The auditor accepted an engagement to audit the 20X0 financial report of Mountain Ltd
and began the fieldwork on 30 September 20X0. Mountain Ltd gave the auditor the
20X0 financial report on 17 January 20X1. The auditor completed the fieldwork on 10
February 20X1 and signed the report on 16 February 20X1. The client’s representation
letter normally would be dated:
A.31 December 20X0.
B.17 January 20X1.
C.10 February 20X1.
D.16 February 20X1.
An auditor usually examines receiving reports to support entries in the:
A.sales journal and sales returns journal.
B.voucher register and sales returns journal.
C.cheque register and sales journal.
D.voucher register and sales journal.
Public sector entities are accountable to which of the following for their use of
resources?
A.Parliament.
B.Government.
C.The Treasurer.
D.The relevant minister.
As the acceptable level of detection risk decreases, an auditor may:
A.reduce substantive testing by relying on the assessments of inherent risk and control
risk.
B.postpone the planned timing of substantive tests from interim dates to the year-end.
C.eliminate the assessed level of inherent risk from consideration as a planning factor.
D.lower the assessed level of control risk from high to less than high.
Which of the following must accompany an unaudited financial report which is
prepared by an auditor?
A.Either a disclaimer of opinion or adverse opinion.
B.Only a disclaimer of opinion.
C.Either a disclaimer of opinion or a qualified opinion.
D.None of the given answers are correct.
An auditor would issue an adverse opinion if:
A.a qualified opinion cannot be given because the auditor lacks independence.
B.the audit was begun by other independent auditors who withdrew from the
engagement.
C.the financial report taken as a whole does not fairly present the financial condition
and results of operations of the entity.
D.the restriction on the scope of the audit was significant.
Users of financial reports in Australia might reasonably expect the auditor to have:
A.checked all transactions undertaken by the entity.
B.determined that the entity is a sound investment.
C.performed the audit in accordance with Australian Auditing Standards.
D.ensured that the entity will continue in existence for at least another year.
Management’s attitude toward aggressive financial reporting and its emphasis on
meeting projected profit goals most likely would significantly influence an entity’s
control environment when:
A.external policies established by parties outside the entity affect its accounting
practices.
B.management is dominated by one individual.
C.internal auditors have direct access to the board of directors and the entity’s
management.
D.the audit committee is active in overseeing the entity’s financial reporting policies.
Which of the following factors most likely would cause an auditor to not accept a new
audit engagement?
A.An inadequate understanding of the entity’s internal control.
B.The close proximity to the end of the entity’s fiscal year.
C.The conclusion that the entity’s management probably lacks integrity.
D.An inability to perform preliminary analytical procedures before assessing control
risk.
The internal auditing department provides information about control and quality of
performance to:
A.a level in the entity sufficient to ensure acceptance of all recommendations.
B.management and the board.
C.any member of the entity upon request.
D.outside agencies for regulatory and financial compliance.
The auditor’s duty of care to a client arises in:
A.the contract.
B.the tort of negligence.
C.both the contract and the tort of negligence.
D.the law of joint and several liability.
After an auditor has issued an audit report on the financial report of a non-public entity,
there is no obligation to make any further audit tests or inquiries with respect to the
audited financial report covered by that report unless:
A.new information comes to the auditor’s attention concerning an event which occurred
prior to the date of the auditor’s report which may have affected the auditor’s report.
B.material adverse events occur after the date of the auditor’s report.
C.final determination or resolution was made on matters that had resulted in a
modification of the auditor’s report.
D.final determination or resolution was made of a contingency that had been disclosed
in the financial report.
Which set of assertions are tested when, during completion of the audit, the audit
partner conducts a final review of the format of the entity’s balance sheet?
A.Assertions about classes of transactions and events.
B.Assertions about account balances at the period end.
C.Assertions about presentation and disclosure.
D.None of the given answers are correct.
An auditor’s decision either to apply analytical procedures as substantive tests or to
perform tests of transactions and account balances usually is determined by the:
A.availability of data aggregated at a high level.
B.relative effectiveness and efficiency of the tests.
C.timing of tests performed after the balance date.
D.auditor’s familiarity with industry trends.
If a control total were to be computed on each of the following data items, which of the
following would best be identified as a hash total for a payroll IT application?
A.Net pay.
B.Department numbers.
C.Hours worked.
D.Total debits and total credits.
A solicitor’s response to an auditor’s request for information concerning litigation,
claims and assessments will ordinarily contain which of the following?
A.An explanation regarding limitations on the scope of the response.
B.A statement of concurrence with the client’s determination of which unasserted
possible claims warrant specification.
C.Confidential information that would be prejudicial to the client’s defence if
publicised.
D.An assertion that the list of unasserted possible claims identified by the client
represents all such claims of which the solicitor may be aware.
A properly planned and performed audit may fail to detect a material misstatement
resulting from fraud because:
A.audit procedures that are effective for detecting an error may be ineffective for fraud
that is concealed through collusion.
B.an audit is planned and performed to provide reasonable assurance of detecting
material misstatements caused by errors but not by fraud.
C.the factors considered in assessing control risk indicated an increased risk of error but
only a low risk of fraud in the financial report.
D.the auditor did not consider factors influencing audit risk for account balances that
have effects pervasive to the financial report taken as a whole.
Joe Costa, an auditor, is planning tests of controls over cash disbursements. There are
3000 disbursements and he plans to vouch 60 picked haphazardly from the cash
disbursements journal for the period 1 January to 30 September 20X0. 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.
When an auditor expresses an opinion on the financial report, the auditor’s
responsibilities extend to:
A.An ongoing responsibility for the entity’s solvency in accordance with the
requirements of the Corporations Act 2001.
B.The underlying wisdom of the management’s decisions.
C.Active participation in the implementation of advice given.
D.Whether the entity’s results are fairly presented in the financial report in accordance
with approved accounting standards.
A common audit procedure in the audit of payroll transactions involves tracing selected
items from the payroll journal to employee time cards that have been approved by
supervisory personnel. This procedure is designed to provide evidence in support of the
audit proposition that:
A.jobs on which employees worked were charged with the appropriate labour cost.
B.only bona fide employees worked and their pay was properly computed.
C.all employees worked the number of hours for which their pay was computed.
D.internal control structures relating to payroll disbursements are operating effectively.
In audit sampling methods used for substantive testing, an auditor most likely would
stratify a population into meaningful groups if:
A.the population has highly variable recorded amounts.
B.probability proportional to size (PPS) sampling is used.
C.the standard deviation of recorded amounts is relatively small.
D.the auditor’s estimated tolerable misstatement is extremely small.
During preliminary audit planning the auditor:
A.considers the possibility of business failure.
B.designs the audit to search for evidence to support the company’s continued
existence.
C.does not need to consider the possibility of business failure because that is a
procedure performed during the overall evaluation at the end of the audit.
D.inquires of the company’s legal advisers concerning the possibility of going concern
problems.
During a review of the half-yearly financial statements of a public entity, the auditor
finds that the financial report contains a material departure from generally accepted
accounting principles. If management refuses to correct the financial statement
presentations, the auditor should:
A.disclose the departure in a separate paragraph of the report and issue a qualified
report.
B.issue an adverse opinion.
C.attach a footnote explaining the effects of the departure.
D.issue a compilation report.
An auditor is using the probability proportional to size selection method. Using this
method, the chance of selecting a $100 account balance compared to selecting a $500
account balance is:
A.50 per cent.
B.20 per cent.
C.Less but not determinable without knowing the dollar amount of the population.
D.Greater but not determinable without knowing the dollar amount of the population.
An auditor concluded that no excessive costs for idle plant were charged to inventory in
a client’s standard costing system. This conclusion most likely related to the auditor’s
objective to obtain evidence about the account balance assertion regarding inventory,
of:
A.valuation and allocation.
B.completeness.
C.existence.
D.rights and obligations.
The use of the ratio estimation sampling technique is most effective when:
A.the calculated audit amounts are approximately proportional to the client’s book
amounts.
B.a relatively small number of differences exist in the population.
C.estimating populations whose records consist of quantities but not book values.
D.large overstatement differences and large understatement differences exist in the
population.
When erroneous data are detected by computer program controls, such data may be
excluded from processing and printed on an error report. The error report should most
probably be reviewed and followed up by the:
A.IT control group.
B.system analyst.
C.supervisor of computer operations.
D.computer programmer.
Which of the following would be least likely to suggest to an auditor that the client’s
management may have overridden the internal control?
A.Differences are always disclosed on a computer exception report.
B.Management does not correct internal control deficiencies that it knows about.
C.There have been two new controllers this year.
D.There are numerous delays in preparing timely internal financial reports.
Which of the following is likely to be least important to an auditor who is reviewing the
internal control of the data processing function?
A.Ancillary program functions.
B.Disposition of source documents.
C.Operator competence.
D.Bit storage capacity.
Which of the following is not a typical analytical procedure?
A.Study of relationships of the financial information with relevant non-financial
information.
B.Comparison of the financial information with similar information regarding the
industry in which the entity operates.
C.Comparison of recorded amounts of major disbursements with appropriate invoices.
D.Comparison of the financial information with budgeted amounts.