Question 1

Which of the following statements concerning the auditor's use of the work of an expert is correct?

Accepted Answer

A) If the auditor believes that the determinations made by the expert are unreasonable, only an adverse auditor's opinion may be issued. 
B) If the expert is related to the client, the auditor is not permitted to use the expert's findings as corroborative evidence. 
C) The expert should be identified in the auditor's report if the auditor has relied on the expert in issuing an unmodified auditor's opinion. 
D) The expert should have an understanding of the auditor's corroborative use of the expert's findings. 
A) If the auditor believes that the determinations made by the expert are unreasonable, only an adverse auditor's opinion may be issued. 
B) If the expert is related to the client, the auditor is not permitted to use the expert's findings as corroborative evidence. 
C) The expert should be identified in the auditor's report if the auditor has relied on the expert in issuing an unmodified auditor's opinion. 
D) The expert should have an understanding of the auditor's corroborative use of the expert's findings. D

Question 2

As part of accounts payable testing, an auditor reviews cash payments made post balance date.This is done mainly to gain evidence about which assertion?

Accepted Answer

A) Valuation and allocation. 
B) Rights and obligations. 
C) Completeness. 
D) Existence. 
A) Valuation and allocation. 
B) Rights and obligations. 
C) Completeness. 
D) Existence. C

Question 3

Which of the following relatively small misstatements would most likely have a material effect on an entity's financial report?

Accepted Answer

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. 
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. A

Question 4

Which of the following tests is intended to detect deviations from prescribed Accounting Department procedures?

Accepted Answer

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 IT equipment in use. 
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 IT equipment in use.

Question 5

Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality?

Accepted Answer

A) Potential for fraud. 
B) The entity is close to violating loan covenants. 
C) Firm policy sets materiality at 5 per cent of pre-tax income. 
D) A small misstatement that would interrupt an earnings trend. 
A) Potential for fraud. 
B) The entity is close to violating loan covenants. 
C) Firm policy sets materiality at 5 per cent of pre-tax income. 
D) A small misstatement that would interrupt an earnings trend.

Question 6

Who is responsible for the preparation of the financial report?

Accepted Answer

A) Auditor. 
B) Management. 
C) Both auditor and management. 
D) None of the answers given are correct. 
A) Auditor. 
B) Management. 
C) Both auditor and management. 
D) None of the answers given are correct.

Question 7

Which of the following procedures would be least likely to be included in an auditor's test of controls?

Accepted Answer

A) Observation. 
B) Enquiry. 
C) Confirmation. 
D) Inspection. 
A) Observation. 
B) Enquiry. 
C) Confirmation. 
D) Inspection.

Question 8

Your preliminary audit plan for Astro Ltd states that planning materiality is set at one per cent of total assets.This planning materiality amount:

Accepted Answer

A) will need to be used for evaluation at the end of the engagement to judge the overall presentation of the financial report, because that was the level used to set the scope of testing. 
B) should not be revised in mid-audit. 
C) may be revised based on the results of audit tests and new information as the audit progresses. 
D) is appropriate for planning, but the evaluation materiality amount must be based on a percentage of revenue. 
A) will need to be used for evaluation at the end of the engagement to judge the overall presentation of the financial report, because that was the level used to set the scope of testing. 
B) should not be revised in mid-audit. 
C) may be revised based on the results of audit tests and new information as the audit progresses. 
D) is appropriate for planning, but the evaluation materiality amount must be based on a percentage of revenue.

Question 9

In planning an audit engagement, which of the following is a factor that affects the independent auditor's judgment as to the quantity, type and content of working papers?

Accepted Answer

A) The estimated occurrence rate of attributes. 
B) The preliminary evaluations based upon initial substantive testing. 
C) The content of the client's representation letter. 
D) The anticipated nature of the auditor's report. 
A) The estimated occurrence rate of attributes. 
B) The preliminary evaluations based upon initial substantive testing. 
C) The content of the client's representation letter. 
D) The anticipated nature of the auditor's report.

Question 10

Which of the following is the least persuasive documentation in support of an auditor's opinion?

Accepted Answer

A) Schedules of details of physical inventory counts conducted by the client. 
B) Documentation in the audit working papers of inferences drawn by the auditor from analytical ratios and trends. 
C) Notation of experts' conclusions documented in the auditor's working papers. 
D) Lists of negative confirmation requests for which the auditor received no response. 
A) Schedules of details of physical inventory counts conducted by the client. 
B) Documentation in the audit working papers of inferences drawn by the auditor from analytical ratios and trends. 
C) Notation of experts' conclusions documented in the auditor's working papers. 
D) Lists of negative confirmation requests for which the auditor received no response.

Question 11

Inherent risk and control risk differ from detection risk in that they:

Accepted Answer

A) arise from the misapplication of auditing procedures. 
B) may be assessed in either quantitative or non-quantitative terms. 
C) exist independently of the financial report audit. 
D) can be changed at the auditor's discretion. 
A) arise from the misapplication of auditing procedures. 
B) may be assessed in either quantitative or non-quantitative terms. 
C) exist independently of the financial report audit. 
D) can be changed at the auditor's discretion.

Question 12

Original accounting data comprises:

Accepted Answer

A) the basic data related to entity transactions. 
B) information contained in the financial report. 
C) depreciation and amortisation of the entity's assets. 
D) all entries made in an entity's general ledger. 
A) the basic data related to entity transactions. 
B) information contained in the financial report. 
C) depreciation and amortisation of the entity's assets. 
D) all entries made in an entity's general ledger.

Question 13

Audit documentation:

Accepted Answer

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. 
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.

Question 14

Evidence is reliable if it:

Accepted Answer

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. 
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.

Question 15

Audit documents record the results of the auditor's evidence-gathering procedures.When preparing audit documents, the auditor should remember that:

Accepted Answer

A) audit documents should be kept on the client's premises so that the client can have access to them for reference purposes. 
B) audit documents should be the primary support for the financial report being examined. 
C) audit documents should be considered as a substitute for the client's accounting records. 
D) audit documents should be designed to meet the circumstances and the auditor's needs on each engagement. 
A) audit documents should be kept on the client's premises so that the client can have access to them for reference purposes. 
B) audit documents should be the primary support for the financial report being examined. 
C) audit documents should be considered as a substitute for the client's accounting records. 
D) audit documents should be designed to meet the circumstances and the auditor's needs on each engagement.

Question 16

Which of the following would an auditor be most likely to use in determining the preliminary judgment about materiality?

Accepted Answer

A) The entity's annualised interim financial statements. 
B) The contents of the management representation letter. 
C) The results of the internal control questionnaire. 
D) The anticipated sample size of the planned substantive tests. 
A) The entity's annualised interim financial statements. 
B) The contents of the management representation letter. 
C) The results of the internal control questionnaire. 
D) The anticipated sample size of the planned substantive tests.

Question 17

In a financial report audit, which of the following procedures is a substantive test of transactions?

Accepted Answer

A) Testing for evidence of approval of invoices. 
B) Testing recorded sales with supporting delivery dockets. 
C) Confirming debtors' accounts. 
D) Comparing this year's balance with the previous year. 
A) Testing for evidence of approval of invoices. 
B) Testing recorded sales with supporting delivery dockets. 
C) Confirming debtors' accounts. 
D) Comparing this year's balance with the previous year.

Question 18

This is your first audit of Storm Ltd.During the initial planning you have discovered that the client lacks receiving reports and a policy as to the timing within which to record purchases.You have also observed that there are many adjusting entries to accounts payable, which is a material balance.The audit assertion most at risk when auditing accounts payable is:

Accepted Answer

A) existence. 
B) valuation and allocation. 
C) completeness. 
D) rights and obligations. 
A) existence. 
B) valuation and allocation. 
C) completeness. 
D) rights and obligations.

Question 19

Which of the following is not a primary purpose of audit working papers?

Accepted Answer

A) To assist in preparation of the auditor's report. 
B) To support the financial report. 
C) To provide evidence of the audit work performed. 
D) To coordinate the audit. 
A) To assist in preparation of the auditor's report. 
B) To support the financial report. 
C) To provide evidence of the audit work performed. 
D) To coordinate the audit.

Question 20

Audit evidence can come in different forms with different degrees of persuasiveness.Which of the following is the least persuasive type of evidence?

Accepted Answer

A) Documents mailed by outsiders to the auditor. 
B) Correspondence between the auditor and suppliers. 
C) Sales invoices inspected by the auditor. 
D) Calculations made by the auditor. 
A) Documents mailed by outsiders to the auditor. 
B) Correspondence between the auditor and suppliers. 
C) Sales invoices inspected by the auditor. 
D) Calculations made by the auditor.

Which of the following statements concerning the auditor's use of the work of an expert is correct?

As part of accounts payable testing, an auditor reviews cash payments made post balance date.This is done mainly to gain evidence about which assertion?

Which of the following relatively small misstatements would most likely have a material effect on an entity's financial report?

Which of the following tests is intended to detect deviations from prescribed Accounting Department procedures?

Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality?

Who is responsible for the preparation of the financial report?

Which of the following procedures would be least likely to be included in an auditor's test of controls?

Your preliminary audit plan for Astro Ltd states that planning materiality is set at one per cent of total assets.This planning materiality amount:

In planning an audit engagement, which of the following is a factor that affects the independent auditor's judgment as to the quantity, type and content of working papers?

Which of the following is the least persuasive documentation in support of an auditor's opinion?

Inherent risk and control risk differ from detection risk in that they:

Original accounting data comprises:

Audit documentation:

Evidence is reliable if it:

Audit documents record the results of the auditor's evidence-gathering procedures.When preparing audit documents, the auditor should remember that:

Which of the following would an auditor be most likely to use in determining the preliminary judgment about materiality?

In a financial report audit, which of the following procedures is a substantive test of transactions?

Which of the following is not a primary purpose of audit working papers?

Audit evidence can come in different forms with different degrees of persuasiveness.Which of the following is the least persuasive type of evidence?

Assurance and Auditing: An Overview

Audit Regulation, Structure of the Profession and Auditors Liability

Ethics, Independence and Corporate Governance

Planning, Understanding the Entity and Assessing Business Risk

Assessing Inherent Risk, and Other Specific Business Risks

Understanding and Assessing Internal Control

Tests of Controls

Substantive Tests of Transactions and Balances

Completion and Review

The Auditors Reporting Obligations

Other Assurance Services and Advanced Topics

Internal Auditing

Audit and Assurance Services in the Public Sector

Filters

Exam 4: Overview of Elements of the Financial Report Audit Process

Which of the following statements concerning the auditor's use of the work of an expert is correct?

As part of accounts payable testing, an auditor reviews cash payments made post balance date.This is done mainly to gain evidence about which assertion?

Which of the following relatively small misstatements would most likely have a material effect on an entity's financial report?

Which of the following tests is intended to detect deviations from prescribed Accounting Department procedures?

Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality?

Who is responsible for the preparation of the financial report?

Which of the following procedures would be least likely to be included in an auditor's test of controls?

Your preliminary audit plan for Astro Ltd states that planning materiality is set at one per cent of total assets.This planning materiality amount:

In planning an audit engagement, which of the following is a factor that affects the independent auditor's judgment as to the quantity, type and content of working papers?

Which of the following is the least persuasive documentation in support of an auditor's opinion?

Inherent risk and control risk differ from detection risk in that they:

Original accounting data comprises:

Audit documentation:

Evidence is reliable if it:

Audit documents record the results of the auditor's evidence-gathering procedures.When preparing audit documents, the auditor should remember that:

Which of the following would an auditor be most likely to use in determining the preliminary judgment about materiality?

In a financial report audit, which of the following procedures is a substantive test of transactions?

Which of the following is not a primary purpose of audit working papers?

Audit evidence can come in different forms with different degrees of persuasiveness.Which of the following is the least persuasive type of evidence?

Assurance and Auditing: An Overview

Audit Regulation, Structure of the Profession and Auditors Liability

Ethics, Independence and Corporate Governance

Planning, Understanding the Entity and Assessing Business Risk

Assessing Inherent Risk, and Other Specific Business Risks

Understanding and Assessing Internal Control

Tests of Controls

Substantive Tests of Transactions and Balances

Completion and Review

The Auditors Reporting Obligations

Other Assurance Services and Advanced Topics

Internal Auditing

Audit and Assurance Services in the Public Sector

Filters