Deck 1: Demand for Audit and Assurance Services

Question 1

An examination of part of an organisation's procedures and methods for the purpose of evaluating efficiency and effectiveness in the manufacturing department is what type of audit?

A) Performance audit
B) Compliance audit
C) Production audit
D) Financial statement audit

Answer 1

A

Question 2

Auditors often make and help implement recommendations that improve profitability by:

A) enhancing revenue or reducing costs.
B) improving operational controls.
C) reducing errors and fraud.
D) all of the above

Answer 2

D

Question 3

Publicly traded companies have annual financial statement audits:

A) external users rely on it.
B) to obtain financing from banks.
C) because they are required to under the Corporations Act.
D) all of the above

Answer 3

C

Question 4

Providing quantitative information that management and others can use to make decisions is the function of:

A) management information systems.
B) accounting.
C) finance.
D) auditing.

Question 5

Which of the following is NOT an attestation service?

A) Other attestation services
B) Audit
C) Compilations
D) Review

Question 6

To operate effectively, internal auditors:

A) report on the financial statements of the organisation.
B) are independent of the line functions in an organisation.
C) are independent of the organisation.
D) none of the above

Question 7

Auditors are valued for their experience in assisting companies to improve operations and:

A) competence.
B) independence in providing assurances.
C) technical knowledge.
D) all of the above

Question 8

A strategic system audit approach assists the auditor to:

A) determine which areas of the audit to focus on.
B) evaluate audit evidence.
C) identify risks associated with the financial statements.
D) all of the above

Question 9

Which one of the following is more difficult to evaluate objectively?

A) Presentation of financial statements in accordance with applicable accounting standards
B) Efficiency and effectiveness of operations
C) Compliance with government regulations
D) All of the above are equally difficult.

Question 10

Which one of the following is NOT a means of reducing information risk?

A) Implementing a system of quality control
B) Sharing the risk with management
C) Providing audited financial statements
D) Independent verification by the user

Question 11

To operate effectively, internal auditors must be:

A) contracted by the organisation subject to audit.
B) independent of the line functions within an organisation.
C) members of either the Institute of Chartered Accountants in Australia or CPA Australia.
D) registered with ASIC and meet minimum professional development requirements.

Question 12

'Other assurance services' are similar to, yet differ somewhat from, attestation services. When performing 'other assurance services,' the public accountant:

A) is required to issue a written report, and the assurance is about the completeness and sufficiency of information.
B) is required to issue a written report, and the assurance is about the reliability and relevance of information.
C) is not required to issue a written report, and the assurance is about the completeness and sufficiency of information.
D) is not required to issue a written report, and the assurance is about the reliability and relevance of information.

Question 13

Which one of the following is NOT a cause of information risk?

A) Complex foreign exchange transactions
B) Remunerating management with a bonus scheme linked to reported income
C) Unexpected increased competition within the industry
D) Implementing quality control within the public accounting firm

Question 14

Which one of the following is NOT required in order to become a registered company auditor with ASIC?

A) Sufficient practical experience
B) Membership of ICAA, CPA Australia or another prescribed body
C) Evidence that adequate professional indemnity insurance is held
D) Satisfying the Commission that the applicant is a fit and proper person to be so registered

Question 15

A compilation report:

A) provides no assurance to third parties.
B) communicates an auditor's findings to a special user group that commissioned the audit.
C) is prepared during a taxation audit.
D) is a review of an audit providing a low level of assurance.

Question 16

Auditing standards (ASAs):

A) establish mandatory requirements.
B) have the 'force of law' under the Corporations Act 2001.
C) are issued by the AUASB.
D) all of the above

Question 17

Public accounting firms utilise online resources and databases to:

A) stay current with emerging business issues.
B) obtain industry data useful for auditing.
C) stay current with emerging standard setting issues.
D) all of the above

Question 18

The International Standards on Auditing (ISAs) are issued by:

A) United States Securities and Exchange Commission.
B) International Federation of Accountants.
C) International Institute of Internal Auditors.
D) International Quality Control Association.

Question 19

Which of the following is a form of evidence used by auditors?

A) Written communication obtained from entities outside the audit client
B) Oral statements from the audit client
C) The auditor's own observations
D) All of the above

Question 20

Statements of Auditing Standards (ASAs) are issued by:

A) the Australian Securities Exchange.
B) CPA Australia.
C) the Institute of Chartered Accountants in Australia.
D) Australian Auditing and Assurance Standards Board.

Question 21

An auditor could determine how many items need to be selected from the population for a particular audit test by consulting:

A) ASA 530.
B) ASA 500.
C) ASA 300.
D) none of the above

Question 22

Privately held companies have annual financial statement audits:

A) external users rely on it.
B) to obtain financing from banks.
C) because they are required to under the Corporations Act.
D) all of the above

Question 23

Which of the following can be significantly affected by an audit?

A) The risk- free interest rate
B) Business risk
C) Information risk
D) All of the above

Question 24

The process of recording, classifying, and summarising economic events in a logical manner for the purpose of providing financial information for decision making is:

A) auditing.
B) accounting.
C) finance.
D) economics.

Question 25

One consequence of CPA Australia's Quality Assurance Program is likely to be:

A) a reduction in management consulting services provided by public accounting firms.
B) a provision of information to practitioners that can enhance service quality.
C) an increase in disciplinary actions taken.
D) a reluctance by public accounting firms to take on higher risk audit clients.

Question 26

Which one of the following is NOT one of the six objectives of quality control?

A) Professional development
B) Ethical requirements
C) Monitoring
D) Leadership responsibilities

Question 27

In 'auditing' accounting data, the primary concern is with:

A) determining whether recorded information properly reflects the economic events that occurred during the accounting period.
B) analysing the nonfinancial information to be sure that it complies with government requirements.
C) determining if taxable income has been calculated correctly.
D) determining if fraud has occurred.

Question 28

The main purpose of the Corporations Act is to:

A) develop and promulgate approved accounting standards.
B) ensure that auditors conducting financial statement audits are registered.
C) give legislative backing to the Australian Securities Exchange's Listing Rules.
D) establish appropriate corporate governance mechanisms to promote appropriate decision making by participants and managerial accountability to shareholders.

Question 29

Which of the following services provides no assurances about the client's financial statements?

A) Audit
B) Compliance
C) Review
D) None of the above; all provide some level of assurance.

Question 30

An audit to determine whether the auditee is following specific procedures or rules set down by some higher authority is classified as:

A) a production audit.
B) an operational audit.
C) an audit of financial statements.
D) a compliance audit.

Question 31

Which one of the following services provides a moderate level of assurance about the client's financial statements?

A) Compliance
B) Review
C) Audit
D) Forecasts and projections

Question 32

Which of the following is NOT a category of Auditing Standards?

A) Audit conclusions and reporting
B) General principles and responsibilities
C) Risk assessment and response to assessed risks
D) Ethical requirements

Question 33

Firms providing audit services can be incorporated provided:

A) they are not large partnerships.
B) all partners are listed as directors.
C) they obtain appropriate and adequate professional indemnity insurance.
D) the total income of the audit firm is above $2M.

Question 34

As businesses become more complex and need more reliable information, public accountants play a vital role in:

A) providing tax services.
B) providing assurance on information other than financial reports.
C) providing business advisory services.
D) all of the above

Question 35

Which one of the following was NOT an objective of the Institute's Quality Review Program?

A) Reduced need for costly peer reviews
B) Enhanced client service
C) Risk reduction
D) Increased returns to accounting firms

Question 36

Any service in which the public accounting firm issues a written communication expressing a conclusion with respect to the reliability of a written assertion that is the responsibility of another party is:

A) an accounting and bookkeeping service.
B) a tax service.
C) an attestation service.
D) a management advisory service.

Question 37

In response to the growing need for assurance resulting from the explosion of business transacted electronically over the Internet, the AICPA created:

A) AICPA WebPartner Assurance Services.
B) Internet Reliability Assurance Services.
C) Information System Reliability Services.
D) Webtrust Assurance Services.

Question 38

Assessing that a company's policies effectively ensure the company's compliance with environmental standards and laws is:

A) part of the internal auditor's responsibilities.
B) an example of a business performance measurement service.
C) an example of an assurance service.
D) part of the financial statement audit process.

Question 39

Which one of the following statements is NOT true about audit reports?

A) They are prepared as the final stage of the audit process.
B) They all follow the same form.
C) They differ in nature.
D) They communicate the auditor's findings to users.

Question 40

Which of the following can be regarded as being solely 'compliance' audits?

A) Auditor- General's examinations of the returns of taxpayers
B) Evaluating whether a computerised payroll system is operating effectively
C) Determining if bank requirements for loan continuation have been met
D) An internal auditor's review of his employer's noncurrent asset purchases

Question 41

The primary role of the Auditor- General is the enforcement of the federal tax laws as defined by Parliament and interpreted by the courts.

Question 42

Why are the auditing standards referred to as the 'force of law' standards?

Question 43

The impact of e- commerce on public accountants who perform audits of such entities is that:

A) audit firms now must have information technology experts as partners in audit firms.
B) auditors now need to be experts in e- commerce and information technology.
C) auditors now need a basic knowledge and understanding of e- commerce and information technology.
D) auditors must decline to accept the audit of such entities and leave non- audit organisations to perform these audits.

Question 44

If an auditor has determined that the client has an excellent internal control structure:

A) the type of evidence required changes, but not the quantity.
B) the auditor can conclude that there is reasonable assurance that the financial statements do not contain material misstatements.
C) business risk is significantly reduced.
D) the amount of audit evidence to be collected might be reduced relative to a situation where the control structure is not adequate.

Question 45

Results of compliance audits are typically reported to the Auditor- General.

Question 46

The criteria by which an auditor evaluates the information under audit is the same for every audit.

Question 47

Discuss four factors that are likely to significantly reduce information risk in the next five to ten years.

Question 48

A performance audit:

A) determines whether specific provisions are being complied with.
B) reviews operating procedures and methods.
C) evaluates the client's business strategies and processes.
D) determines whether financial statements are in accordance with accounting standards.

Question 49

A typical objective of a performance audit is for the auditor to:

A) determine whether the financial statements fairly present the entity's operations.
B) make recommendations for improving operational performance.
C) report on the entity's relative success in attaining profit maximisation.
D) evaluate the feasibility of attaining the entity's operational objectives.

Question 50

Assurance services are independent professional services that improve the quality of information for decision makers.

Question 51

An internal auditor should ideally report to:

A) the chief finance officer.
B) the audit committee.
C) the ASIC.
D) the external auditors.

Question 52

Business performance measurement services involve:

A) assurance about whether nonfinancial information being reported from the entity's performance measurement system is reliable.
B) using a balanced scorecard, the board of directors and managers define an entity's financial objectives and goals.
C) assurance about whether financial and nonfinancial information being reported from the entity's performance measurement system is reliable.
D) none of the above

Question 53

Which of the following is NOT a cause of information risk?

A) Complex exchange transactions
B) Inaccurate financial statements
C) Remoteness of information
D) Large volumes of data

Question 54

Discuss the advantages and disadvantages of making auditing standards more specific.

Question 55

Discuss the various categories of services provided by public accounting firms.

Question 56

An audit of financial statements is conducted to determine whether the:

A) overall financial statements are stated in accordance with specified criteria.
B) organisation is operating efficiently and effectively.
C) auditee is following specific procedures or rules set down by a peer group authority.
D) none of the above

Question 57

List the six mandatory elements of a system of quality control for audit engagements listed under ASA 220.

Question 58

Explain what is meant by information risk, and discuss the four causes of this risk.

Question 59

The criteria for evaluating quantitative information vary. For example, in the audit of historical financial statements by public accounting firms, the criteria are usually:

A) regulations of the Australian Securities and Investment Commission.
B) regulations of the Australian Taxation Office.
C) applicable accounting standards.
D) generally accepted auditing standards.

Question 60

An audit of historical financial statements is a form of:

A) assurance service in which the auditor issues a written report expressing an opinion about whether the financial statements are in material conformity with auditing standards.
B) attestation service in which the auditor issues a written report expressing an opinion about whether the financial statements are in material conformity with auditing standards.
C) attestation service in which the auditor issues a written report expressing an opinion about whether the financial statements are in material conformity with accounting standards.
D) none of the above

Question 61

The primary purpose of a compliance audit is to determine whether the overall financial statements are in compliance with generally accepted accounting principles.

Question 62

The primary purpose of a performance audit is to evaluate whether an organisation is complying with its operating procedures and methods.

Question 63

Since 2004 the Corporations Act has provided for the issuance of auditing standards by the Auditing and Assurance Standards Board.

Question 64

To do an audit, it is necessary for there to be information in a verifiable form and some criteria by which the auditor can evaluate the information. (A) What information and criteria would an independent public accounting firm use when auditing a company's financial statements? (B) What information and criteria would a taxation auditor use when auditing that same company's tax return? (C) What information and criteria would an internal auditor use when performing a performance audit to evaluate whether the company's computerised payroll processing system is operating efficiently and effectively?

Question 65

Discuss the impact of e- commerce on public accountants.

Question 66

Two types of attestation services provided by public accounting firms are audits and reviews. Discuss the similarities and differences between these two types of attestation services. Which type provides the most assurance?

Question 67

Public accounting firms are not allowed to provide bookkeeping services for audit clients.

Question 68

Discuss the differences and similarities between the roles of accountants and auditors. What additional expertise must an auditor possess beyond that of an accountant?

Question 69

Discuss the similarities and differences between financial statement audits, performance (operational) audits and compliance audits. Give an example of each type.

Question 70

Discuss the similarities and differences between the roles of independent auditors, officers serving the Auditor- General, taxation auditors and internal auditors.

Question 71

An attestation service is a type of assurance service in which the public accounting firm issues a written communication that expresses a conclusion about the reliability of a written assertion of another party.

Question 72

Information risk increases as business organisations become larger.

Question 73

Completion of Client Evaluation forms is an example of the quality control objective of Ethical Requirements.

Question 74

The criteria used by an external auditor to evaluate published financial statements are known as generally accepted auditing standards.