Question 1

Which of the following tends to be most predictable for purposes of analytical procedures applied as substantive tests?

Accepted Answer

A)  Relationships involving statement of financial position accounts. 
B)  Transactions subject to management discretion. 
C)  Relationships involving income statement accounts. 
D)  Data subject to audit testing in the prior year. 
A)  Relationships involving statement of financial position accounts. 
B)  Transactions subject to management discretion. 
C)  Relationships involving income statement accounts. 
D)  Data subject to audit testing in the prior year. C

Question 2

Auditors sometimes use comparison of ratios as audit evidence. For example, an unexplained decrease in the ratio of gross profit to sales may suggest which of the following possibilities?

Accepted Answer

A)  Unrecorded sales. 
B)  Merchandise purchases charged to selling and general expense. 
C)  Fictitious sales. 
D)  Unrecorded purchases. 
A)  Unrecorded sales. 
B)  Merchandise purchases charged to selling and general expense. 
C)  Fictitious sales. 
D)  Unrecorded purchases. A

Question 3

An auditor who finds that the client has committed an illegal act would be most likely to withdraw from the engagement when the:

Accepted Answer

A)  illegal act affects the auditor's ability to rely on management representations. 
B)  illegal act has material financial report implications. 
C)  illegal act has received widespread publicity. 
D)  auditor cannot reasonably estimate the effect of the illegal act on the financial report. 
A)  illegal act affects the auditor's ability to rely on management representations. 
B)  illegal act has material financial report implications. 
C)  illegal act has received widespread publicity. 
D)  auditor cannot reasonably estimate the effect of the illegal act on the financial report. A

Question 4

An example of an analytical procedure is the comparison of:

Accepted Answer

A)  recorded amounts of major disbursements with appropriate invoices. 
B)  results of a statistical sample with the expected characteristics of the actual population. 
C)  computer-generated data with similar data generated by a manual accounting system. 
D)  financial information with similar information regarding the industry in which the entity operates. 
A)  recorded amounts of major disbursements with appropriate invoices. 
B)  results of a statistical sample with the expected characteristics of the actual population. 
C)  computer-generated data with similar data generated by a manual accounting system. 
D)  financial information with similar information regarding the industry in which the entity operates.

Question 5

Analytical procedures used in planning an audit should focus on identifying:

Accepted Answer

A)  the predictability of financial data from individual transactions. 
B)  the various assertions that are embodied in the financial report. 
C)  areas that may represent specific risk relevant to the audit. 
D)  material weaknesses in internal control. 
A)  the predictability of financial data from individual transactions. 
B)  the various assertions that are embodied in the financial report. 
C)  areas that may represent specific risk relevant to the audit. 
D)  material weaknesses in internal control.

Question 6

The scope and nature of an auditor's contractual obligation to a client ordinarily is established in the:

Accepted Answer

A)  engagement letter. 
B)  Corporations Act 2001. 
C)  management letter. 
D)  client's constitution. 
A)  engagement letter. 
B)  Corporations Act 2001. 
C)  management letter. 
D)  client's constitution.

Question 7

Analytical procedures are:

Accepted Answer

A)  never required. 
B)  required for planning, substantive testing and overall review of the financial report. 
C)  required for planning and overall review of the financial report. 
D)  required during planning only. 
A)  never required. 
B)  required for planning, substantive testing and overall review of the financial report. 
C)  required for planning and overall review of the financial report. 
D)  required during planning only.

Question 8

A prospective client's refusal to give permission to communicate with the previous auditor and review certain portions of the previous auditor's working papers will bear directly on the auditor's decision concerning the:

Accepted Answer

A)  ability to establish consistency in application of accounting principles. 
B)  apparent scope limitation. 
C)  integrity of management. 
D)  adequacy of the planned audit program. 
A)  ability to establish consistency in application of accounting principles. 
B)  apparent scope limitation. 
C)  integrity of management. 
D)  adequacy of the planned audit program.

Question 9

When an auditor is approached to perform an audit for the first time, the auditor should make inquiries of the previous auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining:

Accepted Answer

A)  whether the predecessor's work should be utilised. 
B)  whether the company follows the policy of rotating its auditors. 
C)  whether the predecessor's assessment of control risk has been high. 
D)  whether the engagement should be accepted. 
A)  whether the predecessor's work should be utilised. 
B)  whether the company follows the policy of rotating its auditors. 
C)  whether the predecessor's assessment of control risk has been high. 
D)  whether the engagement should be accepted.

Question 10

Which of the following is not a threat in a SWOT analysis?

Accepted Answer

A)  Changing buyer tastes. 
B)  Additional regulatory requirements. 
C)  Rising sales of substitute products. 
D)  Diversifying into related products. 
A)  Changing buyer tastes. 
B)  Additional regulatory requirements. 
C)  Rising sales of substitute products. 
D)  Diversifying into related products.

Question 11

The auditor is most likely to rely on analytical procedures alone if a balance is:

Accepted Answer

A)  material and internal controls are good. 
B)  immaterial and internal controls are poor. 
C)  immaterial and inherent risk is high. 
D)  immaterial and internal controls are good. 
A)  material and internal controls are good. 
B)  immaterial and internal controls are poor. 
C)  immaterial and inherent risk is high. 
D)  immaterial and internal controls are good.

Question 12

Prior to the acceptance of an audit engagement with a client who has terminated the services of the previous auditor, the proposed auditor should:

Accepted Answer

A)  contact the previous auditor without advising the prospective client and request a complete report of the
Circumstances leading to the termination with the understanding that all information disclosed will be kept confidential. 
B)  accept the engagement without contacting the previous auditor, since the proposed auditor can include audit procedures to verify the reason given by the client for the termination. 
C)  not communicate with the previous auditor, because this would in effect be asking the auditor to violate the confidential relationship between auditor and client. 
D)  advise the client of the intention to contact the previous auditor and request permission for the contact. 
A)  contact the previous auditor without advising the prospective client and request a complete report of the
Circumstances leading to the termination with the understanding that all information disclosed will be kept confidential. 
B)  accept the engagement without contacting the previous auditor, since the proposed auditor can include audit procedures to verify the reason given by the client for the termination. 
C)  not communicate with the previous auditor, because this would in effect be asking the auditor to violate the confidential relationship between auditor and client. 
D)  advise the client of the intention to contact the previous auditor and request permission for the contact.

Question 13

Inquiry of the previous auditor is:

Accepted Answer

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. 
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.

Question 14

An auditor searching for related-party transactions should obtain an understanding of each subsidiary's relationship to the total entity because:

Accepted Answer

A)  intercompany transactions may have been consummated on terms equivalent to arm's length transactions. 
B)  this might reveal whether particular transactions would have taken place if the parties had not been related. 
C)  the business structure may be deliberately designed to obscure related-party transactions. 
D)  this might permit the audit of intercompany account balances to be performed as of concurrent dates. 
A)  intercompany transactions may have been consummated on terms equivalent to arm's length transactions. 
B)  this might reveal whether particular transactions would have taken place if the parties had not been related. 
C)  the business structure may be deliberately designed to obscure related-party transactions. 
D)  this might permit the audit of intercompany account balances to be performed as of concurrent dates.

Question 15

An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity should:

Accepted Answer

A)  engage financial experts familiar with the nature of the business entity. 
B)  obtain 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 unmodified auditor's opinion cannot be issued. 
A)  engage financial experts familiar with the nature of the business entity. 
B)  obtain 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 unmodified auditor's opinion cannot be issued.

Question 16

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:

Accepted Answer

A)  objective judgment. 
B)  independent integrity. 
C)  professional scepticism. 
D)  impartial conservatism. 
A)  objective judgment. 
B)  independent integrity. 
C)  professional scepticism. 
D)  impartial conservatism.

Question 17

Before accepting an engagement to audit a new client, an auditor is required to:

Accepted Answer

A)  make inquiries of the predecessor auditor after obtaining the consent of the prospective client. 
B)  obtain the prospective client's signature on the engagement letter. 
C)  prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan. 
D)  discuss the management representation letter with the prospective client's audit committee. 
A)  make inquiries of the predecessor auditor after obtaining the consent of the prospective client. 
B)  obtain the prospective client's signature on the engagement letter. 
C)  prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan. 
D)  discuss the management representation letter with the prospective client's audit committee.

Question 18

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:

Accepted Answer

A)  judgment by the auditor. 
B)  participation by senior audit team members. 
C)  understanding of complex models. 
D)  advanced training in plausibility formulation. 
A)  judgment by the auditor. 
B)  participation by senior audit team members. 
C)  understanding of complex models. 
D)  advanced training in plausibility formulation.

Question 19

An auditor compares this year's revenues and expenses with those of the previous year and investigates all changes exceeding 10 per cent. By carrying out this procedure the auditor would be most likely to learn that:

Accepted Answer

A)  an increase in property tax rates has not been recognised in the client's accrual. 
B)  the provision for uncollectible accounts is inadequate because of worsening economic conditions. 
C)  fourth-quarter payroll taxes were not paid. 
D)  the client changed its capitalisation policy for small tools. 
A)  an increase in property tax rates has not been recognised in the client's accrual. 
B)  the provision for uncollectible accounts is inadequate because of worsening economic conditions. 
C)  fourth-quarter payroll taxes were not paid. 
D)  the client changed its capitalisation policy for small tools.

Question 20

Significant unexpected differences identified by analytical procedures will usually necessitate:

Accepted Answer

A)  a review of internal control. 
B)  an explanation in the representation letter. 
C)  investigation by the auditor. 
D)  addition of an 'emphasis of matter' paragraph to the auditor's report. 
A)  a review of internal control. 
B)  an explanation in the representation letter. 
C)  investigation by the auditor. 
D)  addition of an 'emphasis of matter' paragraph to the auditor's report.

Which of the following tends to be most predictable for purposes of analytical procedures applied as substantive tests?

Auditors sometimes use comparison of ratios as audit evidence. For example, an unexplained decrease in the ratio of gross profit to sales may suggest which of the following possibilities?

An auditor who finds that the client has committed an illegal act would be most likely to withdraw from the engagement when the:

An example of an analytical procedure is the comparison of:

Analytical procedures used in planning an audit should focus on identifying:

The scope and nature of an auditor's contractual obligation to a client ordinarily is established in the:

Analytical procedures are:

A prospective client's refusal to give permission to communicate with the previous auditor and review certain portions of the previous auditor's working papers will bear directly on the auditor's decision concerning the:

When an auditor is approached to perform an audit for the first time, the auditor should make inquiries of the previous auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining:

Which of the following is not a threat in a SWOT analysis?

The auditor is most likely to rely on analytical procedures alone if a balance is:

Prior to the acceptance of an audit engagement with a client who has terminated the services of the previous auditor, the proposed auditor should:

Inquiry of the previous auditor is:

An auditor searching for related-party transactions should obtain an understanding of each subsidiary's relationship to the total entity because:

An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity should:

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:

Before accepting an engagement to audit a new client, an auditor is required to:

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:

An auditor compares this year's revenues and expenses with those of the previous year and investigates all changes exceeding 10 per cent. By carrying out this procedure the auditor would be most likely to learn that:

Significant unexpected differences identified by analytical procedures will usually necessitate:

Assurance and Auditing: An Overview

The Structure of the Profession

Ethics, Independence and Corporate Governance

The Legal Liability of Auditors Part Two: Planning and Risk

Overview of Elements of the Financial Report Audit Process

Assessing Specific Business Risk

Understanding and Assessing Internal Control Part Three: Tests of Control and Tests of Details

Tests of Controls

Substantive Tests of Transactions and Balances

Audit Sampling Part Four: Completion and Communication

Completion and Review

The Auditors Reporting Obligations Part Five: Other Assurance Services

Internal Auditing

Auditing and Assurance Services in the Public Sector

Other Assurance Services and Advanced Topics

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Exam 6: Planning, Understanding the Entity and Evaluating Business Risk

Which of the following tends to be most predictable for purposes of analytical procedures applied as substantive tests?

Auditors sometimes use comparison of ratios as audit evidence. For example, an unexplained decrease in the ratio of gross profit to sales may suggest which of the following possibilities?

An auditor who finds that the client has committed an illegal act would be most likely to withdraw from the engagement when the:

An example of an analytical procedure is the comparison of:

Analytical procedures used in planning an audit should focus on identifying:

The scope and nature of an auditor's contractual obligation to a client ordinarily is established in the:

Analytical procedures are:

A prospective client's refusal to give permission to communicate with the previous auditor and review certain portions of the previous auditor's working papers will bear directly on the auditor's decision concerning the:

When an auditor is approached to perform an audit for the first time, the auditor should make inquiries of the previous auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining:

Which of the following is not a threat in a SWOT analysis?

The auditor is most likely to rely on analytical procedures alone if a balance is:

Prior to the acceptance of an audit engagement with a client who has terminated the services of the previous auditor, the proposed auditor should:

Inquiry of the previous auditor is:

An auditor searching for related-party transactions should obtain an understanding of each subsidiary's relationship to the total entity because:

An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity should:

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:

Before accepting an engagement to audit a new client, an auditor is required to:

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:

An auditor compares this year's revenues and expenses with those of the previous year and investigates all changes exceeding 10 per cent. By carrying out this procedure the auditor would be most likely to learn that:

Significant unexpected differences identified by analytical procedures will usually necessitate:

Assurance and Auditing: An Overview

The Structure of the Profession

Ethics, Independence and Corporate Governance

The Legal Liability of Auditors Part Two: Planning and Risk

Overview of Elements of the Financial Report Audit Process

Assessing Specific Business Risk

Understanding and Assessing Internal Control Part Three: Tests of Control and Tests of Details

Tests of Controls

Substantive Tests of Transactions and Balances

Audit Sampling Part Four: Completion and Communication

Completion and Review

The Auditors Reporting Obligations Part Five: Other Assurance Services

Internal Auditing

Auditing and Assurance Services in the Public Sector

Other Assurance Services and Advanced Topics

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