Question 1

An engagement letter contains express or implied terms of the contractual arrangement with the client. Which of the following is not one of those terms?

Accepted Answer

The engagement letter typically outlines the responsibilities of the auditor, including exercising skill and care, maintaining independence, and providing an opinion on the financial statements. Reporting the duties of the auditor is not a term of the contractual arrangement but rather a description of what the auditor is expected to do, which is generally understood outside of the specific terms of the engagement letter.

Question 2

The body that prepares the auditing standards that apply in Australia is:

Accepted Answer

The AUASB (Auditing and Assurance Standards Board) is responsible for developing the auditing and assurance standards that apply in Australia.

Question 3

When auditors issue an audit report that expresses an audit opinion what duty are they fulfilling?

Accepted Answer

Auditors fulfill a statutory duty to report to members (such as shareholders of a company) and to regulatory bodies like the Australian Securities and Investments Commission (ASIC) when they issue an audit report that expresses an audit opinion. This is a requirement under various laws and regulations to ensure transparency and accountability in financial reporting.

Question 4

S.294.of the Corporations Act requires a Directors' Declaration. Which of these is not an inclusion in that declaration?

Accepted Answer

The Directors' Declaration does not require a statement that the financial statements and notes are "correct and accurate," but rather that they comply with accounting standards and the Corporations Act.

Question 5

During the course of the audit engagement, the external auditor suggests an adjustment to the financial statements. The suggestion is accepted by management without argument. This suggests that:

Accepted Answer

The acceptance of the external auditor's suggestion by management indicates that the client (management) has assumed responsibility for the changes made to the financial statements. The external auditor's role is to audit the financial statements prepared by management, not to prepare them or assume primary responsibility for their fairness.

Question 6

The Corporations Act requires that auditors are competent. To be suitably qualified the person must:

Accepted Answer

The Corporations Act stipulates that auditors must meet several qualifications to ensure their competence. These include being a member of a recognized professional accounting body, holding a relevant degree or certification, and being considered a fit and proper person for the role. Therefore, all the options listed (A, B, and C) are requirements, making D the correct choice.

Question 7

The Corporations Act does not require the audit of which of the following type of entity, except in specified circumstances?

Accepted Answer

Small proprietary companies are generally not required to be audited under the Corporations Act except in specific circumstances, such as when shareholders holding at least 5% of the votes request an audit.

Question 8

The work of an internal auditor can be used to complement, but not substitute for, the work of the independent auditor. Which of the following factors is not one of the considerations listed by ASA 610 that is relevant in determining the effect of an internal auditor's work on the audit?

Accepted Answer

ASA 610 does not list past communications of the internal auditors with management as a factor relevant in determining the effect of an internal auditor's work on the audit. It focuses on aspects such as the organizational status, scope of work, and technical training and proficiency of the internal auditor to assess their work's relevance and reliability.

Question 9

Which of the following is not an inherent limitation of an audit?

Accepted Answer

All the options listed (A, B, and C) are inherent limitations of an audit. These limitations stem from the nature of auditing itself, including the necessity to make judgments, the use of sampling for testing, and the time constraints involved in completing an audit and presenting its findings.

Question 10

The primary reasons for the existence of Auditing Standards is:

Accepted Answer

Auditing Standards are primarily in place to ensure that auditors adhere to a minimum set of criteria and methodologies when conducting an audit, which helps in maintaining the quality and reliability of the audit process. This ensures that the auditor's opinion on the financial statements is based on a standardized approach, enhancing the credibility of the audit. Options A and B, while potentially beneficial outcomes of adhering to auditing standards, are not the primary reasons for their existence.

Question 11

In a financial statement audit, the auditor maintains professional relationships with:

Accepted Answer

The auditor maintains professional relationships with the audit committee and the internal auditors as part of their role in ensuring the integrity and accuracy of financial statements. The audit committee oversees the audit process on behalf of the shareholders, and the internal auditors provide insights into the company's internal controls and operations, which are crucial for the external auditor's work.

Question 12

Audit committees are perceived to strengthen the independence of auditors. Which of the following is normally an objective of an audit committee?

Accepted Answer

Audit committees are primarily responsible for assisting the board of directors in fulfilling its oversight responsibilities, which includes ensuring due care, diligence, and skill in financial reporting and auditing processes.

Question 13

As a general rule, the auditor is appointed by the shareholders at the annual general meeting. Which of the following is not true concerning the appointment of an auditor?

Accepted Answer

The answer of As a general rule, the auditor is...

Question 14

S. 308.of the Corporations Act requires certain implied conditions to be reported on in an audit report if there is any deficiency, or failure to comply. Which of the following is one of those implied conditions?

Accepted Answer

Section 308 of the Corporations Act requires auditors to report if they have not obtained all necessary information, explanations, and assistance, making option A correct.

Question 15

The words that best describes the relationship which should exist between the external auditor and the management of the client company are:

Accepted Answer

Mutual trust and respect is the foundation of a healthy relationship between the external auditor and the management of the client company. This relationship is based on the understanding that both parties have a common goal: to ensure the accuracy and reliability of the company's financial statements.

Question 16

The most common form of audit opinion is:

Accepted Answer

An unqualified opinion, also known as a clean opinion, is the most common form of audit opinion. It indicates that the financial statements present fairly, in all material respects, the financial position of the company in accordance with the applicable financial reporting framework.

Question 17

Which of the following are the international auditing standards?

Accepted Answer

All of the options listed, including International Standards on Auditing (ISAs), International Standards on Assurance Engagements (ISAEs), and International Standards on Related Services (ISRSs), are considered international auditing standards.

Question 18

Which of the following is a benefit of the ASIC register of company auditors?

Accepted Answer

The ASIC register of company auditors provides assurance of the qualification, level of competence, and experience of the auditor, ensuring that only qualified individuals can perform audits.

Question 19

The removal and resignation of auditors must be :

Accepted Answer

The removal and resignation of auditors typically require a resolution by the company and may also involve notifying a regulatory body like the ASIC (Australian Securities and Investments Commission) for its consent, depending on jurisdictional requirements.

Question 20

Which of these is true concerning the audit report format?

Accepted Answer

The standard audit report format is designed to communicate the auditor's opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. However, it may not fully capture the complexities of the audit process or the nuances in determining the audit opinion. Auditors do not guarantee the accuracy of the financial statements or the solvency of the entity, nor do they provide early warning signs of company failure as their primary objective.

Quiz 4: Overview of the Audit Financial Statements