In reporting performance audit findings, why does an auditor evaluate evidence against
criteria?
A.To ensure reasonable criteria have been established.
B.To develop conclusions relative to the audit objectives.
C.To develop the audit scope.
D.To determine risk.
The financial report of Quick Buck Ltd indicates that there may be some going concern
problems. However, the auditor concludes, based on mitigating factors, that the client
will most likely continue as a going concern during the next year. The mitigating factors
are adequately disclosed in the accounts. What type of audit opinion should the auditor
express?
A.Disclaimer of opinion.
B.Unqualified opinion.
C.Qualified or adverse opinion.
D.Unqualified opinion with an ’emphasis of matter’ paragraph.
As the acceptable level of detection risk decreases, an auditor may change the:
A.timing of substantive tests by performing them at an interim date rather than at
year-end.
B.nature of substantive tests from less effective to more effective procedures.
C.timing of tests of controls by performing them at several dates rather than at one time.
D.assessed level of inherent risk to a higher amount.
For which of the following audit tests would an auditor most likely use attribute
sampling?
A.Examining invoices in support of the valuation of fixed asset additions.
B.Making an independent estimate of the amount of FIFO inventory.
C.Inspecting employee time cards for proper approval by supervisors.
D.Selecting accounts receivable balances for confirmation.
In pursuing the audit firm’s quality control objectives, the firm may maintain records
indicating which partners or employees of the firm were previously employed by the
firm’s clients. Which quality control objective would this be most likely to satisfy?
A.Professional relationship
B.Supervision
C.Independence
D.Advancement
In order to efficiently test the purchases/accounts payable cut-off, an auditor will be
most likely to:
A.compare cut-off reports with purchase orders.
B.coordinate cut-off tests with physical inventory observation.
C.coordinate mailing of confirmations with cut-off tests.
D.compare vendors’ invoices with vendors’ statements.
After obtaining an initial understanding of a client’s IT controls, an auditor may decide
not to perform tests of controls related to the control procedures within the IT portion of
the client’s internal control. Which of the following would not be a valid reason for
choosing to omit tests of controls?
A.The controls appear adequate.
B.The controls duplicate operative controls existing elsewhere in the system.
C.There appear to be major deficiencies that would preclude using the stated procedure
as a basis to reduce the assessed level.
D.The time and dollar costs of testing exceed the time and dollar savings in substantive
testing if the tests of controls show the controls to be operative.
Due professional care does not require:
A.critical review at every level of supervision of work done and judgment exercised.
B.good faith and integrity.
C.appointment of the auditor by the shareholders.
D.compliance with the auditing standards.
Which of the following is a distinguishing feature between statistical sampling and
non-statistical sampling?
A.Stratification.
B.The use of random sampling to select the sample items.
C.Allowing every item in the population a chance of selection.
D.Definition of the population.
Which of the following conditions or events most likely would cause an auditor to have
substantial doubt about an entity’s ability to continue as a going concern?
A.Cash flows from operating activities are negative.
B.Research and development projects are postponed.
C.Significant related-party transactions are pervasive.
D.Share dividends replace annual cash dividends.
When a client will not make essential corporate minutes available to the auditor, the
audit report will probably contain a(an):
A.Disclaimer of opinion.
B.Unqualified opinion.
C.Unqualified opinion with an emphasis of matter.
D.Qualified opinion.
An auditor’s report on agreed-upon procedures related to management’s report about an
entity’s compliance with specified requirements should contain:
A.an opinion about whether management’s assertion is fairly stated.
B.a statement of limitations on the use of the report.
C.an acknowledgment of responsibility of the auditor for the sufficiency of the
procedures.
D.negative assurance that control risk has not been assessed.
In using the work of a specialist, an understanding should exist among the auditor, the
client and the specialist as to the nature of the work to be performed by the specialist.
Preferably, the understanding should be documented and would include all of the
following except:
A.the objectives and scope of the specialist’s work.
B.the specialist’s representations as to any relationship to the client.
C.the specialist’s understanding of the auditor’s corroborative use of the specialist’s
findings in relation to the representations in the financial report.
D.a statement that the methods or assumptions to be used are not inconsistent with
those used by the client.
Budd, the purchasing agent of Lake Hardware Wholesalers Pty Ltd, has a relative who
owns a retail hardware store. Budd arranged for hardware to be delivered by
manufacturers to the retail store on a COD basis, thereby enabling his relative to buy at
Lake’s wholesale prices. Budd was probably able to accomplish this because of Lake’s
poor internal control for:
A.purchase requisitions.
B.cash receipts.
C.perpetual inventory records.
D.purchase orders.
When perpetual inventory records are maintained, and control risk for inventory is high,
the auditor would probably:
A.insist that the client perform physical counts of inventory items several times during
the year.
B.want the client to schedule the physical inventory count at the end of the year.
C.increase tests of controls around sales and purchases.
D.increase the extent of tests for unrecorded liabilities at the end of the year.
An auditor discovers a likely fraud during an audit, but concludes that the effect of the
fraud is not sufficiently material to affect the audit opinion. The auditor shoulD.
A.disclose the fraud to the appropriate level of the client’s management.
B.disclose the fraud to appropriate authorities external to the client.
C.discuss with the client the additional audit procedures that will be needed to identify
the exact amount of the fraud.
D.modify the audit program to include tests specifically designed to identify the fraud
and its impact on the financial report.
Auditing by testing the input and output of a IT system instead of the computer program
itself will:
A.detect all program errors, regardless of the nature of the output.
B.not detect program errors which do not show up in the output sampled.
C.not provide the auditor with confidence in the results of the auditing procedures.
D.provide the auditor with the same type of evidence.
Which of the following statements is not true concerning assurance services?
A.Assurance services focus on improving the quality of information, or its context, for
decision makers.
B.The growth in assurance services has been driven in part by users’ demands for more
relevant and reliable information.
C.Auditing services can be viewed as a subset of assurance services.
D.Unlike audit engagements, an engagement to perform assurance services does not
require the auditor to consider information reliability.
Your audit client is under intense pressure to meet an earnings target. Which transaction
assertion for purchases are you most concerned with?
A.Existence or occurrence.
B.Completeness.
C.Rights and obligations.
D.Valuation and allocation.
Analytical procedures are:
A.never required.
B.required for planning, substantive testing, and overall review of the financial report.
C.required for planning and overall review of the financial report.
D.required during planning only.
Which of the following statements best describes the distinction between the auditor’s
and director’s responsibilities for an audit undertaken in accordance with the
Corporations Act 2001?
A.Directors have responsibility for maintaining and adopting sound accounting policies,
and the auditor has responsibility for establishing and maintaining the internal control
structure.
B.Directors have responsibility for the basic data underlying the financial report, and
the auditor has responsibility for drafting the financial report.
C.The auditor’s responsibility is confined to expressing an opinion, but the financial
report remains the responsibility of directors.
D.The auditor’s responsibility is confined to the audited portion of the annual report,
and the directors’ responsibility is confined to the unaudited portions.
In which of the following instances would the independence of the auditor most likely
not be considered to be impaired? S/he has been retained as the auditor of a:
A.charitable organisation in which the spouse of the auditor serves as treasurer.
B.company in which the auditor’s investment club owns a 10 per cent interest.
C.large public company to which the auditor has a $6000 loan.
D.company from which s/he purchased his/her latest motor vehicle at normal list price.
A review engagement provides:
A.reasonable assurance.
B.high but not absolute assurance.
C.low assurance.
D.limited assurance.
Tracing costs used to price inventory purchases to vendors’ invoices tests which of the
following assertions?
A.Occurrence.
B.Cutoff.
C.Accuracy.
D.Classification.
The situation and circumstances can dictate the level of certain risks no matter what the
auditor does. However, the auditor is always able to decide to reduce one of the
following risks:
A.Control risk.
B.Risk of management fraud.
C.Detection risk.
D.Inherent risk.
Which of the statements is true of the basic principles and essential procedures (black
letter requirements) contained in the auditing standards?
A.The auditor may depart from basic principles in order to achieve a more efficient
audit.
B.There should be no departure from basic principles and essential procedures.
C.There should be no departure from basic principles, and essential procedures should
be undertaken in all except the rare circumstances where it is determined that the audit
objective can be achieved more effectively with alternative procedures.
D.There should be no departure from essential procedures, and basic principles should
be adhered to in all but the rare circumstances where they hinder audit efficiency.
Auditors are required to complete engagements competently. Competency embraces all
of the following except:
A.an unbiased mental attitude.
B.the technical qualifications of the audit staff.
C.the capacity to exercise judgment.
D.the ability to research subject matter and consult with others.
The written communication between the auditor and management that is normally
issued at the conclusion of the audit is the:
A.management representation letter.
B.management letter.
C.audit letter.
D.engagement letter.
For effective internal control, the billing function should be performed by the:
A.Accounting Department.
B.Sales Department.
C.Shipping Department.
D.Credit and Collection Department.
Evidence about which aspect(s) of internal control is usually gained when the auditor is
assessing control risk?
A.Existence.
B.Effectiveness.
C.Continuity.
D.All of the given answers are correct.
Which of the audit procedures listed below would be least likely to disclose the
existence of related-party transactions of a client during the period under audit?
A.Reading ‘conflict-of-interest’ statements obtained by the client from its management.
B.Scanning accounting records for large transactions at or just prior to the end of the
period under audit.
C.Inspecting invoices from law firms.
D.Confirming large purchase and sales transactions with the suppliers and/or customers
involved.
Which of the following procedures would an auditor most likely perform in searching
for unrecorded payables (the completeness assertion for accounts payable)?
A.Reconcile receiving reports with related cash payments made just prior to year-end.
B.Contrast the ratio of accounts payable to purchases with the prior year’s ratio.
C.Vouch a sample of creditor balances to supporting invoices, receiving reports, and
purchase orders.
D.Compare cash payments occurring after the balance sheet date with the accounts
payable trial balance.
The negative form of accounts receivable confirmation request is useful except when:
A.a large number of small balances are involved.
B.the internal control structure surrounding accounts receivable is considered to be
effective.
C.individual account balances are relatively large and few in number.
D.the auditor has reason to believe the persons receiving the requests are likely to give
them consideration.