Auditing Expert Answers & Study Resources

6. Incompatible duties are those that allow an irregularity to be perpetrated: a. and concealed through collusive actions. b. by a single employee. c. and concealed by a single employee. d. by accounting personnel. 7. Which of the following is incorrect concerning the segregation of duties within an organisation? a. all accounting records can generally be.

1. The importance of internal control to management and auditors has been recognised for many years. Which of the following is likely to be cited as a major factor contributing to this importance? a. The operations of the business entity have become so unwieldy that management must rely on the chief.

26. The purpose of using analytical procedures in auditing is to: a. identify inefficiencies in operations. b. test internal controls. c. identify unexpected fluctuations and relationships. d. none of the above. 27. Which of the following would not be considered an analytical procedure? a. comparing source dockets with journal entries. b. comparing payroll costs with the number.

Short Answer 7-7 A company can have a review performed as an alternative to an audit for half-year reports. What is the difference in the opinion expressed in a review? Short Answer 7-8 i. How are the disclosure and presentation requirements of general-purpose financial reports determined? ii. What does it mean that the auditor’s.

Short Answer 7-3 i. The law requires the disclosure and presentation requirements for General Purpose Financial Reports outlined by the AASB. Which financial statements are required by these accounting standards? ii. Which other major piece of legislation outlines the scope of the contents of a financial report? iii. Identify one requirement of this.

11. Which factor concerning boards of directors and audit committees would be considered least  influential in its impact on the control environment? a. the sex of directors. b. experience and stature of directors. c. the extent of director’s involvement and scrutiny of management’s activities. d. independence from management. 12. Which of these is not an.

Short Answer 7-5 Imaginary Services Co Pty. Ltd started trading last year, and has undergone a recent surge of growth due to increased demand for their Imaginary Service. Your firm was appointed auditor for Imaginary Services Co Pty. Ltd in August 2010. As a result of this timing, you did not.

22. When the audit is an initial engagement, the auditor needs to ensure that: a. opening balances do not contain misstatements that materially affect the current period’s financial statements. b. the previous period’s closing balances have been correctly brought forward. c. appropriate accounting policies are consistently applied. d. all of the above. 23. Section 302.

Short Answer 7-4 i. What will the auditor do to ensure that the directors’ declaration complies with the requirements of the Corporation Act? What are those requirements? ii. Does the auditor conduct additional audit procedures to arrive at this opinion? If so what procedures are conducted? If not, why not?     .

Short Answer 9-8 1.  Identify and define the components of the quantified audit risk model. 2. Indicate which of these components is under the control of the auditor and indicate the relationship of this component to the other components of audit risk.     .

11. Circumstances where the auditor is justified in qualifying the audit report because of an inability to obtain sufficient appropriate audit evidence would not include which of the following? a.  the auditor is appointed after the count of physical inventories has occurred b. the auditor runs out of time to follow normal.

6. The addition of an emphasis of matter paragraph in an audit report a. does not affect the auditor’s opinion. b. does affect the auditor’s opinion. c. is required by the standards to be included in all audit reports. d. is only included for going concern uncertainties. 7. A standard unqualified audit report is not.

Short Answer Short Answer 9-1 The control environment means management’s overall attitude, awareness and actions regarding internal control and its importance in the entity. Identify and describe four factors that constitute part of the control environment.     .

1. ASA 700 provides explanatory guidance on all of these points except: a. The form and content of the auditor’s report. b. The matters the auditor usually considers in forming an opinion. c. The training of junior audit staff. d. The auditor’s performance and reporting responsibilities. 2. Which of these items does not form part.

Short Answer 5-3 List the requirements necessary for an individual to become a registered auditor. Short Answer 5-4 Explain the difference between an unmodified and a modified audit report and list the different types of each.     .

16. When the auditor performs an audit or review of half-year financial statements, they are not required to: a. circulate the audit report to entity members. b. consider aspects of the audit process relevant to the current audit for the forthcoming full-year financial statements. c. treat each half-year as a discrete reporting period. d..

Short Answer 7-2 Outline the reporting standards provided in ASA 700 Forming an Opinion and Reporting on a Financial Report     .

16. During the course of the audit engagement, the external auditor suggests an adjustment to the financial statements. The suggestion is accepted by management without argument. This suggests that: a. the external auditor is primarily responsible for the fairness of the financial statements. b. the internal auditor has assumed responsibility for the.

21. A way to prevent unauthorised access to computer systems is: a. good access controls. b. strong firewalls. c. controls to detect attempts at unauthorised access. d. all of the above. 22. Flowcharts should depict all of the following except: a. all operations performed in processing the class of transactions. b. the method of processing. c. the extent.

16. Which of the following is an example of how an auditor might document the understanding of internal control? a. internal control questionnaire. b. flow chart and narrative memoranda. c. both of the above. d. none of the above. 17. Which of these is not a major advantage of the internal control questionnaire? a. it may.

11. Which of these would not be part of a typical audit team? a. an audit partner. b. an audit manager. c. internal auditors. d. an audit senior. 12. The main purpose of the audit engagement letter is to: a. avoid litigation. b. confirm the terms of the engagement. c. outline the cost of the audit d. all of.

Short Answer 8-6 Identify whether the following high risk conditions are an example of incentives/pressures, opportunities or attitudes/rationalisation risk factors: 1 The company is very vulnerable to interest rate fluctuations 2 Management has significant financial interests in the entity 3 Many asset values are based on significant estimates that involve subjective judgements 4 Management does.

Short Answer 7-9 i. When the auditor decides to issue a modified audit report, what factor decides whether they will issue a qualified opinion, or an adverse opinion? ii. Outline the basic characteristics of a qualified opinion.     .

Short Answer 8-5 For each of the following, identify whether they are part of an entity’s business operations, investments or financing. 1 The entity is a guarantor for a subsidiary’s bank loan. 2 The entity is planning a takeover of a smaller company. 3 The entity recently loaned money to one of its management. 4.

21. The least likely source of information for the auditor in obtaining an understanding of the client’s industry conditions is: a. industry Audit Guides. b. trade journals. c.  industry statistics compiled by government or private agencies. d.  data accumulated by the audit firm 22. Which of these would not be of direct interest to an.

Short Answer 9-6 1 List the four procedures necessary to obtain an understanding of the entity’s internal control. 2 Explain what a transaction walk-through review consists of. Short Answer 9-7 1 Explain what an internal control questionnaire is and why it is used. 2 List three advantages of using questionnaires.     .

21. It  is regarded as best practice in regard to the composition of audit committees to a. have an executive director as chairperson. b. have the internal auditor as a member. c. have the external auditor as a member d. none of the above are regarded as best practice in regard to the composition.

Short Answer Short Answer 7-1 i. Under what circumstances is a disclaimer of opinion appropriate? ii. Under what circumstances is an adverse opinion appropriate? iii. Under what circumstances is an emphasis of matter appropriate?     .

Short Answer Short Answer 8-1 Identify the primary considerations that apply to accepting an audit engagement. For each consideration, indicate the primary steps involved in the decision to accept or reject the engagement. Short Answer 8-2 To adequately plan an audit, the auditor should obtain sufficient knowledge of the entity and its selection and.

1. The initial phase of a financial statement audit involves the acceptance decision for the client in question. Which of the following is not a consideration during this phase of the audit: a. ethical considerations. b. client evaluation. c. preparation of the engagement letter. d.  determining the existence of related parties. 2. Which of the.

Short Answer 9-4 31.  Identify what category of control activity each of the following belong to: 1 Management reviews the sales of each salesperson on a monthly basis. 2 Access to the cash office is restricted by entry code. 3 There is an automated stop placed on payroll if the amounts entered exceed a.

6. In the investigation of a potential new client, if the client refuses to give permission to inquire of the existing auditor, or if the existing auditor does not respond fully, the prospective auditor should: a. consider the implications in making the acceptance or rejection decision. b. not accept the engagement. c. request.

36. Anne has been preparing the audit working papers for the audit of XYZ Company and she is being very careful to use all of the basic techniques. She has given each section a heading, documented evidence and summarised the conclusions. What basic technique has Anne not included in the.

Short Answer 8-9 In order for an auditor to gain an understanding of an entity and its environment it should consider the entity’s industry conditions, regulatory environment and any economy wide factors. Give two examples of what an auditor may consider in each.     .

31. Working papers could be expected to contain all of the following except: a. a working trial balance. b. schedules and analyses. c. audit memoranda and corroborating information. d. a complete copy of all the auditing standards. 32. Which of these would be considered an audit adjusting entry? a. a significant amount of inventory was found.

Short Answer 8-4 Name five items that should be included in an engagement letter.     .

Short Answer 8-3 You are the senior auditor on a particular engagement. The new staff assistant who has been assigned to work on the cash area is about to begin constructing her first audit work paper. Briefly list and discuss the essential points relating to the mechanics of working paper preparation that.

Short Answer 9-3 Control activities are detailed policies and procedures that management establishes to help ensure that its directives are carried out. List the four different categories of control activities and give an example of each.     .

Short Answer 5-2 Identify and explain two of the limitations of audited financial statements.     .

Short Answer 5-9 Identify and explain two duties of an auditor.     .

Short Answer 7-6 Toady.com is a new public phone and internet company heavily financed by the Eastpac Bank. During your audit of Toady.com you have found that the business is in the practice of signing up new customers with very little in the way of credit checks. You are concerned that.

Short Answer 9-2 List the fundamental concepts that are embodied in the definition of internal control as per the COSO report: …a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: reliability of financial reporting; compliance with.

11. Which of the following are the international auditing standards? a. international standards on auditing (ISAs). b. international standards on assurance engagements (ISAEs). c. international standards on related services (ISRSs). d. all of the above. 12. The primary reasons for the existence of Auditing Standards is: a. They are necessary to maintain a cost-effective service. b. They.

Short Answer Short Answer 5-1 Identify and explain two of the benefits of having audited financial statements.     .

Short Answer 9-5 Internal control can only provide reasonable assurance as there are inherent limitations within an entity’s control structure. Identify and describe three of these limitations.     .

Short Answer 8-4 Smith & Jones audit firm is determining whether to accept an audit engagement with Simple Things Ltd. As this would be a new engagement the audit firm sought the client’s permission to contact the current auditor. The client did not give their permission, explaining that they did not.

6. Which of the following is a benefit of the ASIC register of company auditors? a. the register contains a code of ethics that auditors must follow b. the register provides assurance of the qualification, level of competence and experience of the auditor. c. the register facilitates disciplinary procedures against auditors d. all of.

16. Setting materiality levels, assessing audit risk and its components and obtaining an understanding of the internal control structure are all part of which audit stage? a. client evaluation. b. audit planning. c. collecting audit evidence d. issuing the audit report. 17. The reliance on client internal audit personnel on the audit is: a. strictly prohibited.

Short Answer 8-7 Explain the importance of analytical procedures and why auditors may also use non-financial measures in these procedures. Short Answer 8-8 Clements & Partners are the audit firm of Manufacturing Co. and have been for 3 years. The audit firm is considering if there are any ethical or legal requirements that.

26. The assessment of inherent risk requires consideration of matters that have a pervasive effect on the entity as a whole and matters that may affect only specific accounts. Which of the following is an example of a “pervasive effects” matter? a. industry of operation. b. susceptibility to misappropriation. c. sensitivity of valuations.