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principles of auditing and other assurance services

Questions and Answers of Principles Of Auditing And Other Assurance Services

Harmonisation of auditing standards Australia made a decision to harmonise its auditing standards with the ISAs issued by the IAASB.Since 2006, the AUASB has been issuing ASAs based on the ISAs. In
You work for a mid-sized audit firm, Green & Co. One of your clients, Wedford Ltd, recently established an audit committee in compliance with the Australian Securities Exchange listing requirements.
Audit independence has been important issue, particularly over the past ten years. A number of the requirements associated with auditor appointment and removal are to enhance the independence of the
Outlined below is an extract from the Qantas Corporate Governance Statement issued in 2012:The Board safeguards the integrity of financial reporting Audit Committee The Board has an Audit Committee
Auditing standards and audit quality A report by the Institute of Chartered Accountants in England and Wales (ICAEW) made the following statement in relation to the question: ‘How do rules affect
Which statement would not be found in a directors’ declaration?A. That the financial report gives a true and fair view.B. That the financial report is free from material misstatement whether due to
The auditor's opinion is expressed in reference to the financial report as a whole. This means that the auditor must:A. Not be overly concerned about individual amounts on the financial report.B.
An adverse opinion means:A. A qualification of the auditor's report does not sufficiently represent the significance of the misstatements that are pervasive in the financial report.B. The auditor is
Which of these factors could be the cause of a material misstatement?i. Selection of inappropriate accounting policies.ii. Inadequate disclosure.iii. Disagreement with those charged with governance
The emphasis of matter paragraph in an audit report would normally refer to the fact that the auditor's opinion is:A. Qualified in this respect.B. Not qualified in this respect.C. A disclaimer of
When the auditor issues a disclaimer of opinion on a financial report, the audit report should:A. Be unqualified.B. Begin with the term ‘except for’.C. Express an adverse opinion.D. Have a
The issue of a ‘disclaimer of opinion’ by an auditor is most likely because of:A. The omission of the statement of cash flows.B. A material departure from applicable accounting standards.C.
Which of these would be considered a scope limitation?i. The client would not permit confirmation of receivables with their best customers for fear of annoying the customers.ii. The auditor is
A ‘true and fair view’ is indicative that:A. The auditor has obtained a second opinion on the accounts.B. The auditor is satisfied with the reasonableness of the figures in the financial
Which of these items does not form part of the financial report, as defined in the Corporations Act (s. 295)?A. A statement of cash flows for the year.B. Any additional disclosures necessary to give
Outline the contents of a general purpose financial report.
What are the contents of an unmodified auditor's report? Explain each section.
What are the different types of modified audit opinions? Explain each type.
Under what circumstances may the auditor decide to include an ‘emphasis of matter’ section in the auditor's report?
What is the difference between an unmodified auditor's opinion and a modified auditor's opinion?
Is materiality the only consideration for an auditor deciding whether to qualify the audit opinion?
What does each of the modified types of auditor's opinions mean to users wanting to rely on the financial report?
What circumstances may give rise to (1) an adverse opinion and (2) a disclaimer of opinion?
When an auditor is faced with a disagreement, what factors should be considered to determine whether a qualified or an adverse opinion is appropriate?
What might constitute ‘other matters’ on which an auditor may be required to report?
Assume you are an auditor and you are facing the following separate circumstances; the effects of all the items below are material:1. The provision for stock is inadequate.2. A retailer values
Scarborough Hydraulics Ltd contracts with governments to carry out a variety of infrastructure projects including water treatment and desalination plants and other drainage works. It also acts as a
HomeRus Ltd is a retailer of a range of low cost household products and is listed on the ASX. It is highly geared because it borrowed heavily to finance the purchase of shopping centres around
Temper Telecommunication Ltd is a listed public company that manufactures communication equipment. Last year the company engaged itself in a contract involving the engineering and infrastructure for
You are the audit partner of Gerrotown Housing Ltd, which provides social housing to approximately 1000 tenants at below normal market rents. Gerrotown is a reporting entity under the Corporations
You are an audit manager finalising your 30 June 2015 audits. The following independent and material matters have come to your attention:1. The audit of the statutory records of Whale Ltd, a
Mike Brady, a registered company auditor, has completed the audit of the financial report of Trueline Ltd for the year ended 30 June 2015. Mike also audited the financial report for Trueline for the
The report produced by the auditor should be the first thing that a user of a financial report reads.It is only having read the audit report that the user can have any confidence that the contents of
You are an audit partner finalising your 30 June 2015 audits. The following independent and material matters have come to your attention.1. Food Fund Foundation, a charity, is a non-reporting entity.
The following is an auditor's report for the Heart Transplant Pty Ltd for the year ended 30 June 2015. The Heart Transplant Pty Ltd is an intermediary consultant which organises the affairs of heart
Which of the following statements is incorrect?A. Enterprise governance can be applied to both corporations and other business entities, including the public sector.B. Enterprise governance is a
The audit trinity concept refers to:A. Governance, management and audit.B. Conformance, performance, assurance.C. Past, current and future approaches.D. External audit, internal audit, audit
The auditor-general must report on an exception basis if:A. Records have not been made available for inspection.B. Records have been retained for at least 10 years.C. Proper accounting records have
The key benefit to management of an internal audit function is that it:A. Provides assurance to management that fraudulent activities will be detected.B. Reduces external audit costs.C. Aids
The Institute of Internal Auditors states that:A. Internal auditing provides a disciplined approach to evaluating risks, controls and governance processes.B. Internal auditing should concentrate on
Which of the following statements best describes the appropriate relationship between internal and external auditors?A. The internal auditor often competes with the external auditor for audit
The approach that has been suggested for operational audits is the:i. Risk-based audit approach ii. Value-for-money audit approach iii. Process audit approach.A. (i) and (ii) only.B. (i) and (iii)
Which of these is a type of public sector performance audit?i. Audit of a program or activity in a single entity ii. Protective security audit iii. Follow-up audit A. (i) and (ii) only.B. (i) and
According to the Sarbanes–Oxley Act and the SEC recommendations, an audit committee should not:A. Oversee the hiring and firing of external auditors.B. Consist of retired audit partners who had
The best practice recommendations for audit committees states that the audit committee should consist of:A. An independent chairperson who is not chairperson of the board.B. Both executive and
Describe the essential components of enterprise risk management (ERM) as put forward by the Committee of Sponsoring Organizations of the Treadway Commission.
What is meant by earnings management? How do you think the concept of earnings management might have influenced the auditor's role in the audit of financial statements?
What does the ASX suggest should be the makeup of an audit committee?
Should the internal auditor report to the chief accountant or the board of directors? Give reasons.
What are the differences between the independence of an internal auditor and that of an independent auditor? How can an internal auditor be truly independent?
What are the five phases of an operational audit? Briefly describe each phase.
Summarize the ‘accountability’ framework of the public sector.
What are the duties and powers of the Australian auditor-general?
When conducting a performance engagement, what are the quantitative and qualitative factors that the assurance practitioner must consider when assessing materiality and performance engagement risk?
What is meant by economy, efficiency and effectiveness in relation to a performance audit?
You are the external auditor of Fringe and Stock Ltd. The CEO, Norbert Fringe, has contacted you because the company is considering setting up an internal audit department for the first time and he
Risk management involves talking appropriate action to risks identified. As part of that process an internal audit department might classify risks based on the probability that an event will occur
If anyone was made to comment on the audit process, the audit committee, as a subcommittee of the board, has the necessary technical skills and would be the best candidate to provide
Stairods Pty Ltd has expanded rapidly over recent years and is now looking to float on the ASX. It is currently undertaking a review of its corporate governance practices and has asked for your
You have been the in-charge on the audit of Crake Stroom for the last two years and you have built up a good professional relationship with the Finance Director, Cynthia Plant. She has been very
The auditor general has been carrying out a performance audit on the funding provided to agencies dealing with the provision of services to homeless Australians. The period of the review covered the
The following provides some suggestions of how corporate governance practices could be improved around the globe.United Kingdom The Financial Reporting Council (FRC) in the United Kingdom has
Bernard Madoff was operating a simple Ponzi scheme, Harry Markopolos explains. ‘He was robbing Peter to pay Paul, so he needed a continual new stream of incoming cash to pay off the old
Business continuity management is an essential component of good public-sector governance. It is part of an entity's overall approach to effective risk management and should be closely aligned to the
Which of the following characteristics does not distinguish a profession from other occupations?A. Ability to command high fees in return for services.B. Mastery of particular intellectual skills
Self-regulation means that a profession has autonomy in the discharge of its services. How have the corporate collapses of the early 2000s affected the self-regulatory regime of the auditing
John resigned from an assurance engagement because his independence was impaired. He was concerned that if he did not resign then ASIC would have a case against the firm and its reputation would
Ethical relativism means:A. Adopting an international standard of behaviour for organisations.B. Moral values are relative to a particular environment.C. Instituting company policies on gifts and
The fundamental ethical characteristics required of professional accountants are:A. Professionalism, experience and expertise.B. Authority, community sanction and knowledge.C. Competence, objectivity
Threats to auditor independence can come from various sources. Which of these is referred to in the Code of Ethics as a self-review threat?A. The possibility of potential employment with the audit
The significance of economic, financial or other relationships in determining independence in appearance is evaluated by:A. What the auditor general decides is significant.B. What the auditor
Self-interest or self-review threats may result from the following, except:A. Executing authority on behalf of the client on transactions.B. Preparing source documents for the client to evidence the
Using the same senior personnel on an assurance engagement over a long period of time may create what type of threat to audit independence?A. Self-interest.B. Advocacy.C. Familiarity.D. Intimidation.
The Sarbanes–Oxley Act is seen to be different from other reforms because:i. It is rules-based and has extensive prescriptive measures to restrict an auditor's involvements with audit clients.ii.
How does ethics apply to auditors?
Identify the five types of ethical threats to professional independence and give a specific example of each.
What are the main ways in which the profession ensures the quality of audit services?
Describe what is meant by independence in mind and independence in appearance.
Discuss the safeguards which would eliminate or reduce the threat to independence created by providing non-assurance services.
Describe the components of the audit expectation gap.
Why did Arthur Andersen have so many audit failures, leading to its implosion in 2002?
Is regulation good for the audit profession? Discuss.
What are the major ways in which audit quality can be assured?
Why is the auditing profession losing its self-regulation rights?
Brenda Jones is a newly qualified accountant who is carrying out her first audit as the in-charge auditor for a construction company client that is engaged in a range of long-term contracts. Brenda
Your firm, Earnest, Devoid and Couples, has been the auditor for many years of Barley Gordon Ltd, which operates a large chain of electrical goods retailers across Australia and New Zealand. The
You are Mark Ouse, an audit senior with the firm Pull, Lift, Tug & Co. You are planning the financial report audit of Nestree Ltd, a manufacturer of confectionery. The following issues have arisen.1.
Steven, a trainee auditor, is undertaking part-time university studies. While auditing the books of Oval Park Health Club, he discovers certain financial and management information that he believes
The following circumstances raise questions about an auditor's ethical conduct.1. An auditor accepts an engagement knowing that she does not have the specialist knowledge required.2. A public
Polo Babywear Ltd was formed on 30 August 2013 and its first financial year ended on 30 June 2015. The audit firm of Ross, Young & Partners has tendered for and won the audit for the first financial
You are Margaret String, one of the partners in the accounting firm Bader, String, Floss & Co. You have a large client, Drench Ltd, for which your firm has carried out a range of taxation,
Brian Dewy has been asked by an audit client to perform an assurance engagement involving the evaluation of a computer security and control system. The client asks Brian, in reviewing the system,
You have just started carrying out the fieldwork for the audit of the financial report of Jocular Services Ltd for the year ended 30 June 2015. It has become apparent through your discussions with
Noreen Parke has been working at Tony Young & Associates for 3 years. Noreen and her husband, Tom, are both interested in environmental issues and have participated in community work concerning the
John, a young CPA and one of the audit team members for Moulberg Electrical Appliances Ltd, has developed very good insights into the company's systems in the last 12 months and was asked by his
The Department of Treasury Audit Quality in Australia: A Strategic View, is available from the website www.treasury.gov.au. The 2009 report was completed on behalf of the Financial Reporting Council
What does an auditor do?A. Provide a guarantee on the ongoing viability of a company.B. Provide an independent opinion on the financial report.C. Help management to produce the financial report.D.
What best describes the ‘agency problem’ that results in a demand for audits?A. Shareholders act in their own interests and not in the interests of the company.B. Banks have different information
Regulators' use of the audit function to insulate themselves from blame in a corporate failure most relates to which reason for a demand for auditing?A. Insurance hypothesis.B. Agency theory.C.
Additional to those criteria that concern the financial report audit of a company, the auditor of a listed company must consider the following:A. Ethical standards issued by the professional

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