Deck 1: An Overview of Auditing

Question 1

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.

Answer 1

C

Question 2

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

A)Regulation by the firm.
B)Regulation by the profession.
C)Government regulation.
D)Self or peer regulation.

Answer 2

C

Question 3

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

Answer 3

C

Question 4

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.

Question 5

Auditing bears what relationship to assurance?

A)Auditing is a sub-category of assurance.
B)Assurance is a sub-category of auditing.
C)They are different names for the same thing.
D)Public accounting firms perform auditing engagements but not assurance engagements.

Question 6

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'?

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

Question 7

The three major professional accounting bodies in Australia are:

A)CAANZ, CPA and ASIC.
B)CPA Australia, IPA and AARF.
C)ATO, AUASB and ASIC.
D)CAANZ, CPA Australia and IPA.

Question 8

Which theory of auditing focuses more towards the decision usefulness role of accounting?

A)Insurance hypothesis.
B)Agency theory.
C)Information hypothesis.
D)None of the above.

Question 9

Which of the following is true regarding auditors and fraud?

A)Auditors are required to detect all fraud during an audit.
B)Auditors should actively investigate the possibility of fraud if suspicious circumstances exist.
C)In the Kingston Cotton Mill case, it was said that the audit role was not primarily to detect fraud.
D)b and c are true.

Question 10

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

Question 11

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

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

Question 12

Which of these was not an Australian corporate collapse?

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

Question 13

In Australia, the auditor's opinion in the audit report must state:

A)whether the financial report is presented fairly, in all material respects, in accordance with the applicable financial reporting framework.
B)whether the financial report presents a true and fair view, in all material respects, in accordance with the applicable financial reporting framework.
C)whether the financial report provides a reasonable level of assurance, in all material respects, in accordance with the applicable financial reporting framework.
D)a or b

Question 14

Which of these is not an objective of the ASIC?

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.

Question 15

In relation to auditing the information hypothesis relates:

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

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, 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 17

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

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 18

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 19

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.

Question 20

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

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

Question 21

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

Question 22

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

Question 23

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.

Question 24

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

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

Question 25

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

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 26

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

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 27

The reasonableness gap is:

A)The difference between what financial statement users believe the audit provides and what an audit actually provides.
B)The gap between what society can reasonably expect auditors to accomplish and what they are perceived to achieve.
C)The gap comprising deficient performance and deficient standards.
D)the gap between what society expects auditors to achieve and what they can be reasonably expected to accomplish.

Question 28

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 29

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).

Question 30

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 31

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

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

Question 32

Describe the components of the audit expectation gap.

Question 33

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

Question 34

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

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