Auditing Test Bank
Course Introduction
Auditing is a comprehensive course that introduces students to the principles, standards, and practices of auditing in both public and private sector organizations. The course covers the theoretical framework of auditing, including the ethical and legal responsibilities of auditors, audit planning and risk assessment, and the execution of audit procedures. Key topics include internal controls, evidence collection, audit sampling, and reporting, with a focus on both financial and operational audits. Students will also explore current issues in the auditing profession, such as technological advancements, fraud detection, and regulatory requirements, preparing them for careers in accounting and audit-related fields.
Recommended Textbook
Auditing and Assurance Services 5th edtion by Grant Gay
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16 Chapters
732 Verified Questions
732 Flashcards
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Chapter 1: Assurance and Auditing: An Overview
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Sample Questions
Q1) In the context of agency theory, information asymmetry refers to the idea that:
A) information can vary in its reliability.
B) information can vary in its relevance.
C) management has more information about the entity's true financial position than do the absentee owners.
D) management will not act in the best interests of the absentee owners.
Answer: C
Q2) Which of the following is not one of the fundamental principles of professional ethics underlying an audit?
A) Objectivity.
B) Integrity.
C) Knowledge.
D) Confidentiality.
Answer: C
Q3) Which of the following is not an attribute of an external auditor?
A) Client advocacy.
B) Integrity.
C) Competence with regards to subject matter.
D) Objectivity.
Answer: A
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Chapter 2: The Structure of the Profession
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Sample Questions
Q1) Which of the following statements is correct?
A) ASIC is a member of the International Forum of Independent Audit Regulators.
B) International auditing standards are mandatory for all auditors.
C) The FRC is a member of IFAC.
D) Membership of the International Auditing and Assurance Standards Board is restricted to members of the Forum of Firms.
Answer: A
Q2) The Australian auditing standards issued by the Australian Auditing and Assurance Standards Board (AUASB) are intended to be applied to:
A) all audit, review, assurance and related engagements conducted by external firms.
B) all audits of entities listed on the Australian Securities Exchange.
C) all audits of companies incorporated under the Corporations Act 2001.
D) all audit, review, assurance and related engagements where the entity has more than five shareholders.
Answer: C
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4
Chapter 3: Ethics, Independence and Corporate Governance
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Sample Questions
Q1) Which of the following forms of advertising is permissible?
A) Advertising that indicates the auditor's educational and professional attainments.
B) Advertising that offers discounted prices.
C) Advertising that explains deficiencies in competitors' services.
D) All of the given answers are correct.
Answer: A
Q2) Auditors are required to complete engagements competently. Competency embraces all of the following except:
A) an unbiased mental attitude.
B) the technical qualifications of the audit staff.
C) the capacity to exercise judgment.
D) the ability to research subject matter and consult with others.
Answer: A
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Chapter 4: The Legal Liability of Auditors Part Two: Planning
and Risk
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Sample Questions
Q1) The AWA case established that:
A) reasonable care and skill means following the auditing standards.
B) auditors have a duty to closely supervise and review the work of inexperienced audit staff.
C) auditors are only liable for the proportion of damages attributable to their actions.
D) auditors have a duty of care only to the shareholders as a group.
Q2) The auditor's responsibility for the detection of an illegal act is the same as the auditor's responsibility for the detection of an error when the illegal act:
A) creates a material contingent liability that must be disclosed.
B) involves financial matters such as embezzlement or violations of securities laws.
C) has a direct and material effect on the determination of a financial report amount. D) has consequences material to the presentation and disclosure of financial position or operating results.
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Chapter 5: Overview of Elements of the Financial Report
Audit Process
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Sample Questions
Q1) Which of the following statements relating to the appropriateness of audit evidence is always true?
A) Evidence gathered by an auditor from outside an entity is reliable.
B) Accounting data developed under a satisfactory internal control are more relevant than data developed under unsatisfactory internal control conditions.
C) Oral representations made by management are not valid evidence.
D) Evidence gathered by auditors must be both reliable and relevant to be considered appropriate.
Q2) Which of the following is intended to detect deviations from prescribed Accounting Department procedures?
A) Substantive tests specified by a standardised audit program.
B) Tests of controls designed specifically for the client.
C) Analytical tests as designed in the industry audit guide.
D) Computerised analytical tests tailored for the configuration of CIS equipment in use.
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Chapter 6: Planning, Understanding the Entity and Evaluating Business Risk
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Sample Questions
Q1) Time budgets on audit engagements are not used for which of the following reasons?
A) Monitor actual audit hours worked by staff on an engagement.
B) Ensure that adequate time is allocated to significant areas of the audit.
C) Estimate an appropriate fee for the engagement.
D) To ensure that audit staff working on the engagement are paid the correct amount.
Q2) Which of the following is not an important consideration in an auditor's evaluation of an entity's business risk?
A) The specific business risks that an entity faces may result in financial report errors and fraud.
B) Business risk factors affect the ability of an entity to be profitable and survive.
C) Auditing standards include many entity business risk factors that identify circumstances that increase the likelihood of material misstatements.
D) Auditing standards require the auditor to evaluate the entity's business risk in order to provide suggestions to improve the entity's profitability.
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Chapter 7: Assessing Specific Business Risk
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Q1) Which of the following situations would be defined as fraud under the auditing standards?
A) Errors in the application of accounting principles.
B) Errors in the accounting data underlying the financial report.
C) Misinterpretation of facts that existed when the financial report was prepared.
D) Misappropriation of assets.
Q2) An independent auditor finds that Hollow Pty Ltd occupies office space, at no charge, in an office building owned by a shareholder of Hollow Pty Ltd. This finding indicates the existence of:
A) management fraud.
B) related-party transactions.
C) window dressing.
D) weak internal control.
Q3) In general, material frauds perpetrated by which of the following people are most difficult to detect?
A) Internal auditor.
B) Keypunch operator.
C) Cashier.
D) Financial controller.
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Page 9
Chapter 8: Understanding and Assessing Internal Control
Part Three: Tests of Control and Tests of Details
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Sample Questions
Q1) After obtaining an understanding of a client's IT control, an auditor may decide not to perform tests of controls within the IT portion of the client's system. Which of the following would not be a valid reason for choosing to omit tests of controls?
A) There appear to be major deficiencies that preclude reliance on the stated procedure.
B) The time and dollar costs of testing controls exceed the savings in substantive testing if the tests show the controls to be operative.
C) The controls appear to be adequate and thus can be relied upon in assessing the level of control risk.
D) The controls duplicate controls existing elsewhere in the system.
Q2) Totals of amounts in computer-record data fields that are not usually added, but are used only for data-processing control purposes, are called:
A) record totals.
B) hash totals.
C) processing data totals.
D) field totals.
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Chapter 9: Tests of Controls
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Sample Questions
Q1) An approach to testing real-time processing of a computer-based information system is known as the integrated test facility (ITF) technique. This approach involves:
A) testing the computer hardware at the same time as test transactions enter the real-time system.
B) validating as well as editing all input transactions entering the real-time system.
C) running monthly activities simultaneously with current transactions so that the two are integrated in the result of the test.
D) setting up a small set of records for a fictitious entity in the master files and then processing dummy transactions against the fictitious entity.
Q2) When goods are received, the receiving clerk should match the goods with:
A) the receiving report and the vendor shipping document.
B) the vendor shipping document and the purchase order.
C) the vendor invoice and the receiving report.
D) the purchase order and the requisition form.
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Chapter 10: Substantive Tests of Transactions and Balances
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Sample Questions
Q1) To establish the existence and ownership of a long-term investment in the shares of a publicly traded company, an auditor ordinarily performs a security count or:
A) confirms the number of shares owned with the issuing company.
B) determines the market price per share at the balance sheet date from published quotations.
C) confirms the number of shares owned that are held by an independent custodian.
D) relies on the client's internal control if the auditor has reasonable assurance that the control activities are being applied as prescribed.
Q2) Which of the following is necessary to audit balances in an on-line IT system in an environment of destructive updating?
A) Year-end utilisation of audit hooks.
B) Periodic dumping of transaction files.
C) A well-documented audit trail.
D) An integrated test facility.
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Chapter 11: Audit Sampling Part Four: Completion and Communication
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Sample Questions
Q1) As a result of tests of controls, an auditor found that they had assessed control risk as too low (their planned reliance on internal control was too high). This assessment occurred because the deviation rate in the sample was:
A) more than the risk of assessing control risk too low based on the auditor's sample. B) more than the auditor's planned deviation rate.
C) less than the risk of assessing control risk too low based on the auditor's sample. D) less than the auditor's planned deviation rate.
Q2) When selecting items for testing, the auditor concentrates their selection on high dollar value items. This approach is:
A) never appropriate in performing audit procedures under Australian auditing standards.
B) not an audit sampling technique but is often an appropriate evidence collection technique.
C) appropriate only if the auditor is undertaking statistical sampling.
D) generally a useful and efficient method for all audit tests.
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Chapter 12: Completion and Review
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Sample Questions
Q1) If a solicitor refuses to furnish corroborating information regarding litigation, claims and assessments, the auditor should:
A) honour the confidentiality of the client-solicitor relationship.
B) consider the refusal to be a scope limitation.
C) seek to obtain the corroborating information from management.
D) disclose this fact in a footnote to the financial report.
Q2) The date of the management representation letter should coincide with the: A) date of the auditor's report.
B) balance date.
C) date of the latest subsequent event referred to in the notes to the financial report.
D) date of the engagement letter.
Q3) The audit inquiry letter to the client's solicitor should be mailed only by the:
A) client after the auditor has reviewed it for appropriate content.
B) auditor after preparation by the client and review by the auditor.
C) auditor's solicitor after preparation by the client and review by the auditor.
D) client after review by the auditor's solicitor.
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Chapter 13: The Auditors Reporting Obligations Part Five:
Other Assurance Services
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Sample Questions
Q1) An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing audited financial statements. If the auditor concludes that the financial statements do not require revision (it is the other information which is inconsistent with the auditor's knowledge), but the client refuses to revise or Eliminate the material inconsistency, the auditor may:
A) issue a qualified opinion after discussing the matter with the client's board of directors.
B) consider the matter closed since the other information is not in the audited financial statements.
C) revise the auditor's report to include an Emphasis of Matter paragraph describing the material inconsistency.
D) revise the auditor's report to include an Other Matter paragraph describing the material inconsistency.
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Chapter 14: Internal Auditing
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Sample Questions
Q1) According to the IIA Standards, the authority of the internal auditing department is limited to that granted by:
A) senior management and the Internal Auditing Standards.
B) the board of directors and the financial controller.
C) the audit committee and the chief financial officer.
D) management and the board of directors.
Q2) When evaluating risks in accordance with the Australian Risk Management Standard AS/NZS ISO 31000, what is the order of steps that it is recommended be undertaken?
A) Identify risks, analyse risks, evaluate risks, treat risks.
B) Identify risks, analyse risks, treat risks, evaluate risks.
C) Identify risks, evaluate risks, treat risks, analyse risks.
D) Identify risks, evaluate risks, analyse risks, treat risks.
Q3) Standards relevant to operational auditing have been promulgated by all of the following except the:
A) Institute of Internal Auditors.
B) Australian Auditing and Assurance Standards Board.
C) Australian National Audit Office.
D) Australian Securities and Investments Commission.
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Chapter 15: Auditing and Assurance Services in the Public Sector
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Sample Questions
Q1) The proposed annual expenditures of the Commonwealth Government are authorised by:
A) the Auditor-General.
B) the Treasurer.
C) the Department of Finance.
D) the Parliament.
Q2) Peer reviews of public sector audit offices are normally directed by:
A) the Prime Minister/Premier.
B) the Treasurer/Minister for Finance.
C) public accounts committees.
D) specific legislative requirements.
Q3) Which of the following can be considered an example of a performance indicator for effectiveness?
A) A reduction in the number and severity of injuries, resulting from a road safety program.
B) The number of patients treated in a health clinic.
C) A decline in caseloads for social workers.
D) The costs of a job training program for long-term unemployed, per person placed in permanent employment.
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Chapter 16: Other Assurance Services and Advanced Topics
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Sample Questions
Q1) Whenever special reports, filed on a printed form designed by authorities, call upon the independent auditor to make an assertion that the auditor believes is not justified, the auditor should:
A) reword the form or attach a separate report.
B) submit a standard auditor's report with explanations in a separate paragraph of the report.
C) withdraw from the engagement.
D) submit the form with questionable items clearly omitted.
Q2) An engagement to express an opinion on a system of internal accounting control will generally:
A) increase the reliability of the financial report that has already been audited.
B) require procedures that duplicate those already applied in assessing control risk during a financial report audit.
C) be more limited in scope than the assessment of control risk made during a financial report audit.
D) be more extensive in scope than the assessment of control risk made during a financial report audit.
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