Commission.
D.company’s management.
The value of an assurance service lies in its ability to:
A.improve information relevance and reliability.
B.report on the assurance process.
C.improve the consistency of information.
D.provide a professional service that is valued by the responsible party.
The primary purpose of sending a standard bank confirmation request to financial
institutions with which the client has done business during the year is to:
A.detect kiting activities that may otherwise not be discovered.
B.corroborate information regarding deposit and loan balances.
C.provide the data necessary to prepare a proof of cash.
D.request information about contingent liabilities and secured transactions.
Tiger wishes to recover in a common law action based upon fraud against an auditor,
Lion. With regard to an audit of the financial report, the plaintiff Tiger must prove,
among other things:
A.a contractual relationship between Lion and Tiger.
B.there was no contributory negligence by the client.
C.that there was a sale or purchase of securities within a six-month period that resulted
in a loss.
D.reliance on the financial report.
To conceal defalcations involving receivables, the auditor would expect an experienced
bookkeeper to most likely charge which of the following accounts?
A.Petty cash.
B.Miscellaneous income.
C.Sales returns.
D.Miscellaneous expenses.
A basic objective of an audit firm is to provide professional services to conform with
professional standards. Reasonable assurance of achieving this basic objective is
provided through:
A.continuing professional education.
B.a system of quality control.
C.compliance with ASX listing requirements.
D.a system of peer review.
Which of the following is not an aspect of the assurances provided by a WebTrust(TM)
report?
A.Business practices.
B.Product or service quality.
C.Transaction integrity.
D.Information protection.
The auditor is unable to reach a conclusion as to the reasonableness of management’s
representations. The auditor will have to consider issuing a(an):
A.qualified opinion because of inadequate disclosure.
B.qualified opinion because of uncertainty.
C.qualified opinion or an inability to provide an opinion.
D.adverse opinion.
Which of the following is true of generalised audit software?
A.They can be used on any computer without modification.
B.They can only be used in auditing on-line computer systems.
C.They enable the auditor to perform manual procedures related to tests of controls less
expensively.
D.They each have their own characteristics which the auditor must carefully consider
before using in a given audit situation.