Question 1

Management's refusal to furnish a written representation on a matter that the auditor considers essential constitutes:

Accepted Answer

A)   prima facie evidence that the financial report is not presented fairly.
B)   a violation of the Corporations Act 2001.
C)   an uncertainty sufficient to preclude an unmodified opinion.
D)   a scope limitation sufficient to preclude an unmodified opinion. D

Question 2

Which of the following audit procedures is most likely to assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

Accepted Answer

A)   Review compliance with the terms of debt agreements.
B)   Confirm accounts receivable from principal customers.
C)   Reconcile interest expense with outstanding debt.
D)   Confirm bank balances. A

Question 3

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

Accepted Answer

A)   Comparing the financial report being reported on with those of previous period.
B)   Confirming a sample of material accounts receivable established after year-end.
C)   Inquiring as to whether any unusual adjustments were made after year-end.
D)   Investigating personnel changes in the accounting department occurring after year-end. C

Question 4

Which set of assertions are tested when, during completion of the audit, the audit partner conducts a final review of the format of the entity's financial report?

Accepted Answer

A)   Assertions about classes of transactions and events.
B)   Assertions about account balances at the period end.
C)   Assertions about presentation and disclosure.
D)   None of the given answers are correct.

Question 5

After an auditor has issued an auditor's report on the financial report of an entity, there is no obligation to make any further audit tests or inquiries with respect to the audited financial report covered by that report unless:

Accepted Answer

A)   new information comes to the auditor's attention concerning an event that occurred prior to the date of the auditor's report that may have affected the auditor's report
B)   material adverse events occur after the date of the auditor's report
C)   final determination or resolution was made on matters that had resulted in a modification of the auditor's report
D)   final determination or resolution was made of a contingency that had been disclosed in the financial report.

Question 6

The audit inquiry letter to the client's solicitor should be mailed only by the:

Accepted Answer

A)   client after the auditor has reviewed it for appropriate content.
B)   auditor after preparation by the client and review by the auditor.
C)   auditor's solicitor after preparation by the client and review by the auditor.
D)   client after review by the auditor's solicitor.

Question 7

A major customer of an audit client suffers a fire just prior to completion of year-end fieldwork. The audit client believes that this event could have a significant direct effect on the financial report. The auditor should:

Accepted Answer

A)   advise management to disclose the event in notes to the financial report.
B)   disclose the event in the auditor's report.
C)   withhold submission of the auditor's report until the extent of the direct effect on the financial report is known.
D)   advise management to adjust the financial report.

Question 8

An auditor should obtain evidential matter relevant to all the following factors concerning third-party litigation against a client except the:

Accepted Answer

A)   period in which the underlying cause for legal action occurred.
B)   probability of an unfavourable outcome.
C)   jurisdiction in which the matter will be resolved.
D)   existence of a situation indicating an uncertainty as to the possible loss.

Question 9

Auditors often request that the audit client send a letter of inquiry to those solicitors who have been consulted with respect to litigation, claims or assessments. The primary reason for this request is to provide the auditor with:

Accepted Answer

A)   an estimate of the dollar amount of the probable loss.
B)   an expert opinion as to whether a loss is possible, probable or remote.
C)   information concerning the progress of cases to date.
D)   corroborating evidence.

Question 10

After an auditor has issued an auditor's report on the financial report of a non-public entity, there is no obligation to make any further audit tests or inquiries with respect to the audited financial report covered by that report unless:

Accepted Answer

A)   new information comes to the auditor's attention concerning an event that occurred prior to the date of the auditor's report that may have affected the auditor's report.
B)   material adverse events occur after the date of the auditor's report.
C)   final determination or resolution was made on matters that had resulted in a modification of the auditor's report.
D)   final determination or resolution was made of a contingency that had been disclosed in the financial report.

Question 11

An auditor is concerned with completing various phases of the examination after the balance date. This 'subsequent period' for audit testing extends to the date of the:

Accepted Answer

A)   final review of the audit working papers.
B)   auditor's report.
C)   delivery of the auditor's report to the client.
D)   public issuance of the financial report.

Question 12

The date of the management representation letter should coincide with the:

Accepted Answer

A)   date of the auditor's report.
B)   balance date.
C)   date of the latest subsequent event referred to in the notes to the financial report.
D)   date of the engagement letter.

Question 13

Which of the following statements is not correct?

Accepted Answer

A)   The auditor is required to read other information accompanying the financial report to ensure that there are no inconsistencies.
B)   The auditor may provide advice on accounting matters but the financial report and related disclosures are the entity's responsibility.
C)   Towards the end of the audit the auditor should examine all related-party transactions.
D)   Second-partner reviews are only required of the financial reports of public companies.

Question 14

A solicitor's response to an auditor's request for information concerning litigation, claims and assessments will ordinarily contain which of the following?

Accepted Answer

A)   An explanation regarding limitations on the scope of the response.
B)   A statement of concurrence with the client's determination of which unasserted possible claims warrant specification.
C)   Confidential information that would be prejudicial to the client's defence if publicised.
D)   An assertion that the list of unasserted possible claims identified by the client represents all such claims of which the solicitor may be aware.

Question 15

When obtaining evidence regarding litigation against a client, the auditor would be least interested in determining:

Accepted Answer

A)   an estimate of when the matter will be resolved.
B)   the period in which the underlying cause of the litigation occurred.
C)   the probability of an unfavourable outcome.
D)   an estimate of the potential loss.

Question 16

Which of the following procedures would an auditor ordinarily perform during the review of subsequent events?

Accepted Answer

A)   An analysis of related-party transactions for the discovery of possible irregularities.
B)   A review of the cut-off bank statements for the period after the year-end.
C)   An inquiry of the client's solicitor concerning litigation.
D)   An investigation of material weaknesses in internal accounting control previously communicated to the client.

Question 17

A written representation from a client's management which, among other matters, acknowledges responsibility for the fair presentation of the financial report, should be signed by the:

Accepted Answer

A)   chief executive officer and the chief financial officer.
B)   chief financial officer and the chairman of the board of directors.
C)   chairman of the audit committee of the board of directors.
D)   chief executive officer, the chairman of the board of directors, and the client's solicitor.

Question 18

A representation letter issued by a client:

Accepted Answer

A)   is essential for the preparation of the audit program.
B)   is a substitute for testing.
C)   does not reduce the auditor's responsibility.
D)   reduces the auditor's responsibility only to the extent that it is relied upon.

Question 19

As a result of analytical procedures, the independent auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should:

Accepted Answer

A)   express an opinion that is modified due to the inability of the client company to continue as a going concern.
B)   evaluate management's performance in causing this decline.
C)   require footnote disclosure.
D)   consider the possibility of an error in the financial report.

Question 20

Promotion Ltd's directors voted immediately after the year-end of 30 June 2010 to double its advertising budget for the coming year and authorised a change in advertising agencies. What is the effect of this event on the
30 June 2010 financial report?

Accepted Answer

A)   Disclosure by means of supplemental, pro-forma financial information.
B)   Adjustment of the financial report.
C)   Disclosure in a footnote to the financial report.
D)   No disclosure or adjustment necessary.

Exam 12: Completion and Review