Deck 1: An Overview of Auditing

Question 1

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:

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

Answer 1

A

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:

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

Answer 2

B

Question 3

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

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

Answer 3

D

Question 4

The body that is responsible for setting the auditing standards in Australia is:

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

Question 5

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

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

Question 6

Which of these was not an Australian corporate collapse?

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

Question 7

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

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

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

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

Question 9

In relation to auditing the information hypothesis relates:

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 10

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

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 11

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

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

Question 12

The three major professional accounting bodies in Australia are:

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

Question 13

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?

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

Question 14

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

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 15

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

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

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

A) be a fit and proper person
B) be a member of CPA Australia, the ICAA or other approved body.
C) have 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 17

The term audit expectation gap refers primarily to differences in expectations between:
A) auditors and their clients.

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

Question 18

The true statement is:

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 19

The auditing and accounting body with the highest number of members is:

A) The National Institute of Accountants
B) CPA Australia
C) The Institute of Chartered Accountants in Australia
D) The International Federation of Accountants

Question 20

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

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 21

Describe the principal - agent relationship and how it is used to explain the development of auditing.

Question 22

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

Question 23

Define an assurance engagement and list its characteristics.

Question 24

Describe the components of the audit expectation gap.

Question 25

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

Question 26

Under ASA 200/ IAS 200 the primary objective of a financial report audit is to:

A) ensure that the company is free from all fraud
B) provide assurance about the future viability of the entity
C) to express an opinion as to whether the financial report is prepared in all material aspects, in accordance with a financial reporting framework
D) ensure the company complies with all aspects of Corporations Law