Which of the following is intended to detect deviations from prescribed Accounting
Department procedures?
A.Substantive tests specified by a standardised audit program.
B.Tests of controls designed specifically for the client.
C.Analytical tests as designed in the industry audit guide.
D.Computerised analytical tests tailored for the configuration of CIS equipment in use.
Possible misstatements related to the occurrence assertion for payroll transactions
include all of the following except:
A.payments to fictitious employees.
B.payments to terminated employees.
C.payments to valid employees who have not worked.
D.payments to valid employees at a rate in excess of the authorised amount.
Phillippa Thompson was offered the engagement to audit Stump Ltd for the year ended
30 June 20X2. She had served as a director of Stump Ltd until 30 June 20X0, and her
spouse currently owns 1000 of the 10 000 outstanding shares of Stump Ltd. She should:
A.accept the engagement.
B.let her partner accept and conduct the engagement.
C.refuse the engagement because she had served as a director.
D.refuse the engagement because of her spouse’s share ownership.
The primary difference between an audit of the balance sheet and an audit of the
income statement lies in the fact that the audit of the income statement deals with the
verification of:
A.authorisations.
B.transactions and events.
C.cut-offs.
D.presentation and disclosure.
When evaluating risks in accordance with the Australian Risk Management Standard
AS/NZS 4360, what is the order of steps that it is recommended be undertaken?
A.Identify risks, analyse risks, evaluate risks, treat risks.
B.Identify risks, analyse risks, treat risks, evaluate risks.
C.Identify risks, evaluate risks, treat risks, analyse risks.
D.Identify risks, evaluate risks, analyse risks, treat risks.
Which of the following is necessary to audit balances in an on-line IT system in an
environment of destructive updating?
A.Year-end utilisation of audit hooks.
B.Periodic dumping of transaction files.
C.A well-documented audit trail.
D.An integrated test facility.
Tests of controls are performed to determine whether or not:
A.control policies and procedures are functioning as designed.
B.necessary controls are absent.
C.incompatible functions exist.
D.material dollar misstatements exist.
An auditor’s study and evaluation of the internal accounting control system made in
connection with an annual audit is usually not sufficient to express an opinion on an
entity’s system because:
A.the audit cost-benefit relationship permits an auditor to express only reasonable
assurance that the system operates as designed.
B.the evaluation of weaknesses is subjective enough that an auditor should not express
an opinion on the internal accounting controls alone.
C.only those controls on which an auditor intends to rely are reviewed, tested and
evaluated.
D.management may change the internal accounting controls to correct weaknesses.
The control environment component of internal controls includes all of the following
except:
A.management’s operating style.
B.access to computer programs.
C.organisational structure.
D.human resource policies and practices.
Which of the following does not represent an opportunity to commit fraud?
A.Significant related-party transactions.
B.The auditor’s relationship with management is strained.
C.Management is dominated by a single person.
D.The financial report included highly subjective estimates.
An auditor obtains knowledge about a new client’s business and its industry in order to:
A.make constructive suggestions concerning improvements to the client’s internal
control.
B.develop an attitude of professional scepticism concerning management’s financial
report assertions.
C.evaluate whether the aggregation of known misstatements causes the financial report
taken as a whole to be materially misstated.
D.understand the events and transactions that may have an effect on the client’s
financial report.
Your client is a manufacturer of CDs and music tapes. Theft has been an ongoing
problem. The key audit risk to be addressed at year-end is:
A.valuation and allocation of inventory.
B.existence of inventory.
C.rights and obligations in relation to inventory.
D.completeness of inventory.
All of the following can assist the auditor in testing the existence assertion for
investment securities except:
A.physical examination.
B.comparing fair value to cost.
C.confirmation with the issuer of the securities.
D.confirmation with the custodian.
The major comparative advantage that the profession has in the provision of assurance
services rests with its:
A.integrity and objectivity for all assurance engagements.
B.genuine interest in serving the public for all assurance engagements.
C.ability to exercise due professional care for all subject matter.
D.subject matter expertise for all subject matter.
Alpha Company uses its sales invoices for posting perpetual inventory records.
Inadequate control procedures over the invoicing function allow goods to be
INVOICED that are not SHIPPED. 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.
APES 110 would be violated if an auditor accepted a fee for services and the fee was:
A.fixed by a public authority.
B.based on a price quotation submitted in competitive bidding.
C.based on time spent at standard charge rates.
D.payable after a specified finding was attained in a review of a financial report.
Tests of controls of an advanced IT system:
A.can be performed using actual transactions or simulated transactions.
B.can be performed using only actual transactions since testing of simulated
transactions is of no consequence.
C.is inadvisable because it may distort the evidence in master files.
D.is impractical since many procedures within the CIS activity leave no visible
evidence of having been performed.
Public sector entities are required to prepare financial reports based on:
A.cash accounting.
B.accrual accounting.
C.fund accounting.
D.all of the given answers are correct.
Which of the following can be considered to be an example of an effectiveness outcome
performance indicator?
A.A reduction in the number and severity of injuries resulting from a road safety
program.
B.The number of patients treated in a health clinic.
C.A decline in caseloads for social workers.
D.The cost of a job training program for long-term unemployed per person placed in
permanent employment.
A primary purpose of internal controls is to:
A.form a basis for evaluating employees.
B.monitor production quality.
C.avoid clerical errors.
D.meet objectives of maintaining sound documents and records and accurate financial
reporting.
Which of the following would be an improper technique when using statistical
sampling in an audit of accounts receivable?
A.Using a sampling technique in which the same account balance could be selected
more than once.
B.Combining negative and positive dollar misstatements in the evaluation of a sample.
C.Defining the sampling unit in the population as an individual dollar and not as an
individual account balance.
D.Selecting a random starting point and then sampling every Nth dollar.
An entity operates in a highly regulated industry with special, legislated reporting
requirements, with which it has complied. However, this has resulted in it not
complying with the requirements of some Australian Accounting Standards. Note 1 to
the accounts states that the accounts are prepared in conformity with both the special
legislated reporting requirements and the Australian Accounting Standards. What type
of audit opinion should be issued?
A.An adverse opinion.
B.A qualified opinion.
C.An unqualified opinion with regards the special legislation and a qualified opinion
with regards the departure from Australian Accounting Standards.
D.An unqualified opinion with an ’emphasis of matter’ paragraph.
Internal control is a function of management, and effective control is based upon the
concept of charge and discharge of responsibility and duty. Which of the following is
one of the overriding principles of internal control?
A.Responsibility for accounting and financial duties should be assigned to one
responsible officer.
B.Responsibility for the performance of each duty must be fixed.
C.Responsibility for the accounting duties must be borne by the audit committee of the
company.
D.Responsibility for accounting activities and duties must be assigned only to
employees who are bonded.
When an auditor expresses an adverse opinion, the opinion paragraph should include:
A.a direct reference to a separate qualification paragraph disclosing the basis for the
opinion.
B.the principal effects of the departure from generally accepted accounting principles.
C.a description of the uncertainty or scope limitation that prevents an unqualified
opinion.
D.the substantive reasons for the financial statements being misleading.
Which of the following activities would most likely be performed in the IT department?
A.Initiation of changes to master records.
B.Conversion of information to machine-readable form.
C.Correction of transactional errors.
D.Initiation of changes to existing applications.
Adequate planning should:
A.ensure that appropriate attention is devoted to important areas of the audit and that
potential risk areas and problems are promptly identified.
B.automatically lead to a reduction in the amount of test of controls undertaken.
C.ensure that directors and senior management are involved in all major aspects of the
audit process.
D.result in a reduction of the audit fee.
Which of the following is a necessary condition in order that a practitioner undertake an
attest engagement to examine and report on an entity’s internal control over financial
reporting?
A. Management presents its written assertion about the effectiveness of internal control.
B. The practitioner anticipates relying on the entity’s internal control in a financial
report audit.
C. Management agrees not to present the practitioner’s report in a general-use document
to shareholders.
D. The practitioner is a continuing auditor who previously has audited the entity’s
financial report.
Which of the following statements concerning AAS 27 ‘Financial Reporting by Local
Governments’ is not correct?
A.AAS 27 deems each local government to be a reporting entity.
B.AAS 27 requires each local government to prepare general purpose financial reports.
C.AAS 27 requires local governments to use accrual accounting.
D.Where local governments are required to use fund accounting for grant purposes,
they do not need to prepare general purpose financial reports.
In the course of the audit of a financial report for the purpose of expressing an opinion
thereon, the auditor will normally prepare a schedule of unadjusted differences for
which the auditor did not propose adjustment when they were uncovered. What is the
primary purpose served by this schedule?
A.To point out to the responsible client officials the errors made by various company
personnel.
B.To summarise the adjustments that must be made before the company can prepare
and submit its tax return.
C.To identify the potential financial report effects of misstatements or disputed items
that were considered when discovered.
D.To summarise the misstatements made by the company so the corrections can be
made after the audited financial report is released.
As part of trade creditors testing, an auditor reviews cash payments made post balance
date. This is done mainly to gain evidence about the:
A.valuation and allocation assertion.
B.rights and obligations assertion.
C.completeness assertion.
D.existence assertion.