Deck 19: Other Auditing and Assurance Engagements

Question 1

An auditor may be asked to report on the client's internal control structure. Which one of the following is NOT a reason why the auditor would be asked to prepare this?

A) It is required by contractual obligation on the client.
B) It is required by regulatory obligation on the client.
C) It is required by statutory obligation on the client.
D) It is part of the financial report audit.

Answer 1

D

Question 2

To maximise its effectiveness, the internal audit department should report to the:

A) chief financial officer.
B) shareholders.
C) external auditor.
D) board of directors.

Answer 2

D

Question 3

Before performing a review of a nonpublic entity's financial statements, an accountant should:

A) inquire whether management has omitted substantially all of the disclosures required by generally accepted accounting principles.
B) complete a series of inquiries concerning the entity's procedures for recording, classifying and summarising transactions.
C) obtain a sufficient level of knowledge of the accounting policies of the industry in which the entity operates.
D) apply analytical procedures to provide limited assurance that no material modifications should be made to the financial statements.

Answer 3

C

Question 4

Which of the following is NOT an example of an inefficiency that could be uncovered in a performance audit?

A) The administration work could be completed effectively with less employees.
B) The assembly line shut down as necessary materials were not ordered.
C) Bids for purchases of materials is not required.
D) Purchases of inventory must be from approved suppliers.

Question 5

Projections are:

A) forecasts that have been audited.
B) more hypothetical than forecasts.
C) management's best estimate of the future financial position.
D) more reliable than forecasts.

Question 6

The auditing standards to be utilised by an auditor in undertaking public sector financial audits for the Commonwealth are prescribed by the:

A) Audit and Assurance Standards Board.
B) Auditor General.
C) Corporations Act.
D) Relevant Minister.

Question 7

Which of the following is NOT one of the general types of prospective financial statements included in the attestation standards?

A) Forecasts
B) Earnings estimates
C) Projections
D) All of the above

Question 8

Which one of the following is NOT an additional reporting standard required of ANAO (Australian National Audit Office) auditors?

A) Content
B) Timeliness
C) Form
D) Compliance

Question 9

An assurance report in a prospectus is traditionally called:

A) a Special Purpose Report.
B) a Statutory Review Report.
C) an Investigating Accountant's Report.
D) an Independent Accountant's Report.

Question 10

When the auditor is engaged to report on the internal control structure:

A) only those areas that the auditor has time to report on will be included in the study.
B) all areas of the structure will be included in the study.
C) only those areas where control risk is low will be included in the study.
D) all areas of the structure will be included in the study unless specifically excluded by agreement.

Question 11

A typical objective of a performance audit is to determine whether an entity's:

A) operational information is in accordance with generally accepted government auditing standards.
B) financial statements fairly present the results of operations.
C) specific operating units are functioning efficiently and effectively.
D) internal control is adequately operating as designed.

Question 12

The Commonwealth Auditor- General reports directly to:

A) Parliament.
B) the head of the agency subject to audit.
C) the Governor General.
D) the public.

Question 13

There are several sources that the performance auditor can utilise in developing specific evaluation criteria. An area that would NOT be such a source is:

A) discussion and agreement between the management of the entity to be audited, the operational auditor and the entity or persons to whom the findings will be reported.
B) benchmarking, such as the data of comparable entities.
C) generally accepted accounting principles.
D) historical performance, such as results from prior periods.

Question 14

Which one of the following statements regarding types of performance audits is FALSE?

A) A functional audit has the advantage of permitting specialisation by auditors.
B) The emphasis in an organisational audit is on how efficiently and effectively functions interact.
C) An advantage of functional auditing is its ability to evaluate interrelated functions.
D) Special operational auditing assignments arise at the request of management.

Question 15

Which one of the following is NOT one of the three phases in a performance audit?

A) Evidence accumulation and evaluation
B) Reporting and follow- up
C) Planning
D) Training and supervising employees

Question 16

Which of the following is a compliance element of the NGER (National Greenhouse Energy Reporting) framework that may be covered in an audit?

A) The identifcation and measurement of emissions sources
B) A registered corporation's business structure
C) Record- keeping requirements
D) All of the above

Question 17

The IIA Professional Practice Standards require that internal auditors should be independent of:

A) the activities they audit.
B) their employer.
C) the controller's function within their organisation.
D) the line function within their organisation.

Question 18

When any assets of a superannuation fund are externally managed, the predominant controls are:

A) controls for safeguarding the assets under management.
B) controls for the processing of transactions related to the assets under management.
C) both A and B above
D) none of the above

Question 19

An accountant's report expressing an opinion on an entity's internal control should:

A) clearly disclaim responsibility for the establishment and maintenance of internal control.
B) state that the study and evaluation of internal control was conducted in accordance with generally accepted auditing standards.
C) include an opinion concerning management's assertions about whether the cost of correcting any material weaknesses or deficiency would exceed the benefits of reducing the risk of errors and irregularities.
D) briefly explain the broad objectives and inherent limitations of internal control.

Question 20

A concise report sent to shareholders instead of a full report consists of:

A) a concise financial report.
B) a statement by the auditor.
C) the directors' report.
D) all of the above

Question 21

Which one of the following meets the definition of an examination?

A) An audit of the financial statements
B) A compilation of the financial statements
C) Preparing the annual tax returns
D) A review of the financial statements

Question 22

The two most important qualities for a performance auditor are:

A) independence and competence.
B) personality and appearance.
C) academic background and sufficient experience.
D) competence and technical training.

Question 23

Compliance audits ordered by the regulator under the National Greenhouse and Energy Reporting Act 2007 would be at the cost of:

A) the government.
B) the entity.
C) both A and B above
D) none of the above

Question 24

Before a performance audit for effectiveness can be performed, there must be:

A) a financial audit by an independent auditor.
B) a review performed by either an independent or an internal auditor.
C) a financial audit by an internal auditor.
D) specific criteria developed to define effectiveness.

Question 25

The National Greenhouse and Energy Reporting Act 2007 establishes the legislative framework for:

A) energy consumption and production.
B) reporting greenhouse gas emissions.
C) greenhouse gas projects.
D) all of the above

Question 26

When the auditor is engaged to report on internal control:

A) all areas of internal control will be included unless specifically excluded by agreement.
B) the time period covered must coincide with the financial period of the annual audit.
C) certain areas are not examined if reduced control risk in those areas is not planned.
D) all of the above

Question 27

The key issues for an external auditor evaluating a client's internal audit function are the:

A) timing and scope of internal audit's work.
B) size of the internal audit function and its reporting independence.
C) competence and professionalism of internal audit staff.
D) quality of internal audit work and the independence of the internal audit function.

Question 28

An assurance engagement that results in a negative assurance conclusion is a(n):

A) review.
B) examination.
C) audit.
D) compilation.

Question 29

Which one of the following would be done as part of a review engagement?

A) An evaluation of internal control
B) Analytical procedures
C) Tests of details of balances
D) All of the above

Question 30

A review service includes:

A) obtaining an understanding of the client's internal control.
B) independent confirmation or physical examination.
C) inquiry and analytical procedures.
D) tests of controls or transactions.

Question 31

Which one of the following statements is NOT correct? Under ASA 800, the audit report for special purpose financial reports would:

A) contain an opinion section.
B) identify the financial reporting framework.
C) report the auditor's view of the appropriateness of the financial reporting framework used.
D) indicate that the financial report is a special purpose financial report.

Question 32

Which of the following groups would NOT be involved in a performance audit?

A) Public accounting firms
B) Internal auditors
C) Government auditors
D) None of the above answers is correct; that is, all of the above could be involved.

Question 33

Hickory Company, whose financial statements are unaudited, has engaged an auditor to make a special review and report on Hickory's internal accounting control. In general, to which of the following will this report be LEAST useful?

A) A regulatory agency having jurisdiction over Hickory
B) Present and prospective customers
C) Hickory's management
D) The independent auditor of Hickory's parent company

Question 34

An audit designed to evaluate the efficiency and effectiveness of an organisation or some part thereof would NOT come under the title of:

A) compliance audit.
B) operational audit.
C) performance audit.
D) management audit.

Question 35

The statement that 'nothing came to our attention which would indicate that these statements are not fairly presented' expresses which of the following?

A) Disclaimer of an opinion
B) Negative assurance
C) Piecemeal opinion
D) Negative confirmation

Question 36

'An engagement in which a practitioner is engaged to issue a written communication that expresses a conclusion with respect to the reliability of a written assertion that is the responsibility of another party' is the definition of:

A) a compilation engagement.
B) an assurance engagement.
C) a review engagement.
D) an audit engagement.

Question 37

Independence of internal auditors is enhanced appropriately by having the internal audit department report to the:

A) board of directors.
B) controller.
C) external auditor.
D) treasurer.

Question 38

Government auditors- general have a mandate to conduct:

A) performance audits.
B) financial statement audits.
C) compliance audits.
D) all of the above

Question 39

Which one of the following statements is NOT correct?

A) Objectivity requires that internal auditors have an independent mental attitude.
B) Internal auditors should be independent of the activities they audit.
C) The internal auditor should not be responsible for correcting deficiencies when ineffective or inefficient operations are found.
D) It is acceptable for internal auditors to recommend changes in operations and to install and implement the operating systems, as long as they do not have the responsibility for operating them throughout the year.

Question 40

The most difficult part of auditing a forecast is:

A) evaluating the reasonableness of the assumptions used in its preparation.
B) ensuring adequacy of disclosure.
C) establishing the likelihood of future events occurring.
D) establishing the real purpose of the forecast.

Question 41

The assurance standards define three levels, or types, of engagements. State these three types of assurance engagements.

Question 42

Which one of the following is NOT one of the objectives of the National Greenhouse and Energy Reporting Act 2007?

A) Meet Australia's international reporting obligations.
B) Inform government policy formulation and the Australian public.
C) Avoid duplication of similar reporting requirements in the States and Territories.
D) Penalise corporations with excess emissions.

Question 43

Under Australia's National Greenhouse and Energy Reporting Act 2007, the regulator can order compliance audits in two ways. Identify and describe.

Question 44

The Institute of Internal Auditors Practice Standards regarding Attributes include four categories of guidance that encompass both financial and operational auditing. List these categories of the Attribute standards.

Question 45

Discuss the primary purpose of the auditor's evaluation of internal control in (1) an external audit of historical financial statements and (2) a performance audit

Question 46

A factual conclusion with limited distribution results from:

A) agreed- upon procedures.
B) an examination.
C) a review.
D) a compilation report.

Question 47

When audit firms do an audit of historical financial statements, part of the audit usually consists of identifying operational problems and making recommendations that may benefit the audit client. The recommendations can be made orally but they are typically made by use of:

A) a client letter.
B) an engagement letter.
C) a management letter.
D) a letter of representation.

Question 48

Performance auditing is the review of an organisation for efficiency and effectiveness. Discuss what is meant by the terms (1) 'effectiveness' and (2) 'efficiency'.

Question 49

A non- audit engagement in which the accountant undertakes to present, in the form of financial statements, information that is the representation of management, without undertaking to express any assurance on the statements is called a review engagement.

Question 50

The report issued in assurance engagements may provide positive or negative assurance to the reader. Which one of the following types of engagements would provide positive assurance?

A) A review
B) An agreed- upon procedures engagement
C) An examination
D) A compilation

Question 51

Audits under the National Greenhouse and Energy Reporting Act 2007 would be considered audits.

A) performance
B) financial
C) compliance and performance
D) compliance

Question 52

What are the two primary differences between audit reports of specified components and those prepared as part of ordinary audits?

Question 53

When the auditor is engaged to report on the internal control structure, the auditor forms an opinion about management's assertion regarding:

A) the completeness of internal control.
B) the effectiveness of internal control.
C) the efficiency of internal control.
D) the completeness of transactions.

Question 54

Which one of the following is NOT one of the broad categories of performance audits?

A) Special assignment audits
B) Single Audit Act audits
C) Organisational audits
D) Functional audits

Question 55

Reporting under the National Greenhouse and Energy Reporting Act 2007 is optional for Australian companies.

Question 56

Which of the following is NOT one of the major differences between financial and performance auditing?

A) The financial audit is distributed to many readers, whereas the performance audit report goes to a few managers.
B) Financial audits are limited to matters that directly affect the financial statements, whereas performance audits cover any aspect of efficiency and effectiveness.
C) Financial audits deal with the information in the financial statements, whereas performance audits are concerned with the information in the ledgers.
D) The financial audit is oriented to the past, whereas a performance audit concerns performance for the future.

Question 57

The Commonwealth Auditor- General is appointed by:

A) the Prime Minister.
B) the Governor General.
C) the Queen.
D) the federal government.

Question 58

Describe how the amount of evidence collected varies between an examination, a review and agreed- upon procedures.

Question 59

When making a review of interim financial information, the auditor's work consists primarily of:

A) confirming and verifying account balances at the interim date.
B) studying and evaluating limited amounts of documentation supporting the interim financial information.
C) scanning and reviewing client- prepared, internal financial statements.
D) making inquiries and performing analytical procedures concerning significant accounting matters.

Question 60

Discuss each of the three broad categories (types) of performance audits.

Question 61

Performance audit reports are submitted to shareholders, investors and analysts.

Question 62

Confirmation and reperformance are used less extensively for most performance audits than for financial audits.

Question 63

The opinion section on a special purpose financial report audit is similar to that required for audit reports on general purpose financial reports.

Question 64

Compilations provide a higher level of assurance than reviews but a lower level of assurance than audits.

Question 65

To help them remain independent of the operations they audit, internal auditors should report directly to the chairman or the board of directors.

Question 66

Three main areas for which mandates exist for State and Federal Auditors- General are: financial statements audits, compliance audits and performance audits.

Question 67

When performing a review of interim information for a public company, the accountant ordinarily does not perform tests of the accounting records, independent confirmations or physical examinations.

Question 68

The auditing and assurance standards developed by the AUASB are not relevant to greenhouse gas emission assurance engagements.

Question 69

The two most important qualities for an internal auditor to possess are independence and competence.

Question 70

Performance audits are often categorised as functional, organisational or special assignments.

Question 71

A financial statement review includes obtaining an understanding of internal control.

Question 72

One disadvantage of functional auditing is the failure to evaluate interrelated functions.

Question 73

External auditors often reduce their level of planned detection risk when internal auditors are competent and independent in the conduct of their work.

Question 74

Examination attestation engagements result in a conclusion that is in a positive form, whereas review attestation engagements result in a conclusion in the form of a negative assurance.

Question 75

Comparable performance is one source of evaluation criteria for completing a performance audit.

Question 76

In a bicameral parliament, the Auditor- General reports directly to both chambers simultaneously.

Question 77

Effectiveness is concerned with whether defined goals are achieved, whereas efficiency is concerned with whether the goals are achieved with a minimum use of resources.

Question 78

The objectives of internal auditors are similar to the objectives of external auditors.

Question 79

Of the three types of assurance engagements, examination engagements provide a higher level of assurance than agreed- upon procedures engagements and review engagements.

Question 80

Effectiveness is usually easier to evaluate in the public sector, rather than private sector audits.