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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 correct option is c.
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.
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.
- 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.
- 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.
The correct option is c.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is demanded.
- In relation to changes to auditing regulation it is true that:
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.
- 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.
- 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.
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.
- 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.
- 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.
- The body that is responsible for setting the auditing standards in Australia is: a. AASB. b. AUASB. c. FRC. d. IAASB.
a. by examining how often audits are associated with company failure. b. by examining whether the audit report is correct. c. by examining the premium the market places on a share price for independently audited information. d. it is not possible to designate any one test as being the best to decide if audits provide good value.
The correct option is d.
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.
- 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.
- 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.
- 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.
Chapter 2: Governance and the auditor
Multiple-choice questions
- Enterprise governance is perceived as a model that can be applied to: a. not-for-profit organisations. b. the public sector. c. corporations. d. all of the above.
The correct option is d.
Learning objective 2.1 ~ describe the nature of governance.
- The conformance aspect of enterprise governance covers all these issues except: a. the roles of the chair of the board and top management. b. resource use. c. internal control structures. d. the adequacy and reasonableness of compensation schemes for executives.
The correct option is b.
Learning objective 2.1 ~ describe the nature of governance.
- The statement that best describes internal auditing is: a. an activity to reduce risk. b. an activity located within an entity, primarily to detect fraud. c. an independent and objective assurance activity within an entity.
