When the audited financial report of the prior year is presented together with those of
the current year, the continuing auditor’s report covers:
A.only the current year.
B.both years.
C.only the current year, but the prior year’s report should be referred to.
D.only the current year, but the prior year’s report should be presented.
In audit sampling for substantive testing, a 10 per cent change in which of the following
factors normally will have the least effect on the size of a statistical sample?
A.Population size.
B.Tolerable zero rate.
C.Expected population deviation rate.
D.Standard deviation.
In which of the following situations would an entity be assessed as having high inherent
risk?
A.Managers who helped establish the company 10 years ago are still in place.
B.Rapid growth in the US economy has led to increased export sales.
C.The entity’s engineering product has a patent that will expire in 10 years time.
D.The entity has just appointed an audit committee.
The conclusion reached as a result of assessing control risk is referred to as the:
A.assurance provided by internal control.
B.determined level of acceptable detection risk.
C.product of the understanding of internal control.
D.assessed level of control risk.
Which of the following elements would be included in an internal auditing department’s
charter as a basis for its authority?
A.Audit work schedules.
B.Staffing plans.
C.Staff policies and procedures.
D.Scope of internal audit activities.
A well-prepared flowchart should make it easier for the auditor to:
A.prepare audit procedure manuals.
B.prepare detailed job descriptions.
C.perform walkthroughs.
D.assess the degree of accuracy of financial data.
The audit working papers often include a client-prepared, aged trial balance of accounts
receivable as at balance date. This ageing is best used by the auditor to:
A.test the accuracy of recorded sales.
B.assess control risk for credit sales.
C.verify the existence of the recorded receivables.
D.test the valuation and allocation assertion of accounts receivable.
Promotion Ltd’s directors voted immediately after the year-end of 30 June 20X0 to
double the advertising budget for the coming year, and authorised a change in
advertising agencies. What is the effect of this event on the 30 June 20X0 financial
report?
A.Disclosure by means of supplemental, pro-forma financial information.
B.Adjustment of the financial report.
C.Disclosure in a footnote to the financial report.
D.No disclosure or adjustment necessary.
To ascertain the exact name of the corporate client, the auditor relies primarily on:
A.corporate minutes.
B.by-laws.
C.company Constitution.
D.tax returns.
When should the auditor use the words ‘true and fair’ in the audit report?
A.For all audits where the financial report is not materially misstated.
B.When a statutory mandate makes the wording ‘fairly presented in accordance with an
applicable framework’ inappropriate.
C.Only for Corporations Act 2001 audits.
D.When there is no statutory mandate.
What is the primary objective of using stratification as a sampling method in auditing?
A.To determine the tolerable deviation rate for a given characteristic in the population
being studied.
B.To increase the audit risk at which a decision will be reached from the results of the
sample selected.
C.To determine the precision range of the sample selected.
D.To decrease the effect of variance in the total population and therefore reduce the
required sample size for a given confidence level.
All of the following are TRUE with respect to the auditor’s consideration of information
other than the audited financial report that are included in a client’s annual report
EXCEPT:
A.The auditor must consider whether the other information is consistent with the
information contained in the audited financial statements.
B.The auditor is under no obligation to perform audit procedures on this other
information.
C.The auditor must perform audit procedures on this other information.
D.The auditor must request that material inconsistencies be corrected.
An auditor’s working papers will generally be least likely to include documentation
showing how the:
A.client’s schedules were prepared.
B.engagement had been planned.
C.client’s internal control had been understood and the level of control risk assessed.
D.unusual matters were resolved.
Which of the following bodies is able to impose penalties on auditors who have failed
to carry out their duties properly?
A.Financial Reporting Council.
B.Companies Auditors and Liquidators Disciplinary Board.
C.Auditing and Assurance Standards Board.
D.All of the given answers are correct.
Which of the following is a correct statement with respect to a listed company?
A.The Australian Securities and Investments Commission does not have to be given
notice of the removal of an auditor.
B.An auditor does not have to have the approval of the Australian Securities and
Investments Commission to resign.
C.An auditor must be appointed within three months of incorporation.
D.Once the auditor is re-appointed at the first annual general meeting, it is not
necessary for the auditor to be re-appointed each following year.
Tests designed to detect credit sales made before the end of the year that have been
recorded in the subsequent year provide assurance about management’s assertion of:
A.classification.
B.cutoff.
C.occurrence.
D.accuracy.
Mars Ltd desired to acquire the ordinary shares of Saturn Ltd and engaged Sarah & Co.
to audit the financial report of Saturn Ltd. Sarah & Co failed to discover a significant
liability in performing the audit. In a common law action against Sarah & Co, Mars Ltd,
at a minimum, must prove:
A.gross negligence on the part of Sarah & Co.
B.negligence on the part of Sarah & Co.
C.fraud on the part of Sarah & Co.
D.Sarah & Co knew that the liability existed.
Who establishes Australian auditing standards?
A.Auditing and Assurance Standards Board.
B.Australian Accounting Standards Board.
C.Australian Securities and Investments Commission.
D.CPA Australia and the Institute of Chartered Accountants in Australia.
What is the main concern of performance auditing?
A.Compliance with relevant laws and regulations.
B.Probity.
C.Financial report attest auditing.
D.Efficiency, economy and effectiveness.
Alicia Wong, an auditor, is planning confirmation of accounts receivable. There are 500
customer balances and, based on the condition of the accounting records and her past
experience with the client, she plans to send 50 confirmation requests to customers
selected, using a random number generator, from the aged trial balance of accounts
receivable. Alicia plans to evaluate confirmation responses qualitatively, and by
multiplying the average error in the 50 responses by 500. This audit approach may be
described most precisely as:
A.statistical sampling.
B.audit sampling.
C.non-statistical sampling.
D.none of the given answers are correct.
Which of the following statements concerning the auditor’s use of the work of a
specialist is correct?
A.If the auditor believes that the determinations made by the specialist are
unreasonable, only an adverse opinion may be issued.
B.If the specialist is related to the client, the auditor is not permitted to use the
specialist’s findings as corroborative evidence.
C.The specialist should be identified in the audit report if the auditor has relied on the
specialist in issuing an unqualified audit opinion.
D.The specialist should have an understanding of the auditor’s corroborative use of the
specialist’s findings.
In auditing accounts receivable the negative form of confirmation request most likely
would be used when:
A.recipients are likely to return positive confirmation requests without verifying the
accuracy of the information.
B.the combined assessed level of inherent and control risk relative to accounts
receivable is low.
C.a small number of accounts receivable are involved but a relatively large number of
errors are expected.
D.the auditor performs a dual purpose test that assesses control risk and obtains
substantive evidence.
Independence implies that the auditor:
A.be impartial with respect to the client.
B.must adopt the attitude of a detective during the audit.
C.has an obligation solely to third parties.
D.cannot provide any other professional services to an audit client.
The auditor’s responsibility to consider whether there is substantial doubt about the
entity’s ability to continue as a going concern for a reasonable period of time
necessitates that the auditor:
A.design audit procedures to provide reasonable assurance of identifying conditions and
events that, when considered in the aggregate, indicate there is substantial doubt.
B.consider whether the results of auditing procedures designed and performed to
achieve other audit objectives have identified conditions or events that, when
considered in the aggregate, indicate there is substantial doubt.
C.plan the audit to search for evidential matter relating to the entity’s ability to continue
as a going concern for a reasonable period of time.
D.remain aware that auditing procedures applied primarily for other purposes may
bring to his/her attention conditions and events that, when considered in the aggregate,
indicate there is substantial doubt.
Which of the following tends to be most predictable for purposes of analytical
procedures applied as substantive tests?
A.Relationships involving balance sheet accounts.
B.Transactions subject to management discretion.
C.Relationships involving income statement accounts.
D.Data subject to audit testing in the prior year.
Which of the following pairs of accounts would an auditor most likely analyse on the
same working paper?
A.Notes receivable and interest income.
B.Accrued interest receivable and accrued interest payable.
C.Notes payable and notes receivable.
D.Interest income and interest expense.
Auditors may have a whistleblowing role under:
A.the Corporations Act.
B.the Crimes Act.
C.auditing standards.
D.all of the given answers are correct.
Which of the following presumptions is correct about the reliability of audit evidence?
A.Information obtained indirectly from outside sources is the most reliable audit
evidence.
B.To be reliable, audit evidence should be convincing rather than persuasive.
C.Reliability of audit evidence refers to the amount of corroborative evidence obtained.
D.An effective internal control provides more reliable audit evidence.
A normal audit procedure is to analyse the current year’s repairs and maintenance
accounts to provide evidence in support of the audit proposition that:
A.expenditures for fixed assets have been recorded in the proper period.
B.capital expenditures have been properly authorised.
C.non-capitalisable expenditures have been properly expensed.
D.the listing of fixed assets is complete.
Which of the following is NOT a benefit of analytical procedures?
A.Assists in understanding a client’s business and identifying areas of potential risk.
B.Enables the auditor to review the financial and non-financial information of a client.
C.May reduce the level of detailed audit testing if the control system surrounding the
reliability of the information is strong.
D.Provides adjustments to error levels during tests of control.
Which of the following does NOT add to the achievement of the audit assertion of
existence in relation to an investment in listed shares?
A.A confirmation of shares held on the client’s behalf.
B.A review of share prices quoted at the financial year-end.
C.A test of details of transactions of share purchases and sales during the year.
D.An analytical review of rate of return on investments.