Deck 1: Assurance and Auditing: An Overview

Question 1

Which of the following statements is not true concerning assurance services?

A) Assurance services focus on improving the quality of information, or its context, for decision makers.
B) The growth in assurance services has been driven in part by users' demands for more relevant and reliable information.
C) Auditing services can be viewed as a subset of assurance services.
D) Unlike audit engagements, an engagement to perform assurance services does not require the auditor to consider information reliability.

Answer 1

D

Question 2

At what levels can assurance be provided under the assurance services framework?

A) Reasonable assurance and limited assurance.
B) High assurance and reasonable assurance.
C) Assurance can be provided on a continuum from 0% to 100%.
D) Assurance can be provided on a continuum from absolute to limited.

Answer 2

A

Question 3

Which of the following is not one of the fundamental principles of professional ethics underlying an audit?

A) Confidentiality.
B) Scepticism.
C) Integrity.
D) Objectivity.

Answer 3

B

Question 4

The auditor's judgment concerning the overall fairness of the presentation of financial position, results of operations and cash flows is applied within the framework of:

A) Australian Auditing Standards that include the concept of materiality.
B) quality control.
C) the agreed reporting framework.
D) the auditor's assessment of the audited entity's level of control risk.

Question 5

Independent auditors are referred to as 'independent' because:

A) their offices are not at the entity's place of business.
B) they are not employees of the entity being audited.
C) they are paid by parties outside of the audited entity.
D) they report to users outside of the audited entity.

Question 6

Financial report auditing can best be described as:

A) a regulatory function that prevents the issuance of improper financial information.
B) a professional activity that measures and communicates financial and business data.
C) a discipline that attests to the results of accounting and other functional operations and data.
D) a branch of accounting.

Question 7

Who is the responsible party for the adequacy of the disclosure in the financial report and accompanying footnotes?

A) Auditor in charge of fieldwork.
B) Management of the entity.
C) Auditor who signs the auditor's report.
D) Audit clerk who assists in preparing the report and footnotes.

Question 8

To which type of assurance engagement does the umbrella standard ASAE 3000 (ISAE 3000) 'Assurance Engagements other than Audits and Reviews of Historical Financial Information' not apply?

A) A performance audit on a government department.
B) A review of a half-yearly financial report.
C) A limited assurance report on the effectiveness of internal control.
D) A limited assurance engagement on prospective financial information.

Question 9

Which of the following is not an attribute of an external auditor?

A) Client advocacy.
B) Integrity.
C) Competence with regards to subject matter.
D) Objectivity.

Question 10

The independent auditor adds credibility to the client's financial report by:

A) testifying under oath about client financial information.
B) attaching an auditor's opinion to the client's financial report.
C) maintaining a clear-cut distinction between management's representations and the auditor's representations.
D) stating in the auditor's communication of internal-control-related matters that the audit was made in accordance with Australian auditing standards.

Question 11

To which assurance engagements does the Framework for Assurance Engagements apply?

A) Audits of historical financial information.
B) Reviews of historical financial information.
C) Assurance engagements other than audits or reviews of historical financial information.
D) All of the given answers are correct.

Question 12

An audit of the financial report of Campbell Ltd, an Australian listed company, is being conducted by an external auditor. The external auditor is expected to:

A) express an opinion as to the attractiveness of Campbell for investment purposes.
B) express an opinion as to whether the financial report is prepared in accordance with an applicable financial reporting framework.
C) make a 100% examination of Campbell's records.
D) certify the correctness of Campbell's financial report.

Question 13

An audit establishes the conformity of assertions with specified criteria. In an audit of a financial report, the criteria by which financial report assertions are judged are:

A) the ethical rules of conduct.
B) Australian Auditing Standards.
C) listing rules of the Australian Securities and Investments Commission.
D) applicable accounting standards.

Question 14

The essence of a financial report audit is to:

A) examine individual transactions so that the auditor may certify as to their validity.
B) detect fraud.
C) assure the consistent application of correct accounting procedures.
D) determine whether the client's financial reports are fairly stated.

Question 15

Which of the following can be the subject matter of the audit?

A) The financial report of a company.
B) The Australian accounting standards.
C) The Australian auditing standards.
D) The auditor's report.

Question 16

Which of the following is not one of the fundamental principles of professional ethics underlying an audit?

A) Objectivity.
B) Integrity.
C) Knowledge.
D) Confidentiality.

Question 17

Which of the following is not an element of an assurance engagement?

A) Three-party relationship.
B) Approved assurance standards.
C) Suitable criteria.
D) A written assurance report.

Question 18

Which of the following is a necessary precondition for a practitioner to undertake an assurance engagement to examine and report on an entity's internal control over financial reporting?

A) Management presents its written assertion about the effectiveness of internal control.
B) The practitioner anticipates relying on the entity's internal control in a financial report audit.
C) Management agrees not to present the practitioner's report in a general-use document to shareholders.
D) The practitioner is a continuing auditor who previously has audited the entity's financial report.

Question 19

The highest level of assurance is provided by:

A) compiling financial reports.
B) agreed-upon procedures.
C) review.
D) audit.

Question 20

Independent auditors perform audits on the financial reports of public companies. This type of auditing can best be described as:

A) a discipline that assures financial information presented by management.
B) an activity whose purpose is to search for irregularities.
C) a regulatory function that prevents the issuance of improper financial information.
D) a professional activity that measures and communicates financial and business data.

Question 21

Which of the following best describes why an independent auditor is asked to express an opinion on the true and fair presentation of a financial report?

A) It is management's responsibility to seek available independent aid in the appraisal of the financial information shown in its financial report.
B) It is difficult to prepare a financial report that fairly presents a company's financial position and changes in cash flows without the expertise of an independent auditor.
C) It is a customary courtesy that all shareholders of a company receive an independent report on management's stewardship in managing the affairs of the business.
D) The opinion of an independent party is needed because a company may not be objective with respect to its own financial report.

Question 22

The primary responsibility for the adequacy of disclosures in the financial report of a publicly held company rests with the:

A) management of the company.
B) partner assigned to the audit engagement.
C) Securities and Exchange Commission.
D) auditor in charge of the fieldwork.

Question 23

Which of the following was first in the evolution of auditing approaches?

A) Business risk approach.
B) Transactions cycle approach.
C) Statement of financial position approach.
D) Financial risk approach.

Question 24

The public has turned to auditors to provide assurance services primarily because:

A) there is a need to develop new revenue streams for accounting firms.
B) the integrity and objectivity of auditors increases the public's trust that the underlying information is not materially misstated.
C) auditors have been proactive in identifying new types of assurance services to market to customers.
D) audits do not provide reliable information for decision makers.

Question 25

Who establishes Australian auditing standards?

A) Australian Auditing and Assurance Standards Board.
B) Australian Accounting Standards Board.
C) Australian Securities and Investments Commission.
D) The professional bodies together (CPA Australia, The Institute of Chartered Accountants in Australia and the National Institute of Accountants).

Question 26

What best describes the concept of risk assessment that currently underpins the auditing standards?

A) The risk that the financial report is misstated as a result of weaknesses in internal control.
B) The risk that the financial report is misstated because of fraud.
C) Developing client acceptance and continuance practices that minimise the likelihood of lawsuits against the auditor.
D) Whether management has systems in place to evaluate and effectively manage the entity's business risks.

Question 27

The accuracy of information included in notes that accompany the audited financial report of a company whose shares are traded on a stock exchange is the primary responsibility of:

A) the independent auditor.
B) the stock exchange officials.
C) the Securities and Exchange Commission.
D) the company's management.

Question 28

When an auditor expresses an opinion on the financial report, the auditor's responsibilities extend to:

A) an ongoing responsibility for the entity's solvency in accordance with the requirements of the Corporations Act 2001.
B) the underlying wisdom of the management's decisions.
C) active participation in the implementation of advice given.
D) whether the entity's results are fairly presented in the financial report in accordance with approved accounting standards.

Question 29

In which area is there a gap between society's expectations of auditors and the perceived performance of auditors?

A) Compliance with laws and regulations.
B) The detection and reporting of earnings management and fraud.
C) Fair presentation of the financial report.
D) All of the given answers are correct .

Question 30

Which of the following best describes the reason why an independent auditor reports on financial statements?

A) A management fraud may exist and it is more likely to be detected by independent auditors.
B) Different interests may exist between the company preparing the statements and the parties using the statements.
C) A misstatement of account balances may exist and is generally corrected as the result of the independent auditor's work.
D) A poorly designed internal control system may be in place.

Question 31

Which of the following is not one of the fundamental principles underlying the objective of an audit?

A) Knowledge.
B) Communication.
C) Evidence.
D) Client satisfaction.

Question 32

Which of the following would not be included in a recommendation by the assurance provider in regards to the efficiency and effectiveness of operations?

A) An explanation of the problem.
B) Suggested possible improvements in performance.
C) A statement that the assurance provider has reasonable assurance that they have identified all material matters with regards to efficiency and effectiveness that are of interest to management.
D) Recommendation of investigating specific areas of the entity's business processes.

Question 33

The value of an assurance service lies in its ability to:

A) improve information relevance and reliability.
B) report on the assurance process.
C) improve the consistency of information.
D) provide a professional service that is valued by the responsible party.

Question 34

Below are a number of potential additional benefits arising from an assurance service:
I)recommendations to improve the efficiency of operations.
II)a positive influence on the behaviour of people whose activities are being assured.
III)recommendations to improve the effectiveness of operations.Which combination of these is identified in the book as additional benefits?

A) I and II only.
B) I and III only.
C) II and III only.
D) I, II and III.

Question 35

Assurance services would include which of the following?

A) Working with a client to develop a more efficient method of processing financial transactions.
B) Preparing a report representing a client's position during a tax audit.
C) Assisting a client in identifying potential sources of capital for acquisitions.
D) Providing an opinion concerning the accuracy of statements made on a client's web site.

Question 36

In the context of agency theory, information asymmetry refers to the idea that:

A) information can vary in its reliability.
B) information can vary in its relevance.
C) management has more information about the entity's true financial position than do the absentee owners.
D) management will not act in the best interests of the absentee owners.

Question 37

Below are a number of potential areas where a gap between society's expectations of auditors and the perceived performance of auditors has been identified:
I)compliance with laws and regulations.
II)the detection and reporting of earnings management and fraud.
III)the messages contained in the auditor's report.Which combination of these has been identified as an expectations gap?

A) I and II only.
B) I and III only.
C) II and III only.
D) I, II and III.

Question 38

It is very hard for auditors to remain independent of their clients, given that they are paid by their clients. Below are a number of possible mechanisms:
I)ethical rules.
II)auditing and other professional standards.
III)audit committees.Which of these mechanisms can help the auditor maintain their independence?

A) I and II only.
B) I and III only.
C) II and III only.
D) I, II and III.

Question 39

Which of the following is not considered to be a value added to financial information that has been audited?

A) Comparability.
B) Relevance.
C) Reliability.
D) Periodicity.

Question 40

Which of the following is not one of the fundamental principles underlying the objective of an audit?

A) Knowledge.
B) Client satisfaction.
C) Evidence.
D) Documentation.

Question 41

Which of the statements is true with regards the basic principles and essential procedures contained in the auditing standards?

A) The auditor may depart from basic principles in order to achieve a more efficient audit.
B) There should be no departure from basic principles and essential procedures.
C) There should be no departure from basic principles and essential procedures should be undertaken
In all except the rare circumstances where it is determined that the audit objective can be achieved
More effectively with alternative procedures.
D) There should be no departure from essential procedures and basic principles should be adhered to in all but the rare circumstances where they hinder audit efficiency.

Question 42

Below are different types of audits:
I)compliance audit.
II)financial report audit.
III)internal audit.
IV)performance audit.Which combination of these types of audits can be collectively integrated and described as a comprehensive audit?

A) I, II and III only.
B) I, II and IV only.
C) I, III and IV only.
D) II, III and IV only.

Question 43

Governmental auditing often extends beyond examinations leading to the expression of an opinion on the fairness of financial presentation and includes audits of economy, efficiency and:

A) evaluation.
B) effectiveness.
C) compliance.
D) accuracy.

Question 44

Forensic audits include all of the following except:

A) Manufacturers' claims about product quality.
B) Criminal investigations.
C) Matrimonial disputes.
D) Employee fraud.

Question 45

Under the Corporations Act 2001, if a company's financial report, when prepared in accordance with accounting standards, would not otherwise give a true and fair view:

A) the auditors are required to add such information and explanations in the financial report so as to give a true and fair view.
B) the directors are required to add such information and explanations in the financial report so as to give a true and fair view.
C) the directors should refer to this situation in their director's declaration.
D) no additional information should be added to the financial report.

Question 46

An auditor of a company finds that there are rare and exceptional circumstances where they are unable to comply with a relevant requirement in an auditing standard. They are however able to perform appropriate alternative audit
Procedures. To whom do they have to report or document these circumstances?

A) The auditor must report these circumstances to either management or the audit committee and obtain their agreement that the alternative procedures are appropriate.
B) If the auditor can use appropriate alternative audit procedures, no reporting or documentation required.
C) The auditor is required to document the circumstances in the auditor's report.
D) The auditor is required to document the circumstances in the audit working papers.

Question 47

What is the general character of the work conducted in performing a forensic audit?

A) Detecting or deterring fraudulent activity.
B) Providing assurance that the financial report is not materially misstated.
C) Identifying the causes of an entity's financial difficulties.
D) Offering an opinion on the reliability of the specific assertions made by management.