Which of the following auditing procedures most likely would provide assurance about
a manufacturing entity’s assertion at risk of valuation and allocation of inventory?
A.Testing the entity’s computation of standard overhead rates.
B.Obtaining confirmation of inventories pledged under loan agreements.
C.Reviewing shipping and receiving cutoff procedures for inventories.
D.Tracing test counts to the entity’s inventory listing.
Which of the following relatively small misstatements most likely would have a
material effect on an entity’s financial report?
A.An illegal payment to a foreign official that was not recorded.
B.A piece of obsolete office equipment that was not retired.
C.A petty cash fund disbursement that was not properly authorised.
D.An uncollectible account receivable that was not written off.
Which audit assertion ensures that all recorded sales are valid?
A.Documentation.
B.Vouching.
C.Occurrence.
D.Valuation and allocation.
In determining whether transactions have been recorded, the direction of the audit
testing should be from the:
A.general ledger balances.
B.adjusted trial balance.
C.original source documents.
D.general journal entries.
The accuracy of perpetual inventory records may be established, in part, by comparing
entries on the perpetual records with details from:
A.receiving reports.
B.purchase requisitions.
C.vendor payments.
D.purchase orders.
Which of the following audit objectives relates primarily to the financial report
assertion of presentation and disclosure?
A.Inventories are properly classified in the balance sheet as current assets.
B.Inventories exclude items billed to customers or owned by others.
C.Slow-moving, excess, defective and obsolete items included in inventories are
properly identified.
D.Inventory quantities include all products, materials and supplies owned by the
company that are in transit.
Under privity of contract, a claim for a breach of duty of care might arise against an
auditor if:
A.an existing shareholder suffered losses because he increased his investment in the
company based on figures in the audited financial report.
B.a bank made a loss due to a loan made to the company based on figures in an audited
financial report commissioned by the bank.
C.a new investor suffered losses because she purchased shares in the company based on
figures in the annual audited financial report.
D.a stockbroker made a loss due to a loan made to the company based on figures in an
audited financial report commissioned by the company.
Which of the following is not a primary objective of the auditor when undertaking
substantive tests of transactions and balances of accounts receivable?
A.Determine the adequacy of the internal control structure.
B.Determine the approximate realisable value.
C.Determine the collectibility of the receivables.
D.Establish existence of the receivables.
Auditors are most likely to use focused audit procedures to examine:
A.routine transactions.
B.low-risk assertions.
C.only the rights and obligations assertion.
D.high-risk assertions.
Which of the following is not one of the key areas covered by the OECD Principles of
Corporate Governance?
A.Protection of shareholder’s rights.
B.Responsibilities of the board.
C.Disclosure and transparency.
D.Responsibilities of the auditor.
Because of the risk of material misstatement, an audit of a financial report in
accordance with the auditing standards should be planned and performed with an
attitude of:
A.objective judgment.
B.independent integrity.
C.professional scepticism.
D.impartial conservatism.
Which of the following is not one of the recommendations of the ASX Corporate
governance Council?
A.All the Board should be independent directors.
B.The Board should establish a code of conduct for directors.
C.The roles of chairperson and chief executive should not be exercised by the same
person.
D.The Board should establish an audit committee.
For a Corporations Act 2001 audit, the auditor has reporting obligations to:
A.management and the board of directors.
B.the governing body and members.
C.Australian Securities and Investments Commission (ASIC).
D.all of the given groups.
Responding to a question such as ‘What would happen if…’ is an attribute of which of
the following types of engagements?
A.Financial projection.
B.Financial forecast.
C.Financial forecast and financial projection.
D.Review.
APES 110:
A.prohibits tendering for an audit currently done by another audit firm.
B.encourages but does not require auditors to refrain from unwanted solicitation.
C.requires auditors to act in the public interest.
D.prohibits offers of employment to employees of another audit firm without notice.
As a result of analytical procedures, the independent auditor determines that the gross
profit percentage has declined from 30% in the preceding year to 20% in the current
year. The auditor should.
A.express an opinion that is qualified due to the inability of the client company to
continue as a going concern.
B.evaluate management’s performance in causing this decline.
C.require footnote disclosure.
D.consider the possibility of an error in the financial report.
Which of the following would lessen the effectiveness of the internal control in a
computer system?
A.The computer librarian maintains custody of computer program instructions and
detailed program listings.
B.Computer operators have access to operator instructions and detailed program
listings.
C.The control group maintains sole custody of all computer output before distribution.
D.Computer programmers write and debug programs that perform routines designed by
the systems analyst.
In updating a computerised accounts receivable file, which one of the following would
be used as a batch control to verify the accuracy of the postings of cash receipts
remittances?
A.The sum of the cash deposits, plus the discounts, less the sales returns.
B.The sum of the cash deposits.
C.The sum of the cash deposits, less the discounts taken by customers.
D.The sum of the cash deposits, plus the discounts taken by customers.
Which of the following are suitable criteria for providing assurance on a report of the
effectiveness of internal controls:
A.Australian Accounting Standards.
B.AUS 810 €œSpecial Purpose Reports on the Effectiveness of Control Procedures”.
C.AGS 1006 €œExpression of an Opinion on Internal Control”.
D.The revised COSO framework.
When an auditor increases the planned assessed level of control risk because certain
control procedures were determined to be ineffective, the auditor would most likely
increase the:
A.extent of substantive tests.
B.level of inherent risk.
C.extent of tests of controls.
D.level of detection risk.
For a reporting entity that has participated in related-party transactions that are material,
disclosure in the financial report should include:
A.the nature of the relationship and the terms and manner of settlement.
B.details of the transactions within major classifications.
C.a statement to the effect that a transaction was consummated on terms no less
favourable than those that would have been obtained if the transaction had been with an
unrelated party.
D.a reference to deficiencies in the entity’s internal control.
How does the extent of substantive tests required to constitute sufficient appropriate
audit evidence vary with the auditor’s assessment of control risk?
A.Randomly
B.Disproportionately
C.Directly
D.Inversely
A major customer of an audit client suffers a fire just prior to completion of year-end
fieldwork. The audit client believes that this event could have a significant direct effect
on the financial report. The auditor shoulD.
A.advise management to disclose the event in notes to the financial report.
B.disclose the event in the audit report.
C.withhold submission of the audit report until the extent of the direct effect on the
financial report is known.
D.advise management to adjust the financial report.
Which of the following best describes the auditor’s responsibility for ‘other information’
included in the annual report to shareholders which contains the financial report and the
audit report?
A.The auditor has no obligation to corroborate the ‘other information’ but should read it
to determine whether it is materially inconsistent with the financial report.
B.The auditor has no obligation to read the ‘other information’.
C.The auditor must modify the audit report to state either that the ‘other information is
unaudited’ or that it is ‘not covered by the audit report’.
D.The auditor should extend the audit to the extent necessary to verify the ‘other
information’.
The statement that ‘nothing came to our attention which would indicate that these
statements are not fairly presented’ expresses which of the following?
A.Negative assurance.
B.Disclaimer of an opinion.
C.Piecemeal opinion.
D.Negative confirmation.
The purpose of an internal auditor’s review for effectiveness of the internal control
structure is to ascertain if:
A.the system is functioning efficiently and economically.
B.the system is functioning as intended.
C.financial and operating data are reliable.
D.the entity’s goals and objectives have been achieved.
Which of the following audit procedures would an auditor be least likely to perform
using generalised audit software?
A.Inputting test transactions to ensure that the check digit control is operating.
B.Searching records of accounts receivable balances for credit balances.
C.Listing unusually large inventory balances.
D.Selecting accounts receivable for positive and negative confirmation.
The auditor obtains evidence supporting the notion that proper segregation of duties
exists by:
A.personally observing the employees who apply the control procedures.
B.reviewing job descriptions in the personnel department.
C.preparing a flowchart of duties performed by personnel.
D.performing tests to determine whether control procedures operated consistently
throughout the period.
Which of the following statements is correct?
A.International auditing standards are issued by the International Organisation of
Securities Commissions.
B.International auditing standards are mandatory for all auditors.
C.Membership of the International Federation of Accountants is open only to
accountancy bodies.
D.Membership of the International Auditing and Assurance Standards Board is
restricted to practising auditors.
Which is not an attribute of an external auditor?
A.Independence.
B.Client advocacy.
C.Objectivity.
D.Confidentiality.
Transaction authorisation within an organisation may be either specific or general. An
example of specific transaction authorisation is the:
A.setting of automatic reorder points for material or merchandise.
B.approval of a detailed construction budget for a warehouse.
C.establishment of requirements to be met in determining a customer’s credit limits.
D.establishment of sales prices for products to be sold to any customer.
When an auditor reports on a financial report prepared on an entity’s income tax basis,
the auditor’s report shoulD.
A.disclaim an opinion on whether the report was examined in accordance with
generally accepted auditing standards.
B.disclose that the report is not intended to conform with generally accepted accounting
principles.
C.include an explanation of how the results of operations differ from the cash receipts
and disbursements basis of accounting.
D.not express an opinion on whether the report is presented in conformity with the
comprehensive basis of accounting used.
An auditor should obtain evidential matter relevant to all the following factors
concerning third-party litigation against a client EXCEPT the:
A.period in which the underlying cause for legal action occurred.
B.probability of an unfavourable outcome.
C.jurisdiction in which the matter will be resolved.
D.existence of a situation indicating an uncertainty as to the possible loss.
Positive confirmation procedures are most likely to be a relevant form of evidence with
regard to assertions about accounts receivable when the auditor has concerns about the
receivables’:
A.valuation and allocation.
B.classification.
C.existence.
D.completeness.
Evidence is reliable if it:
A.Signals the true state of an assertion.
B.Applies to the period being audited.
C.Relates to the audit objective being tested.
D.Corroborates management’s assertions.