The reason an auditor will contact a predecessor at the client acceptance phase of the audit is:

A. To gain any understanding of any problems in the clients internal controls.

B. To understand the reason for the change of auditor.

C. The find out the level of fees charged by the predecessor auditor.

D. All of the above.

Which of the following is not included in the engagement letter?

A. A statement by the auditor that he/she will comply with the auditing standards.

B. Identification of the of the applicable financial reporting framework.

C. Confirmation that the auditor will comply with the ethical standards.

D. Confirmation that, in conducting the audit, the auditor will express an opinion on the effectiveness of the clients internal controls.

According to ASA 210, auditors are required to consider the terms of the audit engagement (at least) annually because:

A. There could be changes in the clients senior personnel.

B. There could be a change in regulations that affect the client.

C. There is evidence that the client misunderstands the objective and scope of the audit.

D. All of the above.

Which of the following is not listed in ASA210 as a relevant factor when determining the acceptability of the financial reporting framework used by the client?

A. The presence of related parties

B. Whether client prepares its financial report to meet the needs of a specific user, or the common needs of a range of users.

C. Whether the client is a business, not-for-profit or a public sector entity.

D. Whether the client prepares are a complete set of financial statements, or a single financial statement.

Which of the following is not an objective of audit the planning?

A. To ensure that the audit is conducted in a cost-efficient manner.

B. To focus on those items that present the greatest risk of misstatement.

C. To identify problems at an early stage in order to discuss with them management in a timely manner.

D. To ensure that the financial reporting framework adopted by the client is appropriate.

Where the auditor adopts a lower assessed level of control risk approach, he/ she will:

A. Obtain an extensive understanding of the relevant internal controls.

B. Plan extensive substantive audit procedures.

C. Use a planned assesses level of control risk of high.

D. Plan no tests of control.

Which of the following is not specifically seen as an industry factor?

A. Seasonal variation in revenue.

B. The level of inflation.

C. The level of technological development.

D. The costs of particular inputs.

Analytical procedures are used at the planning stage of the audit for the purpose of:

A. Risk identification

B. Determining if an account balance is misstated.

C. Determining the clients solvency.

D. All of the above

Statement 1: Company A produces mobile telephones. Its best-selling product is the e-phone. A competitor has recently introduced a new product that performs much better than e-phone and has a lower price.

Required: Is the business risk described in the statement one that will likely result in a misstatement in the current period? Yes/No

Statement 2: Company B also produces telephones. The majority of its key customer relationships are closely held by one senior executive, Kevin Boyd. A board member of Company B questioned the wisdom of this relationship on the grounds that, if Kevin Boyd resigned and went to work elsewhere in the industry, some of Company Bs key customers may follow him to a competitor.

Required: Is the business risk described in the statement one that will likely result in a misstatement in the current period? Yes/No

Statement 3: Company C supplies hotels, motels and restaurants with catering equipment and supplies. It requires all accounts to be settled within 30 days of the receipt of goods by the customer. Recent floods in New South Wales have left some of its largest customers in financial difficulties.

Required: Is the business risk described in the statement one that will likely result in a misstatement in the current period? Yes/No

Statement 4: Company D is in the child-care business. Recently it failed a safety check by the local fire-brigade, which found that Company Ds fire extinguishers were out of date. The maximum penalty for such a breach of safety standards is $50,000.

Required: Is the business risk described in the statement one that will likely result in a misstatement in the current period? Yes/No

Statement 5: Company E is in the wine industry. Recently, the imposition of a tariff on imports by a country to which Company E exports some of its premium product, suddenly left it looking for an alternative market.

Required: Is the business risk described in the statement one that will likely result in a misstatement in the current period? Yes/No