1.The auditing profession received a shake -up at the turn of the 21^stcentury that resulted in enhanced legislation world -wide. Which factor was the predominant cause?

a)Professional scepticism

b)Spate of corporate collapse

c)Government pressure

d)More stringent Standard setters

2.Which audit expectation gap issue would improved public relations be addressing?

a)Deficient performance

b)Deficient standards

c)Unreasonable expectations

d)All three

3.Which audit expectation gap issue is addressed by the complexity of the audit environment?

a)Deficient performance

b)Deficient standards

c)Unreasonable expectations

d)All three

4.Which audit expectation gap issue is addressed by global business practices?

a)Deficient performance

b)Deficient standards

c)Unreasonable expectations

d)All three

5.Which of the following is not a demand for an audit in the absence of regulation?

a)Agency hypothesis

b)Information hypothesis

c)Insurance hypothesis

d)Stakeholder hypothesis

6.Who is not in the audit trinity?

a)External auditor

b)Board of directors

c)Internal auditor

d)Audit committee

7.Which of the following techniques is not considered to be earnings management?

a)Taking a bath

b)Cookie jar reserves

c)Capitalizing expenditure

d)Discretionary disclosures

8.The independent auditor's link with corporate governance is strongest through their involvement with

a)The Board

b)Internal control

c)ASIC

d)AuASB

9.The primary difference between an internal and external auditor is

a)Qualifications

b)Experience

c)Independence

d)Due care

10. In a performance engagement which of the following is the most important

a)Economy

b)Efficiency

c)Effectiveness

d)All equally important

11.Which of the following engagements would be considered to carry no assurance

a)Review of internal control

b)Compliance to legislation

c)Report of factual findings

d)Report on a Prospectus

12.Which ethical theory focuses on outcomes?

a)Deontology

b)Teleology

c)Virtue or care

d)Relativism

13.The directors of the Australian Wheat Board followed which ethical theory in their dealings with the Iraqi government?

a)Deontology

b)Teleology

c)Virtue or care

d)Relativism

14.If an auditor accepted tickets to the AFL grand final this would be an example of which ethical threat?

a)Self- review

b)Familiarity

c)Intimidation

d)Professional behaviour

15.If an auditor had a bank loan with their client at market rates this would be an example of which ethical threat:

a)Familiarity

b)Self- review

c)Self interest

d)Not applicable

16.What is the basis of the relative difficulty in removing an auditor:

a)Enhanced independence

b)Improved audit quality

c)Less litigation

d)Too much red tape

17.An external auditor is required to be independent

a)In spirit only

b)In appearance only

c)Both

d)Neither

18.Excessive Fee dependence is an example of

a)Familiarity

b)Self- review

c)Self interest

d)Intimidation

19.The provision of incompatible non-assurance services is an example of

a)Self- review

b)Self interest

c)Intimidation

d)Advocacy

20.The Enron collapse was an example of

a)Financial statement fraud

b)Misappropriation

c)Poor management

d)All above

21.Sally is the partner in charge of the Dallyance Pty Ltd audit. Dallyance has just extended their loan with the ABC bank on the back of an unqualified audit report. The directors of Dallyance recently discovered a major fraud in their books but never mentioned this to either the auditor or the bank. The bank is attempting to sue the auditor for negligence.

Sally's best defence is

a)Proximity

b)Reliance

c)Foreseeability

d)Quantifiability

22. In the Caparo case, the House of Lords established the following precedent in relation to duty of care by auditors to third parties

a)Auditor was not liable to third parties

b)The auditor was liable to individual shareholders

c)The auditor was liable to both existing and potential shareholders

d)The auditor is liable to existing shareholders collectively

23.In the AWA V Daniels case the judge apportioned damages on

a)The plaintiff

b)The defendant

c)The directors

d)Both plaintiff and defendant

24.Who is responsible for the internal controls of an entity?

a)The external auditor

b)The internal auditor

c)Management

d)All three above

25.Who is a prospective auditor required to contact before they can accept an engagement?

a)The existing auditor

b)The company's bank

c)The company'ssolicitors

d)All three above

26.When is an auditor required to provide an independence declaration?

a)On new engagements only

b)All engagements

c)Listed companies only

d)Disclosing entities

27.An auditor would most likely use the work of an expert in which of the following engagements?

a)Attending the stock count of a jeweller

b)Attending a stock count for a car retailer

c)Attending a stock count of manufacturer

d)Attending the stock count of a medical supplier

28.Analytical procedures are required to be undertaken in

a)The planning stage only

b)Planning and review stage

c)Review stage only

d)Planning, testing and review stages

29.Which of the following factors presents an opportunity for a fraud?

a)Strong industry growth

b)High turnover of staff

c)Inappropriate revenue recognition

d)High proportion of salary is in form of bonuses

30.Which management assertion is most relevant in the example? The auditor of XYZ obtained a certificate to verify the inventory held in an off- site warehouse.

a)Existence

b)Valuation

c)Rights and obligations

d)Completeness

31.What must the detection risk be set at if the auditor requires an acceptable audit risk of 10% and the inherent risk and control risk are 75% and 80% respectively.

a)6

b)16.7%

c)6%

d)None of above

32.For a particular assertion, the auditor has specified an overall audit risk of 10%, assessed inherent risk as 50% and control risk as 20% and the calculated detection risk to be 100%. The audit implication is that

a)The auditor made an error in calculating detection risk

b)The inherent and control risks are sufficiently low that it may not be necessary for the auditor to perform extensive substantive procedures

c)The auditor will need to perform extensive substantive procedures to compensate for the high level of detection risk

d)The auditor should reduce the extent of tests of controls so that the assessed level of control risk will be higher, and the detection risk will be lower

33.An auditor will most likely perform extensive tests for possible understatement of

a)Revenues

b)Equity

c)Assets

d)Liabilities

34.The rights and obligation assertion applies to only

a)Current liability items

b)Revenue and expense items

c)Balance sheet items

d)All items

35.Which of the following is not an attest engagement?

a)Direct reporting

b)Sustainability

c)Forensic

d)Tax preparation

36.Segregating the responsibility of approving credit from initiating sales orders reduces the risk of

a)Theft

b)Processing errors

c)Bad debts

d)Fictitious sales

37.Which of the following would be considered the most appropriate form of evidence?

a)Verbal confirmation from a vendor

b)Bank statement

c)Solicitors letter

d)Representation letter

38.In considering the relationship between materiality and audit evidence, the auditor would conclude that

a)For an account balance that is less than the tolerable misstatement, there is no need for evidence

b)The lower the materiality level, the greater the amount of evidence required

c)The higher the materiality level, the greater the amount of evidence required

d)It doesn't matter whether you are auditing inventories or prepaid expenses the amount of evidence will be the same.

39.What type of audit procedure is the examination of registration certificates?

a)Vouching

b)Enquiry

c)Observation

d)Inspection

40.What would be an appropriate base to compare a material error in the cut-off of sales invoices?

a)Turnover

b)Total assets

c)Equity

d)Net profit after tax