Deck 12: Completing and Reporting on the Audit

Question 1

A subsequent event occurs:

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

Answer 1

B

Question 2

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

Answer 2

True

Question 3

Sufficiency relates to the quality of audit evidence gathered.

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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 8

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 9

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

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

Question 10

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 11

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 12

Under the going concern assumption:

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

Question 13

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

Question 14

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

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

Question 15

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

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

Question 16

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

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

Question 17

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

Question 18

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

Question 19

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 20

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

Question 21

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

Question 22

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

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

Question 23

Contraventions of the Corporations Act that are considered significant include:

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

Question 24

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 25

Explain the difference between management's and the auditor's responsibility for the financial report.

Question 26

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

Question 27

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

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

Question 28

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 29

Which of the following statements regarding judgemental misstatements is in?

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

Question 30

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 31

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

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

Question 32

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

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

Question 33

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

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

Question 34

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

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

Question 35

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

Question 36

Material disagreements with management will result in either:

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

Question 37

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

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

Question 38

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

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

Question 39

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

Question 40

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

A) performing substantive tests of account balances.
B) gaining an understanding of the client's internal control system.
C) confirming the terms of the audit engagement with the auditor.
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.