An auditor decides that it is important and necessary to observe a client’s distribution of
payroll cheques on a particular audit. The client organisation is so large that the auditor
cannot conveniently observe the distribution of the entire payroll. In these
circumstances, which of the following is most acceptable to the auditor?
A.Observation should be made for all departments regardless of the inconvenience.
B.Observation should be limited to one or more selected departments.
C.Observation should be limited to those departments where employees are readily
available.
D.Observation should be eliminated and other alternative auditing procedures should be
utilised to obtain satisfaction.
The scope and nature of an auditor’s contractual obligation to a client ordinarily is
established in the:
A.engagement letter.
B.corporations Act.
C.management letter.
D.client’s Constitution.
Which of the following is not considered to be a value added to financial information
reported on by assurance services?
A.Comparability.
B.Relevance.
C.Reliability.
D.Periodicity.
Which of the following is not a main goal of internal auditing?
A.Add value to an organisation’s operations.
B.Help an organisation accomplish its objectives.
C.Provide reliable information to external users.
D.Improve the effectiveness of risk management of an organisation.
An IT 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.
During the first part of the current fiscal year, the client company began dealing with
certain distributors on a consignment basis (goods were delivered to the distributor but
not deemed sold to the distributor had on-sold them). Which of the following audit
procedures is least likely to bring this new fact to the auditor’s attention?
A.Test of cash receipts transactions.
B.Tracing of shipping documents to the sales journal.
C.Observation of physical inventory.
D.Confirmation of accounts receivable.
A limit test is A.
A.test to ensure that a numerical value does not exceed some predetermined value.
B.check to ensure that the value in a field falls within an allowable range of values.
C.check to ensure that the data in a field have the proper arithmetic sign.
D.check on a field to ensure that it contains either all numeric or alphabetic characters.
In determining the adequacy of the allowance for uncollectible accounts, the least
reliance should be placed upon which of the following?
A.The credit manager’s opinion.
B.An aging schedule of past due accounts.
C.Collection experience of the client’s collection agency.
D.Ratios calculated showing the past relationship of accounts receivable to net credit
sales.
If an illegal act is discovered during the audit of a publicly held company, the auditor
should:
A.notify the regulatory authorities.
B.determine who was responsible for the illegal act.
C.intensify the audit.
D.report the act to high-level personnel within the client’s organisation.
Smart issued an unqualified opinion on the 20X0 financial report of Max Ltd, which
was filed with ASIC. Smart did not detect material misstatements in the financial report
as a result of negligence in the performance of the audit. Based upon the financial
report, Bird purchased shares in Max Ltd. Shortly afterwards, Max Ltd became
insolvent, causing the price of the shares to decline drastically. Bird has commenced
legal action against Smart for damages. Smart’s best defence to such an action would be
that:
A.Bird lacks a contractual relationship as a basis to sue.
B.the engagement letter specifically disclaimed all liability to third parties.
C.there is no proof of proximity.
D.there has been no subsequent sale for which a loss can be computed.
To which type of assurance engagement does the umbrella standard AUS 110 (ISAE
3000) €œAssurance Engagements other than Audits and Reviews of Historical
Financial Information”, not apply?
A. A performance audit on a government department,
B. A review of a half-yearly financial report.
C. A limited assurance report on the effectiveness of internal control.
D. A limited assurance engagement on prospective financial information.
What distinguishes financial forecasts from financial projections?
A.Financial projections involve only balance sheet items whereas financial forecasts
involve only income statement items.
B.Auditors must attest to financial projections whereas auditors are precluded from
attesting to financial forecasts.
C.Financial forecasts present expected financial results whereas financial projections
present prospective financial results given hypothetical assumptions.
D.Financial projections present expected financial results whereas financial forecasts
present prospective financial results given hypothetical assumptions.
The expectation that an internal auditor does not accept bribes or gifts that may impair
judgment is based on the principle of:
A.integrity.
B.objectivity.
C.confidentiality.
D.competency.
With respect to the quality control element concerning hiring, which policy will provide
reasonable assurance that those employed possess the appropriate characteristics to
enable them to work competently?
A.Establish qualifications and guidelines for evaluating potential hirees at each
professional level.
B.Establish guidelines and requirements for the firm’s professional development
program and communicate them to personnel.
C.Establish qualifications deemed necessary for the various levels of responsibility.
D.Assign responsibility for making advancement decisions.
In which area is there a gap between society’s expectations of auditors and the
perceived performance of auditors?
A.Compliance with laws and regulations.
B.The detection and reporting of earnings management and fraud.
C.Fair presentation of the financial report.
D.All of the given answers are correct.
Tests of controls for the occurrence assertion for purchases include all of the following
except:
A.evaluating proper segregation of duties.
B.testing a sample of vouchers to an authorised purchase order.
C.testing a sample of vouchers to receiving reports.
D.tracing a sample of vouchers to the purchases journal.
Which of the following best describes internal auditors’ responsibilities regarding their
entity’s policies, plans, procedures, and applicable laws and regulations? Internal
auditors:
A.have a responsibility to develop appropriate policies, plans and procedures, and they
are responsible for monitoring compliance with all applicable laws and regulations.
B.have no responsibility regarding these matters because becoming involved with them
would make internal auditors members of management.
C.are responsible for evaluating whether the systems are adequate and effective and
whether the activities that are audited comply with appropriate requirements.
D.are only responsible for compliance with policies, plans, procedures, laws and
regulations that apply to internal audit.
Simon & Co issued an unqualified opinion on the 20X0 financial report of Explorer
Ltd. Late in 20X1, Explorer Ltd determined that its treasury manager had embezzled
over $2 000 000. Simon & Co was unaware of the embezzlement. Explorer Ltd has
decided to sue Simon & Co to recover the $2 000 000. Explorer Ltd’s suit is based upon
Simon & Co’s failure to discover the missing money while performing the audit. Which
of the following is Simon & Co’s best defence?
A.The audit was performed in accordance with the auditing standards.
B.Simon & Co had no knowledge of the embezzlement.
C.The embezzlement was cleverly concealed.
D.The treasury manager was Explorer Ltd’s agent and as such had designed the control
procedures that facilitated the embezzlement.
Audit mandates within the public sector include:
A.financial report audits.
B.compliance audits.
C.performance audits.
D.all of the given answers are correct.
An example of a transaction that may be indicative of the existence of related parties is:
A.borrowing or lending at a rate of interest that equals the current market rate.
B.selling real estate at a price that is comparable to its appraised value.
C.making large loans with specified terms as to when or how the funds will be repaid.
D.exchanging property for similar property in a non-monetary transaction.
For a complex system, auditors are least likely to use which of the following when
documenting their understanding of internals controls?
A.Narratives.
B.Internal control questionnaires.
C.Flowcharts.
D.Organisation charts.
Under the Corporations Act 2001, if a company’s financial report, when prepared in
accordance with accounting standards, would not otherwise give a true and fair view,:
A.the auditors are required to add such information and explanations in the financial
report so as to give a true and fair view.
B.the directors are required to add such information and explanations in the financial
report so as to give a true and fair view.
C.the directors should refer to this situation in their Director’s Declaration.
D.no additional information should be added to the financial report.
In which of the following instances would an auditor be least likely to require the
assistance of a specialist?
A.Assessing the valuation of inventories of artworks.
B.Determining the quantities of materials stored in piles on the ground.
C.Determining the value of unlisted securities.
D.Ascertaining the assessed valuation of fixed assets.
Negative assurance is permissible in reports:
A.relating to the results of agreed-upon procedures to one or more specified elements,
accounts, or items of a financial report.
B.based on a performance audit of a government department.
C.based upon an audit of the interim financial report of a closely held business entity.
D.based upon a review engagement.
Which of the following is the least persuasive documentation in support of an auditor’s
opinion?
A.Schedules of details of physical inventory counts conducted by the client.
B.Notation of inferences drawn from ratios and trends.
C.Notation of appraisers’ conclusions documented in the auditor’s work papers.
D.Lists of negative confirmation requests for which no response was received by the
auditor.
An auditor has been unable to obtain the audited financial report for the entity’s major
foreign subsidiary due to civil unrest in that country. The appropriate audit report is:
A.an unqualified opinion on the consolidated accounts but a qualified opinion on the
parent company’s accounts.
B.an unqualified opinion with an emphasis of matter paragraph.
C.a qualified opinion or a disclaimer of opinion.
D.a qualified opinion or an adverse opinion.
Tests designed to detect purchases made before the end of the year that have been
recorded in the subsequent year most likely would provide assurance about
management’s assertion of:
A.accuracy.
B.occurrence.
C.cutoff.
D.classification.
The following are steps in the audit process:
I) Prepare flowchart.
II) Gather exhibits of all documents.
III) Interview personnel.
The most logical sequence of steps is:
A.I, II, III.
B.I, III, II.
C.III, II, I.
D.II, I, III.
Tracing is used primarily to test which of the following assertions about classes of
transactions?
A.Occurrence.
B.Completeness.
C.Cutoff.
D.Classification.
An auditor who finds that the client has committed an illegal act would be most likely
to withdraw from the engagement when the:
A.illegal act affects the auditor’s ability to rely on management representations.
B.illegal act has material financial report implications.
C.illegal act has received widespread publicity.
D.auditor cannot reasonably estimate the effect of the illegal act on the financial report.
An audit program should be designed for each individual audit and should include audit
steps and procedures to:
A.detect and eliminate all fraud.
B.increase the amount of management information available.
C.provide assurances that the objectives of the audit are met.
D.ensure that only material items are audited.
Alex Kostas, an auditor, examines a sample of copies of sales invoices for the initials of
the person who verified the quantitative data. This is an example of a:
A.test of controls.
B.substantive test.
C.cutoff test.
D.statistical test.