Question 1

ABC firm are the auditors of XYZ Company. The partner responsible for the audit has recently spent a week working with XYZ as a paid consultant on their internal control systems. The ethical principle that has been breached is:
A) auditor independence.
B) auditor appointment.
C) auditor rotation.
D) auditor competence.

Accepted Answer

The ethical principle breached is auditor independence. When an auditor works as a paid consultant for a client on matters like internal control systems, it compromises the auditor's ability to remain objective and independent in their audit work. Independence is crucial for auditors to provide unbiased opinions on financial statements.

Question 2

The statutory body that is responsible for hearing applications in Australia as to whether auditors and liquidators have breached the Corporations Act is:
A) ASIC.
B) CALDB.
C) FRC.
D) AUASB.

Accepted Answer

CALDB (Companies Auditors and Liquidators Disciplinary Board) is the statutory body in Australia responsible for hearing applications regarding whether auditors and liquidators have breached the Corporations Act.

Question 3

The best test to decide if audits provide good value is:
A) by examining how often audits are associated with company failure
B) by examining whether the audit report is correct
C) by examining the premium the market places on a share price for independently audited information
D) it is not possible to designate any one test as being the best to decide if audits provide good value

Accepted Answer

The value of audits can be influenced by a variety of factors, including the quality of the audit, the context in which it is conducted, and the specific needs of stakeholders. Therefore, it is not possible to designate any one test as being the best to decide if audits provide good value.

Question 4

The body that is responsible for setting the auditing standards in Australia is:
A) AUASB.
B) AASB.
C) IAASB.
D) FRC.

Accepted Answer

The AUASB (Auditing and Assurance Standards Board) is responsible for setting auditing standards in Australia, ensuring that auditors follow a consistent and high-quality approach in their work.

Question 5

The separation of ownership and control in large organisations has resulted in:
A) an audit expectation gap
B) an agency problem
C) the insurance hypothesis
D) CLERP

Accepted Answer

The separation of ownership and control in large organizations leads to an agency problem, where the interests of the managers (agents) may not align with those of the owners (principals), potentially causing conflicts and inefficiencies.

Question 6

Which of these was not an Australian corporate collapse?
A) HIH Insurance Ltd.
B) One.Tel.
C) Harris Scarfe.
D) all were Australian corporate collapses

Accepted Answer

All the options listed, HIH Insurance Ltd., One.Tel, and Harris Scarfe, were indeed Australian corporate collapses, making none of them an exception to being a corporate collapse in Australia.

Question 7

Which of these actions is most likely to remove the audit expectation gap?
A) improving auditing standards
B) educating of audit users about what are reasonable expectations
C) improving auditor's performance
D) it will require a comprehensive approach combining all three of the above

Accepted Answer

The audit expectation gap is a complex issue that stems from the difference between what the public and financial statement users expect from the auditing process and what auditors actually deliver. Addressing this gap requires a multifaceted approach that includes improving auditing standards to ensure they are robust and up-to-date, educating users about what they can reasonably expect from an audit to align their expectations with reality, and enhancing auditors' performance to meet or exceed those expectations. Therefore, a comprehensive approach that combines all three elements is most likely to be effective in reducing the audit expectation gap.

Question 8

Any situation where information is prepared by one party and then attested as to its accuracy by another party is known as:
A) an audit engagement
B) agency theory
C) an assurance engagement
D) an assertion engagement

Accepted Answer

An assurance engagement involves a situation where one party prepares information and another party attests to its accuracy, providing assurance on the reliability of that information. This is a broad category that includes audits but also encompasses other types of engagements.

Question 9

In relation to auditing the information hypothesis relates:
A) to what auditing is
B) to which auditing standards are produced
C) to why there is a demand for audits
D) to 'does the audit meet the demands of users'

Accepted Answer

The information hypothesis relates to why there is a demand for audits, suggesting that audits are demanded because they provide valuable information to users, enhancing the credibility of financial statements.

Question 10

In the HIH Royal Commission Report it was stated that current audit reports:
A) are not very informative about the nature and scope of audit services
B) are useful in informing users about the message that auditors are trying to get over
C) are generally a waste of the paper they are written on
D) are often wrong

Accepted Answer

Audit reports are criticized for not being very informative about the nature and scope of audit services, indicating a need for more detailed and transparent reporting.

Question 11

The oversight structure of financial reporting in Australia had many levels. CALDB is part of which level?
A) regulation by the profession
B) regulation by the firm.
C) self or peer regulation.
D) government regulation.

Accepted Answer

The Companies Auditors and Liquidators Disciplinary Board (CALDB) is part of government regulation in Australia, overseeing the conduct of auditors and liquidators.

Question 12

The three major professional accounting bodies in Australia are:
A) ICAA, CPA and ASIC.
B) CPA Australia, NIA and AARF.
C) ATO, AUASB and ASIC.
D) ICAA, CPA Australia and NIA.

Accepted Answer

The three major professional accounting bodies in Australia are the Institute of Chartered Accountants in Australia (ICAA), CPA Australia, and the Institute of Public Accountants (formerly known as the National Institute of Accountants or NIA).

Question 13

Investors shift financial responsibility for audited financial information to the auditor in order to lower the expected loss from litigation or related settlements. This describes which theory of auditing?
A) explanatory.
B) agency.
C) information hypothesis.
D) insurance hypothesis.

Accepted Answer

The insurance hypothesis suggests that investors use auditors as a form of insurance. By shifting financial responsibility for audited financial information to the auditor, investors aim to lower their expected loss from litigation or related settlements, as the auditor can be held liable for financial misstatements.

Question 14

An area where auditors in Australia have generally not expanded their role is:
A) reporting on internal controls
B) detection of fraud
C) evaluation of whether an entity is a going concern
D) all of the above are areas in Australia where auditors have not expanded their role.

Accepted Answer

The answer of An area where auditors in Australia have...

Question 15

In Australia, all of the following are required to have an annual audit, except:
A) not-for-profit organisations
B) statutory authorities
C) small proprietary companies
D) all of the above are required to have an annual audit with no exceptions

Accepted Answer

In Australia, small proprietary companies are generally not required to have an annual audit unless they are controlled by a foreign company or the Australian Securities & Investments Commission (ASIC) has directed them to do so due to public interest concerns. Not-for-profit organisations and statutory authorities typically have specific requirements for annual audits based on their legal status and regulatory framework.

Question 16

It is not a requirement to be registered as an auditor in Australia to:
A) be a fit and proper person
B) be a member of CPA Australia, the ICAA or other approved body.
C) have a degree or diploma from a course in accounting (including auditing) of not less than 3 years duration and in commercial law(including company law) of not less than 2 years duration or have other equivalent qualifications acceptable to ASIC.
D) all are requirements to be registered as an auditor in Australia.

Accepted Answer

To be registered as an auditor in Australia, one must meet several requirements, including being a fit and proper person, being a member of a recognized professional body such as CPA Australia or the Institute of Chartered Accountants in Australia (ICAA), and having the necessary educational qualifications in accounting and commercial law. Therefore, all the options listed are indeed requirements for auditor registration in Australia.

Question 17

The term audit expectation gap refers primarily to differences in expectations between:
A) auditors and their clients.
B) CPA Australia/ICAA and the ASIC.
C) auditors and the ASIC.
D) auditors and users of audited financial reports.

Accepted Answer

The answer of The term audit expectation gap refers primarily...

Question 18

The true statement is:
A) most countries in the world have auditing standards that are legally enforceable
B) few countries in the world have auditing standards that are legally enforceable
C) australia is the only country in the world that has auditing standards that are legally enforceable
D) the IAASB produces accounting standards which are legally enforceable in each country which adopts them.

Accepted Answer

Auditing standards vary significantly across different countries, and while many countries have established auditing standards, not all of these standards are legally enforceable. The statement that few countries have legally enforceable auditing standards reflects the reality that, although auditing standards exist globally, their legal enforceability is not universal.

Question 19

The auditing and accounting body with the highest number of members is:
A) The National Institute of Accountants
B) CPA Australia
C) The Institute of Chartered Accountants in Australia
D) The International Federation of Accountants

Accepted Answer

The answer of The auditing and accounting body with the...

Question 20

Which of these is not a reform introduced by CLERP 9.in relation to Auditors and annual general meetings (AGMs)?
A) shareholders can submit written questions to the auditor before the AGM relating to the auditor's report and the conduct of the audit.
B) the auditor must attend the AGM.
C) the auditor must address the AGM.
D) a reasonable opportunity must be allowed for members as a whole to ask questions of the auditor and for the auditor to respond.

Accepted Answer

The reform introduced by CLERP 9 does not specifically require the auditor to address the AGM, but it does require the auditor to attend the AGM and provides an opportunity for shareholders to ask questions.

Quiz 1: An Overview of Auditing

ABC firm are the auditors of XYZ Company. The partner responsible for the audit has recently spent a week working with XYZ as a paid consultant on their internal control systems. The ethical principle that has been breached is:

The statutory body that is responsible for hearing applications in Australia as to whether auditors and liquidators have breached the Corporations Act is:

The best test to decide if audits provide good value is:

The body that is responsible for setting the auditing standards in Australia is:

The separation of ownership and control in large organisations has resulted in:

Which of these was not an Australian corporate collapse?

Which of these actions is most likely to remove the audit expectation gap?

Any situation where information is prepared by one party and then attested as to its accuracy by another party is known as:

In relation to auditing the information hypothesis relates:

In the HIH Royal Commission Report it was stated that current audit reports:

The oversight structure of financial reporting in Australia had many levels. CALDB is part of which level?

The three major professional accounting bodies in Australia are:

Investors shift financial responsibility for audited financial information to the auditor in order to lower the expected loss from litigation or related settlements. This describes which theory of auditing?

An area where auditors in Australia have generally not expanded their role is:

In Australia, all of the following are required to have an annual audit, except:

It is not a requirement to be registered as an auditor in Australia to:

The term audit expectation gap refers primarily to differences in expectations between:

The true statement is:

The auditing and accounting body with the highest number of members is:

Which of these is not a reform introduced by CLERP 9.in relation to Auditors and annual general meetings (AGMs) ?