Deck 15: Completing the Audit or Review

Question 1

The Corporations Act 2001 defines a high quality audit as one that is performed in accordance with generally accepted accounting principles.

Answer 1

False

Question 2

The public accounting firm is not required to have policies and procedures in place for conducting an internal quality control review for each audit before issuing the audit opinion.

Answer 2

False

Question 3

The purpose of partner rotation is to help assure auditor independence and to periodically provide a fresh approach to the audit.

Answer 3

True

Question 4

The audit documentation should include evidence on the performance on the engagement quality control review.

Question 5

Investors and creditors do not become upset when a business fails, particularly when it happens shortly after the auditor has issued an unqualified opinion.

Question 6

AASB 137 Provisions, Contingent Liabilities and Contingent Assets requires the accrual and disclosure of remote contingent losses that can be reasonably estimated.

Question 7

When the client is issuing shares subsequent to fieldwork, the auditor is required to perform a subsequent events review up to the effective date of the prospectus.

Question 8

During the audit of Tasman Oil NL, the engagement team discovers that Tasman has illegally buried 80 000 litres of sludge in the field behind its refinery. The auditors will assess Tasman's treatment of the illegality in the financial reports and related disclosures and possibly draw attention to it in the audit report.

Question 9

Contingencies are considered by the auditor in relation to the AASB 137 criteria to determine whether material contingencies exist with the client and, if so, that they are properly accrued or disclosed.

Question 10

The CLERP 9 Act 2004 amended the Corporations Act (s. 295A) to require the CEO and the CFO to certify that the financial report is fairly presented in accordance with accounting standards.

Question 11

The engagement quality control review is:

A) a management review
B) an internal audit review
C) a risk based review
D) a principle based review

Question 12

Which of the following procedures is not required of the reviewer?

A) evaluate judgements about materiality and the disposition of corrected and uncorrected identified misstatements
B) read the financial report and auditor's report
C) review the related audit documentation to determine its sufficiency
D) provide absolute assurance that the audited financial report is not materially misstated

Question 13

The audit documentation should include the following evidence on the performance of the engagement quality control review except for:

A) who performed the engagement quality control review
B) documents reviewed by the quality control engagement reviewer
C) factors outside of the control of the auditors
D) the date the engagement quality control reviewer provided approval of issuance

Question 14

The purposes of partner rotation are to:

A) assist partners to adhere to the principles underlying auditing and ethical standards
B) allow partners to exhibit professional scepticism in their work
C) ensure sufficient training is given to partners in audit, accounting and industry specialist issues
D) periodically provide a fresh approach to the audit

Question 15

The introduction of partner rotation was due to:

A) financial report user requirements
B) ASIC requirements
C) requirement of the Corporations Act 2001
D) AASB requirements

Question 16

Business failures result from a variety of causes, including:

A) excess cash flow.
B) adequate financing.
C) financial reporting risks
D) loss of a major supplier

Question 17

The going-concern evaluation is based on information obtained from:

A) normal audit procedures performed to test management's assertions
B) specific analytical procedures
C) management advice
D) internal audit results

Question 18

Which one of the following items would be most likely considered a contingent liability for Foodchain Ltd, a supermarket chain?

A) a patron slipped on a grape and broke her neck during the period under audit; no claim has been made against Foodchain
B) The Australian Taxation Office (ATO) has disagreed with deductions claimed on Foodchain's previous period return
C) management believes that a lawsuit that was filed during the period under audit against Foodchain will be settled
D) Foodchain has a note payable with a bank that was collateralised by all of the company's receivables in the period under audit

Question 19

Which of the following is explicitly required by the auditing standards for audits of public companies?

A) subsequent event review
B) concurring partner review (engagement quality review)
C) disclosure of all contingent liabilities
D) seven year client rotation

Question 20

The partner responsible for performing an engagement quality review will review the working papers and financial report to perform all of the following except:

A) evaluate judgements about materiality and the disposition of corrected and uncorrected identified misstatements
B) report to ASIC any discrepancies
C) review the engagement team's evaluation of the firm's independence in relation to the engagement
D) confirm with the engagement audit partner that there are no significant unresolved matters

Question 21

Restatements are required when the auditor determines that a:

A) Type I event has occurred
B) Type II event has occurred
C) material misstatement does not exist in the financial report
D) material misstatement does exist in the financial report

Question 22

What happens to the sufficiency of audit evidence collected if, in the final review, new information causes the engagement partner to decide that a lower materiality threshold is required and, as a result, the partner reduces planning materiality for the audit?

A) more evidence may be required
B) less evidence may be required
C) the client may be asked to make correcting entries
D) more evidence is required and the client may be asked to make correcting entries

Question 23

At the end of the audit, management and the auditor must decide which possible adjustments will be:

A) corrected in the financial statements or notes
B) unknown projected errors
C) 'waived', that is; left uncorrected
D) corrected or waived in the financial statements