Question 1

Investors shift financial responsibility for audited financial information to the auditor in order to lower the expected loss from litigation or related settlements. This describes which theory of auditing?

Accepted Answer

A)   explanatory.
B)   agency.
C)   information hypothesis.
D)   insurance hypothesis. D

Question 2

The true statement is:

Accepted Answer

A)   most countries in the world have auditing standards that are legally enforceable
B)   few countries in the world have auditing standards that are legally enforceable
C)   australia is the only country in the world that has auditing standards that are legally enforceable
D)   the IAASB produces accounting standards which are legally enforceable in each country which adopts them. B

Question 3

The oversight structure of financial reporting in Australia had many levels. CALDB is part of which level?

Accepted Answer

A)   regulation by the profession
B)   regulation by the firm.
C)   self or peer regulation.
D)   government regulation. D

Question 4

Identify three arguments for the existence of a demand for auditing and briefly explain each.

Accepted Answer

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Question 5

List the areas of audit reform contained in the CLERP 9.Act.

Accepted Answer

The answer of List the areas of audit reform contained...

Question 6

In the HIH Royal Commission Report it was stated that current audit reports:

Accepted Answer

A)   are not very informative about the nature and scope of audit services
B)   are useful in informing users about the message that auditors are trying to get over
C)   are generally a waste of the paper they are written on
D)   are often wrong

Question 7

Which of these actions is most likely to remove the audit expectation gap?

Accepted Answer

A)   improving auditing standards
B)   educating of audit users about what are reasonable expectations
C)   improving auditor's performance
D)   it will require a comprehensive approach combining all three of the above

Question 8

In relation to auditing the information hypothesis relates:

Accepted Answer

A)   to what auditing is
B)   to which auditing standards are produced
C)   to why there is a demand for audits
D)   to 'does the audit meet the demands of users'

Question 9

Which of these was not an Australian corporate collapse?

Accepted Answer

A)   HIH Insurance Ltd.
B)   One.Tel.
C)   Harris Scarfe.
D)   all were Australian corporate collapses

Question 10

Any situation where information is prepared by one party and then attested as to its accuracy by another party is known as:

Accepted Answer

A)   an audit engagement
B)   agency theory
C)   an assurance engagement
D)   an assertion engagement

Question 11

Define an assurance engagement and list its characteristics.

Accepted Answer

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Question 12

The three major professional accounting bodies in Australia are:

Accepted Answer

A)   ICAA, CPA and ASIC.
B)   CPA Australia, NIA and AARF.
C)   ATO, AUASB and ASIC.
D)   ICAA, CPA Australia and NIA.

Question 13

In Australia, all of the following are required to have an annual audit, except:

Accepted Answer

A)   not-for-profit organisations
B)   statutory authorities
C)   small proprietary companies
D)   all of the above are required to have an annual audit with no exceptions

Question 14

The statutory body that is responsible for hearing applications in Australia as to whether auditors and liquidators have breached the Corporations Act is:

Accepted Answer

A)   ASIC.
B)   CALDB.
C)   FRC.
D)   AUASB.

Question 15

ABC firm are the auditors of XYZ Company. The partner responsible for the audit has recently spent a week working with XYZ as a paid consultant on their internal control systems. The ethical principle that has been breached is:

Accepted Answer

A)   auditor independence.
B)   auditor appointment.
C)   auditor rotation.
D)   auditor competence.

Question 16

An area where auditors in Australia have generally not expanded their role is:

Accepted Answer

A)   reporting on internal controls
B)   detection of fraud
C)   evaluation of whether an entity is a going concern
D)   all of the above are areas in Australia where auditors have not expanded their role.

Question 17

The best test to decide if audits provide good value is:

Accepted Answer

A)   by examining how often audits are associated with company failure
B)   by examining whether the audit report is correct
C)   by examining the premium the market places on a share price for independently audited information
D)   it is not possible to designate any one test as being the best to decide if audits provide good value

Question 18

Describe the components of the audit expectation gap.

Accepted Answer

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Question 19

The separation of ownership and control in large organisations has resulted in:

Accepted Answer

A)   an audit expectation gap
B)   an agency problem
C)   the insurance hypothesis
D)   CLERP

Question 20

The term audit expectation gap refers primarily to differences in expectations between:

Accepted Answer

A)   auditors and their clients.
B)   CPA Australia/ICAA and the ASIC.
C)   auditors and the ASIC.
D)   auditors and users of audited financial reports.

Exam 1: An Overview of Auditing