Question 1

The essence of the attest function is to:
A) examine individual transactions so that the auditor may certify as to their validity.
B) determine whether the client's financial statements are fairly stated.
C) detect collusion and fraud.
D) assure the consistent application of correct accounting procedures.

Accepted Answer

The attest function's primary objective is to examine and verify financial statements of an organization and provide an independent assurance to stakeholders about the fairness of these statements. The auditor does not examine individual transactions, detect collusion and fraud, or assure the consistent application of correct accounting procedures.

Question 2

To adequately plan the appropriate audit evidence, generally accepted auditing standards require the auditor to gain an understanding of the internal control structure. This understanding is obtained by:
A) discussions with client personnel.
B) observing client activities.
C) reviewing organisational charts and procedural manuals.
D) all of the above

Accepted Answer

To adequately plan the appropriate audit evidence, generally accepted auditing standards require the auditor to gain an understanding of the internal control structure. This understanding is obtained by a combination of discussions with client personnel, observing client activities, and reviewing organisational charts and procedural manuals. Therefore, all of the above options are necessary in order to gain a comprehensive understanding of the internal control structure.

Question 3

An example of a fraudulent financial reporting is:
A) overlooking the revaluation of obsolete inventory.
B) cashier misappropriating funds from a cash sale and not recording the transaction.
C) intentional overstatement of sales.
D) all of the above

Accepted Answer

Intentional overstatement of sales is a clear example of fraudulent financial reporting, as it misrepresents the financial performance of a company. Overlooking the revaluation of obsolete inventory or misappropriation of funds by a cashier are also forms of financial fraud, but they fall under the category of misappropriation of assets rather than fraudulent financial reporting. Therefore, the best choice is C.

Question 4

If the auditor has obtained a reasonable level of assurance about the fair presentation of the financial statements through understanding internal control, assessing control risk, testing controls and analytical procedures, then the auditor:
A) can issue an unqualified opinion.
B) needs to do additional tests of controls so that the assurance level can be increased.
C) can significantly reduce the test of details.
D) can write the engagement letter.

Accepted Answer

The auditor can significantly reduce the test of details because they have obtained a reasonable level of assurance about the fair presentation of the financial statements through understanding internal control, assessing control risk, testing controls and analytical procedures.

Question 5

The auditor's BEST defence when existing material misstatements in the financial statements are NOT uncovered in the audit is that:
A) the financial statements are client's responsibility.
B) the audit was conducted in accordance with generally accepted accounting principles.
C) the client is guilty of contributory negligence.
D) the audit was conducted in accordance with Australian auditing standards.

Accepted Answer

The answer of The auditor's BEST defence when existing material...

Question 6

When preparing the financial statements, it is acceptable for the auditor to prepare:
A) the statements for a client.
B) the footnotes for a client.
C) a draft of the statements for a client.
D) a draft of the statements and footnotes for a client.

Accepted Answer

The answer of When preparing the financial statements, it is...

Question 7

Which of the following journals would be included in all of the various audit cycles?
A) Sales journal
B) General journal
C) Cash disbursements journal
D) Cash receipts journal

Accepted Answer

The general journal is used to record transactions that do not fit into any of the other specialized journals, such as the sales journal, cash disbursements journal, and cash receipts journal. Therefore, the general journal would be included in all audit cycles since it captures any miscellaneous transactions that may be relevant to the audit.

Question 8

The cycle approach to segmenting an audit:
A) divides an audit into segments by keeping closely related types of transactions and account balances in the same segment.
B) divides the different operation areas of the client's business operations.
C) requires different audit teams that cycle between assignments to ensure the objectivity objective is met.
D) all of the above

Accepted Answer

The cycle approach to segmenting an audit divides an audit into segments by keeping closely related types of transactions and account balances in the same segment. This allows auditors to focus on specific areas of the audit in a structured and efficient manner. Choices B and C are not accurate descriptions of the cycle approach to segmenting an audit.

Question 9

Which of the following statements is NOT correct?
A) The existence/occurrence assertion is concerned with inclusion of amounts that should not have been.
B) The completeness assertion is concerned with the possibility of omitting items from the financial statements that should have been included.
C) The completeness assertion deals with matters opposite from those of the existence/occurrence assertion.
D) It would be a violation of the completeness assertion if management recorded a sale that did not take place.

Accepted Answer

The completeness assertion is about ensuring all transactions that should be recorded are included, not about recording transactions that did not occur. Recording a sale that did not take place would violate the existence/occurrence assertion, not completeness.

Question 10

An audit process is a well- defined methodology for organising an audit to ensure that:
A) the evidence gathered is both sufficient and appropriate.
B) all appropriate audit objectives are met.
C) all appropriate audit objectives are specified.
D) all of the above

Accepted Answer

An audit process includes specific steps and procedures to ensure that the evidence gathered is sufficient and appropriate, all appropriate audit objectives are specified and met. Therefore, all options A, B, and C are correct.

Question 11

Analytical procedures are those that:
A) assess the overall reasonableness of transactions and balances.
B) analyse the effect of management procedures on the accounting system.
C) review the effectiveness of internal control procedures.
D) evaluate the accuracy of the account balances.

Accepted Answer

Analytical procedures are used to assess the overall reasonableness of transactions and balances by comparing them to expected results based on historical data or industry standards. It is a technique used by auditors to gain an understanding of the financial statements and identify potential risk areas that require further investigation. Option B is incorrect because analytical procedures are not used to analyse the effect of management procedures on the accounting system. Option C is incorrect because reviewing the effectiveness of internal control procedures is a separate audit technique. Option D is incorrect because analytical procedures are not used to evaluate the accuracy of the account balances, but to assess their reasonableness.

Question 12

In comparing management fraud with employee fraud, the auditor's responsibility to discover the fraud is:
A) greater for management fraud because of management's ability to override existing internal controls.
B) greater for management fraud because managers are inherently smarter than employees.
C) the same for both management and employee fraud.
D) greater for employee fraud because of the larger number of employees in the organisation.

Accepted Answer

The answer of In comparing management fraud with employee fraud,...

Question 13

To adequately plan the appropriate audit evidence to gather, Australian auditing standards require the auditor to gain an understanding of:
A) the client's procedural manuals.
B) the client's internal controls.
C) the client's organisation charts.
D) all of the above

Accepted Answer

According to Australian auditing standards, in order to plan the appropriate audit evidence to gather, the auditor must gain an understanding of the client's internal controls. While knowledge of procedural manuals and organization charts may also be helpful, they are not specifically required by the auditing standards. Therefore, option B is the best choice as the only required understanding to plan the audit evidence.

Question 14

The audit can be divided into transaction cycles. Which of the following is NOT one of the transaction cycles?
A) Acquisition and payment cycle
B) Sales and collection cycle
C) Sales and payment cycle
D) Payroll and personnel cycle

Accepted Answer

The "Sales and payment cycle" is not a recognized transaction cycle in auditing. The correct cycles are the acquisition and payment cycle, sales and collection cycle, and payroll and personnel cycle.

Question 15

If the auditor was responsible for making certain that all the assertions of management in the statements were correct:
A) bankruptcies could no longer occur.
B) audits would not be economically feasible.
C) audits would be much easier to complete.
D) bankruptcies would be reduced to a very small number.

Accepted Answer

It is impossible for an auditor to guarantee that all assertions made by management in the financial statements are correct. The auditor's role is to provide reasonable assurance that the financial statements are free from material misstatements, but not to completely eliminate the risk of bankruptcy or financial failure. If auditors were responsible for ensuring the accuracy of all assertions, audits would be too costly and time-consuming to be economically feasible.

Question 16

The accuracy of information included in footnotes that accompany the audited financial statements of a company whose shares are traded on a stock exchange is the primary responsibility of:
A) the Australian Securities and Investment Commission.
B) the independent auditor.
C) the stock exchange officials.
D) the company's management.

Accepted Answer

The company's management is primarily responsible for the accuracy of the information included in the footnotes of the audited financial statements. The independent auditor's role is to provide an opinion on the financial statements as a whole, including the footnotes, but the preparation and accuracy of the information are the responsibility of management.

Question 17

A Directors Declaration in accordance with the Corporations Act, must state the directors are satisfied the financial statements:
A) comply with applicable accounting standards.
B) are in accordance with the Act.
C) give a true and fair view.
D) all of the above

Accepted Answer

The Directors Declaration must state that the directors are satisfied that the financial statements comply with applicable accounting standards, are in accordance with the Corporations Act, and give a true and fair view. Therefore, all of the above options are correct.

Question 18

Which one of the following is NOT an example of misclassification for sales?
A) Recording the sale of a subsidiary as a reduction in investments
B) Recording a sale of operating fixed assets as revenue
C) Including retail sales as wholesale sales
D) Including cash sales as credit sales

Accepted Answer

Recording the sale of a subsidiary as a reduction in investments is not related to sales misclassification; it pertains to investment accounting.

Question 19

The reason auditors accumulate evidence is to:
A) satisfy the requirements of the Corporations Act.
B) enable them to reach conclusions about the fairness of the financial statements and issue an appropriate audit report.
C) defend themselves in the event of a lawsuit.
D) justify the conclusions they have otherwise reached.

Accepted Answer

The primary purpose of accumulating evidence is to enable auditors to arrive at a conclusion about the fairness of the financial statements and issue an appropriate audit report. The other options are not the main reasons for accumulating evidence, although they may be additional benefits.

Question 20

Which one of the following is NOT a proper match of auditor's objective with management's assertion?
A) Timing matches with valuation or allocation.
B) Existence matches with existence/occurrence.
C) Classification matches with presentation/disclosure.
D) Completeness matches with completeness.

Accepted Answer

The answer of Which one of the following is NOT...

Quiz 4: Audit Responsibilities and Objectives

The essence of the attest function is to:

To adequately plan the appropriate audit evidence, generally accepted auditing standards require the auditor to gain an understanding of the internal control structure. This understanding is obtained by:

An example of a fraudulent financial reporting is:

If the auditor has obtained a reasonable level of assurance about the fair presentation of the financial statements through understanding internal control, assessing control risk, testing controls and analytical procedures, then the auditor:

The auditor's BEST defence when existing material misstatements in the financial statements are NOT uncovered in the audit is that:

When preparing the financial statements, it is acceptable for the auditor to prepare:

Which of the following journals would be included in all of the various audit cycles?

The cycle approach to segmenting an audit:

Which of the following statements is NOT correct?

An audit process is a well- defined methodology for organising an audit to ensure that:

Analytical procedures are those that:

In comparing management fraud with employee fraud, the auditor's responsibility to discover the fraud is:

To adequately plan the appropriate audit evidence to gather, Australian auditing standards require the auditor to gain an understanding of:

The audit can be divided into transaction cycles. Which of the following is NOT one of the transaction cycles?

If the auditor was responsible for making certain that all the assertions of management in the statements were correct:

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

A Directors Declaration in accordance with the Corporations Act, must state the directors are satisfied the financial statements:

Which one of the following is NOT an example of misclassification for sales?

The reason auditors accumulate evidence is to:

Which one of the following is NOT a proper match of auditor's objective with management's assertion?