Which of the following is not a medium that can normally be used by an auditor to
record information concerning a client’s internal control?
A.Narrative memorandum
B.Procedures manual
C.Flowchart
D.Decision table
Which of the following best describes an audit report on a supplementary financial
report prepared in accordance with a price-level basis of accounting that has substantial
support?
A.An unaudited report on a supplementary report.
B.An assurance report on a supplementary report.
C.A special purpose report on a supplementary report.
D.A limited assurance report on a supplementary report.
Which of the following procedures is least likely to be performed before the balance
date?
A.Observation of inventory.
B.Assessment of control risk for cash disbursements.
C.Search for unrecorded liabilities.
D.Confirmation of receivables.
Which of the following internal control features would an auditor be least likely to
review?
A.Segregation of the asset-handling and record-keeping functions.
B.Company policy regarding credit and collection efforts.
C.Sales and cost records classified by products.
D.Authorisation of additions to plant and equipment.
Which of the following analytical procedures should be applied to the income
statement?
A.Ascertain that the net income amount in the statement of cash flow agrees with the
net income amount in the income statement.
B.Select sales and expense items and trace amounts to related supporting documents.
C.Compare the actual revenues and expenses with the corresponding figures of the
previous year and investigate significant differences.
D.Obtain from the proper client representatives the beginning and ending inventory
amounts that were used to determine costs of sales.
An external auditor discovers that Stoneyhill Ltd occupies a building, for a nominal
rental, in a factory complex owned by a director. This finding indicates the existence of:
A.management fraud.
B.related-party transactions.
C.an illegal activity.
D.deficiencies in the internal control.
The ‘Pacific Acceptance’ case established that:
A.reasonable care and skill means following the Auditing Standards.
B.auditors have a duty to closely supervise and review the work of inexperienced audit
staff.
C.auditors are only liable for the proportion of damages attributable to their actions.
D.auditors have a duty of care only to the shareholders as a group.
All of the following are true for dollar-unit sampling except:
A.it is not necessary to estimate the standard deviation of the population.
B.large items have a higher probability of selection.
C.several account balances can be combined and treated as one sampling unit.
D.understated items have a lower probability of selection than they would otherwise.
In performing an assurance service, an auditor typically:
A.assesses control risk at a low level.
B.supplies litigation support services.
C.provides management consulting advice.
D.expresses a conclusion about an assertion.
One of the partners in your audit firm holds one per cent of the shares in an audit client.
This is not material to the partner’s wealth. This is a breach of:
A.APES 110.
B.The Corporations Act.
C.both APES 110 and the Corporations Act.
D.neither APES 110 nor the Corporations Act.
An auditor wishes to perform tests of controls on a client’s cash disbursements
procedures. If the control procedures leave no audit trail of documentary evidence, the
auditor most likely will test the procedures by:
A.inquiry and analytical procedures.
B.confirmation and observation.
C.observation and inquiry.
D.analytical procedures and confirmation.
Prior to the acceptance of an audit engagement with a client who has terminated the
services of the previous auditor, the proposed auditor should:
A.contact the previous auditor without advising the prospective client and request a
complete report of the circumstances leading to the termination with the understanding
that all information disclosed will be kept confidential.
B.accept the engagement without contacting the previous auditor since the proposed
auditor can include audit procedures to verify the reason given by the client for the
termination.
C.not communicate with the previous auditor because this would in effect be asking the
auditor to violate the confidential relationship between auditor and client.
D.advise the client of the intention to contact the previous auditor and request
permission for the contact.
Which of the following statements best describes internal auditing?
A.An activity located within an entity, primarily to detect fraud.
B.An accounting function located within an entity.
C.An activity located within an entity that determines the fiscal integrity of a financial
report.
D.An independent and objective assurance activity within an entity.
To test for unsupported entries in the ledger, the direction of audit testing should be
from the:
A.journal entries.
B.ledger entries.
C.original source documents.
D.externally-generated documents.
Which of the following material events occurring subsequent to the balance date would
require an adjustment to the financial report before it could be issued?
A.Issue of long-term debt or shares
B.Loss of a plant as a result of a flood
C.Major purchase of a business that is expected to double sales volume
D.Settlement of litigation, in excess of the recorded liability
The auditor is least likely to learn of retirements of equipment through which of the
following?
A.Review of depreciation calculations.
B.Review of the purchase returns and allowance account.
C.Review of insurance policy correspondence.
D.Analysis of the debits to the accumulated depreciation account.
In the examination of which of the following general ledger accounts will tests of
controls be particularly appropriate?
A.Loans payable.
B.Equipment.
C.Sales.
D.Bank charges.
A client erroneously recorded a large purchase twice. Which of the following tests of
control measures would be most likely to detect this error in a timely and efficient
manner?
A.Reconciling vendors’ monthly statements with subsidiary payable ledger accounts.
B.Footing the purchases journal.
C.Sending written quarterly confirmations to all vendors.
D.Tracing totals from the purchases journal to the ledger accounts.
An underlying feature of random selection of items is that each:
A.item in the accounting population be randomly ordered.
B.stratum of the accounting population be given equal representation in the sample.
C.item must be systematically selected using replacement.
D.item in the accounting population should have an opportunity to be selected.
Audit documentation prepared on audits of publicly-held clients is the property of the:
A.shareholders.
B.auditor.
C.management of the entity being audited.
D.ASIC.
An independent auditor finds that Hollow Pty Ltd occupies office space, at no charge,
in an office building owned by a shareholder. This finding indicates the existence of:
A.management fraud.
B.related-party transactions.
C.window dressing.
D.weak internal control.
Control of public expenditure is the responsibility of:
A.government.
B.parliament.
C.the Treasurer.
D.the relevant minister.
In providing ElderCare services, an auditor is likely to perform all the following
functions except:
A.directly receive income and pay bills and provide an accounting service for these
transactions.
B.observe and report on the quality of care provided to older individuals.
C.perform assurance-related procedures by inspecting logs or other evidence to support
that contracted services have been provided.
D.directly evaluate the quality of health-care services provided by physicians and other
medical caregivers.
An aged trial balance of accounts receivable is usually used by the auditor to:
A.verify the existence assertion for recorded receivables.
B.ensure that all accounts receivable are recorded (completeness assertion).
C.evaluate the results of tests of controls for the sales/accounts receivable system.
D.evaluate the provision for bad debts related to the valuation and allocation assertion.
At what levels can assurance be provided under the assurance services framework?
A.Reasonable assurance and limited assurance.
B.High assurance and reasonable assurance.
C.Assurance can be provided on a continuum from 0% to 100%.
D.Assurance can be provided on a continuum from absolute to limited.
An auditor most likely would make inquiries of production and sales personnel
concerning possible obsolete or slow-moving inventory to support management’s
account balance assertion of:
A.valuation and allocation.
B.rights and obligations.
C.existence.
D.completeness.
Internal accounting controls are not designed to provide reasonable assurance that:
A.transactions are executed in accordance with management’s authorisation.
B.embezzlement will be eliminated.
C.access to assets is permitted only in accordance with management’s authorisation.
D.the recorded accountability for assets is compared with the existing assets at
reasonable intervals.
The auditor generally gives most emphasis to ratio and trend analysis in the
examination of:
A.retained earnings.
B.income.
C.financial position.
D.cash flows.
According to the IIA Standards, the authority of the internal auditing department is
limited to that granted by:
A.senior management and the Internal Auditing Standards.
B.the board of directors and the financial controller.
C.the audit committee and the chief financial officer.
D.management and the board of directors.
Which of the following is not an assurance engagement?
A.A review of historical financial information.
B.An audit of the effectiveness of internal control.
C.A performance audit.
D.A consulting engagement to help an organisation meet its tax obligations.
In assessing sampling risk, the risk of incorrect rejection and the risk of assessing
control risk too high relate to the:
A.effectiveness of the audit.
B.efficiency of the audit.
C.audit quality controls.
D.selection of the sample.
Selected items from the payroll register are compared to employee time cards that have
been approved by supervisory personnel. Which of the following assertions for payroll
expense does this test?
A.Occurrence.
B.Completeness.
C.Accuracy.
D.Cutoff.