In a compliance audit, which of the following matters is the auditor primarily concerned
about?
A.Whether the financial report is fairly presented in accordance with the identified
financial reporting framework.
B.Whether the entity has achieved its stated objectives.
C.Whether the entity has followed relevant requirements applicable to it.
D.Whether the entity has operated in the most economic and efficient manner.
Which of the following is not a threat in a SWOT analysis?
A.Changing buyer tastes.
B.Additional regulatory requirements.
C.Rising sales of substitute products.
D.Diversifying into related products.
The court found that Casey, the auditor, had performed a negligent audit of Royal
Treatment Ltd, but the plaintiff did not receive damages because the court found
insufficient proof of causation. Causation means:
A.the auditor caused the misstatement of the financial report.
B.the auditor’s failure to perform a proper audit caused the damages.
C.the auditor was negligent, but the plaintiff suffered no real damages.
D.the plaintiff was an unforeseen third-party user of the financial report.
The property portfolio of Utopia Pty Ltd is stated at a value of $1 000 000 in excess of
its current market value. Utopia Pty Ltd is a non-reporting entity and does not apply the
provisions of AASB 1010 in the preparation of its financial report. The directors believe
that it would be inappropriate to write the properties down to market value as it is their
intention to hold the properties as a long-term investment and the properties will
eventually recover their value. The independent valuer agrees that the property will
eventually recover its full value. Sufficient appropriate audit evidence to support the
value of the property would include obtaining a letter of representation from
management confirming:
A.the directors’ intention to hold the property on a long-term basis, that the value of the
buildings is likely to increase in the long term and that the company is indeed a
non-reporting entity.
B.the directors’ intention to hold the property on a long-term basis and that the company
is indeed a non-reporting entity.
C.the intention to hold the property on a long-term basis.
D.the company is indeed a non-reporting entity.
When the auditor has assessed the level of control risk at less than high, the auditor
should document:
A.both that conclusion and the understanding of the entity’s internal control elements
obtained to plan the audit.
B.only that conclusion.
C.the conclusion and the basis for that conclusion.
D.the implications for the overall audit strategy.
The auditor’s responsibility for detection of an illegal act is the same as the auditor’s
responsibility for detection of an error when the illegal act:
A.creates a material contingent liability that must be disclosed.
B.involves financial matters such as embezzlement or violations of securities laws.
C.has a direct and material effect on the determination of a financial report amount.
D.has consequences material to the presentation and disclosure of financial position or
operating results.
Which of the following statements relating to the appropriateness of audit evidence is
always true?
A.Evidence gathered by an auditor from outside an enterprise is reliable.
B.Accounting data developed under a satisfactory internal control are more relevant
than data developed under unsatisfactory internal control conditions.
C.Oral representations made by management are not valid evidence.
D.Evidence gathered by auditors must be both valid and relevant to be considered
competent.
Peer reviews of public sector audit offices are normally directed by:
A.the Prime Minister/Premier.
B.the Treasurer/Minister for Finance.
C.public accounts committees.
D.specific legislative requirements.
Carmela Department Stores Ltd has a fully integrated IT accounting system and is
planning to issue credit cards to credit-worthy customers. To strengthen the internal
control by making it difficult for one to create a valid customer account number, the
company’s independent auditor has suggested the inclusion of a check digit that should
be placed:
A.at the beginning of a valid account number, only.
B.in the middle of a valid account number, only.
C.at the end of a valid account number, only.
D.consistently in any position.
An engagement to express an opinion on a system of internal accounting control will
generally:
A.increase the reliability of the financial report that has already been audited.
B.require procedures that duplicate those already applied in assessing control risk
during a financial report audit.
C.be more limited in scope than the assessment of control risk made during a financial
report audit.
D.be more extensive in scope than the assessment of control risk made during a
financial report audit.
In designing written audit programs, an auditor should establish specific audit
objectives that relate primarily to the:
A.cost-benefit of gathering evidence.
B.timing of audit procedures.
C.selected audit techniques.
D.financial report assertions.
To determine whether the internal control structure policies and procedures operated
effectively to minimise errors of failure to invoice a shipment, the auditor would select
a sample of transactions from the population represented by the:
A.bill of lading file.
B.customer order file.
C.sales invoice file.
D.subsidiary customer accounts ledger.
When outside firms of non-accountants specialising in the taking of physical
inventories are used to count, list, price and subsequently compute the total dollar
amount of inventory on hand at the date of the physical count, the auditor will
ordinarily:
A.make or observe some physical counts of the inventory, recompute certain inventory
calculations and test certain inventory transactions.
B.consider the report of the outside inventory-taking firm to be an acceptable
alternative procedure to the observation of physical inventories.
C.consider the reduced audit effort with respect to the physical count of inventory as a
scope limitation.
D.not reduce the extent of work on the physical count of inventory.
An input control is designed to ensure that:
A.machine processing is accurate.
B.only authorised personnel have access to the computer area.
C.data received for processing are properly authorised and converted to
machine-readable form.
D.electronic data processing has been performed as intended for the particular
application.
The specific performance criteria to be used in an operational audit are:
A.selected from existing relevant policy statements, manuals, laws, or regulations, or
are defined by the auditor for each operational audit.
B.defined in Australian Accounting Standards.
C.the same as the criteria used in evaluating the internal control structure in an
engagement to report on the internal control structure over financial reporting.
D.defined in Australian Auditing Standards.
Which of the following is most likely the first step an auditor will perform after
accepting an initial audit engagement?
A.Prepare a rough draft of the financial report and of the auditor’s report.
B.Assess control risk for the assertions embodied in the financial report.
C.Tour the client’s facilities and review the general records.
D.Consult with and review the work of the previous auditor prior to discussing the
engagement with the client management.
The public has turned to auditors to provide assurance services primarily because:
A.there is a need to develop new revenue streams for accounting firms.
B.the integrity and objectivity of auditors increases the public’s trust.
C.auditors have been proactive in identifying new types of assurance services to market
to customers.
D.audits do not provide reliable information for decision makers.
The audit inquiry letter to the client’s solicitor should be mailed only by the:
A.client after the auditor has reviewed it for appropriate content.
B.auditor after preparation by the client and review by the auditor.
C.auditor’s solicitor after preparation by the client and review by the auditor.
D.client after review by the auditor’s solicitor.
Which of the following is an example of a check digit?
A.An agreement of the total number of employees to the total number of cheques
printed by the computer.
B.An algebraically determined number produced by the other digits of the employee
number.
C.A logic test that ensures all employee numbers have nine digits.
D.A limit check that an employee’s hours do not exceed 50 hours per work week.
The auditor should assess the risk that errors and fraud may cause the financial report to
be materially misstated and, based on that assessment:
A.design the audit to provide reasonable assurance of detecting errors and fraud that are
material to the financial report.
B.plan the audit to search for errors or fraud that could be material to the financial
report.
C.perform the audit with an awareness that errors or fraud could occur and cause a
material misstatement of the financial report.
D.apply substantive tests to detect material misstatements except those perpetrated by
means of forgery or collusion.
If the auditor believes that there is minimal likelihood that resolution of an uncertainty
will have a material effect on the financial report, the auditor would issue a(an):
A.adverse opinion.
B.qualified opinion.
C.disclaimer of opinion.
D.unqualified opinion.
The extent of substantive tests for an assertion in relation to the assessed level of
inherent risk varies in a relationship that is ordinarily:
A.opposite.
B.inverse.
C.direct.
D.unequal.
Which of the following material events occurring subsequent to the 30 June 20X0
balance date would not ordinarily result in an adjustment of the amounts in the financial
reports before they are issued on 2 September 20X0?
A.Write-off a receivable from a debtor who filed for bankruptcy on 2 July 20X0.
B.Acquisition of a subsidiary on 23 July 20X0. Negotiations had begun in June of
20X0.
C.Settlement of extended litigation on 28 July 20X0 in excess of the recorded liability.
D.The finalisation of a loss of profits insurance claim on 28 August 20X0 in relation to
a fire that destroyed the factory on 15 June 20X0.
Which of the following procedures should not be used to obtain an understanding of the
entity and its environment?
A.Observe entity operations.
B.Re-perform entity processes.
C.Verify proper evaluation of inventory subject to technological obsolescence.
D.Review prior year’s audit documentation.
An assurance report on internal control structures is least likely to be issued as a result
of a:
A.review of the annual financial report of a large company.
B.performance audit of a government agency.
C.special study of related party transactions.
D.special study of a proposed system involving the internal control structure.
Which of the following sets of auditing standards are mandatory for an audit undertaken
in accordance with The Corporations Act (2001)?
A.The ASAs.
B.The ASAs and AGSs.
C.The ASAs, AGSs and AUSs.
D.The ASAs, AGSs, AUSs and ASREs.
Factors currently driving change in internal audit include all of the following, except
for:
A.the ability of internal audit to demonstrate its value-adding nature to an organisation.
B.the provision of a broader range of assurance services by the external auditor.
C.increased emphasis on corporate governance and business risk management.
D.the increased ability to benchmark against internal audit best practice.
An auditor concludes that there is a material inconsistency in the other information in
an annual report to shareholders containing an audited financial report. If the auditor
concludes that the financial report does require revision, but the client refuses to revise
or eliminate the material inconsistency, the auditor may:
A.consider the matter closed since the other information is not covered by the audited
financial report.
B.issue a qualified opinion after discussing the matter with the client’s board of
directors.
C.revise the auditor’s report to include an emphasis of matter paragraph describing the
material inconsistency.
D.disclaim an opinion on the financial report after explaining the material inconsistency
in a separate explanatory paragraph.
An auditor’s report issued in connection with which of the following is generally not
considered to be a special report?
A.Specified elements, accounts, or items of a financial report presented in a document.
B.Compliance with aspects of contractual agreements unrelated to audited financial
report.
C.Financial information presented in a prescribed schedule that requires a prescribed
form of auditor’s report.
D.Financial report prepared in accordance with an entity’s income tax basis.
Corporate governance procedures generally involve policies concerning which of the
following matters?
A.Compensation arrangements for senior management and non-executive directors.
B.Ensuring the board of directors is composed of persons with an appropriate mix of
skills and experience.
C.Nomination of and communication with the external auditors.
D.All of the given answers are correct.
Auditors who prefer statistical to non-statistical sampling believe that the principal
advantage of statistical sampling flows from its unique ability to:
A.provide a mathematical measurement of uncertainty.
B.define the precision required to provide audit satisfaction.
C.promote a more legally defensible procedural approach.
D.establish conclusive audit evidence with decreased audit effort.
When a contingency is resolved immediately subsequent to the issuance of a report
which was modified with respect to the contingency, the auditor should:
A.inform the audit committee that the report cannot be relied upon.
B.insist that the client issue a revised financial report.
C.inform the appropriate authorities that the report cannot be relied upon.
D.take no action regarding the event.