Question 4 (14 marks)

Answer all of the following questions.

1. Briefly explain one benefit and one limitation of the following audit procedure: Negative external confirmation. (2 marks)
2. Which of the following audit procedures are suitable for interim testing? You can choose more than one answer. (2 marks)

1. Search for significant subsequent events.
2. Search for significant related parties transactions.
3. Substantive tests of transactions.
4. Tests of details of balances.
5. Analytical procedures.
6. Tests of controls.

3. How does control risk affect the choice of audit strategy and the combination of tests of controls and substantive testing? (4 marks)

4. Answer all of the following questions about audit liability. (6 marks)

1. Briefly explain how the deep pockets theory affects external auditors legal environment. (2 marks)
2. Existing shareholders of the audit client can sue the auditor using which of the following laws? You can choose more than one answer. (1 mark)
   1. Contract law
   2. Australian Consumer Act
   3. Tort of negligence

3. What is the similarity and difference between proportionate liability and contributory negligence? Briefly explain and cite relevant common law case where appropriate. (3 marks)