The auditor’s best course of action with respect to ‘other financial information’ included
in an annual report containing the auditor’s report is to:
A.consider whether the ‘other financial information’ is accurate by performing a review
engagement.
B.indicate in the auditor’s report that the ‘other financial information’ is unaudited.
C.read and consider the manner of presentation of the ‘other financial information’.
D.obtain written representations from management as to the material accuracy of the
‘other financial information’.
Alpha Company uses its sales invoices for posting perpetual inventory records.
Inadequate control procedures over the invoicing function allow goods to be SHIPPED
that are not INVOICED. The inadequate control procedures could cause an:
A.understatement of revenues, receivables and inventory.
B.overstatement of revenues and receivables, and an understatement of inventory.
C.understatement of revenues and receivables, and an overstatement of inventory.
D.overstatement of revenues, receivables and inventory.
Given one or more hypothetical assumptions, a responsible party may prepare, to the
best of its knowledge and belief, an entity’s expected financial position, results of
operations and changes in cash flows. Such prospective financial statements are known
as:
A.financial projections.
B.pro-forma financial statements.
C.financial forecasts.
D.partial presentations.
Governmental auditing often extends beyond examinations leading to the expression of
an opinion on the fairness of financial presentation and includes audits of economy,
efficiency, effectiveness, anD.
A.evaluation.
B.internal control.
C.compliance.
D.accuracy.
Which of the following is the best audit procedure for determining the completeness of
the accrued liabilities listing?
A.Examine unusual relationships between monthly accounts payable balances and
recorded purchases.
B.Examine confirmation requests returned by creditors whose accounts appear on a
subsidiary trial balance of accounts payable.
C.Examine a sample of cash disbursements in the period subsequent to year-end.
D.Examine a sample of invoices a few days prior to and subsequent to year-end to
ascertain whether they have been properly recorded.
When undertaking tests of controls for revenues, auditors are more concerned with
controls associated with the occurrence assertion than they are with the completeness
assertion because:
A.clients are more likely to overstate than understate revenues.
B.clients are more likely to understate than overstate revenues.
C.it is difficult to determine when services have been performed.
D.the allowance for doubtful accounts often is understated.
Which of the following statements best describes why the audit profession has deemed
it essential to promulgate ethical standards and to establish means for ensuring their
observance?
A.A requirement for a profession is the establishment of ethical standards that stress
primarily a responsibility to clients and colleagues.
B.A requirement of most state legislation is for professions to establish a code of ethics.
C.An essential means of self-protection for the profession is the establishment of
flexible ethical standards by the profession.
D.A distinguishing mark of a profession is its acceptance of its responsibility to the
public.
In applying analytical procedures, the identification of the relationships and types of
data used, as well as conclusions reached when recorded amounts are compared to
expectations, requires:
A.judgment by the auditor.
B.participation by senior audit team members.
C.understanding of complex models.
D.advanced training in plausibility formulation.
Which of the following auditing procedures is ordinarily performed last?
A.Reading the minutes of the directors’ meetings.
B.Confirming accounts payable.
C.Obtaining a management representation letter.
D.Testing the purchasing function.
Analytical procedures that are required in all audits of financial reports are analytical
procedures:
A.relevant to achieving important audit objectives related to particular assertions.
B.expected to be efficient and effective in the circumstances.
C.based on available and reliable financial data.
D.used in the planning and overall review stages.
A client’s physical count of inventory was higher than the inventory per the perpetual
records. This situation could be the result of the failure to record:
A.sales discounts.
B.sales.
C.purchase returns.
D.purchases.
The financial report of Super Electrix Ltd indicates that there are going concern
problems. After considering additional audit evidence, the auditor concludes that the
client will not continue as a going concern during the next year. What type of audit
opinion should the auditor express?
A.Disclaimer of opinion.
B.Qualified opinion.
C.Adverse opinion.
D.Unqualified opinion with an ’emphasis of matter’ paragraph.
On the basis of audit evidence gathered and evaluated, an auditor decides to increase
the assessed level of control risk from that originally planned. To achieve an overall
audit risk level that is substantially the same as the planned audit risk level, the auditor
woulD.
A.decrease substantive testing.
B.decrease detection risk.
C.increase inherent risk.
D.increase materiality levels.
Abbot, as principal auditor for the consolidated financial report, finds that the audit of a
major subsidiary is qualified by another auditor. Abbot does not consider the
qualification to be material relative to the consolidated financial report. What
recognition, if any, must Abbot make in his audit report to the qualified report of the
auditor of the subsidiary?
A.He must refer to the qualification of the other auditor and qualify his report likewise.
B.He need make no reference.
C.He must include the other auditor’s report with his report and give an explanation of
its significance.
D.He must include the other auditor’s report with his report but need not qualify his
report.
The auditor selects all items above $10 000, which comprise 10 per cent of the items in
the population, and tests 100 per cent of these items. The auditor does not test items
below $10 000. The misstatements found in audit testing total $20 000. Which of the
following statements is false?
A.The auditor cannot extrapolate the results of the audit testing to the population.
B.The auditor has not used an audit sampling approach.
C.The audit testing approach undertaken is permitted by auditing standards.
D.The auditor’s best estimate of error in the population is $200 000.
In auditing through a computer, the test data method is used by auditors to test the:
A.completeness and accuracy of the output.
B.accuracy of input data.
C.normalcy of distribution of test data.
D.programmed control procedures.
Which of the following actions cannot be taken by the auditors to reduce audit risk?
A.Increase the amount of substantive testing of balances at year-end.
B.Reduce the level of inherent risk.
C.Increase the use of analytical procedures.
D.Reduce the level of detection risk.
Assessing control risk at less than high most likely would involve:
A.changing the timing of substantive tests by omitting interim testing and performing
the tests at year-end.
B.identifying specific internal controls relevant to specific assertions.
C.performing more extensive substantive tests with larger sample sizes than originally
planned.
D.reducing inherent risk for most of the assertions relevant to significant account
balances.
The ASOBAC definition of auditing refers to auditing as a ‘systematic process of
objectively obtaining and evaluating evidence regarding assertions…’. What is meant by
‘systematic process’?
A.All audits involve evaluating evidence in the same manner.
B.All audits involve obtaining the same evidence.
C.All assertions are equally important for all audits.
D.There should be a well-planned approach for conducting the audit.
Information in the Chairman’s Address, accompanying the financial report in an entity’s
annual report, is inconsistent with information contained in the audited financial report.
The entity refuses to alter the Chairman’s address. The appropriate audit report is:
A.a disclaimer of opinion.
B.a qualified opinion.
C.an unqualified opinion.
D.an unqualified opinion with an ’emphasis of matter’ paragraph.
An auditor would be least likely to use confirmation in connection with the examination
of:
A.income tax expense.
B.inventories.
C.accounts receivable.
D.long-term debt.
Audit sampling is the application of an audit procedure:
A.using statistical methods to evaluate the propriety of the account balance or class of
transactions.
B.to less than 100 per cent of the items within an account balance or class of
transactions for the purpose of evaluating some characteristics of the balance or class.
C.applied to items selected randomly.
D.on a test basis.
In testing plant and equipment balances, an auditor may inspect new additions listed on
the analysis of plant and equipment. This procedure is designed to obtain evidence
concerning management’s assertions about classes of transactions and events, and
specifically, which assertion?
A.Occurrence.
B.Cutoff.
C.Accuracy.
D.Classification.
Which of the following statements best describes the term ‘outcomes’ in a performance
audit?
A.Number of units produced.
B.Service provided by a particular government program.
C.Consequences for the community of the government program.
D.Economy and efficiency of resources used in achieving outputs.
Which of the following is not a requirement to be a registered company auditor?
A.Be ordinarily a resident in Australia.
B.Be a member of an approved accounting body.
C.Have five years of auditing experience.
D.Be a fit and proper person.
An auditor who accepts an audit engagement and does not possess the industry
expertise of the business entity should:
A.engage financial experts familiar with the nature of the business entity.
B.obtain a knowledge of matters that relate to the nature of the entity’s business.
C.refer a substantial portion of the audit to another auditor who will act as the principal
auditor.
D.first inform management that an unqualified opinion cannot be issued.
An auditor finds evidence that warehouse staff are fraudulently claiming overtime. The
auditor should:
A.further investigate the matter and report it to management when concrete evidence
has been obtained.
B.report the matter to management in the year-end management letter.
C.report the matter to management immediately if the expected financial effect of the
fraud is material.
D.report the matter to management immediately.
Forensic audits include all of the following except:
A.manufacturers’ claims about product quality.
B.criminal investigations.
C.matrimonial disputes.
D.employee fraud.
With whom does the primary responsibility for the adequacy of the disclosure in the
financial report and accompanying footnotes rest?
A.Auditor in charge of fieldwork.
B.Management of the entity.
C.Auditor who signs the audit report.
D.Audit clerk who assists in preparing the report and footnotes.
Which of the following input controls is a numeric value computed to provide
assurance that the original value has not been altered in construction or transmission?
A.Hash total.
B.Parity check.
C.Encryption.
D.Check digit.
The responsibility for external audits of financial reports prepared by executive
governments rests with:
A.Auditors-General.
B.Treasury.
C.Joint Committee of Public Accounts and Audit.
D.’Big Four’ audit firms.
It is not appropriate for the audit report to refer a reader to a financial report footnote
for details regarding a(an):
A.limitation in the scope of the audit.
B.additional disclosure with which the auditor concurs.
C.forthcoming litigation proceeding.
D.uncertainty about going concern.
An auditor discovers a likely fraud during an audit but concludes that its effects, if any,
could not be so material as to affect the audit opinion. The auditor should:
A.perform additional audit procedures to determine whether fraud has occurred and, if
so, the amount thereof.
B.report the finding to the appropriate level of the client with the recommendation that
it be pursued to a conclusion.
C.notify the proper authorities.
D.note in the working papers that the amount is immaterial and no further action is
required.
Two months before the year-end the bookkeeper erroneously recorded the receipt of a
long-term bank loan by a debit to cash and a credit to sales. Which of the following is
the most effective procedure for detecting this type of misstatement?
A.Analyse bank confirmation information.
B.Analyse the notes payable journal.
C.Prepare a year-end bank transfer schedule.
D.Prepare a year-end bank reconciliation.
The auditor is most likely to presume that a high risk of a fraud exists if:
A.the client is a multinational company that does business in numerous foreign
countries.
B.the client does business with several related parties.
C.inadequate segregation of duties places an employee in a position to perpetrate and
conceal thefts.
D.inadequate employee training results in lengthy CIS exception reports each month.