One of the major problems in an IT system is that incompatible functions may be
performed by the same individual. One compensating control for this is the use of:
A.a tape library.
B.a self-checking digit system.
C.computer-generated hash totals.
D.a computer log.
The directors of a listed company refuse to disclose directors’ remuneration of $100 000
on the basis that it is not material. Net profit after tax is $20 million and net assets are
$50 million. The appropriate audit report is:
A.unqualified with an emphasis of matter paragraph.
B.unqualified opinion.
C.a qualified opinion.
D.a disclaimer of opinion.
Which of the following audit objectives does not relate primarily to the financial report
assertion of completeness?
A.Inventories are reduced, when appropriate, to replacement cost or net realisable
value.
B.Inventory quantities include all products, materials and supplies on hand.
C.Inventory listings are accurately compiled, and the totals are properly included in the
inventory accounts.
D.Inventory quantities include products and materials owned by the company that are in
transit or stored at outside locations.
Which of the following best describes the role of corporate governance?
A.Management decides which accounting principles are the most appropriate.
B.Shareholders vote to decide who should be members of the board of directors.
C.An independent board of directors holds the management team accountable to
shareholders and other constituents.
D.Management is compensated based on the company’s profitability.
Your audit client is under intense pressure to meet an earnings target. Which audit
procedure are you most likely to use when auditing purchases?
A.Vouching.
B.Tracing.
C.Recalculation.
D.Confirmation.
Which of the following factors appears to be contributing to a greater co-ordination of
the work of the internal auditor and the external auditor?
A.The move towards the business risk approach by both the internal and external
auditor.
B.The recent improvements in corporate governance.
C.The improvements in audit committee practices.
D.All of the given answers are correct.
In the context of an audit of a financial report, substantive tests are audit procedures
that:
A.may be eliminated under certain conditions.
B.are designed to discover significant subsequent events.
C.may be either tests of details of transactions, tests of details of account balances, or
analytical procedures.
D.will increase proportionately with the auditor’s reliance on internal control.
An auditor would be most likely to learn of slow-moving inventory through:
A.review of the cash payments journal.
B.inquiry of sales personnel.
C.review of perpetual inventory records.
D.physical observation of inventory.
An acceptable audit fee arrangement is to:
A.accept the client’s goods as part payment of an audit fee.
B.quote a fixed fee for an audit based on an estimate of the total costs to be incurred.
C.quote a discounted fee on the expectation of performing other services for the client.
D.accept a reduced audit fee because the audit firm already performs a wide variety of
other services for the client.
Johnson is engaged in the audit of a power company which supplies power to a
residential community. All accounts receivable balances are small and the internal
control structure is effective. Customers are billed twice monthly. In order to obtain
evidence with regards the valuation and allocation assertion of the accounts receivable
balances as at balance date, Johnson would most likely:
A.send positive confirmation requests.
B.examine evidence of subsequent cash receipts.
C.use statistical sampling instead of sending confirmation requests.
D.send negative confirmation requests.
Sky Ltd has a year-end of 30 June 20X0. The audit work was completed and the audit
report signed on 30 September 20X0. On 15 October the company called for tenders
from prospective auditors for the 20X1 year. The tender process indicated that new
auditors should be appointed. The current auditors wrote a resignation letter dated 20
October that was received by the company on 25 October. This letter advised that the
auditor’s resignation was effective from 30 September 20X0. The resignation letter was
also forwarded to ASIC, requesting its confirmation of the resignation. ASIC approved
the resignation in a letter dated 30 November. There are no other exceptional
circumstances.
The effective date of the resignation is:
A.30 September 20X0.
B.20 October 20X0.
C.25 October 20X0.
D.30 November 20X0.
The exercise of due professional care requires that an auditor:
A.examine all available corroborating evidence.
B.critically review the judgment exercised at every level of supervision.
C.attain the proper balance of professional experience and formal education.
D.design the audit to detect all instances of illegal acts.
Based on a 5 per cent risk of assessing control risk too low, how would an auditor
interpret a computed upper deviation rate of 7 per cent?
A.There is a 5 per cent chance that the deviation rate in the population is less than 7 per
cent.
B.The auditor is willing to live with a deviation rate of 7 per cent before deciding not to
rely on the control.
C.There is a 95 per cent chance that the deviation rate in the population equals 7 per
cent.
D.There is a 5 per cent chance that the deviation rate in the population exceeds 7 per
cent.
An auditor selects a sample from the file of shipping documents to determine whether
invoices were prepared. This test is performed to assess which assertion for sales?
A.Accuracy
B.Completeness
C.Cutoff
D.Occurrence
When considering the internal control for inventory with respect to segregation of
duties, an auditor would be least likely to:
A.inspect documents.
B.make inquiries.
C.observe procedures.
D.consider policy and procedure manuals.
For effective internal control purposes, which of the following individuals should be
responsible for mailing signed cheques?
A.Computer operator.
B.Financial controller.
C.Accounts payable clerk.
D.Payroll clerk.
An effective internal control for the payroll function would generally include which of
the following?
A.Total time recorded on time-clock cards should be reconciled to job reports by
employees responsible for those specific jobs.
B.Payroll department employees should be supervised by the management of the
personnel department.
C.Payroll department employees should be responsible for maintaining employee
personnel records.
D.Total time spent on jobs should be compared with total time indicated on time-clock
cards.
An audit of the financial report of Campbell Ltd, an Australian listed company, is being
conducted by an external auditor. The external auditor is expected to:
A.express an opinion as to the attractiveness of Campbell for investment purposes.
B.express an opinion as to the truth and fairness of Campbell’s financial report.
C.make a 100% examination of Campbell’s records.
D.certify the correctness of Campbell’s financial report.
The auditor’s understanding of the client’s internal control is documented to
substantiate:
A.conformity of the accounting records with the accounting standards.
B.representation as to adherence to requirements of management.
C.compliance with the auditing standards.
D.the fairness of the financial report presentation.
Which of the following is a test of controls for the control assertion of completeness for
revenue?
A.Test a sample of sales invoices for authorised customer orders.
B.Review sales orders for proper credit approval.
C.Trace shipping documents to sales invoices and the sales journal.
D.Examine reconciliation of accounts receivable subsidiary ledger to general ledger
control account.
If a solicitor refuses to furnish corroborating information regarding litigation, claims
and assessments, the auditor should:
A.honour the confidentiality of the client-solicitor relationship.
B.consider the refusal to be a scope limitation.
C.seek to obtain the corroborating information from management.
D.disclose this fact in a footnote to the financial report.
Which of the following statements is correct?
A.The Institute of Chartered Accountants in Australia and CPA Australia have tried to
merge on only one occasion.
B.Merger attempts between the two major accounting bodies in Australia have failed to
get the support of a majority of the members of The Institute of Chartered Accountants
in Australia.
C.Merger attempts between the two major accounting bodies in Australia were opposed
by the Australian Consumer and Competition Commission.
D.Merger attempts between the two major accounting bodies in Australia have failed to
get the support of a majority of the members of either accounting body.
Which of the following tests of control most likely would help assure an auditor that
goods shipped are properly billed?
A.Scan the sales journal for sequential and unusual entries.
B.Examine shipping documents for matching sales invoices.
C.Compare the accounts receivable ledger to daily sales summaries.
D.Inspect unused sales invoices for consecutive prenumbering.
All of the following are important controls over credit memos except:
A.proper segregation of duties to ensure that sales discounts taken were earned.
B.credit memos should be approved by someone other than whoever initiated it.
C.credit memos should be supported by a receiving document for returned goods.
D.proper segregation of duties between access to customer records and authorising
credit memos.
Which of the following is the most effective test of control to detect vouchers prepared
for the payment of goods that were not received?
A.Counting of goods upon receipt in the storeroom.
B.Matching of purchase order, receiving report, and vendor invoice for each voucher in
the accounts payable department.
C.Comparison of goods received with goods requisitioned in the receiving department.
D.Verification of vouchers for accuracy and approval in the internal audit department.
An auditor may accept an engagement to apply agreed-upon procedures to a
prospective financial report provided that:
A.the prospective financial report is also audited.
B.distribution of the report is to be restricted to the specified users involved.
C.negative assurance is expressed on the prospective financial report taken as a whole.
D.responsibility for the adequacy of the procedures is taken by the auditor.
Which of the following examples is a compliance audit in relation to a government
department?
A.Reporting to the Minister on the tendering process for the construction of the
department’s new office block.
B.Reporting on the department’s financial report to be presented to parliament.
C.Reporting to the Minister as to whether the department has met the objectives set out
in its mission statement.
D.Reporting to the Minister on whether members of the department have followed the
government travel guidelines.
Assessing control risk at less than high involves all of the following except:
A.identifying specific controls to rely on.
B.concluding that controls are ineffective.
C.performing tests of controls.
D.analysing the achieved level of control risk after performing tests of controls.
Tegan Walker is about to begin a recurring annual audit engagement. As the continuing
auditor, her independence would ordinarily be considered to be impaired if the previous
year’s audit fee:
A.was only partially paid and the balance is being disputed.
B.has not been paid and will not be paid for at least twelve months.
C.has not been paid and the client has filed voluntary bankruptcy.
D.was settled by litigation.
Dollar-unit sampling is said to eliminate the need to stratify the sample because:
A.the risk of incorrect acceptance is inversely related to sample size.
B.sample items are selected in proportion to their dollar amount.
C.the upper limit on misstatements can be computed based on statistical principles.
D.tolerable misstatement is considered when determining sample size.
Once an auditor has determined that accounts receivable at year end have increased due
to slow collections in a ‘tight money’ environment, the auditor would be likely to:
A.review the going concern ramifications.
B.increase the balance in the allowance for bad debts account.
C.expand tests for the valuation and allocation assertion.
D.expand tests for the existence assertion.
Which of the following audit tests would be regarded as a test of controls?
A.Tests comparing inventory pricing to vendors’ invoices.
B.Tests of the specific items making up the balance in a given general ledger account.
C.Tests of the additions to property, plant, and equipment by physical inspections.
D.Tests of the signatures on purchase orders to a list of approved signatories.
Which of the following situations will not result in modification of the auditor’s report
because of a scope limitation?
A.Restriction imposed by the client.
B.Reliance placed on the report of another auditor.
C.Inability to obtain sufficient competent evidential matter.
D.Inadequacy in the accounting records.