Deck 1: Demand for audit and assurance services

Question 1

Improving operational controls is one way an auditor is able to:

A) determine if a potential client is trustworthy.
B) help implement recommendations that improve profitability.
C) complete the final stages of the audit.
D) provide consulting services during the audit. Answer B

Answer 1

B

Question 2

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

Answer 2

C

Question 3

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 differ in nature.
C) They communicate the auditor's findings to users.
D) They all follow the same form.

Answer 3

D

Question 4

Privately held companies have annual financial statement audits:

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

Question 5

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

A) providing audited financial statements
B) independent verification by the user
C) implementing a system of quality control
D) sharing the risk with management

Question 6

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 management advisory service.
C) a tax service.
D) an attestation service.

Question 7

Which of the following exists independently from an audit?

A) risk-free interest rate and business risk
B) information risk and the risk-free interest rate
C) business risk and information risk
D) risk-free interest rate and audit risk

Question 8

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) Webtrust Assurance Services.
C) Information System Reliability Services.
D) Internet Reliability Assurance Services.

Question 9

Remoteness of information is a cause of:

A) information risk.
B) complex exchange transactions.
C) rejecting a potential client.
D) auditing the financial statements. Answer A

Question 10

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

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

Question 11

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

A) forecasts and projections
B) review
C) audit
D) compliance

Question 12

What is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria?

A) marketing
B) accounting
C) finance
D) auditing

Question 13

Business performance measurement services involve:

A) the board of directors and managers using a balanced scorecard to define an entity's financial objectives and goals.
B) assurance about whether nonfinancial information being reported from the entity's performance measurement system is reliable.
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 14

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

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

Question 15

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

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

Question 16

What is a by-product of an audit in regards to information risk?

A) increases the amount of available capital
B) lowers the cost of obtaining capital
C) increases the level of information risk
D) increases the cost of obtaining capital

Question 17

Publicly traded companies have annual financial statement audits:

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

Question 18

When a business contacts an auditor for a service providing no assurances, what type of engagement is being requested?

A) Audit
B) Tax Planning
C) Review
D) Compliance

Question 19

Which of the following is classified as an attestation service?

A) Compilation
B) Tax planning engagement
C) Consulting engagement
D) Audit of historical financial statements

Question 20

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

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

Question 21

A compilation report:

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

Question 22

Making recommendations for improving operational performance is an objective of:

A) a tax-planning engagement.
B) a performance audit.
C) an attestation engagement.
D) a financial statement audit.

Question 23

A strategic system audit approach assists the auditor to:

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

Question 24

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

Question 25

Reviewing operating procedures and methods is a characteristic of:

A) an attestation engagement.
B) a compilation engagement.
C) a performance audit.
D) a compliance audit.

Question 26

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) compliance audit
B) financial statement audit
C) performance audit
D) production audit

Question 27

Statements of auditing standards (ASAs)are issued by:

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

Question 28

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

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

Question 29

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

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

Question 30

Which of the following is NOT employed by the entity being audited?

A) controller
B) internal auditor
C) external auditor
D) CEO

Question 31

Which of the following is NOT a category of auditing standards?

A) audit conclusions and reporting
B) risk assessment and response to assessed risks
C) ethical requirements
D) general principles and responsibilities

Question 32

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

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

Question 33

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

A) the auditor's own observations
B) oral statements from the audit client
C) written communication obtained from entities outside the audit client
D) all of the above

Question 34

To operate effectively, internal auditors:

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

Question 35

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

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

Question 36

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

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

Question 37

Firms providing audit services can be incorporated provided:

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

Question 38

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

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

Question 39

To operate effectively, internal auditors must be:

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

Question 40

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

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

Question 41

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 42

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

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

Question 43

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 44

Public accounting firms utilise online resources and databases to:

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

Question 45

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

A) reduced need for costly peer reviews
B) increased returns to accounting firms
C) enhanced client service
D) risk reduction

Question 46

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

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

Question 47

Information risk increases as business organisations become larger.

Question 48

Review and approval of audit programs by the engagement partner is a characteristic of which of the six objectives of quality control?

A) professional development
B) leadership responsibilities
C) engagement performance
D) monitoring

Question 49

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 50

The main purpose of the Corporations Act is to:

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

Question 51

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

Question 52

Auditing standards (ASAs):

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

Question 53

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

Question 54

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

Question 55

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

Question 56

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

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

Question 57

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

Question 58

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

Question 59

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

Question 60

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) a reluctance by public accounting firms to take on higher risk audit clients.
D) an increase in disciplinary actions taken.

Question 61

To do an audit, the auditor needs information in a verifiable form and some criteria by which to evaluate that 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 62

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

Question 63

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

Question 64

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

Question 65

Discuss the impact of e-commerce on public accountants.

Question 66

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

Question 67

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

Question 68

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

Question 69

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

Question 70

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

Question 71

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 72

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

Question 73

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

Question 74

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