Question 1

To become a registered company auditor, a person must be:

Accepted Answer

A) a fit and proper person. 
B) a member of one of the accounting bodies. 
C) ordinarily resident in Australia. 
D) All of the given answers are correct. 
A) a fit and proper person. 
B) a member of one of the accounting bodies. 
C) ordinarily resident in Australia. 
D) All of the given answers are correct.

Question 2

Simpson & Associates issued an unmodified auditor's opinion on the financial report of Ridge Ltd (Ridge).Simpson & Associates did not detect material misstatements in the financial report as a result of negligence in the performance of the audit.Based upon the financial report, Clark purchased shares in Ridge.Shortly afterwards, Ridge became insolvent, causing the price of the shares to decline drastically.Clark has commenced legal action against Simpson amp; Associates for damages.Simpson & Associates' best defence to such an action would be that:

Accepted Answer

A) Clark lacks a contractual relationship as a basis to sue. 
B) the engagement letter specifically disclaimed all liability to third parties. 
C) there is no proof of proximity. 
D) there has been no subsequent sale of the shares for which a precise loss can be calculated. 
A) Clark lacks a contractual relationship as a basis to sue. 
B) the engagement letter specifically disclaimed all liability to third parties. 
C) there is no proof of proximity. 
D) there has been no subsequent sale of the shares for which a precise loss can be calculated.

Question 3

An auditor can be sued for damages under which of the following Acts?

Accepted Answer

A) Crimes Act 1914. 
B) ASIC Act 2001. 
C) Corporations Act 2001. 
D) None of the given answers are correct. 
A) Crimes Act 1914. 
B) ASIC Act 2001. 
C) Corporations Act 2001. 
D) None of the given answers are correct.

Question 4

Common law requires that the auditor:

Accepted Answer

A) guarantees their work. 
B) performs their work with due care. 
C) discovers all fraud. 
D) checks all transactions. 
A) guarantees their work. 
B) performs their work with due care. 
C) discovers all fraud. 
D) checks all transactions.

Question 5

Privity letters are issued by auditors to:

Accepted Answer

A) limit the auditor's liability to a specified amount. 
B) disclaim any liability. 
C) establish proximity and foreseeability. 
D) None of the given answers are correct. 
A) limit the auditor's liability to a specified amount. 
B) disclaim any liability. 
C) establish proximity and foreseeability. 
D) None of the given answers are correct.

Question 6

Membership of the International Auditing and Assurance Standards Board (IAASB) consists of:

Accepted Answer

A) international audit firms. 
B) International Federation of Accountants (IFA
C)  member bodies. 
C) non-auditor representatives. 
D) All of the given answers are correct. 
A) international audit firms. 
B) International Federation of Accountants (IFA
C)  member bodies. 
C) non-auditor representatives. 
D) All of the given answers are correct.

Question 7

A claim for a breach of duty of care might arise against an auditor if:

Accepted Answer

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 finance company made a loss due to a loan made to the entity based on figures in an audited financial report commissioned by the entity. 
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 finance company made a loss due to a loan made to the entity based on figures in an audited financial report commissioned by the entity.

Question 8

Cases that have allowed the auditor to use the defence of contributory negligence include:

Accepted Answer

A) Kingston Cotton Mill. 
B) Pacific Acceptance. 
C) AWA. 
D) None of the given answers are correct. 
A) Kingston Cotton Mill. 
B) Pacific Acceptance. 
C) AWA. 
D) None of the given answers are correct.

Question 9

A basic objective of an audit firm is to provide professional services in conformance with professional standards.Reasonable assurance of achieving this basic objective is provided through:

Accepted Answer

A) continuing professional education. 
B) a system of quality control. 
C) compliance with Australian Securities Exchange listing requirements. 
D) a system of peer review. 
A) continuing professional education. 
B) a system of quality control. 
C) compliance with Australian Securities Exchange listing requirements. 
D) a system of peer review.

Question 10

An auditor's duty of care to a client would most likely be breached if the auditor failed to:

Accepted Answer

A) meet their reporting deadline. 
B) detect all of a client's fraudulent activities. 
C) conduct the audit for the most competitive price. 
D) comply with all relevant auditing standards. 
A) meet their reporting deadline. 
B) detect all of a client's fraudulent activities. 
C) conduct the audit for the most competitive price. 
D) comply with all relevant auditing standards.

Question 11

In pursuing the audit firm's quality control objectives, the firm may maintain records indicating which partners or employees of the firm were previously employed by the firm's clients.Which quality control objective would this be most likely to satisfy?

Accepted Answer

A) Professional relationship. 
B) Supervision. 
C) Independence. 
D) Advancement. 
A) Professional relationship. 
B) Supervision. 
C) Independence. 
D) Advancement.

Question 12

Which of the following statements is correct?

Accepted Answer

A) The Australian Securities and Investments Commission is a member of the International Forum of Independent Audit Regulators. 
B) International auditing standards are mandatory for all auditors. 
C) The Financial Reporting Council is a member of the International Federation of Accountants. 
D) Membership of the International Auditing and Assurance Standards Board is restricted to members of the Forum of Firms. 
A) The Australian Securities and Investments Commission is a member of the International Forum of Independent Audit Regulators. 
B) International auditing standards are mandatory for all auditors. 
C) The Financial Reporting Council is a member of the International Federation of Accountants. 
D) Membership of the International Auditing and Assurance Standards Board is restricted to members of the Forum of Firms.

Question 13

ABC Ltd (ABC) engaged the accounting firm of Ace & King to perform its annual audit.Ace amp; King performed the audit in a competent, non-negligent manner and billed ABC for $30 000, the agreed fee.Shortly after delivery of the audited financial report, Sam Lloyd, the assistant controller, disappeared, taking with him $40 000 of ABC's funds.It was then discovered that Sam had been engaged in a highly sophisticated, novel defalcation scheme during the past year.He had previously embezzled $50 000 of ABC's funds.ABC has refused to pay the auditor's fee and is seeking to recover the $90 000 that was stolen by Sam.Which of the following is correct?

Accepted Answer

A) The auditor cannot recover the audit fee and is liable for $90 000. 
B) The auditor is entitled to collect the audit fee and is not liable for $90 000. 
C) ABC is entitled to recover the $40 000 defalcation of the current year and is not liable for the $30 000 fee. 
D) ABC is entitled to rescind the audit contract and thus is not liable for the $30 000 fee, but it cannot recover damages. 
A) The auditor cannot recover the audit fee and is liable for $90 000. 
B) The auditor is entitled to collect the audit fee and is not liable for $90 000. 
C) ABC is entitled to recover the $40 000 defalcation of the current year and is not liable for the $30 000 fee. 
D) ABC is entitled to rescind the audit contract and thus is not liable for the $30 000 fee, but it cannot recover damages.

Question 14

The CLERP 9 reforms now provide for limitation of auditor's liability through:

Accepted Answer

A) a statutory cap. 
B) proportionate liability. 
C) incorporation. 
D) All of the given answers are correct. 
A) a statutory cap. 
B) proportionate liability. 
C) incorporation. 
D) All of the given answers are correct.

Question 15

Big Ltd wished to acquire the ordinary shares of Small Pty Ltd and engaged Albert & Associates to audit the financial report of Small Pty Ltd.Albert & Associates failed to discover a significant liability when performing the audit.In a common law action against Albert & Associates, Big Ltd, at a minimum, must prove:

Accepted Answer

A) negligence on the part of Albert & Associates. 
B) fraud on the part of Albert & Associates. 
C) that Albert & Associates knew that the liability existed. 
D) All of the given answers are correct. 
A) negligence on the part of Albert & Associates. 
B) fraud on the part of Albert & Associates. 
C) that Albert & Associates knew that the liability existed. 
D) All of the given answers are correct.

Question 16

Due professional care does not require:

Accepted Answer

A) critical review at every level of supervision of work done and judgment exercised. 
B) good faith and integrity. 
C) appointment of the auditor by the shareholders. 
D) compliance with the auditing standards. 
A) critical review at every level of supervision of work done and judgment exercised. 
B) good faith and integrity. 
C) appointment of the auditor by the shareholders. 
D) compliance with the auditing standards.

Question 17

Australian auditing standards (ASAs) issued by the Australian Auditing and Assurance Standards Board (AUASB) contain:

Accepted Answer

A) the effective date of the standard. 
B) references to the enforcement provisions of the Corporations Act 2001. 
C) the penalties for non-compliance with the standard. 
D) specific audit procedures to meet the requirements of the standard. 
A) the effective date of the standard. 
B) references to the enforcement provisions of the Corporations Act 2001. 
C) the penalties for non-compliance with the standard. 
D) specific audit procedures to meet the requirements of the standard.

Question 18

The mandatory continuing professional education (CPE) requirement for members of Chartered Accountants Australia and New Zealand is:

Accepted Answer

A) 120 CPE hours every year. 
B) 120 CPE hours every three years. 
C) 60 CPE hours every three years. 
D) 60 CPE hours every year. 
A) 120 CPE hours every year. 
B) 120 CPE hours every three years. 
C) 60 CPE hours every three years. 
D) 60 CPE hours every year.

Question 19

Which of the following bodies monitors the operation of the Auditing and Assurance Standards Board?

Accepted Answer

A) Financial Reporting Council. 
B) Companies Auditors and Liquidators Disciplinary Board. 
C) Australian Securities Exchange. 
D) Australian Securities and Investments Commission. 
A) Financial Reporting Council. 
B) Companies Auditors and Liquidators Disciplinary Board. 
C) Australian Securities Exchange. 
D) Australian Securities and Investments Commission.

Question 20

When performing an audit, an auditor would most likely be considered negligent if they failed to:

Accepted Answer

A) detect all of the client's fraudulent activities. 
B) include a negligence disclaimer in the client engagement letter. 
C) warn the client of any known internal control weaknesses. 
D) warn the client's customers of embezzlement by the client's employees. 
A) detect all of the client's fraudulent activities. 
B) include a negligence disclaimer in the client engagement letter. 
C) warn the client of any known internal control weaknesses. 
D) warn the client's customers of embezzlement by the client's employees.

To become a registered company auditor, a person must be:

An auditor can be sued for damages under which of the following Acts?

Common law requires that the auditor:

Privity letters are issued by auditors to:

Membership of the International Auditing and Assurance Standards Board (IAASB) consists of:

A claim for a breach of duty of care might arise against an auditor if:

Cases that have allowed the auditor to use the defence of contributory negligence include:

A basic objective of an audit firm is to provide professional services in conformance with professional standards.Reasonable assurance of achieving this basic objective is provided through:

An auditor's duty of care to a client would most likely be breached if the auditor failed to:

In pursuing the audit firm's quality control objectives, the firm may maintain records indicating which partners or employees of the firm were previously employed by the firm's clients.Which quality control objective would this be most likely to satisfy?

Which of the following statements is correct?

The CLERP 9 reforms now provide for limitation of auditor's liability through:

Due professional care does not require:

Australian auditing standards (ASAs) issued by the Australian Auditing and Assurance Standards Board (AUASB) contain:

The mandatory continuing professional education (CPE) requirement for members of Chartered Accountants Australia and New Zealand is:

Which of the following bodies monitors the operation of the Auditing and Assurance Standards Board?

When performing an audit, an auditor would most likely be considered negligent if they failed to:

Assurance and Auditing: An Overview

Ethics, Independence and Corporate Governance

Overview of Elements of the Financial Report Audit Process

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 2: Audit Regulation, Structure of the Profession and Auditors Liability

To become a registered company auditor, a person must be:

An auditor can be sued for damages under which of the following Acts?

Common law requires that the auditor:

Privity letters are issued by auditors to:

Membership of the International Auditing and Assurance Standards Board (IAASB) consists of:

A claim for a breach of duty of care might arise against an auditor if:

Cases that have allowed the auditor to use the defence of contributory negligence include:

A basic objective of an audit firm is to provide professional services in conformance with professional standards.Reasonable assurance of achieving this basic objective is provided through:

An auditor's duty of care to a client would most likely be breached if the auditor failed to:

In pursuing the audit firm's quality control objectives, the firm may maintain records indicating which partners or employees of the firm were previously employed by the firm's clients.Which quality control objective would this be most likely to satisfy?

Which of the following statements is correct?

The CLERP 9 reforms now provide for limitation of auditor's liability through:

Due professional care does not require:

Australian auditing standards (ASAs) issued by the Australian Auditing and Assurance Standards Board (AUASB) contain:

The mandatory continuing professional education (CPE) requirement for members of Chartered Accountants Australia and New Zealand is:

Which of the following bodies monitors the operation of the Auditing and Assurance Standards Board?

When performing an audit, an auditor would most likely be considered negligent if they failed to:

Assurance and Auditing: An Overview

Ethics, Independence and Corporate Governance

Overview of Elements of the Financial Report Audit Process

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