Question 1

The auditor is required to discuss with the audit committee whether or not the financial statements are fairly presented and appropriately applied in accordance with:&#10;A) auditing standards&#10;B) ASX requirements&#10;C) accounting standards&#10;D) FRC requirements

Accepted Answer

The auditor's primary responsibility is to discuss with the audit committee whether the financial statements are fairly presented in accordance with accounting standards. This involves evaluating the appropriateness of accounting policies used, the reasonableness of accounting estimates made by management, and the overall presentation of the financial statements.

Question 2

The auditor will utilise many resources to assess management integrity in the client acceptance process. Which of the following will an auditor most likely refrain from using in this search?&#10;A) predecessor auditor&#10;B) other professionals in the business community&#10;C) public databases&#10;D) social networks

Accepted Answer

Social networks are generally considered less reliable and professional compared to other sources like predecessor auditors, professionals in the business community, and public databases. They may contain biased or unverified information.

Question 3

In the audit risk model, which of the risk components can be assessed by the auditor?&#10;A) Inherent risk&#10;B) control risk&#10;C) detection risk&#10;D) both inherent risk and control risk

Accepted Answer

Inherent risk and control risk are both components of the audit risk model that can be assessed by the auditor. Inherent risk is the susceptibility of an assertion about a transaction or account balance to a misstatement that could be material, either individually or when aggregated with other misstatements, assuming that there were no related internal controls. Control risk is the risk that a misstatement that could occur in an assertion about a transaction or account balance and that could be material, either individually or when aggregated with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity's internal control. Detection risk, on the other hand, is related to the effectiveness of an audit procedure and is managed by the auditor through the nature, timing, and extent of the audit procedures.

Question 4

In the audit risk model, its risk components are either determined, assessed or manipulated. Which of the following risks are controllable by the auditor?&#10;A) audit risk&#10;B) control risk&#10;C) detection risk&#10;D) both audit risk and detection risk

Accepted Answer

Detection risk is directly controllable by the auditor through the nature, timing, and extent of auditing procedures. Audit risk, being the risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated, is managed through the overall audit strategy and the manipulation of detection risk. Control risk, on the other hand, is related to the effectiveness of a client's internal controls and is not controllable by the auditor.

Question 5

In assessing engagement risk, auditors investigate many factors to reduce such risk. Which of the following factors does not contribute to engagement risk?&#10;A) senior executives with unlimited authority and power&#10;B) inadequate internal control systems&#10;C) a pattern of premature announcement of operating results&#10;D) none of the above

Accepted Answer

All the options listed (A, B, C) are factors that can contribute to engagement risk, hence none of the options provided are exceptions to contributing to engagement risk.

Deck 5: Audit Risk, Business Risk, and Audit Planning