Auditing and Assurance (ACC3AUD)

Q1

The objective of a review-level engagement is to state that 'nothing has come to our attention that causes us to believe that the subject matter does not conform in all material respects with identified criteria'. This type of statement conveys:

reasonable assurance

negligent performance

limited assurance

positive assurance

none of the alternatives

Q. 10

What does an auditor do?

provide a guarantee on the ongoing viability of a company

provide an independent opinion on the financial report

help management to produce the financial report

ensure that the financial report contains no error or fraud

none of the alternatives

Q. 11

The report provided to the client from an agreed upon procedures engagement is:

report on procedures performed

report on factual findings

client engagement report

results from procedures report

none of the alternatives

Q. 12

Within what time period of ceasing employment with their audit firm is an auditor able to become an officer at that firm?

6 months

1 year

2 years

3 years

none of the alternatives

Q. 15

Policies regarding rotation of partners and staff is a safeguard against which threat to independence?

Familiarity

Self-interest

Self-review

Intimidation

none of the alternatives

Q. 18

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?

the possibility of potential employment with the audit client

preparation of original data used to generate a financial statement that is the subject matter of the audit engagement

concern on the part of the auditorabout the possibility of losing the engagement

pressure to reduce inappropriately the extent of work performed in order to reduce fees

none of the alternatives

Q. 19

What best describes the 'agency problem' that results in a demand for audits?

shareholders act in their own interests and not in the interests of the company

banks have different information expectations to shareholders

managers act first in the interests of shareholdersto the detriment of creditors

managers act in their own interests rather than the interests of shareholders

none of the alternatives

Q. 2

The fundamental ethical characteristics required of professional accountants are:

professional behaviour, experience and expertise

integrity, objectivity and competence

authority, community sanction and knowledge

self-interest, self-review and familiarity

none of the alternatives

Q. 20

Safeguards against self-review threats include:

minimising the provision of non-audit services provided to a client

establishing policies banning business relationships with clients

rotation of partners and audit staff

avoidance of fee dependence

none of the alternatives

Q. 3

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?

agency theory

explanatory theory

information hypothesis

insurance hypothesis

none of the alternatives

Q. 4

The essence of the audit function is to:

detect fraud

examine individual transactions so that the auditor may certify as to their validity

determine whether the client's financial report is fairly presented

ensure the consistent application of correct accounting procedures

none of the alternatives

Q. 5

Which of the following would be an example of a reasonable assurance engagement?

the review of annual financial statements

the audit of annual financial statements

the reporting of procedures performed by the auditor as agreed by the client

the review of half-year financial report

none of the alternatives

Q.6

Which of the following is seen as familiarity threat?

a guarantee from an officer of an assurance client

performing services for an assurance client that directly affects the subject matter of the assurance engagement

Long association of a senior member of an assurance team with the assurance client

pressure to reduce inappropriately the extent of work performed in order to reduce fees

none of the alternatives

Q. 7

The expectation gap is caused by:

realistic auditor expectations

unrealistic users expectations

realistic users expectations

unrealistic auditor expectations

none of the alternatives

Q. 8

Who is the responsible party for the adequacy of the disclosure in the financial report and accompanying notes?

auditor in charge of the fieldwork

management of the entity

auditor who signs the audit report

the accounting clerk who assists in preparing the report and footnotes

none of the alternatives

Q. 9

Who are the primary financial report users that auditors need to be concerned about?

managers of the audited firm

banks who provide capital to the firm

the general public

shareholders of the firm

none of the alternatives

Q. 13

Auditors can generally easily find fraud that has been perpetrated within an entity.

True

False

Q. 14

Insurance hypothesis is a means whereby the investor can guarantee the success of their investment.

True

False

Q. 15

The Corporations Act requires the retention of audit working papers for seven years.

True

False

Q. 17

The primary responsibility for fraud prevention and detection remains with those charged with governance.

True

False