An auditor is selecting a random sample of cash disbursements. One of the
corresponding source documents for a selected random number is a voided cheque. The
auditor should:
A.treat the cheque as a deviation.
B.reduce the sample size by one.
C.select the cheque immediately before or after the one that corresponds to the random
number.
D.none of the given answers are correct.
From the auditor’s point of view, inventory counts are more acceptable prior to the
year-end when:
A.accurate perpetual inventory records are maintained.
B.control risk is high.
C.significant amounts of inventory are held on a consignment basis.
D.inventory turnover has decreased from the prior year.
Shareholders attending the Annual General Meeting of a company held in accordance
with the Corporations Act 2001, must be allowed a reasonable opportunity to ask
questions of the auditor relevant to:
A.the preparation and content of the audit report.
B.the accounting policies adopted by the company.
C.the independence of the auditor.
D.all of the given answers are correct.
The basic concept of internal control which recognises that the cost of internal control
should not exceed the benefits expected to be derived is known as:
A.reasonable assurance.
B.management responsibility.
C.limited liability.
D.management by exception.
What is the general character of the work conducted in performing a forensic audit?
A.Detecting or deterring fraudulent activity.
B.Providing assurance that the financial report is not materially misstated.
C.Identifying the causes of an entity’s financial difficulties.
D.Offering an opinion on the reliability of the specific assertions made by management.
Which of the following is an advantage of generalised audit software?
A.They can be used for audits of clients that use differing IT equipment and file
formats.
B.They are all written in one identical computer language.
C.Their use can be substituted for a relatively large part of the required tests of controls.
D.They have reduced the need for the auditor to study input controls for IT-related
procedures.
To verify that all sales transactions have been recorded (the completeness assertion), a
test of transactions should be completed on a representative sample drawn from:
A.the billing clerk’s file of sales orders.
B.entries in the sales journal.
C.the shipping clerk’s file of duplicate copies of bills of lading (goods shipped notices).
D.a file of duplicate copies of sales invoices for which all prenumbered forms in the
series have been accounted for.
When an adverse opinion is expressed, the opinion paragraph should include a direct
reference to:
A.the paragraph outlining the auditor’s responsibility, which discusses the basis for the
opinion rendered.
B.a footnote to the financial report which discusses the basis for the opinion.
C.the consistency or lack of consistency in the application of accounting principles.
D.a separate qualification paragraph which discusses the basis for the opinion rendered.
Inquiry of the previous auditor is:
A.required about matters that have a bearing on acceptance of the client.
B.required after acceptance of a new client regarding matters the successor believes
may affect the conduct of his or her audit.
C.helpful to the successor and may facilitate the successor’s audit, but is not required
either before or after acceptance of the client.
D.required only if the change in auditors resulted from a disagreement between the
client and previous auditors.
Audit documentation:
A.must be in electronic form.
B.must be only in paper form.
C.is not required, but is strongly recommended.
D.may be in paper, electronic, or some other form.
Which of the following is an example of deontological ethics?
A.Egoism.
B.Utilitarianism.
C.The principle of beneficence.
D.Virtues.
In considering materiality for planning purposes, an auditor believes that misstatements
aggregating $10 000 would have a material effect on an entity’s profit and loss
statement but that misstatements would have to aggregate $20 000 to materially affect
the balance sheet. Ordinarily, it would be appropriate to design auditing procedures that
would be expected to detect misstatements that aggregate:
A.$10 000
B.$15 000
C.$20 000
D.$30 000
Which of the following is not an element of an assurance engagement?
A. Three-party relationship.
B. Approved assurance standards.
C. Suitable criteria.
D. A written assurance report.
An entity is facing significant litigation as a result of dumping oil in the ocean. This is
adequately disclosed in the notes to the financial report. The appropriate audit report is:
A.a qualified opinion.
B.a disclaimer of opinion.
C.an adverse opinion.
D.an unqualified opinion with an ’emphasis of matter’ paragraph.
The use of a header label in conjunction with magnetic tape is most likely to prevent
errors by the:
A.computer operator.
B.key entry operator.
C.computer programmer.
D.maintenance technician.
The auditor will most likely perform extensive tests for possible understatement of:
A.Inventory.
B.Revenues.
C.Accounts Receivable.
D.Liabilities.
Inquiry and analytical procedures ordinarily performed during a review of an entity’s
half-yearly financial report include:
A.inquiries concerning actions taken at meetings of the board of directors.
B.analytical procedures designed to identify material weaknesses in internal accounting
control.
C.inquiries of knowledgeable outside parties such as the client’s attorneys and bankers.
D.analytical procedures designed to test the accounting records by obtaining
corroborating evidential matter.
The profession’s ethical standards most likely are violated when an auditor represents
that specific management consulting services will be performed for a stated fee and it is
apparent at the time of the representation that the:
A.actual fee will be substantially higher.
B.actual fee will be substantially lower than the fees charged by others for comparable
services.
C.auditor will not be independent.
D.fee is a competitive bid.
Which of the following should an auditor obtain from the previous auditor prior to
accepting an audit engagement?
A.Analysis of balance sheet accounts.
B.Analysis of income statement accounts.
C.All matters of continuing accounting significance.
D.Facts that might bear on the integrity of management.
What problem arises if the relationship between cause and effect is not determined in a
performance audit?
A.The impact on the financial report cannot be determined.
B.The audit cannot proceed.
C.The criteria cannot be established.
D.A recommendation cannot be made to address the cause of the problem.
Which of the following is not an ethical decision-making model?
A.Laura Nash model.
B.American Accounting Association model.
C.Mary Guy model.
D.IFAC model.
Which sequence of approaches best describes the way that audits have evolved?
A.Audit Risk approach to Transactions Cycle approach to Balance Sheet approach.
B.Balance Sheet approach to Audit Risk approach to Transactions Cycle approach.
C.Balance Sheet approach to Transactions Cycle approach to Audit Risk approach.
D.Transactions Cycle approach to Balance Sheet approach to Audit Risk approach.
All of the following are typically in the current file except:
A.adjusting journal entries.
B.copies of the audit report.
C.chart of accounts.
D.copies of minutes of important committee meetings.
Which of the following statements is correct?
A.The date of the audit report establishes the date of the auditor’s responsibility for
knowledge of events that should be reflected in the financial report.
B.The only procedures that should be performed after balance date are analytical
procedures.
C.The auditor is responsible for ensuring that events occurring up to the date of the
Annual General Meeting are reflected in the financial report.
D.The audit report should be dated the same date as the Annual General Report.
Which of the following statements best describes the auditor’s responsibility regarding
the detection of fraud?
A.The auditor must extend auditing procedures to actively search for fraud.
B.The auditor is responsible for the failure to detect fraud only when an unqualified
opinion is issued.
C.The auditor is responsible for fraud when such failure results from non-performance
of procedures described in the engagement letter.
D.The auditor must plan the audit so as to have a reasonable expectation of discovering
material fraud.
The auditor faces a risk that the audit will not detect material misstatements that occur
in the accounting process. In regard to minimising this risk, the auditor primarily relies
on:
A.substantive tests.
B.tests of controls.
C.internal control.
D.statistical analysis.
Which of the following tests would the auditor use generalised audit software for in
order to test the completeness assertion of inventory?
A.Identification of inventory items which haven’t been sold for 3 months.
B.A sequence check looking for missing purchase invoice numbers.
C.A sequence check looking for duplicate purchase invoice numbers.
D.Selecting items from the inventory records in order to trace back to physical
inventory counts.
How would increases in tolerable misstatement and assessed level of control risk affect
the sample size in a substantive test of details?
A.An increase in tolerable misstatement would increase sample size, but an increase in
assessed level of control risk would decrease sample size
B.Both an increase in tolerable misstatement and an increase in assessed level of
control risk would increase sample size
C.Both an increase in tolerable misstatement and an increase in assessed level of
control risk would decrease sample size.
D.An increase in tolerable misstatement would decrease sample size, but an increase in
assessed level of control risk would increase sample size.
Unrecorded liabilities search, undertaken when the completeness assertion is of interest,
are most likely to be found during the review of which of the following documents?
A.Unmatched goods received notes.
B.Shipping records.
C.Bills of lading.
D.Unmatched sales invoices.
Internal auditors exercising an independent attitude:
A.is desirable but impossible to achieve.
B.is essential to the effectiveness of the internal audit.
C.would result in the external auditor not having to do any work.
D.cannot be expected.