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principles of auditing and other assurance services

Questions and Answers of Principles Of Auditing And Other Assurance Services

In planning the audit of a client's liabilities, an auditor derived the following specific objectives from management's financial statement assertions:1. Liabilities are not valued below the amount
You are an audit senior at the accounting firm of Court & Partners in Sydney. The firm has recently won the audit of a small manufacturing firm located in Bankstown and you have been given the job.
This chapter identified several categories of control activity, using the following categorisation:A. Information processing controls:a. General controlsb. Application controls (input, processing,
The following facts relate to Sporty Pty Ltd:1. Sporty operates fitness centres across Australia.2. The company is owned by the five directors who have financed the purchase of shares by taking out
You are a senior auditor working on the audit of HealthyGlow for the year ended 30 June 2015.You are in the planning stage of the audit. It is April 2015 and you discover that HealthyGlow has
Trang Professional Ltd operates business colleges, its customers come from a range of professions such as lawyers, medical practitioners, accountants and others. Trang delivers knowledge update
Rhapsody Co supplies a wide range of garden and agricultural products to trade and domestic customers. The company has 11 divisions, with each division specialising in the sale of specific products;
ErgoOffice Ltd manufactures office furniture. It employs 250 staff at its single factory and its turnover last year was \($40\) million.You are an audit senior with a firm of accountants which has
Jertsy Ltd owns a range of fashion clothing stores in Australian state capitals. Each store manager operates with a degree of autonomy with regard to the types and quantities of clothes that they buy
Audrey Pearce is an audit partner of Pearce Green, a firm of accountants. She is considering audit risk at the overall financial statement level in planning the audit for the finance company Homes
Face Paint Ltd sells cosmetics and markets itself on the basis that its products have not been tested on animals, it has ethical policies towards its staff and suppliers, and that it takes corporate
Information systems and internal controls Balancing Books Ltd runs four private colleges that provide education and training for people in the bookkeeping industry. Its 2-year course includes
The current unqualified audit report presented in ASA 700 states the following:In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair
Which of these is an assurance engagement?i. A performance audit.ii. A consulting engagement to help an organization meet its tax obligations.iii. A review of historical financial information.A. (i)
Under the Framework for Assurance Engagements which of these is one of the types of assurance engagements?i. Absolute assurance.ii. Reasonable assurance.iii. Partial assurance.iv. No assurance.A.
A special purpose financial report is one that relates to:A. Non-financial information.B. Reports that must comply with approved accounting standards.C. Entities that are not reporting entities.D.
The scope of sustainability assurance varies among organisations. Typically, sustainability assurance does not include:A. Financial performance.B. Social performance.C. Environmental reporting.D.
AA1000 is a well-recognized assurance standard. It contains principles such as:A. Integrity in reporting.B. Timeliness of conclusions.C. Materiality, completeness and responsiveness requirements.D.
Which of the following statements best describes the relationship between the fraudster and an organizations?A. A management team.B. A non-management employee.C. Audit personnel.D. A junior
In a continuous audit client information is released in a very short timeframe, and auditors' reports on that information follow the release almost immediately. One of the issues for auditors is:A.
Quality review should be practised:A. At all levels of the firm.B. At managerial level only.C. During staff performance review.D. During takeovers only.
The ISO 9000 series is concerned with:A. Environmental management.B. Quality management.C. Audit requirements of specific businesses.D. Marketing management.
Total quality management is a concept applicable to:A. Non-executive directors only.B. Independent directors only.C. Accountants only.D. All assurance engagement providers.
Discuss why auditors and accountants are engaged in assurance engagements other than financial statement audits.
What is meant by reasonable and limited assurance engagements? Give an example for each type.
List and explain the elements of an assurance engagement.
Explain why an organization might employ an assurance practitioner to perform due diligence before deciding to purchase a new business.
What are the likely factors that lead to fraud?
What is meant by the three Es in a performance audit?
What is meant by the term prospective financial information?
Discuss the significance of assurance quality.
Define total audit quality management.
You have been approached by a client who is not sure of the requirements with regard to financial reporting. Your client understands that there are compilations, reviews and audits but is not aware
There are different categories and different types of assurance engagements:1. Assertion-based engagements and direct reporting engagements.2. Absolute, reasonable, limited and no assurance
A firm provides the following service for its clients:1. Preparation of a report giving advice to a client on the introduction of a new system of internal controls.2. A report giving an opinion on a
You have been approached by your client Stan Frank who runs a small plumbing business. Stan's plumbers work on a range of small domestic jobs as well as large jobs on construction sites. It is not
Standard Publishing Insurance Co. Ltd provides insurance cover for professional publishers.Australian Online Design Co. Ltd (AODCL) recently filed a claim for the loss it incurred following a
Upper Crust Pizza Ltd is a profitable business that has been run for many years. The chairman of the board of directors is Simon Strange who built the company from nothing to the successful public
You are the auditor for Blank Space Ltd a design group with several divisions each focusing on a different client group. Melanie Blank is the CEO and is looking for ways to improve the profitability
You are engaged to write a checklist for Cyber-Sell, a company that buys and sells products over the Internet as a key secondhand market.RequiredUsing the following headings, identify the controls
Johnson Brain is a subsidiary in the Franklin Spleen group of companies and is about to implement a new IT solution to manage an important part of its production process.The Franklin Spleen group has
a. Explain the meaning of environmental auditing.b. List some standards that have been issued in relation to environmental auditing.c. Describe the types of tasks that may be involved in
Go to CPA Australia's website, www.cpaaustralia.com.au , and access the TBL assurance database.Identify the nature and extent of assurance provided for all mining and chemical companies reported in
1. Develop a checklist for an organisation you are about to evaluate regarding its level of risk in relation to fraud. Consult the latest KPMG Fraud and Misconduct Survey.2. Access the website of the
Auditors' liabilities are owed:A. To shareholders only as auditors are appointed by shareholders.B. To the company to ensure a corporate veil exists to protect the directors.C. In respect of their
The legal regime relating to auditors' liabilities to third parties for negligence:A. Has remained substantially the same for the last few decades.B. Has been relied on to establish auditors'
Martin Loyl is a staff auditor of Penfolk Associates, a medium-sized partnership accounting firm. Recently Martin was found to have been negligent in the performance of his audits of several clients.
You are an honorary auditor of a charity association. In carrying out the audit for the financial year ended 30 June 2015, you discover there were no invoices for an expense item of $18 000. The
Sheila Bruce is a CPA, and is sued by one of her audit clients who alleges that she failed to satisfy the auditing standards in terms of identifying bad debts as part of her receivables audit.Under
What is the term used when a failure on the part of a plaintiff to meet certain required standards of care is a factor leading to a loss by the plaintiff?A. Negligence.B. Reasonable foreseeability.C.
The term ‘privity of contract’ refers to:A. The contractual relationship that exists between two or more contracting parties.B. The fact that an audit is to be performed in accordance with
The decision in the Caparo case (1990) reduced the duty of care of auditors to:A. All users known to the auditor.B. The shareholders as a group.C. All users that ought reasonably to have been known
Litigation against auditors under the Competition and Consumer Act 2010:A. Does not require the ‘negligence’ factors of foreseeability and proximity.B. Under section 52 requires professional
Which of the following statements is untrue?A. The codification of auditing standards means that auditors will have the obligation to comply with all Corporations Act audits.B. CLERP 9 provides for
Discuss the key factors attributable to the increase in professional indemnity insurance, and the impacts this has had.
Name the elements necessary to be successful in a case of negligence and show how these were applied in the case of Twomax Ltd v. Dickson, McFarlane & Robinson (1983).
How did the key principles of ‘due care’ develop through the Kingston Cotton Mill Co. case, the London and General Bank case, and the Pacific Acceptance case?
The Esanda case established the elements that would be necessary for a third party to succeed in an action of negligence against the auditor due to reliance on the audited accounts.Identify what
Why would the courts want to limit the ability of third parties to sue auditors who have been negligent? Are there any arguments that this liability should not be limited?
List five precautions auditors may take to avoid litigation.
What are the contributions of (a) the Caparo case (1990), (b) the AGC Advances case (1992), (c) the Columbia Coffee case (1992) and (d) the Esanda Finance case (1994), with respect to the auditor's
What legal reforms in relation to audit legal liability have been implemented in Australia?
Explain how engagement letters can be used to avoid litigation.
What is a privity letter? How should the auditor respond to a request for a privity letter?
In completing the audit of Jonstone Construction Ltd for 30 June 2015, Ben Snowden signed an unmodified audit report. During the course of the audit, certain anomalies were found in the purchases
As the audit senior for Lockerparts Hardware Ltd, you are happy with the smoothness of the audit for the year ended 30 June 2015. Today, your audit partner tells you that Lockerparts has just gone
StirMed sells a range of medical products mainly through representatives visiting hospitals and doctors. StirMed has been going through lean times recently and managing day-to-day cash flow has
Sonny Manufacturing Ltd sought a \($2\) million loan from Bank of Australia. The bank insisted that audited financial statements be submitted before it would extend the credit. Sonny agreed to do
Brandy, Font and Co. is keen to ensure that it minimises its exposure to liability due to negligence.Dennis Brandy, the senior partner, is aware that some audit firms are setting themselves up as
Franche Brown Ltd was a manufacturer of plant and machinery for a range of industries and specialised in large bespoke plant for food manufacturers. The company had large work-inprogress included in
You have been the auditor of SHF Ltd for several years. The auditor's report for the year ended 30 June 2015 was unqualified. In August 2016, SHF obtained a large loan from a finance company, LRB
Newsday Marketing Ltd's financial statements for the year ended 30 June 2014 were audited by Brian Lung and Partners. The unqualified auditor's report was published alongside the directors'statements
You are the external auditor of Kiwi Tours Ltd, a company which promotes New Zealand tours to Australia and owns a chain of duty-free shops. You have been auditing the company since it was listed on
Maxref Ltd is a new dotcom company specialising in online trading in multimedia items such as DVDs, music, online reports and celebrity commodities. It has been listed on the Australian Securities
You work in a chartered accounting firm and your partner, Sally Smith, has asked you to do some research and write a report to update her about the potential liability that auditors face as a result
ASIC may grant audit relief, in certain circumstances, to which of the following types of entity?A. Large proprietary company.B. Small proprietary company.C. Public company.D. Government company.
The Corporations Act requires that auditors are competent. To be suitably qualified, the person must:i. Be a member of the ICAA, CPA Australia, Institute of Public Accountants or other prescribed
The removal and resignation of auditors must be:i. By resolution of the company.ii. Greater than 75% of the shareholders vote in agreement.iii. With special notice to ASIC for its consent.A. (i) and
Section 308 of the Corporations Act requires certain implied conditions to be reported on if there is any deficiency or failure to comply. Which of the following is one of those implied conditions?A.
Which of the following is not a duty of an independent auditor?A. To be independent.B. To detect all fraud.C. To use reasonable care and skill.D. To report to shareholders.
The objective of the standard report format is to:i. State clearly the level of assurance provided by the opinion.ii. Differentiate clearly the responsibilities of the auditor and management in the
The role of the AUASB in relation to International Standards on Auditing (ISAs) is to:A. Apply all ISAs to the Australian environment.B. Select ISAs that are appropriate for the Australian
The auditing standards are:A. Only mandatory if you are a member of the accounting profession.B. A guide on how to conduct an audit.C. Legally required to be followed under the Corporations Act.D.
The internal auditor is:A. Appointed by the shareholders.B. A substitute for the independent auditor's work.C. A component of an entity's control environment.D. Always a qualified accountant.
The auditor should view management with:A. Trust.B. Scepticism.C. Suspicion.D. Indifference.
What are the requirements that must be met in order to become a registered auditor?
What are the main Corporations Act requirements with regard to the appointment, removal and registration of auditors?
Why is independence crucial for an external auditor?
Why must auditors follow Australian auditing standards?
What are some of the benefits of an effective audit committee?
How does the relationship that independent auditors have with shareholders compare with their relationship with management?
What are the benefits of a financial report audit?
What are the main limitations of a financial report audit?
What are the duties of an independent auditor engaged to perform a financial report audit?
What are the different phases in the audit process?
Many companies are not required to have their financial report audited but they still need to employ accountants.RequiredCompare and contrast accounting and auditing.
Revglow Ltd, a large proprietary company, was incorporated on 1 July 2015. A short time later, one of the non-shareholding directors, Fred Bile, approached his tax agent, Gina Rogers, to ask her to
You are a newly qualified accountant who works for the audit firm Fulford & Co. You have been approached by a potential new client, Bishopthorpe Electronics Pty Ltd, who is looking for an audit firm
On 31 March 2014, Black and Black (a firm of certified practising accountants) completed the audit of E-Wine Pty Ltd for the year ended 31 December 2013. E-Wine is a wine store that operates solely
Statutory and professional duties You are an audit senior working in a Big Four accountancy practice in Australia. It is April and not long until the ‘busy’ season, which generally starts from

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