Question 1

Which of these is not an objective of the ASIC?

Accepted Answer

A)  To maintain, facilitate and improve the performance of companies.
B)  To establish new institutional arrangements for standard setting.
C)  To receive, process and store information given to the Commission under the laws.
D)  All of the above are objectives of the ASIC. B

Question 2

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. B

Question 3

Identify which of these entities that are associated with the public accounting profession that are (1) private sector organisations, (2) standard setting bodies.
$\bullet$Australian Securities and Investment Commission (ASIC)
$\bullet$Companies Auditors and Liquidators Disciplinary Board (CALDB)
$\bullet$Other accounting bodies,e.g., ACCA, CIMA
$\bullet$CPA Australia
$\bullet$Chartered Accountants Australia New Zealand (CAANZ)
$\bullet$The Institute of Public Accountants (IPA)
$\bullet$Practice entities (e.g., KPMG, PricewaterhouseCoopers, Deloittes, Ernst & Young)
$\bullet$Australian Stock Exchange (ASX)
$\bullet$Financial Reporting Council (FRC)
$\bullet$Auditing & Assurance Standards Board (AUASB).

Accepted Answer

Private sector organisations:
• CPA Australia
• Chartered Accountants Australia New Zealand (CAANZ)
• The Institute of Public Accountants (IPA)
• Other accounting bodies, e.g., ACCA, CIMA
• Practice entities (e.g., KPMG, PricewaterhouseCoopers, Deloittes, Ernst & Young)
• Australian Stock Exchange (ASX).
Regulators and Standard setting bodies:
• Financial Reporting Council (FRC)
• Auditing & Assurance Standards Board (AUASB)
• Australian Securities and Investment Commission (ASIC)
• Companies Auditors and Liquidators Disciplinary Board (CALDB).

Question 4

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)  Agency.
B)  Explanatory.
C)  Insurance hypothesis.
D)  Information hypothesis.

Question 5

In relation to changes to auditing regulation it is true that:

Accepted Answer

A)  the CLERP reforms and the Sarbanes-Oxley reforms are very similar in approach.
B)  the CLERP reforms in Australia are more rules-based than the Sarbanes-Oxley reforms.
C)  the Sarbanes-Oxley reforms in the USA are principles-based.
D)  the Sarbanes-Oxley reforms are more rules-based and the CLERP reforms are more principles-based.

Question 6

Which of these is not a reform introduced by CLERP 9 in relation to Auditors and annual general meetings (AGMs)?

Accepted Answer

A)  Shareholders can submit written questions to the auditor before the AGM relating to the auditor's report and the conduct of the audit.
B)  The auditor must attend the AGM.
C)  The auditor must address the AGM.
D)  A reasonable opportunity must be allowed for members as a whole to ask questions of the auditor and for the auditor to respond.

Question 7

Which body has a mission 'to develop, in the public interest, high-quality auditing and assurance standards and related guidance to enhance the relevance, reliability and timeliness of information provided to users of audit and assurance services'?

Accepted Answer

A)  The FRC.
B)  The IAASB.
C)  The AASB.
D)  The AUASB.

Question 8

It is not a requirement to be registered as an auditor in Australia to:

Accepted Answer

A)  be a fit and proper person.
B)  be a member of CPA Australia, CAANZ or other approved body.
C)  has a degree or diploma from a course in accounting (including auditing)  of not less than 3 years duration and in commercial law (including company law)  of not less than 2 years duration or have other equivalent qualifications acceptable to ASIC.
D)  all are requirements to be registered as an auditor in Australia.

Question 9

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

Accepted Answer

The answer of Identify three arguments for the existence of...

Question 10

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

Accepted Answer

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

Question 11

Which of these was not an Australian corporate collapse?

Accepted Answer

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

Question 12

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

Question 13

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

Accepted Answer

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

Question 14

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.

Question 15

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 16

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

Accepted Answer

A)  Improving auditing standards.
B)  Educating 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 17

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

Question 18

Describe the components of the audit expectation gap.

Accepted Answer

The answer of Describe the components of the audit expectation...

Question 19

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 20

A variety of parties may be interested in audited reports of a public company.Which user group is the primary user?

Accepted Answer

A)  Management of the company.
B)  Current shareholders.
C)  Creditors.
D)  Government.

Exam 1: An Overview of Auditing