Which of the following forms of advertising is permissible?
A.Advertising that indicates the auditor’s educational and professional attainments.
B.Advertising that implies the ability to influence a court.
C.Advertising that claims to be able to save the taxpayer 20 per cent of a determined tax
liability.
D.Advertising that creates unjustified expectations of favourable results.
An auditor’s report on a financial report prepared in accordance with another
comprehensive basis of accounting which meets the definition of suitable criteria
should include all of the following except:
A.an opinion as to whether the financial statements are presented fairly in conforming
with the other comprehensive basis of accounting.
B.an opinion as to whether the basis of accounting used is appropriate under the
circumstances.
C.a statement that the basis of presentation is a comprehensive basis of accounting
other than generally accepted accounting principles.
D.reference to the note to the financial statements that describes the basis of
presentation.
Independent auditors perform audits on the financial reports of public companies. This
type of auditing can best be described as:
A.a discipline that assures financial information presented by management.
B.an activity whose purpose is to search for irregularities.
C.a regulatory function that prevents the issuance of improper financial information.
D.a professional activity that measures and communicates financial and business data.
Linda’s preliminary audit plan for Solar Ltd states that planning materiality is set at 1
per cent of total assets. This planning materiality amount:
A.needs to be used for evaluation at the end of the engagement to judge the overall
presentation of the financial report because that was the level used to set the scope of
testing.
B.should not be revised in mid-audit except in unusual circumstances, and the audit
planning procedures and documentation will need to be redone.
C.may be revised based on the results of audit tests and new information as the audit
progresses, and the auditor’s approach in evaluation at the completion of the audit may
be considerably different.
D.is appropriate for planning, but the evaluation materiality amount must be based on a
percentage of revenue.
Which interpretation of the phrase ‘true and fair’ receives greater emphasis in meeting
current reporting responsibilities?
A.The literal interpretation
B.Both the technical and literal interpretation
C.’True and fair’ is not interpreted but is defined in the Corporations Act 2001.
D.The technical interpretation
Which one of the following statements is correct concerning the concept of materiality?
A.Materiality is determined by reference to guidelines established by ASIC.
B.Materiality depends only on the dollar amount of an item relative to other items in the
financial report.
C.Materiality depends on the nature of an item rather than the dollar amount.
D.Materiality is a matter of professional judgment.
In auditing the purchases system, an auditor vouches a sample of entries in the voucher
register (accounting records) to the supporting documents. Which assertion would this
test of controls most likely support?
A.Completeness.
B.Occurrence.
C.Accuracy.
D.Classification.
Selecting high dollar value items is:
A.not appropriate in audit sampling but is often a good evidence collection technique.
B.never appropriate in performing audit procedures under Australian auditing standards.
C.appropriate only for statistical audit samples.
D.generally a useful and efficient method for all audit tests.
An audit program should be designed for each individual audit and should include audit
steps and procedures to:
A.ensure only material items are audited.
B.detect and eliminate all fraud.
C.increase the amount of management information available.
D.provide assurances that the objectives of the audit are met.
In obtaining an understanding of the internal control policies and procedures that are
relevant to audit planning, the auditor should perform procedures to provide sufficient
knowledge of:
A.design of the relevant policies, procedures and records and their operating
effectiveness.
B.design of the relevant policies, procedures and records and their relationships to
assertions.
C.the complexity of the entity and the sophistication of its systems and operations.
D.design of the relevant policies, procedures and records and whether they have been
placed in operation.
Reviewing interest expense to examine payments to debt-holders not listed on the debt
analysis schedule is a procedure that can be used to provide evidence for which audit
assertion for loans payable:
A.Occurrence.
B.Completeness.
C.Cutoff.
D.Accuracy.
Which of the following is not among the errors that an auditor might include in the test
data when auditing a client’s IT system?
A.Authorisation code.
B.Numeric characters in alphanumeric fields.
C.Illogical entries in fields whose logic is tested by programmed consistency checks.
D.Differences in description of units of measure.
Which of the following procedures would an auditor most likely perform to verify
management’s assertion of completeness?
A.Compare a sample of shipping documents to related sales invoices.
B.Observe the client’s distribution of payroll checks.
C.Confirm a sample of recorded receivables by direct communication with the debtors.
D.Review standard bank confirmations for indications of kiting.
The primary responsibility for the adequacy of disclosures in the financial report of a
publicly held company rests with the:
A.management of the company.
B.partner assigned to the audit engagement.
C.Securities and Exchange Commission.
D.auditor in charge of the field work.
Which of the following aspects does not help ensure organisational independence of
internal audit?
A.The board of directors or audit committee being required to approve the removal of
the head of Internal Audit.
B.Reporting to the board of directors or audit committee.
C.External audit coordinating their work more closely with internal audit.
D.Management being kept informed of internal audit work schedules and budget
requirements.
Which of the following audit procedures is least likely to detect an unrecorded liability?
A.Analysis and recomputation of depreciation expense.
B.Analysis and recomputation of interest expense.
C.Reading of the minutes of meetings of the board of directors.
D.Analysis of response to a bank confirmation request.
Which of the following will best promote the independence of the internal auditing
function?
A.Direct lines of communication between the audit committee and the director of
internal auditing.
B.A quality control system within the internal auditing function designed to ensure that
departmental objectives are met.
C.Direct reporting responsibilities to the entity’s chief financial officer.
D.A review of the internal audit function by the external auditor.
Walk-throughs usually involve all of the following audit procedures except:
A.reperformance.
B.inquiry.
C.observation.
D.inspection.
Why should the public sector performance auditor be concerned with avoiding
commenting on government policy?
A.Any comment will undermine the public’s confidence in the government of the day.
B.Government policy does not affect the performance of the entity.
C.The merits of government policy are matters for political debate and for decision by
the executive government.
D.A risk may arise in that the official opposition will use the audit report to criticise the
government.
Which of the following factors does an auditor generally most need to consider in
planning a particular audit sample for a test of controls?
A.Total dollar amount of the items to be sampled
B.Number of items in the population
C.Risk of assessing control risk too high
D.Risk of assessing control risk too low
For an engagement in which the auditor performs a set of agreed-upon procedures, the
auditor should do any of the following except:
A.discuss the procedures with a representative of the users.
B.compare the procedures to be applied to the specified users’ written requirements.
C.review contracts or correspondence from the specified users.
D.perform the same set of procedures as would be applied in an audit.
Common law requires that the auditor:
A.guarantees their work.
B.performs work with due care.
C.discovers all fraud.
D.checks all transactions.
AUS 108, ‘Framework for Assurance Engagements’, does not provide guidance for
which of the following services?
A.Audits of historical financial information.
B.Reviews of historical financial information.
C.Agreed-upon procedures engagements related to historical financial information.
D.A limited assurance engagement of effectiveness of internal controls.
As the acceptable level of detection risk decreases, the assurance directly provided
from:
A.substantive tests should increase.
B.substantive tests should decrease.
C.tests of controls should increase.
D.tests of controls should decrease.
If the auditor considers an illegal act to be sufficiently serious to warrant withdrawing
from the engagement, then the auditor should:
A.notify all parties who may rely upon the company’s illegal act.
B.consult with legal counsel as to what other action, if any, should be taken.
C.return all incriminating evidence and working papers to the client’s audit committee
for follow-up.
D.contact the successor auditor to make the successor aware of the possible
consequences of relying on management’s representations.
An auditor reconciles the total of the accounts receivable subsidiary ledger to the
general ledger control account, as of 31 October 20X0. By this procedure, the auditor
would be most likely to learn of which of the following?
A.An October cheque from a customer was posted in error to the account of another
customer with a similar name.
B.An October invoice was improperly computed.
C.An account balance is past due and should be written off.
D.An opening balance in a subsidiary ledger account was improperly carried forward
from the previous accounting period.
The primary factor that distinguishes errors from fraud is whether the:
A.underlying cause of misstatement relates to the misapplication of accounting
principles or to clerical processing.
B.misstatement is perpetrated by an employee or by a member of management.
C.the underlying cause of a misstatement is intentional or unintentional.
D.misstatement is concealed.
Which of the following elements of the internal control includes the internal audit
function?
A.Risk assessment.
B.Information system.
C.Monitoring.
D.Control procedures.
Which of the following statements is correct?
A.The auditor measures and records accounting data.
B.The auditor prepares the financial report.
C.The auditor analyses and reviews accounting data.
D.The auditor posts adjusting journal entries for errors uncovered as part of the audit.
Which of the following explanations might satisfy an auditor who discovers significant
debits to an accumulated depreciation account?
A.Prior years’ depreciation charges were erroneously understated.
B.There were numerous fixed asset retirements during the year.
C.There were numerous fixed asset purchases during the year.
D.A reserve for possible loss on retirement has been recorded.
Which of the following is not one of the five elements of internal control?
A.Corporate governance.
B.Control procedures.
C.Control environment.
D.Information system.
The best description of internal auditing is that it:
A.certifies the reliability and integrity of financial and operating information.
B.furnishes management with information needed to effectively discharge its
responsibilities.
C.appraises the economy and efficiency with which resources are used.
D.reviews the means of safeguarding assets and verifies the existence of those assets.
When an auditor is approached to perform an audit for the first time, the auditor should
make inquiries of the previous auditor. This is a necessary procedure because the
predecessor may be able to provide the successor with information that will assist the
successor in determining whether the:
A.predecessor’s work should be utilised.
B.company follows the policy of rotating its auditors.
C.predecessor’s assessment of control risk has been high.
D.engagement should be accepted.