AUDITING AND ASSURANCE M/C:

11. Your audit client Subo Limited (Subo) holds inventory at a number of warehouses operated by third parties across Australia. You were able to attend the stocktakes at a number of warehouse located in NSW and ACT, but had to rely on external confirmation to verify the quantity of inventory on hand at other locations. Your attendance at stocktakes and responses from external confirmations account for 90% of Subo's year-end inventory balance and contain minimal errors. You have not been able to obtain confirmation of the remaining inventory but are of the opinion that the amount represented by this inventory is immaterial to the Subo audit. The audit opinion you will issue for Subo will be:

a) Unmodified.

b) Adverse.

c) Qualified.

d) Disclaimer of opinion.

12. Your audit client's draft financial report is compiled in an annual report containing various other information including a section on management's discussion and analysis (MDA). You have noted that the MDA section contains discussion of the company's research and development (R&D) efforts coming to fruition during the year with the commencement of the development phase for a number of new products. Based on your audit, the claims in the MDA section are not consistent with the accounting treatment of the company's R&D activities during the year as market testing has yet to commence for any of the planned new products. With the exception of the matter above, you are satisfied in all material respects including with the treatment of the R&D activities in the financial report. The type of audit report for the engagement should be:

a) Unmodified.

b) Unmodified with other matter paragraph outlining the inconsistency.

c) Unmodified with emphasis of matter paragraph outlining the inconsistency.

d) Unmodified with other information section outlining the inconsistency

1. The directors of an audit client have requested your audit firm to undertake an additional assurance engagement to examine and issue a report on the company's compliance with the NIST Cybersecurity Framework. What is the highest level of assurance you would be able to provide for this engagement?

a) Reasonable assurance.

b) Absolute assurance.

c) Limited assurance.

d) No assurance.

2. Which of the following statements MOST accurately describes the auditor's determination of performance materiality?

a) There is a positive relationship between the level of assessed risk and performance materiality.

b) Performance materiality is set for the financial report as a whole and referred to throughout the audit.

c) A relevant base must first be selected in determining performance materiality.

d) Performance materiality is set at less than the planning materiality level for a client.

3. Which of the following is NOT a test of control?

a) Inspecting relevant documentation showing background checks of new customers that inform the setting of credit limits and terms.

b) Reviewing evidence of monthly reconciliations of customer accounts by relevant manager.

c) Reviewing responses to external confirmation of a sample of the client's customers.

d) Inspecting relevant documentation indicating that matching of purchase orders, goods received notes and supplier invoices have been undertaken.

The following information applies to questions 4 and 5. The following is a scatterplot visualisation of your audit client's, Dubo's, product profitability (margin % vs total sales) for a particular line of products for the financial year ending 30 June 2018. Product Profitability 25% 20% 15% 10% 5% -5% 50k 5100k $200k $300k Total sales