Question 1

Anne has been preparing the audit working papers for the audit of XYZ Company and she is being very careful to use all of the basic techniques. She has given each section a heading, documented evidence and summarised the conclusions. What basic technique has Anne not included in the working papers?

Accepted Answer

A)  index numbers. 
B)  cross-referencing. 
C)  signatures and dates. 
D)  all of the above.

Question 2

Williams, Sparks and Kent audit partners have been conducting the audit for Just Fine Ltd, an importer of fine chocolate. The auditors have requested the clients accounting staff to prepare some of the schedules and analyses. Who retains the property rights for these working papers?

Accepted Answer

A)  ASIC, as all working papers must be lodged with them. 
B)  Just Fine Ltd, as it is their staff who performed the work. 
C)  the auditors, as they are the independent contractors. 
D)  the accounting staff, as they are acting as agents.

Question 3

The reliance on client internal audit personnel on the audit is:

Accepted Answer

A)  strictly prohibited by professional standards. 
B)  acceptable whenever a client has employed them. 
C)  acceptable if the auditor reviews and tests their work. 
D)  acceptable if the auditor re-performs all their work.

Question 4

You are the senior auditor on a particular engagement. The new staff assistant who has been assigned to work on the cash area is about to begin constructing her first audit work paper.
Briefly list and discuss the essential points relating to the mechanics of working paper preparation that you would like the staff assistant to follow in completing her assignment.

Accepted Answer

The answer of You are the senior auditor on a...

Question 5

Identify the primary considerations that apply to accepting an audit engagement. For each consideration, indicate the primary steps involved in the decision to accept or reject the engagement.

Accepted Answer

The answer of Identify the primary considerations that apply to...

Question 6

Smith & Jones audit firm is determining whether to accept an audit engagement with Simple Things Ltd. As this would be a new engagement the audit firm sought the client's permission to contact the current auditor. The client did not give their permission, explaining that they did not want the current auditors to know they were thinking of changing.
Recently Simple Things Ltd had been in the media for management not disclosing an environmental disaster that occurred at one of their plant sites. The incident is still under investigation but if the company is found to be at fault then they may be subject to numerous lawsuits from the many private landholders near the plant.
From the information provided above, identify any reasons for not accepting the audit engagement with Simple Things Ltd.

Accepted Answer

The answer of Smith & Jones audit firm is determining...

Question 7

Which of the following is not a consideration in the planning phase of the audit?

Accepted Answer

A)  obtaining an understanding of the entity's business and industry. 
B)  assessing competence to perform the audit. 
C)  considering audit risk. 
D)  making preliminary judgements about materiality levels.

Question 8

When auditing for fraud the auditors should do all of the following except:

Accepted Answer

A)  consider any unusual or unexpected relationships that have been identified in performing analytical procedures. 
B)  conduct a brainstorming session to discuss the risk of fraud. 
C)  only investigate areas where all three fraud risk factors are present. 
D)  examine journal entries and other adjustments for evidence of possible material fraud.

Question 9

The purpose of using analytical procedures in auditing is to:

Accepted Answer

A)  identify inefficiencies in operations. 
B)  test internal controls. 
C)  identify unexpected fluctuations and relationships. 
D)  none of the above.

Question 10

The title of a certain working paper is "Proposed adjusting and reclassifying entries." The use of the word "proposed" indicates that the:

Accepted Answer

A)  listed adjustments are not considered necessary. 
B)  listed adjustments are not considered material. 
C)  client disagrees with the adjustments listed. 
D)  client must first approve them.

Question 11

Concerning errors, irregularities and illegal acts, the auditor should plan the audit with an attitude of:

Accepted Answer

A)  cautious mistrust. 
B)  seasoned pessimism. 
C)  professional scepticism. 
D)  adversarial pursuit.

Question 12

Explain the importance of analytical procedures and why auditors may also use non-financial measures in these procedures.

Accepted Answer

The answer of Explain the importance of analytical procedures and...

Question 13

Which of these would not be part of a typical audit team?

Accepted Answer

A)  an audit partner. 
B)  an audit manager. 
C)  internal auditors. 
D)  an audit senior.

Question 14

A high risk condition for the fraud risk factor 'opportunity' would be:

Accepted Answer

A)  known or expected future layoffs 
B)  that the company is close to its debt covenants. 
C)  behavior indicating displeasure or dissatisfaction with the company or its treatment of an employee 
D)  large amounts of cash on hand.

Question 15

Before accepting an engagement, the auditor should identify special circumstances and unusual risks. Which of these conditions is not directly part of a review of such a circumstance or risk?

Accepted Answer

A)  reviewing industry and economic data. 
B)  identifying intended users of the audited financial statements. 
C)  assessing a prospective client's legal and financial stability. 
D)  evaluating the entity's auditability.

Question 16

Which of these would be considered an audit adjusting entry?

Accepted Answer

A)  a significant amount of inventory was found which had not been included in the accounts and subsequently was identified by the auditors. 
B)  payroll owing for the last five days of the financial year was recorded by management. 
C)  the accounts receivable balance is debited by the auditors to separately show customer accounts with credit balances relating to customer advances. 
D)  depreciation on the office equipment was recorded by the accountant.

Question 17

All of the following are ways in which an auditor can assess the integrity of management except:

Accepted Answer

A)  arranging a police search on the police confidential data base 
B)  making enquiries of third parties. 
C)  communicating with the previous auditor. 
D)  considering previous experience with the client's management.

Question 18

When obtaining knowledge about the entity's objectives and strategies and the related business risks, an auditor should consider:

Accepted Answer

A)  industry developments. 
B)  new products and services. 
C)  expansion of the business. 
D)  all of the above.

Question 19

The auditor should regularly evaluate clients in respect of specified events to determine whether to continue the relationship. Which of the following is not a specified event that should prompt an evaluation?

Accepted Answer

A)  the expiration of a time period. 
B)  a significant change in the business. 
C)  a change in the audit partner. 
D)  the existence of conditions that would lead that auditor to reject a client had those conditions existed at the time of the initial acceptance of the audit engagement.

Question 20

Knowledge of the entity's financing activities includes understanding the entity's:

Accepted Answer

A)  debt structure. 
B)  inventory management policies 
C)  location of property, plant and equipment. 
D)  all of the above

Exam 8: Client Evaluation and Planning the Audit