After the auditor has prepared a flowchart of the accounting system and control
procedures surrounding sales, and assessed the design of the system, the auditor would
perform tests of controls for all control procedures:
A.documented in the flowchart.
B.considered to be deficiencies that might allow errors to enter the accounting system.
C.considered to be strengths that the auditor plans to use as a basis for an assessed level
of control risk less than high.
D.that would aid in preventing irregularities.
Most of the independent auditor’s work in formulating an opinion on a financial report
consists of:
A.obtaining an understanding of the internal control.
B.obtaining and examining audit evidence.
C.examining cash transactions.
D.comparing recorded accountability with assets.
The stage(s) of the accounting process of primary interest to the auditor is(are):
A.collection of original accounting data.
B.allocation and reclassification of accounting data.
C.presentation of accounting data in the financial report.
D.all of the given answers are correct.
An auditor examining inventory may appropriately apply sampling for attributes in
order to estimate the:
A.percentage of slow-moving inventory items.
B.average price of inventory items.
C.physical quantity of inventory items.
D.dollar value of inventory.
An auditor should perform alternative procedures to substantiate the existence of an
accounts receivable when:
A.no reply to a negative confirmation request is received.
B.no reply to a positive confirmation request is received.
C.pledging of the receivable is probable.
D.collectibility of the receivable is in doubt.
Tracing shipping documents to prenumbered sales invoices provides evidence that:
A.no duplicate shipments or billings occurred.
B.shipments to customers were properly invoiced.
C.all goods ordered by customers were shipped.
D.all prenumbered sales invoices were accounted for.
Major issues confronting internal audit include the following, except for:
A.the difficulties of changing the profile of internal audit with regards to image and
status.
B.the outsourcing of internal audit.
C.an increase in the expectation gap between what internal auditors believe they should
do and what financial report users believe internal auditors should do.
D.the advent of specialised audit groups.
In the context of agency theory, information asymmetry refers to the idea that:
A.information can vary in its reliability.
B.information can vary in its relevance.
C.management has more information about the entity’s true financial position than do
the absentee owners.
D.management will not act in the best interests of the absentee owners.
When reviewing a loan agreement to ascertain whether the bank’s security over any of
the client’s assets has been included in the financial report, the audit assertion being
achieved is:
A.valuation and allocation.
B.completeness.
C.rights and obligations.
D.presentation and disclosure – completeness.
Which of the following is not a principle of professional conduct as defined by APES
110?
A.Integrity.
B.Professional competence and due care.
C.Reporting.
D.Professional behaviour.
Sam Cullen, the audit firm’s personnel partner, periodically studies the audit firm’s
personnel advancement to ascertain whether individuals meeting stated criteria are
assigned increased degrees of responsibility. This is evidence of the audit firm’s
adherence to prescribeD.
A.standards of due professional care.
B.supervision and review standards.
C.quality control standards.
D.standards of fieldwork.
The independence of internal auditors is achieved through:
A.continuing education and due professional care.
B.staffing and supervision.
C.organisational status and objectivity.
D.human relations and communications
The report in a limited assurance engagement provides:
A.positive assurance.
B.negative assurance.
C.a summary of findings.
D.assurance in the form of an audit opinion.
Dual-purpose tests’ is a term used for:
A.tests of controls that address both the design of the control procedures and their
operating effectiveness.
B.tests of transactions that include substantive procedures as well as tests of controls.
C.tests that address both balances and transaction classes.
D.tests performed because of client expectations as well as for gathering audit evidence.
It is NOT a primary purpose of a performance audit to provide:
A.a means of assurance that internal controls are functioning as planned.
B.a measure of management performance in meeting organisation goals.
C.the results of internal examinations of financial and accounting matters to a
company’s top-level management.
D.an aid to the external auditor who is conducting the examination of the financial
report.
Projection of sample results is required in evaluation of:
A.all audit samples, both statistical and non-statistical.
B.all statistical samples.
C.all audit tests, whether sampling is being performed or not.
D.non-statistical audit samples only.
The following statements were made in a discussion of audit evidence between two
auditors. Which statement is not valid concerning audit evidence?
A.’I am seldom convinced beyond all doubt with respect to all aspects of the reports
being examined.’
B.’I would not undertake that procedure because at best the results would only be
persuasive and I’m looking for convincing evidence.’
C.’I evaluate the degree of risk involved in deciding the kind of evidence I will gather.’
D.’I evaluate the usefulness of the evidence I can obtain against the cost of obtaining it.’
Which of the following statements concerning audit evidence is correct?
A.Competent evidence supporting management’s assertions should be convincing rather
than persuasive.
B.An effective internal control contributes little to the reliability of the evidence created
within the entity.
C.The cost of obtaining evidence is not an important consideration to an auditor in
deciding what evidence should be obtained.
D.A client’s accounting data cannot be considered sufficient audit evidence to support
the financial report.
The understanding between the client and the auditor as to the degree of responsibility
to be assumed by each are normally set forth in a(an):
A.representation letter.
B.engagement letter.
C.management letter.
D.comfort letter.
In general, material frauds perpetrated by which of the following are most difficult to
detect?
A.Internal auditor
B.Keypunch operator
C.Cashier
D.Financial Controller
Which of the following audit objectives relates primarily to the financial report
assertion, rights and obligations?
A.Inventories are properly classified in the balance sheet as current assets.
B.Inventories exclude items billed to customers or owned by others.
C.Slow-moving, excess, defective and obsolete items included in inventories are
properly identified.
D.Inventory quantities include all products, materials and supplies owned by the
company.
A typical objective of a performance audit is for the auditor to:
A.determine whether the financial report presents the entity’s operations fairly.
B.evaluate the feasibility of attaining the entity’s operational objectives.
C.make recommendations for improving performance.
D.report on the entity’s relative success in attaining profit maximisation.
An auditor is independent if s/he is:
A.intelligent.
B.independent in fact and in appearance.
C.independent in fact and honest.
D.logical and consistent.
Which of the following procedures is not included in a review engagement?
A.Inquiries regarding events subsequent to the end of the financial period under
consideration.
B.Inquiries of management.
C.A study and evaluation of internal control.
D.Any procedures designed to identify relationships among data that appear to be
unusual.
During the process of confirming receivables as of 30 June 20X1, a positive
confirmation was returned indicating the ‘balance owed as of 30 June was paid on 9
July 20X1.’ The auditor would most likely:
A.determine whether a customary trade discount was taken by the customer.
B.determine whether there were any changes in the account between 1 July and 9 July
20X1.
C.verify that the amount was received.
D.reconfirm the zero balance as of 9 July 20X1.
In comparison to the external financial report auditor, an internal auditor is more likely
to be concerned with:
A.internal administrative procedures.
B.cost accounting procedures.
C.compliance auditing.
D.internal control.
Assessing control risk at a level below high most likely would involve:
A.identifying specific internal controls relevant to specific assertions.
B.changing the timing of substantive tests by omitting interim testing and performing
the tests at year-end.
C.reducing inherent risk for most of the assertions relevant to significant account
balances.
D.performing more extensive substantive tests with larger sample sizes than originally
planned.
The auditor accepts an account balance as not materially misstated if the evaluation of a
sample results in:
A.projected total error greater than tolerable error.
B.projected total error less than tolerable error.
C.tolerable error greater than expected error.
D.tolerable error less than expected error.
In the weekly computer run to prepare payroll cheques, a cheque was printed for an
employee who had been terminated the previous week. Which of the following controls,
if properly utilised, would have been most effective in preventing the error or ensuring
its prompt detection?
A.A control total for hours worked, prepared from time cards collected by the
timekeeping department.
B.Requiring the treasurer’s office to account for the numbers of the prenumbered
cheques issued to the IT department for the processing of the payroll.
C.Use of a check digit for employee numbers.
D.Use of a header label for the payroll input sheet.
Engagement letters include all of the following except:
A.a list of additional services that will be provided.
B.a list of adjusting journal entries.
C.information about the audit fee.
D.arrangements involving the use of specialists.
An auditor’s report on a comparative financial report should be dated as of the date of
the:
A.completion of the auditor’s recent field work.
B.issuance of the report.
C.last subsequent event disclosed in the statements.
D.latest financial statements being reported on.
Certain circumstances, while not affecting the auditor’s unqualified opinion on the
financial report, may require the auditor to add an emphasis of matter paragraph to the
report. These circumstances include all of the following except where:
A.there is significant uncertainty about the entity’s ability to continue as a going
concern.
B.the entity is facing significant litigation.
C.additional information accompanying the financial report is inconsistent.
D.there is a matter involving a significant uncertainty that is not adequately disclosed.
Which of the following bodies monitors the operation of the Auditing and Assurance
Standards Board?
A.Financial Reporting Council.
B.Companies Auditors and Liquidators Disciplinary Board.
C.Australian Stock Exchange.
D.All of the given answers are correct.