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ACT 504 auditing quizzes
chapterwise (1).
Chapter 1: An overview of auditing Multiple-choice questions
- The three major professional accounting bodies in Australia are: a. ICAA, CPA and ASIC. b. CPA Australia, IPA and AARF. c. ATO, AUASB and ASIC. d. ICAA, CPA Australia and IPA. The correct option is d. Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is demanded.
- Which of these is not an objective of the ASIC? a. To maintain, facilitate and improve the performance of companies. b. To establish new institutional arrangements for standard setting. c. To receive, process and store information given to the Commission under the laws. d. All of the above are objectives of the ASIC. The correct option is b. Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is demanded.
- Which of the following is true regarding auditors and fraud? a. Auditors are required to detect all fraud during an audit. b. Auditors should actively investigate the possibility of fraud if suspicious circumstances exist. c. In the Kingston Cotton Mill case it was said that the audit role was not primarily to detect fraud. d. b. and c. are true.
The correct option is d. Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is demanded.
- The statutory body that is responsible for hearing applications in Australia as to whether auditors and liquidators have breached the Corporations Act is: a. ASIC. b. CALDB. c. FRC. d. AUASB. The correct option is b. Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is demanded.
- The auditing and accounting body with the highest number of members is: a. The Institute of Public Accountants. b. CPA Australia. c. The Institute of Chartered Accountants in Australia. d. The International Federation of Accountants. The correct option is b. Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is demanded.
- In relation to auditing the information hypothesis relates: a. to ‘does the audit meet the demands of users’. b. to why there is a demand for audits. c. to what auditing is. d. to which auditing standards are produced. The correct option is b. Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is demanded.
- Under ASA 200/ IAS 200 the primary objective of a financial report audit is to: a. ensure that the company is free from all fraud. b. provide assurance about the future viability of the entity.
c. to express an opinion as to whether the financial report is prepared in all material aspects, in accordance with a financial reporting framework. d. ensure the company complies with all aspects of Corporations Law. The correct option is c. Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is demanded.
- It is not a requirement to be registered as an auditor in Australia to: a. be a fit and proper person. b. be a member of CPA Australia, the ICAA or other approved body. c. have a degree or diploma from a course in accounting (including auditing) of not less than 3 years duration and in commercial law(including company law) of not less than 2 years duration or have other equivalent qualifications acceptable to ASIC. d. all are requirements to be registered as an audtor in Australia. The correct option is d. Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is demanded. 12.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? a. Agency. b. Explanatory. c. Insurance hypothesis. d. Information hypothesis. The correct option is c. Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is demanded. 13.In Australia the auditors opinion in the audit report must state: a. whether the financial report is presented fairly, in all material respects, in accordance with the applicable financial reporting framework.
a. the CLERP reforms and the Sarbanes-Oxley reforms are very similar in approach. b. the CLERP reforms in Australia are more rules-based than the Sarbanes- Oxley reforms. c. the Sarbanes-Oxley reforms in the USA are principles-based. d. the Sarbanes-Oxley reforms are more rules-based and the CLERP reforms are more principles-based. The correct option is d. Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is demanded. 17.The separation of ownership and control in large organisations has resulted in: a. an agency problem. b. the insurance hypothesis. c. CLERP. d. an audit expectation gap. The correct option is a. Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is demanded. 18.Any situation where information is prepared by one party and then attested as to its accuracy by another party is known as: a. agency theory. b. an audit engagement. c. an assertion engagement. d. an assurance engagement. The correct option is d. Learning objective 1.2 ~ describe how assurance relates to auditing.
- Auditing bears what relationship to assurance? a. Auditing is a sub-category of assurance. b. Assurance is a sub-category of auditing. c. They are different names for the same thing.
d. Public accounting firms perform auditing engagements but not assurance engagements. The correct option is a. Learning objective 1.2 ~ describe how assurance relates to auditing. 20.The oversight structure of financial reporting in Australia had many levels. CALDB is part of which level? a. Regulation by the firm. b. Regulation by the profession. c. Government regulation. d. Self or peer regulation. The correct option is c. Learning objective 1.4 ~ explain the importance of national and international auditing standards. 21.Which body has a mission ‘to develop, in the public interest, high- quality auditing and assurance standards and related guidance to enhance the relevance, reliability and timeliness of information provided to users of audit and assurance services’? a. The FRC. b. The IAASB. c. The AASB. d. The AUASB. The correct option is d. Learning objective 1.4 ~ explain the importance of national and international auditing standards. 22.The body that is responsible for setting the auditing standards in Australia is: a. AASB. b. AUASB. c. FRC. d. IAASB.
Learning objective 1.5 ~ evaluate whether audits meet the demands of users.
- Which of these actions is most likely to remove the audit expectation gap? a. Improving auditing standards. b. Educating audit users about what are reasonable expectations. c. Improving auditor’s performance. d. It will require a comprehensive approach combining all three of the above. The correct option is d. Learning objective 1.5 ~ evaluate whether audits meet the demands of users. 27.An area where auditors in Australia have generally not expanded their role is: a. detection of fraud. b. evaluation of whether an entity is a going concern. c. reporting on internal controls. d. all of the above are areas in Australia where auditors have not expanded their role. The correct option is c. Learning objective 1.5 ~ evaluate whether audits meet the demands of users.
- In the HIH Royal Commission Report it was stated that current audit reports: a. are not very informative about the nature and scope of audit services. b. are useful in informing users about the message that auditors are trying to get over. c. are generally a waste of the paper they are written on. d. are often wrong. The correct option is a. Learning objective 1.5 ~ evaluate whether audits meet the demands of users.
- A variety of parties may be interested in audited reports of a public company. Which user group is the primary user? a. Management of the company. b. Current shareholders. c. Creditors. d. Government. e. The correct option is b. Learning objective 1.5 ~ evaluate whether audits meet the demands of users. 30.The reasonableness gap is: a. The difference between what financial statement users believe the audit provides and what an audit actually provides. b. The gap between what society can reasonably expect auditors to accomplish and what they are perceived to achieve. c. The gap comprising deficient performance and deficient standards. d. the gap between what society expects auditors to achieve and what they can be reasonably expected to accomplish. The correct option is d. Learning objective 1.5 ~ evaluate whether audits meet the demands of users.
a. It provides assurance to management that the organisation is complying with its legal requirements. b. External audit costs are reduced. c. It provides assurance to management that fraudulent activities will be detected. d. It aids management in the areas of risk management, control and governance processes. The correct option is d. Learning objective 2.2 ~ appreciate the role of the auditor in governance.
- The types of operational audit reports issued by an internal auditor are: a. financial report or compliance report. b. varied, and are based on auditor judgment of how best to present the findings. c. examination report, review report or compilation report. d. unqualified, qualified, adverse or a disclaimer of opinion. The correct option is b. Learning objective 2.2 ~ appreciate the role of the auditor in governance.
- An audit specifically designed to investigate the value of strategic initiatives such as mergers and acquisitions, prospectuses and investment decisions is known as: a. a social audit. b. a due diligence audit. c. a forensic and probity audit. d. a performance audit. The correct option is b. Learning objective 2.2 ~ appreciate the role of the auditor in governance.
- The audit trinity concept refers to: a. past, current and future approaches. b. external audit, internal audit, audit committee. c. conformance, performance, assurance. d. none of the above.
The correct option is b. Learning objective 2.2 ~ appreciate the role of the auditor in governance.
- Whose role is it to assist management to improve operational efficiency and effectiveness by monitoring the internal control and risk management systems? a. The audit committee. b. The external auditors. c. The internal auditors. d. All of the above. The correct option is c. Learning objective 2.2 ~ appreciate the role of the auditor in governance.
- Earnings management occurs when: a. income and expenses are managed to influence the performance of the entity. b. financial statements and transactions are manipulated to influence perceptions about the entity. c. executive salaries are increased surreptitiously by including the raises in late night meetings. d. earnings are manipulated to improve the company’s tax position. The correct option is b. Learning objective 2.3 ~ discuss the issues of internal control, risks and earnings management in governance that concern the auditor. 10.Incentives for earnings management are inherent in the management structure but are least likely to originate from: a. executive remunerations. b. situations including financial distress. c. political considerations. d. high positive cash flows. The correct option is d.
14.Which of these is not one of the key trends in auditing as identified by the 2007 PricewaterhouseCoopers study? a. A widening role for internal audit in managing risk. b. An emerging ‘capability crisis’ among internal audit staff. c. Fewer younger people entering the audit profession. d. Rotational staffing as a key strategy to refresh and renew talent. The correct option is c. Learning objective 2.4 ~ appreciate the roles of internal and operational audits in the governance processes. 15.The SEC proposal on audit committees did not require: a. the audit committee to be directly responsible for the hiring of an independent auditor. b. the audit committee to be directly responsible for the oversight of an independent auditor. c. the audit committee to be directly responsible for the internal auditor. d. the names of the committee members to be disclosed in the annual report. The correct option is c. Learning objective 2.5 ~ consider the significance of the role of the audit committee in governance. 16.The Australian Stock Exchange (ASX) listing rules require an audit committee to be established by: a. all companies on the S&P/ASX All Ordinaries Index. b. all companies on the S&P/ASX 500 Index. c. all companies on the S&P/ASX 300 Index. d. all companies. The correct option is a. Learning objective 2.5 ~ consider the significance of the role of the audit committee in governance.
17.The best practice recommendations for audit committees states that the audit committee should consist of: a. an independent chairperson who is not chairperson of the board. b. both executive and non-executive directors. c. at least one independent director. d. at least five members. The correct option is a. Learning objective 2.5 ~ consider the significance of the role of the audit committee in governance. 18.The audit committee should report to the board of directors on which of these matters? a. The use of experts by the independent auditor. b. Recommendations for the appointment or removal of an auditor. c. Audit procedures carried out by the independent auditor. d. All of the above. The correct option is b. Learning objective 2.5 ~ consider the significance of the role of the audit committee in governance. 19.An effective audit committee: a. improves the credibility and objectivity of the accountability process. b. assists the directors in discharging their responsibilities with due care, diligence and skill. c. fosters an ethical culture throughout the organisation. d. all of the above. The correct option is d. Learning objective 2.5 ~ consider the significance of the role of the audit committee in governance. 20.The Auditor General has a legislative mandate to: a. audit the financial statement of all entities controlled by the government except government business enterprises.
The correct option is c. Learning objective 2.6 ~ describe the nature of governance and the type of audits in the public sector. 24.The Joint Committee of Public Accounts and Audit (JCPAA) is not charged with: a. inquiring into matters raised by the auditor-general and referred to it by the houses of Parliament. b. examine the accounts of the receipts and expenditure of the Australian government. c. examine the financial affairs of Australian government authorities. d. reporting to the Prime Minister. The correct answer is d. Learning objective 2.6 ~ describe the nature of governance and the type of audits in the public sector. 25.The independence of the Auditor General is: a. approved by the Governor General. b. assured by the houses of Parliament. c. prescribed by the Auditor General Act 1997 (Cwlth). d. prescribed by the Australian Constitution. The correct option is c. Learning objective 2.6 ~ describe the nature of governance and the type of audits in the public sector. 26.The Auditor General is appointed by: a. the Parliament. b. the Prime Minister. c. the Joint Committee of Public Accounts and Audit. d. the Governor General on the recommendation of the responsible minister. The correct option is d. Learning objective 2.6 ~ describe the nature of governance and the type of audits in the public sector.
27.The Auditor General’s powers to gather information are legislated. These powers do not include the power to: a. access private property. b. direct a person to provide any information. c. obtain information under oath. d. all of the above are legislated powers of the Auditor General. The correct option is a. Learning objective 2.6 ~ describe the nature of governance and the type of audits in the public sector. 28.The Auditor General must report on an exception basis if: a. proper accounting records have been kept. b. all the necessary information and explanations were obtained. c. records have been retained for at least 10 years. d. records have not been made available for inspection. The correct option is d. Learning objective 2.6 ~ describe the nature of governance and the type of audits in the public sector. 29.For consolidated financial statements, the Auditor General must report: a. the name of a subsidiary for which he/she has not acted as an auditor. b. the name of a subsidiary for which the financial statements have not been qualified. c. the procedures and methods used in arriving at amounts for consolidations. d. all of the above. The correct option is a. Learning objective 2.6 ~ describe the nature of governance and the type of audits in the public sector. 30.What type of auditing helps management to improve effectiveness, efficiency and economy?
