The auditor of Shakey Ltd has serious doubts that the entity will continue as a going
concern. There is adequate disclosure of this significant uncertainty in the notes to the
financial report. The uncertainty is the result of a single factor affecting the client. What
type of audit opinion should the auditor express?
A.Disclaimer of opinion.
B.Qualified opinion.
C.Adverse opinion.
D.Unqualified opinion with an emphasis of matter paragraph.
An auditor establishes quality control policies and procedures for deciding whether to
accept a new client or continue to perform services for a current client. The primary
purpose for establishing such policies and procedures is to:
A.comply with the quality control standards established by regulatory bodies.
B.enable the auditor to attest to the integrity or reliability of a client.
C.minimise the likelihood of association with clients whose management lacks
integrity.
D.lessen the exposure to litigation resulting from failure to detect irregularities in the
client’s financial report.
Which of the following is required in order to be a member of the Forum of Firms?
A.Member firms must subject themselves to global peer review.
B.Member firms must perform audits of financial reports that may be used across
national borders.
C.Member firms must conform to the Forum of Firms Quality Standards.
D.All of the given answers are correct.
When a client declines to include a statement of cash flows in its financial report, the
audit report will usually:
A.include a separate paragraph which summarises the company’s financing and
investing activities.
B.contain either a qualified or adverse opinion because of inadequate disclosure.
C.refer to the scope limitation.
D.contain either a qualified opinion or a disclaimer of opinion on the basis of the
uncertainty caused by this disagreement with those charged with governance.
In which of the following circumstances would an adverse opinion be appropriate?
A.An uncertainty prevents the issuance of an unmodified report.
B.The auditor is not independent with respect to the enterprise being audited.
C.A client-imposed scope limitation prevents the auditor from complying with the
auditing standards.
D.The financial report is prepared on the going concern basis when it is not appropriate.
The major distinguishing feature between an agreed-upon procedures engagement and
an assurance engagement is that:
A.an agreed-upon procedures engagement can only provide limited assurance whereas
an assurance engagement can provide either reasonable or limited assurance.
B.the report for an agreed-upon procedures engagement outlines the procedures
undertaken, while it does not for an assurance engagement.
C.testing of internal controls is not undertaken in an agreed-upon procedures
engagement, while it is undertaken in an assurance engagement.
D.the auditor has the ability to select the appropriate evidence gathering procedures in
response to assessed risks for an assurance engagement but not for an agreed-upon
procedures engagement.
In planning an audit engagement, which of the following is a factor that affects the
independent auditor’s judgment as to the quantity, type and content of working papers?
A.The estimated occurrence rate of attributes.
B.The preliminary evaluations based upon initial substantive testing.
C.The content of the client’s representation letter.
D.The anticipated nature of the auditor’s report.
When audited financial statements are presented in a document containing other
information, the auditor:
A.has an obligation to perform auditing procedures to corroborate the other
information.
B.is required to issue a qualified opinion if the other information has a material
misstatement of fact.
C.should read the other information to consider whether it is inconsistent with the
audited financial statements.
D.has no responsibility for the other information because is not part of the basic
financial statements.
An advantage of using statistical over non-statistical sampling methods in tests of
controls is that the statistical methods:
A.provide an objective basis for quantitatively evaluating sampling risk.
B.afford greater assurance than a non-statistical sample of equal size.
C.eliminate the need to use judgment in determining appropriate sample sizes.
D.can more easily convert the sample into a dual-purpose test useful for substantive
testing.
Which of the following procedures most likely would provide an auditor with evidence
about whether an entity’s internal control activities are suitability designed to prevent or
detect material misstatements?
A.Performing analytical procedures using data aggregated at a high level.
B.Re-performing the controls for a sample of transactions.
C.Observing the entity’s personnel applying the controls.
D.Vouching a sample of transactions directly related to the controls.
It is important for the auditor to consider the competence of the audit clients’ employees
because their competence bears directly and importantly upon the:
A.cost-benefit relationship of the internal control.
B.achievement of the objectives of internal control.
C.comparison of recorded accountability with assets.
D.timing of the tests to be performed.
The mandatory continuing professional education (CPE) requirement for members of
The Institute of Chartered Accountants in Australia is:
A.120 CPE hours every year.
B.120 CPE hours every 3 years.
C.60 CPE hours every 3 years.
D.60 CPE hours every year.
In applying variables sampling, an auditor attempts to:
A.determine various rates of occurrence for specified attributes.
B.estimate a qualitative characteristic of interest.
C.predict a monetary population value within a range of precision.
D.discover at least one instance of a critical deviation.
Which of the following statements can be considered a function of an audit committee?
A.Overseeing the application of appropriate accounting policies and procedures to
ensure appropriate disclosure.
B.Appointing the external auditor.
C.Preparing the financial report for audit.
D.Making decisions regarding the purchase of company assets.
Which of the following procedures most likely would be included as part of an auditor’s
tests of controls?
A.Reconciliation.
B.Inspection.
C.Analytical procedures.
D.Confirmation.
The use of analytical procedures as a substantive test will be limited if:
A.detection risk is assessed as high.
B.inherent risk is assessed as low.
C.control risk is assessed as high.
D.audit risk is assessed as low.
To help ensure adherence to the principles of independence, integrity, objectivity,
confidentiality and professional behaviour, your firm requires written representations
from professional personnel. Ordinarily, these would be required:
A.only on commencement of employment.
B.each year for all professional staff.
C.each time a new client is obtained.
D.only once they have qualified as a member of CPA Australia or the ICAA.
Audit evidence can come in different forms with different degrees of persuasiveness.
Which of the following is the least persuasive type of evidence?
A.Documents mailed by outsiders to the auditor.
B.Correspondence between auditor and suppliers.
C.Sales invoices inspected by the auditor.
D.Computations made by the auditor.
Which of the following is a non-financial performance measure?
A.Warranty rates
B.Return on investment
C.Net profit
D.Sales
Tracing from a sample of remittance advices to entries in the cash receipts journal tests
which of the following assertions for cash?
A.Occurrence.
B.Completeness.
C.Authorisation.
D.Cutoff.
In pursuing its quality control objectives with respect to acceptance of a client, an audit
firm is not likely to:
A.make inquiries of the proposed client’s legal adviser.
B.review financial reports of the proposed client.
C.make inquiries of previous auditors.
D.review the personnel practices of the proposed client.
Which of the following factors will least affect the independent auditor’s judgment as to
the quantity, type and content of working papers desirable for a particular engagement?
A.Nature of the auditor’s report.
B.Nature of the financial report, schedules, or other information upon which the auditor
is reporting.
C.Need for supervision and review.
D.Number of personnel assigned to the audit.
An auditor reviews the credit ratings of customers with overdue outstanding accounts
receivable balances. The auditor’s most likely purpose is to obtain evidence concerning
management’s assertions about:
A.valuation and allocation.
B.completeness.
C.existence.
D.rights and obligations.
An auditor will ordinarily examine invoices from solicitors primarily in order to:
A.Substantiate accruals.
B.Assess the legal ramifications of litigation in progress.
C.Estimate the dollar amount of contingent liabilities.
D.Identify possible unasserted litigation, claims and assessments.
The auditor is least likely to use generalised audit software to:
A.access information stored on the client’s IT files.
B.perform analytical procedures on the client’s data.
C.test the accuracy of the client’s computations.
D.identify weaknesses in the client’s IT controls.
Privity is:
A.a duty in contract arising from an agreement between the parties.
B.flagrant or reckless departure from the standard of due care.
C.the duty of due care and skill owed to a client.
D.a breach of an implied obligation.
Which of the following accounts should be reviewed as part of the auditor’s testing of
the completeness assertion for property, plant, and equipment?
A.Accounts payable.
B.Depreciation.
C.Repairs and maintenance.
D.Cash.
Management’s refusal to furnish a written representation on a matter that the auditor
considers essential constitutes:
A.prima facie evidence that the financial report is not presented fairly.
B.a violation of the Corporations Act.
C.an uncertainty sufficient to preclude an unqualified opinion.
D.a scope limitation sufficient to preclude an unqualified opinion.
Under APES 110, a member may not:
A.be a member of the same club as any directors.
B.perform bookkeeping services for an audit client.
C.perform advisory services for an audit client.
D.have any joint, closely held investment with a principal shareholder of an audit client
during the period of the audit engagement.
Purchase cut-off procedures should be designed to test whether or not all inventory:
A.on the statement of financial position was carried at lower of cost or market.
B.purchased and received before the year-end was recorded at year-end.
C.owned by the company is in the possession of the company.
D.on the year-end statement of financial position was paid for by the company.
The basic elements of the auditor’s standard report for a Corporations Act 2001audit
include all of the following except a:
A.title that includes the word ‘independent’
B.statement that the financial report is the responsibility of the company’s directors
C.statement that accounting estimates are reasonable, but that there will normally be
differences between estimated and actual results
D.statement that an audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial report
Which of the following bodies monitors the operation of the Australian Accounting
Standards Board?
A.Australian Stock Exchange.
B.Financial Reporting Council.
C.Australian Securities and Investments Commission.
D.Auditing and Assurance Standards Board.