Deck 15: Auditing of Accounting Information Systems

Question 1

ASA 700 Forming an Opinion and Reporting on a Financial Report does not outline the auditor's responsibilities of:

A)The auditor's report should state that the audit was conducted in accordance with international accounting standards.
B)The audit should be described including procedures on how evidence was obtained.
C)The auditor's report should state that the audit was conducted in accordance with Australian accounting standards.
D)The auditor's report states that the auditor believes that sufficient and appropriate audit evidence was obtained to form an opinion.

Answer 1

A

Question 2

Which of the following statements regarding the internal audit function is not true?

A)The internal audit function is not all encompassing.
B)The internal audit function includes the evaluation of controls in business processes.
C)The internal audit function includes the evaluation of controls in information systems and systems development projects.
D)The internal audit function includes the evaluation of controls in systems development projects.

Answer 2

A

Question 3

Which of the following is not a responsibility of the Board,Audit Committee and Management?

A)Formulate overall risk classifications.
B)Understand business life cycles,business processes,and critical success factors.
C)Identify and classify risks.
D)Assess probability of risk and potential consequences.

Answer 3

D

Question 4

Which of the following statements regarding the concept of audit is not true?

A)The most common type of audit is the financial statement audit.
B)The financial statement audit provides an objective opinion on an organisation's financial statements.
C)Financial statement audit provides absolutely guarantee that the financial reports are free of misstatement.
D)Auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating those results to interested users.

Question 5

Audit quality may be compromised due to: (i)time constraints (ii)management pressure (iii)limited resources.

A)(i)(ii)(iii)
B)(i)(ii)
C)(ii)(iii)
D)(i)(iii)

Question 6

Guidelines in ASA 610 relate to:

A)the level of objectivity associated with the internal audit function.
B)the level of technical competence associated with the internal audit function.
C)whether the activities of the internal audit function has been properly planned,reviewed,supervised and documented.
D)All of the options are correct.

Question 7

The purpose of an audit is to:

A)Give shareholders a guarantee that the financial statements are correct
B)Give stakeholders a guarantee that the financial statements are correct
C)Enhance the degree of confidence of intended users in the financial report
D)None of the options are correct

Question 8

__________ to determine the appropriate level of audit evidence required to form an opinion when Australian auditing standards direct the auditors work.

A)A high level of professional judgement is not required
B)A high level of professional judgement is required
C)A moderate level of professional judgement is preferred
D)A low level of professional judgement is required

Question 9

The purpose of the financial statement audit is for users to be able to ascertain the __________ and __________ of the financial statements of an organisation.

A)~ credibility;reliability
B)trustworthiness;accuracy
C)correctness;objectivity
D)None of the options is correct.

Question 10

The relationship between internal auditing function and the organisation's external auditors can be described as:

A)Competing
B)Substitutive
C)Enhancing
D)Close

Question 11

Standards Australia has a risk management standard:

A)ASA 610
B)ISO 9000
C)AS/NZS ISO 31000:2009
D)None of the options are correct

Question 12

The objective of financial audit is to:

A)enable the auditor to express an opinion as to whether the financial report is prepared in accordance with all applicable financial reporting frameworks.
B)enable the auditor to express an opinion as to whether the financial report is prepared in accordance with an applicable financial reporting framework.
C)enable the auditor to express an opinion as to whether the financial report is prepared in accordance with an applicable accounting standard.
D)enable the auditor to express an opinion as to whether the financial report is prepared in accordance with all applicable accounting standards.

Question 13

The external auditors:

A)must not use the work of an internal auditor.
B)can use the work of an internal auditor at whatever way he/she wants.
C)can use the work of an internal auditor subject to guidelines outlined in ASA 610.
D)can use the work of an internal auditor subject to guidelines outlined in IFRS.

Question 14

Which of the following is not a responsibility associated with audit assurance?

A)Compare and analyse risk tolerance and mitigation strategies.
B)Evaluate existing and new controls,costs and effectiveness of monitoring procedures.
C)Define objectives,scope and priorities
D)Assess exposure,report position and recommend insurance (if necessary).

Question 15

Which of the following statements regarding internal auditing is not true?

A)Internal auditing can improve an organisation's operations by providing guidance for management decisions.
B)Internal auditing can improve an organisation's operations by providing guidance for more efficient business operations.
C)Internal auditing is a subjective assurance and consulting activity designed to add value and improve an organisation's operations.
D)Internal auditing is undertaken by professionals who evaluate and improve an organisation's risk management,control and governance processes to add value to the organisation.

Question 16

A firm can only provide reasonable assurance that:

A)The firm and its personnel comply with AUASB Standards
B)The firm and its personnel comply with relevant ethical requirements.
C)The firm and its personnel comply with applicable legal and regulatory requirements.
D)All of the options are correct.

Question 17

Which of the following is not performed by the internal audit function?

A)Monitoring internal control.
B)Examining financial and operational information.
C)Test transactions.
D)Implement business processes that are more efficient and effective.

Question 18

The objectives of the internal audit function do not vary according to:

A)organisation size
B)organisation complexity
C)organisation market share
D)industry sector

Question 19

Non-compliance with Accounting Concepts and Standards is:

A)sometimes required
B)deemed appropriate only in extreme circumstances
C)unprofessional conduct
D)All of the options are correct.

Question 20

Which of the following is performed by the internal audit function?

A)Evaluate risks.
B)Implement improved management control systems.
C)Implement improved risk control systems.
D)Reviewing the organisation's strategic plans.

Question 21

Sarbanes-Oxley Act (SOX)has legal force on which of the following?

A)US companies
B)Companies that are dual listed on a US stock exchange
C)Subsidiaries of US companies
D)All the above

Question 22

The examination of financial reports to form a view independently from the organisation as to the reliability of the information provided in the reports is referred to as:

A)A financial audit.
B)An internal audit.
C)An external audit.
D)An information audit.

Question 23

In Australia and New Zealand,ASX guidelines encourage the appointment and evaluation of performance of external auditors to be carried out by:

A)Chief Executive Officer (CEO)
B)Board of directors
C)Audit committee
D)Chief Financial Officer (CFO)

Question 24

The risk of material misstatement,without regard to the effects of controls,is:

A)An inherent risk
B)A control risk
C)A detection risk
D)An incontrollable risk

Question 25

The auditor performing an attest service is:

A)An external auditor
B)An internal auditor
C)Either an external auditor or an internal auditor
D)An AIS auditor

Question 26

The type of audit that examines the system of internal controls and whether they work is known as:

A)Financial audit
B)Information systems audit
C)IT governance audit
D)Management audit

Question 27

The auditor performing an attest service is:

A)An external auditor
B)An internal auditor
C)Either an external auditor or an internal auditor
D)An AIS auditor

Question 28

Good corporate governance requires effective management oversight.This oversight does not include:

A)Internal and external non-financial reporting.
B)Internal and external audit
C)Oversight of activities to control and report on fraud.
D)None of the options is correct.

Question 29

The ASXs corporate governance principles suggest that the audit committee should:

A)consist of at least three non-executive directors with an independent chair
B)review the integrity of the company's financial reporting
C)oversee the independence of the external auditors
D)All of the options are correct.

Question 30

AUASB stands for:

A)AUstralian Auditing Standards Board
B)AUditing and Assurance Standards Board
C)AUstralian Accounting Standards Board
D)AUditing and Accounting Standards Board

Question 31

Which of the following statements regarding an audit committee is true?

A)The Australian and New Zealand approach of the establishment of an audit committee is legislated for mandatory compliance.
B)The US approach of the establishment of an audit committee encourages companies to follow best practice.
C)The existence of an independent audit committee is recognised internationally as an important feature of good corporate governance.
D)All of the options are correct.

Question 32

Most AIS today are computer based.Auditing the information system requires the auditors to:

A)Treat the computer as a black box and work around it
B)Recognise the special threats inherent in IT and include these in the audit plan
C)Just look at the manual systems and procedures
D)Employ ethical hackers to audit the computer system

Question 33

Which of the following statements regarding auditors is true?

A)When the auditors are to form an opinion that the final accounts truly and fairly summarise the underlying transactions,they do not necessarily have to have confidence in the integrity of the AIS.
B)If the auditors are to form an opinion that the final accounts truly and fairly summarise the underlying transactions then they must have confidence in the integrity of the AIS.
C)If the auditors are to express confidence in the integrity of the AIS,then they must form an opinion that the final accounts truly and fairly summarise the underlying transactions.
D)The integrity of the AIS and the auditors' opinion towards the final accounts are irrelevant.

Question 34

The risk of material misstatement resulting from the internal controls in place failing to detect a fraudulent or erroneous transaction is:

A)An inherent risk
B)A control risk
C)A detection risk
D)An incontrollable risk

Question 35

An accounting information systems may face:

A)Inherent risk
B)Control risk
C)Detection risk
D)All of the options are correct.

Question 36

Which of the following is not true?

A)Australian Auditing Standards (ASAs)are legally binding auditing standards.
B)Australian Auditing Standards (ASAs)are issued by the Australian Auditing and Assurance Standards Board.
C)Australian Auditing Standards (ASAs)set out audit requirements for listed companies under the Corporations Act
D)Australian Auditing Standards (ASAs)are legally enforceable legislative instruments.

Question 37

The process of the auditor forming an opinion and reporting on whether or not the accounts have been prepared in accordance with generally accepted accounting principles is technically termed as:

A)External audit
B)Internal audit
C)Financial audit
D)Attest service

Question 38

In Australia,ASIC found that for the largest companies,audit fees from 2010 to 2011 were reduced by more than $12 million.ASIC later finds that audit quality has:

A)improved
B)unchanged
C)compromised
D)The ASIC has not yet arrived at a conclusion.

Question 39

Which of the following statements regarding an audit committee is not true?

A)An audit committee is set up to oversee accounting and financial reporting.
B)An audit committee has a mandate to cover a wide range of assurance activities including those not related to financial reporting.
C)An audit committee is responsible for considering the effectiveness of the company's internal control system,including information technology security and control.
D)All ASX listed companies must have an audit committee.

Question 40

If a firm failed to disclose billions of dollars in short term debt in its annual financial report that has been distributed to shareholders,who should be found guilty? (i)Directors of the board.(ii)Internal auditor.(iii)External auditor.

A)(i)(ii)(iii)
B)(i)(ii)
C)(ii)(iii)
D)(i)(iii)

Question 41

Auditors need to be imaginative to identify all possible paths through the AIS.Which of the following sets of test data do they use?

A)Historical test data from systems development.
B)Realistic transactions to test all computational paths generated by the auditors.
C)Realistic transactions based on good accounting practice that test the interface between the work procedures and the AIS.
D)All of the options are correct.

Question 42

What are the main responsibilities of an audit committee?

Question 43

Failing to detect a fraudulent or erroneous transaction is an example of which type of risk?

A)Control
B)Inherent
C)Detection
D)Completeness

Question 44

The risk that an error that could occur in an audit area and could be material,individually or in combination with other errors,will not be prevented or detected and corrected on a timely basis by the internal control system is:

A)Inherent risk
B)Control risk
C)Detection risk
D)Incontrollable risk

Question 45

Explain what special purpose audits can do and how can these audits be carried out.

Question 46

When testing using test data,the auditor should:

A)calculate test transactions manually
B)create a sample of test transactions
C)start from the simplest calculations and proceed from there
D)All of the options are correct.

Question 47

Good corporate governance requires effective management oversight.What does this oversight include?

Question 48

Briefly explain the three types of risk associated with a risk-based approach to AIS audit.

Question 49

The audit program:

A)Is essentially a computerised auditing program that is used to audit a system.
B)Is essentially an auditing product provided by an auditing firm.
C)Is essentially a checklist of all the tests and other procedures that the auditor intends to carry out.
D)None of the options are correct.

Question 50

Why the auditing of systems under development is favourable?

Question 51

The control risk associated with manual reviews of computer logs is:

A)High
B)Medium
C)Low
D)Negligible

Question 52

What are the five phases of an AIS audit?

Question 53

What are the five general infrastructure controls of a system that need to be evaluated during an audit?

Question 54

How does running test data through the system impose limitations on the auditors?

Question 55

Which of the following statements regarding computer auditing tools and techniques is true?

A)An embedded audit software is a simper version of an integrated test facility.
B)A more sophisticated example of embedded audit software is continuous auditing using a systems control and review file.
C)Generalised audit software examines transactions dynamically.
D)Generalised audit software is not very flexible.

Question 56

What are the two broad areas of responsibility associated with the risk management system?

Question 57

To test that the system will provide an appropriate response to every invalid input:

A)every possible permutation of valid transactions that could be entered into the system needs to be tested
B)every possible permutation of invalid transactions that could be entered into the system needs to be tested
C)every possible permutation of valid and invalid transactions that could be entered into the system needs to be tested
D)None of the options is correct.

Question 58

The inherent risk associated with an operating system that is used by a major stock exchange is:

A)Ordinarily high
B)Ordinarily medium
C)Ordinarily low
D)Negligible

Question 59

The detection risk associated with identifying breaches of security in an application system is

A)Ordinarily high
B)Ordinarily medium
C)Ordinarily low
D)Negligible

Question 60

Can best practices be used during auditing? If so,how?