Deck 12: Completing and Reporting on the Audit

Question 1

Which of the following are areas normally covered during the wrap-up of an audit engagement?

A)Reconsider the assessments of internal control at the entity level and the risk of fraud
B)Perform subsequent events procedures
C)Consider the amount used for materiality
D)All of the above

Answer 1

D

Question 2

Procedures used by an auditor when conducting a subsequent events review include:

A)reading minutes of the meetings of the board of directors.
B)assessing continued compliance with borrowing limits and loan covenants.
C)enquiring of those charged with governance as to whether any subsequent events have occurred that may affect the financial report.
D)All of the above

Answer 2

D

Question 3

The auditor's responsibility for the financial report includes selecting and applying appropriate accounting policies.

Answer 3

False

Question 4

The uninsured loss of inventory as a result of fire subsequent to year-end is an example of a type 2 subsequent event.

Question 5

The final phase of an audit is to assess all of the audit evidence obtained and determine whether it is sufficient and appropriate.

Question 6

Generally,the further into the future an event is likely to take place,the greater the uncertainty surrounding the event.

Question 7

A type 1 subsequent event provides evidence with respect to conditions that developed subsequent to year-end.

Question 8

Subsequent events procedures are normally performed through to and including the date of the auditor's report.

Question 9

An unqualified audit report with an emphasis of matter should be issued if a subsequent event has occurred that has resulted in a new auditor's report being prepared on a revised financial report.

Question 10

An error is an intentional misstatement in the client's financial report.

Question 11

As soon as practicable,the auditor should communicate weaknesses in internal controls to management or those charged with governance.

Question 12

Under the going concern assumption:

A)an entity is viewed as continuing in business for the foreseeable future.
B)an entity is viewed as not likely to continue in operation for the foreseeable future.
C)an entity's assets and liabilities are recorded at liquidation values.
D)an entity is considered to be a separate legal entity from its owners.

Question 13

Under section 311 of the Corporations Act,auditors are required to report to ASIC any actual or suspected contraventions of the Act within 28 days of an event.

Question 14

A limitation on the scope of the auditor's work could result from an inability to perform procedures or an imposition by the entity.

Question 15

Which of the following statements is regarding a type 1 subsequent event?

A)they may be of such significance as to require disclosure in the financial report.
B)they are events that do not result in changes to amounts in the financial report.
C)they occur before the end of the client's financial year.
D)the financial report is adjusted for any material changes in estimates from these types of events.

Question 16

Matters of governance that the auditor may wish to discuss with those charged with governance include any practical difficulties encountered in performing the audit.

Question 17

Which of the following factors is not relevant when management is assessing the going concern assumption?

A)The nature and condition of the entity's business
B)Whether the auditor specialises in the client's industry
C)The time into the future that an event is likely to take place
D)The size and complexity of the entity

Question 18

The client's compliance with contractual requirements of operating agreements is an example of a qualitative factor that may cause misstatements of quantitatively immaterial amounts to be considered material.

Question 19

Sufficiency relates to the quality of audit evidence gathered.

Question 20

Breaches of accounting standards are not considered to be significant contraventions of the Corporations Act.

Question 21

What are examples of matters of governance interest that the auditor may wish to discuss with those charged with governance?

Question 22

The auditor's report will not require a modified opinion where:

A)a significant uncertainty exists.
B)there is a disagreement with those charged with governance.
C)a limitation of scope of the engagement exists.
D)the financial report is true and fair.

Question 23

Explain why the global financial crisis has resulted in the number of potential and actual legal liability insurance claims and explain how auditors can deal with the risk of litigation in tough economic times.

Question 24

Those charged with governance are accountable for ensuring that the entity achieves its objectives with regard to which of the following?

A)The reliability of financial reporting
B)Compliance with applicable laws
C)Both a and b
D)None of the above

Question 25

Material disagreements with management will result in either:

A)an adverse opinion or an unqualified opinion.
B)a qualified opinion or adverse opinion.
C)an emphasis of matter or adverse opinion.
D)an unqualified opinion or a qualified opinion.

Question 26

The final phase of an audit includes which of the following:

A)confirming the terms of the audit engagement with the auditor.
B)performing substantive tests of account balances.
C)gaining an understanding of the client's internal control system.
D)determining whether the audit evidence obtained is sufficient and appropriate to reduce the risk of material misstatements in the financial report to an acceptably low level.

Question 27

A subsequent event occurs:

A)after the audit completes the tests of controls
B)before the end of the financial year
C)between the client's financial year-end and the date of the auditor's report
D)after the auditor signs the audit engagement letter

Question 28

Identify quantitative and qualitative considerations that are taken into account when the auditor evaluates whether misstatements either cause financial reports to be materially misstated or requires additional disclosure.

Question 29

Discuss the factors that are relevant when management is assessing the going concern assumption.

Question 30

Under section 311 of the Corporations Act auditors are required to report any actual or suspected contraventions of the Act to:

A)the Financial Reporting Council.
B)the Auditing and Assurance Standards Board.
C)the Australian Securities and Investments Commission.
D)the Australian Securities Exchange.

Question 31

A limitation on the scope of the auditor's work may result from:

A)absence of adequate accounting records.
B)damage to accounting records.
C)lack of access to key personnel.
D)all of the above.

Question 32

Demand for forensic accounting has grown following the collapses of Enron and Worldcom.Explain the important characteristics of forensic accountants and the main techniques they use to investigate fraud.

Question 33

Matters of governance interest that the auditor may wish to discuss with those charged with governance include:

A)expected modifications to the audit report.
B)any practical difficulties encountered in performing the audit.
C)the potential effect on the financial report of any material risks and exposures.
D)All of the above

Question 34

Which of the following are examples of qualitative considerations that may cause misstatements of quantitatively immaterial amounts to be considered material?

A)Key ratios monitored by analysts or other key users of the financial report
B)The client's compliance with contractual requirements of operating or other agreements
C)Both a and b
D)None of the above

Question 35

Which of the following statements regarding judgemental misstatements is in?

A)They are not the same as errors
B)They are the same as errors
C)They can arise as a result of a difference in underlying assumptions by the client and the auditor
D)They can arise as a result of a difference in the application of judgement by the client and the auditor

Question 36

Contraventions of the Corporations Act that are considered significant include:

A)insolvent trading.
B)fraud by officers or employees of the entity.
C)breaches of accounting standards.
D)All of the above

Question 37

If the auditor is not able to obtain sufficient appropriate audit evidence,the appropriate audit opinion will either be:

A)a qualified opinion or disclaimer of opinion.
B)a qualified opinion or an unqualified opinion.
C)a disclaimer of opinion or an emphasis of matter.
D)an emphasis of matter or a qualified opinion.

Question 38

Which of the following would not be included in an audit report?

A)The audit fee charged to the client
B)The auditor's address
C)An introductory paragraph
D)The auditor's responsibility for the financial report

Question 39

Explain the difference between type 1 and type 2 subsequent events and provide examples of each type of event.

Question 40

Explain the potential threats to independence relating to audit fees and how auditor can safeguard against these threats.