Question 1

Which of the following is not an inherent limitation of an audit?

Accepted Answer

A)  time lapse between the balance date and the presentation of the audit report. 
B)  audit testing of selective samples. 
C)  forming professional judgements in highly specialised areas. 
D)  all are inherent limitations. 
A)  time lapse between the balance date and the presentation of the audit report. 
B)  audit testing of selective samples. 
C)  forming professional judgements in highly specialised areas. 
D)  all are inherent limitations. D

Question 2

Identify and explain two of the benefits of having audited financial statements.

Accepted Answer

Any two of the following:
Access to capital markets: without audits companies are restricted in the access to capital markets. The ASX in Australia requires that listed companies have their financial statements audited.
A lower cost of capital: audited financial statements are considered less risky by creditors who may then be willing to accept a lower rate of return (interest rate) on their investment.
A deterrent to inefficiency and fraud: knowledge of audits can result in fewer errors by staff as they are more careful. They can also reduce the occurrence of employees misappropriating assets as the employee fraud is more likely to be identified than if there were no audit.
Control and operational improvements: based on observations made during an audit of the financial statements, the independent auditor can suggest how controls could be improved and how greater operating efficiencies within the entity's organisation may be achieved.

Question 3

The primary reasons for the existence of Auditing Standards is:

Accepted Answer

A)  They are necessary to maintain a cost-effective service. 
B)  They will safeguard the auditor when they are sued. 
C)  They provide assurance of the minimum standards that should have been employed by the auditor in arriving at the opinion. 
D)  All of the above 
A)  They are necessary to maintain a cost-effective service. 
B)  They will safeguard the auditor when they are sued. 
C)  They provide assurance of the minimum standards that should have been employed by the auditor in arriving at the opinion. 
D)  All of the above C

Question 4

When auditors issue an audit report that expresses an audit opinion what duty are they fulfilling?

Accepted Answer

A)  the duty to use reasonable care and skill. 
B)  the duty to be independent. 
C)  statutory duty to report to members and to ASIC. 
D)  a procedural duty. 
A)  the duty to use reasonable care and skill. 
B)  the duty to be independent. 
C)  statutory duty to report to members and to ASIC. 
D)  a procedural duty.

Question 5

An auditor must be registered:

Accepted Answer

A)  by the Financial Reporting Council 
B)  by the AUASB 
C)  by the ASIC 
D)  through CPA Australian, the ICAA or the National Institute of Accountants 
A)  by the Financial Reporting Council 
B)  by the AUASB 
C)  by the ASIC 
D)  through CPA Australian, the ICAA or the National Institute of Accountants

Question 6

The work of an internal auditor can be used to complement, but not substitute for, the work of the independent auditor. Which of the following factors is not one of the considerations listed by ASA 610 that is relevant in determining the effect of an internal auditor's work on the audit?

Accepted Answer

A)  past communications of the internal auditors with management 
B)  the organisational status 
C)  the scope of the work. 
D)  technical training and proficiency of the internal auditor. 
A)  past communications of the internal auditors with management 
B)  the organisational status 
C)  the scope of the work. 
D)  technical training and proficiency of the internal auditor.

Question 7

As a general rule, the auditor is appointed by the shareholders at the annual general meeting. Which of the following is not true concerning the appointment of an auditor?

Accepted Answer

A)  In practice the shareholders generally accept the recommendations of the directors concerning the appointment 
B)  the appointment stands for 12 months until the next annual general meeting 
C)  the company is liable to pay reasonable fees and expenses of the auditor. 
D)  an auditor ceases to hold office after a company goes into liquidation. 
A)  In practice the shareholders generally accept the recommendations of the directors concerning the appointment 
B)  the appointment stands for 12 months until the next annual general meeting 
C)  the company is liable to pay reasonable fees and expenses of the auditor. 
D)  an auditor ceases to hold office after a company goes into liquidation.

Question 8

The lapse of time between the balance sheet date and the presentation of the audit report:

Accepted Answer

A)  may be up to four months 
B)  is on average two months 
C)  is not a problem as the auditor is required to undertake a review of subsequent events 
D)  is increasing over time because of the greater number of auditing standards that now apply to audits 
A)  may be up to four months 
B)  is on average two months 
C)  is not a problem as the auditor is required to undertake a review of subsequent events 
D)  is increasing over time because of the greater number of auditing standards that now apply to audits

Question 9

The Corporations Act requires that auditors are competent. To be suitably qualified the person must:

Accepted Answer

A)  be a member of the ICAA, CPA Australia, the National Institute of Accountants or other prescribed body. 
B)  hold a degree, diploma or certificate from a university or other prescribed body. 
C)  be a fit and proper person to be registered as an auditor. 
D)  all of the above. 
A)  be a member of the ICAA, CPA Australia, the National Institute of Accountants or other prescribed body. 
B)  hold a degree, diploma or certificate from a university or other prescribed body. 
C)  be a fit and proper person to be registered as an auditor. 
D)  all of the above.

Question 10

The group which has the legal responsibility for removal of the auditor is:

Accepted Answer

A)  the board of directors 
B)  management. 
C)  the shareholders. 
D)  the audit committee. 
A)  the board of directors 
B)  management. 
C)  the shareholders. 
D)  the audit committee.

Question 11

The most common form of audit opinion is:

Accepted Answer

A)  an 'except for' opinion. 
B)  an adverse opinion. 
C)  an inability to form an opinion. 
D)  an unqualified opinion. 
A)  an 'except for' opinion. 
B)  an adverse opinion. 
C)  an inability to form an opinion. 
D)  an unqualified opinion.

Question 12

Identify and explain two duties of an auditor.

Accepted Answer

Any two of the following:
<u>The duty to

Question 13

Audit committees are perceived to strengthen the independence of auditors. Which of the following is normally an objective of an audit committee?

Accepted Answer

A)  ensuring that the entity operates in the best interests of the shareholders. 
B)  assisting the board of directors to discharge its responsibility to exercise due care, diligence and skill. 
C)  giving advice on the selection of the board of directors 
D)  all are objectives of an audit committee 
A)  ensuring that the entity operates in the best interests of the shareholders. 
B)  assisting the board of directors to discharge its responsibility to exercise due care, diligence and skill. 
C)  giving advice on the selection of the board of directors 
D)  all are objectives of an audit committee

Question 14

In a financial statement audit, the auditor maintains professional relationships with:

Accepted Answer

A)  shareholders and creditors 
B)  the board of directors and ASIC 
C)  the audit committee and the internal auditors 
D)  management and the professional accounting bodies 
A)  shareholders and creditors 
B)  the board of directors and ASIC 
C)  the audit committee and the internal auditors 
D)  management and the professional accounting bodies

Question 15

S.294.of the Corporations Act requires a Directors' Declaration. Which of these is not an inclusion in that declaration?

Accepted Answer

A)  that the financial statements and notes comply with accounting standards. 
B)  that the financial statements and notes are correct and accurate. 
C)  that the financial statements and notes comply with the Corporations Act. 
D)  all are included in the declaration. 
A)  that the financial statements and notes comply with accounting standards. 
B)  that the financial statements and notes are correct and accurate. 
C)  that the financial statements and notes comply with the Corporations Act. 
D)  all are included in the declaration.

Question 16

The words that best describes the relationship which should exist between the external auditor and the management of the client company are:

Accepted Answer

A)  adversarial relationship. 
B)  mutual trust and respect. 
C)  advocacy of management's position. 
D)  skeptical vigilance. 
A)  adversarial relationship. 
B)  mutual trust and respect. 
C)  advocacy of management's position. 
D)  skeptical vigilance.

Question 17

For each of the following items, identify whether they are the responsibility of management or of the auditor.
1.Distribute the annual report to shareholders
2.Deliver the audit report to the entity
3.Obtain and evaluate evidence concerning the financial statements
4.Preparation and presentation of the financial report
5.Designing internal control procedures
6.Express an opinion on the financial statements
7.Selecting appropriate accounting policies
8.Verify financial information is presented in accordance with standards

Accepted Answer

1.Management
2.Audit

Question 18

Which of these is true concerning the audit report format?

Accepted Answer

A)  The standard format may not reflect fully the complexities involved in the audit process and the decision about the audit opinion. 
B)  The auditor is guaranteeing the accuracy of the financial statements and solvency of the entity. 
C)  The auditor is providing early warning signs of company failure. 
D)  All of the statements are true 
A)  The standard format may not reflect fully the complexities involved in the audit process and the decision about the audit opinion. 
B)  The auditor is guaranteeing the accuracy of the financial statements and solvency of the entity. 
C)  The auditor is providing early warning signs of company failure. 
D)  All of the statements are true

Question 19

It is regarded as best practice in regard to the composition of audit committees to

Accepted Answer

A)  have an executive director as chairperson. 
B)  have the external auditor as a member 
C)  have the internal auditor as a member. 
D)  none of the above are regarded as best practice in regard to the composition of audit committees 
A)  have an executive director as chairperson. 
B)  have the external auditor as a member 
C)  have the internal auditor as a member. 
D)  none of the above are regarded as best practice in regard to the composition of audit committees

Question 20

The body that prepares the auditing standards that apply in Australia is:

Accepted Answer

A)  the AUASB. 
B)  the ASIC. 
C)  the AASB. 
D)  the IFAC. 
A)  the AUASB. 
B)  the ASIC. 
C)  the AASB. 
D)  the IFAC.

Which of the following is not an inherent limitation of an audit?

Identify and explain two of the benefits of having audited financial statements.

The primary reasons for the existence of Auditing Standards is:

When auditors issue an audit report that expresses an audit opinion what duty are they fulfilling?

An auditor must be registered:

The work of an internal auditor can be used to complement, but not substitute for, the work of the independent auditor. Which of the following factors is not one of the considerations listed by ASA 610 that is relevant in determining the effect of an internal auditor's work on the audit?

As a general rule, the auditor is appointed by the shareholders at the annual general meeting. Which of the following is not true concerning the appointment of an auditor?

The lapse of time between the balance sheet date and the presentation of the audit report:

The Corporations Act requires that auditors are competent. To be suitably qualified the person must:

The group which has the legal responsibility for removal of the auditor is:

The most common form of audit opinion is:

Identify and explain two duties of an auditor.

Audit committees are perceived to strengthen the independence of auditors. Which of the following is normally an objective of an audit committee?

In a financial statement audit, the auditor maintains professional relationships with:

S.294.of the Corporations Act requires a Directors' Declaration. Which of these is not an inclusion in that declaration?

The words that best describes the relationship which should exist between the external auditor and the management of the client company are:

Which of these is true concerning the audit report format?

It is regarded as best practice in regard to the composition of audit committees to

The body that prepares the auditing standards that apply in Australia is:

An Overview of Auditing

Governance and the Auditor

Professional Ethics, Independence and Audit Quality

Other Assurance Engagements and Quality Standards

The Auditors Legal Liability

The Auditors Report

Client Evaluation and Planning the Audit

Audit Risk Assessment

Materiality and Audit Evidence

Tests of Controls

Designing Substantive Procedures

Audit Sampling

Auditing Sales and Receivables

Auditing Purchases, Payables and Payroll

Auditing Inventories and Property, Plant and Equipment

Auditing Cash and Investments

Completing the Audit

Filters

Exam 4: Overview of the Audit Financial Statements

Which of the following is not an inherent limitation of an audit?

Identify and explain two of the benefits of having audited financial statements.

The primary reasons for the existence of Auditing Standards is:

When auditors issue an audit report that expresses an audit opinion what duty are they fulfilling?

An auditor must be registered:

The work of an internal auditor can be used to complement, but not substitute for, the work of the independent auditor. Which of the following factors is not one of the considerations listed by ASA 610 that is relevant in determining the effect of an internal auditor's work on the audit?

As a general rule, the auditor is appointed by the shareholders at the annual general meeting. Which of the following is not true concerning the appointment of an auditor?

The lapse of time between the balance sheet date and the presentation of the audit report:

The Corporations Act requires that auditors are competent. To be suitably qualified the person must:

The group which has the legal responsibility for removal of the auditor is:

The most common form of audit opinion is:

Identify and explain two duties of an auditor.

Audit committees are perceived to strengthen the independence of auditors. Which of the following is normally an objective of an audit committee?

In a financial statement audit, the auditor maintains professional relationships with:

S.294.of the Corporations Act requires a Directors' Declaration. Which of these is not an inclusion in that declaration?

The words that best describes the relationship which should exist between the external auditor and the management of the client company are:

Which of these is true concerning the audit report format?

It is regarded as best practice in regard to the composition of audit committees to

The body that prepares the auditing standards that apply in Australia is:

An Overview of Auditing

Governance and the Auditor

Professional Ethics, Independence and Audit Quality

Other Assurance Engagements and Quality Standards

The Auditors Legal Liability

The Auditors Report

Client Evaluation and Planning the Audit

Audit Risk Assessment

Materiality and Audit Evidence

Tests of Controls

Designing Substantive Procedures

Audit Sampling

Auditing Sales and Receivables

Auditing Purchases, Payables and Payroll

Auditing Inventories and Property, Plant and Equipment

Auditing Cash and Investments

Completing the Audit

Filters