The essence of a financial report audit is to:
A.examine individual transactions so that the auditor may certify as to their validity.
B.detect fraud.
C.assure the consistent application of correct accounting procedures.
D.determine whether the client’s financial reports are fairly stated.
After obtaining an understanding of the internal control structure and assessing control
risk of an entity, an auditor decided not to perform tests of controls. The auditor most
likely decided that:
A.control risk should be assessed as low for key financial report assertions.
B.the available evidential matter obtained through tests of controls would not support
an assessment of control risk as high.
C.the assessed level of inherent risk exceeded the assessed level of control risk.
D.it would be inefficient to perform tests of controls given they would not result in
reduced substantive tests.
Which of the following is not an important consideration in an auditor’s evaluation of
an entity’s business risk?
A.The specific business risks an entity faces may result in financial report errors and
fraud.
B.Business risk factors impact the ability of the entity to be profitable and survive.
C.Audit standards include many entity business risk factors that identify circumstances
that increase the likelihood of material misstatements.
D.Audit standards require the auditor to evaluate the entity’s business risk in order to
provide suggestions to improve the entity’s profitability.
The primary purpose of establishing quality control policies and procedures for
deciding whether to accept a new client is to:
A.enable the audit firm to attest to the reliability of the client.
B.satisfy the audit firm’s duty to the public concerning the acceptance of new clients.
C.minimise the likelihood of association with clients whose management lacks
integrity.
D.anticipate before performing any field work whether an unqualified opinion can be
expressed.
Totals of amounts in computer-record data fields that are not usually added but are used
only for data-processing control purposes are called:
A.record totals.
B.hash totals.
C.processing data totals.
D.field totals.
Which of the following types of companies can only be used by an audit firm with the
consent of the National Council of the Institute of Chartered Accountants in Australia?
A.Nominee company.
B.Service company.
C.Practice company.
D.All of the given answers are correct.
In auditing accounts payable, an auditor’s procedures most likely would focus primarily
on management’s assertion of:
A.existence.
B.rights and obligations.
C.completeness.
D.valuation and allocation.
An auditor selecting a sample may use any of the following methods except:
A.haphazard selection.
B.stratified selection.
C.simple random selection.
D.block selection.
Financial reporting requirements for government departments/authorities are set by:
A.the Commonwealth Government.
B.the State Government.
C.local government.
D.all of the given answers are correct.
If auditors conducting attribute sampling found that the client deviated from a
prescribed control in 6 of the first 10 items examined, the auditor is most likely to:
A.increase the computed upper deviation rate.
B.increase sample size.
C.stop the test and increase control risk.
D.decrease the tolerable deviation rate.
A flowchart is most frequently used by an auditor in connection with the:
A.preparation of generalised computer audit programs.
B.review of the client’s internal accounting controls.
C.use of statistical sampling in performing an audit.
D.performance of analytical procedures on account balances.
Which of the following best describes the distinguishing feature of statistical sampling
compared with non-statistical sampling?
A.It provides a means for measuring mathematically the degree of uncertainty that
results from examining only part of a population.
B.It requires the examination of a smaller number of supporting documents.
C.It is evaluated in terms of two parameters: statistical mean and random selection.
D.It reduces the problems associated with the auditor’s judgment concerning
materiality.
This is your first audit of XYZ Ltd. During the initial planning you have discovered that
the client lacks receiving reports and a policy as to the timing to record purchases. You
have also observed that there are many adjusting entries to accounts payable, which is a
material balance. The audit assertion most at risk when auditing accounts payable is:
A.existence.
B.valuation and allocation.
C.completeness.
D.rights and obligations.
For control purposes, which of the following should be organisationally segregated
from the computer operations function?
A.Data conversion.
B.Surveillance of CRT messages.
C.Systems development.
D.Minor maintenance according to a schedule.
Which of the following situations would most likely require special audit planning by
the auditor?
A.Some items of factory and office equipment do not bear identification numbers.
B.Depreciation methods used on the client’s tax return differ from those used on the
books.
C.Assets costing less than $500 are expensed even though the expected life exceeds one
year.
D.Inventory is comprised of precious stones.
Which of the following is an example of teleological ethics?
A.Utilitarianism.
B.Justice.
C.The principle of beneficence.
D.Virtues.
Your audit client is a store that sells some of its own merchandise and some
merchandise held on consignment. Which account balance assertion for inventory
would you be most concerned about verifying?
A.Existence or occurrence.
B.Completeness.
C.Rights and obligations.
D.Valuation and allocation.
In auditing intangible assets, an auditor would determine whether the amortisation
amount is reasonable in support of management’s financial statement assertion of:
A.valuation and allocation.
B.existence.
C.completeness.
D.rights and obligations.
When undertaking tests of controls which are related to controls built around a major
transaction flow, which assertion would be of least interest to the auditor?
A.Occurrence.
B.Accuracy.
C.Cutoff.
D.Valuation or allocation.
To check the accuracy of the accounting records with regards to the recorded hours
worked, an auditor would ordinarily compare time clock cards with:
A.shop job time tickets.
B.personnel records.
C.time recorded in the payroll register.
D.labour variance reports.
At the end of the audit the auditor has two issues outstanding. The first is a
disagreement with those charged with governance concerning the use of an
inappropriate valuation method for inventory (LIFO). The second issue is significant
uncertainty as to whether the entity will continue as a going concern, which is
adequately disclosed in the notes to the accounts. What type of audit opinion should the
auditor express?
A.Qualified opinion with an ’emphasis of matter’.
B.Unqualified opinion.
C.Qualified opinion.
D.Unqualified opinion with an ’emphasis of matter’.
Analytical procedures used in planning an audit should focus on identifying:
A.material weaknesses in the internal control.
B.the predictability of financial data from individual transactions.
C.the various assertions that are embodied in the financial report.
D.areas that may represent specific risks relevant to the audit.
The auditor observes client employees in obtaining an understanding of the internal
control in order to:
A.prepare a flowchart.
B.update information contained in the organisation and procedure manuals.
C.corroborate the information obtained during the initial phases of obtaining an
understanding of the internal control.
D.determine the extent of compliance with quality control standards.
The cutoff assertion for accounts payable includes determining whether all accounts
payable are:
A.recorded at their correct amount.
B.actually are liabilities.
C.recorded in the proper period.
D.properly classified in the financial statements.
If, as a result of auditing procedures, an auditor believes that the client may have
committed illegal acts, which of the following actions should be taken immediately by
the auditor?
A.Consult with the client’s counsel and the auditor’s counsel to determine how the
suspected illegal acts will be communicated to the shareholders.
B.Extend normal auditing procedures to ascertain whether the suspected illegal acts
may have a material effect on the financial report.
C.Inquire of the client’s management and consult with the client’s legal counsel or other
specialists, as necessary, to obtain an understanding of the nature of the acts and their
possible effects on the financial report.
D.Notify each member of the audit committee of the board of directors about the nature
of the acts and request that they give guidance with respect to the approach to be taken
by the auditor.
When performing an audit, an auditor will most likely be considered negligent when
they fail to:
A.detect all of a client’s fraudulent activities.
B.include a negligence disclaimer in the client engagement letter.
C.warn a client of known internal control weaknesses.
D.warn a client’s customers of embezzlement by the client’s employees.
A state Auditor-General identifies a conflict between the professional auditing standards
and the legislation setting out the audit mandate. Which of the following is the proper
course of action?
A.Perform the audit in accordance with the professional auditing standards and report
the departure from the audit mandate.
B.Perform the audit in accordance with the legislation and in accordance with the
professional auditing standards to the extent that the latter are not inconsistent with the
audit mandate.
C.Perform the audit in accordance with the legislation and disregard the professional
auditing standards in their entirety.
D.Seek clarification from the Commonwealth Auditor-General.
Sam Shoe, an auditor, is planning substantive tests of additions to property. There are
75 additions and he plans to vouch all those over $10 000, of which there are 15, and
apply analytical tests to the remaining balance. The audit approach may be described
most precisely as:
A.non-statistical sampling.
B.audit sampling.
C.statistical sampling.
D.none of the given answers are correct.
Dual-purpose testing involves the auditor selecting transactions and:
A.testing the transactions to provide direct evidence of both controls and substantive
matters.
B.undertaking substantive tests of transactions and balances.
C.testing the transactions to ensure they are recorded at all stages of the audit trial.
D.testing for both the completeness and occurrence assertions.
The Corporations Act 2001 requires the auditor to report on certain matters only on an
exception basis. This means that the auditor need only report particulars of any
deficiency, failure or shortcoming in respect of these matters. Which of the following
matters should not be reported on an exception basis?
A.Whether the financial report provides a true and fair view.
B.Whether the auditor has been given all the information and assistance necessary for
the conduct of the audit.
C.Whether the company has kept financial records sufficient to enable a financial report
to be prepared and audited.
D.Whether the company has kept registers required by the Act.