WEEK 4:

1. By setting a lower planning materiality level an auditor: Increases the quality and quantity of
evidence that needs to be gathered.
2. Common measures of a company's profitability include: Price-earnings ratio and Earnings per
share.
3. An audit strategy will include increased reliance on tests of controls when: Inherent risk and
control risk are low.
4. By assessing control risk as high, an auditor has determined that their client's system of
internal controls: Is unlikely to be effective in mitigating inherent risks identified.
5. Which of the following statements about materiality is incorrect? . ALL RESPONSES R
CORRECT>: impossible to completly eliminate.... audit risk is the auditors exprersses
opinion....Tracing a transaction through a client's accounting system.
7. An audit strategy: Involves determining the amount of time to be spent testing the client's
internal controls, conducting detailed substantive testing and sets the scope, timing and
direction of the audit OR sets the scdope, timing and direction of the audit
8. The audit strategy for a client with high inherent risk and high control risk will include: No or
very limited tests of controls.
9. An item that is considered material due to its magnitude is referred to as being: Quantitatively
material.
10. Which of the following statements is correct about audit risk?
a. Audit risk can be reduced at the planning stage of an audit by identifying the key risks faced by
the client.
b. Audit risk is the risk that an auditor expresses an inappropriate opinion when a financial
report is materially stated.
c. It is impossible to completely eliminate audit risk.
11. If there is a risk that management's assertion that recorded inventory exists is not valid, the
auditor will: Spend more time testing for the existence of recorded inventory
12. When classifying risks as being significant consideration is not given to whether the risk:
Involves simple transactions.
13. Which of the following is an example of a liquidity ratio? Cost of sales divided by average
inventory.
14. As a rule of thumb which of the following items would be considered immaterial? None of
the responses.
15. Qualitative materiality refers to information that: Impacts a user's decision-making process
for a reason other than its magnitude.
16. In conducting analytical procedures, which of the following information sources are not
generally considered to be reliable? Information generated by an accounting system with
ineffective internal controls.
17. Liquidity refers to: The ability of a company to pay its debts when they fall due.
18. Analytical procedures are conducted at the risk assessment phase of the audit to: Aid in the
identification of risk and enhance the understanding of a client.
19. Which of the following is not an example of a profitability ratio? Current ratio.
20. Control risk is: The risk that a client's system of internal controls will not prevent or detect a
material misstatement.

WEEK 3:
1. If auditors believe there is a risk that expenses incurred before year-end will be excluded
from the current year's expenses, they will: Trace transactions recorded close to year-end to
source documentation.
2. If auditors identify risk factors that indicate that the going concern assumption is in doubt,
they will: Undertake procedures to gather evidence regarding each risk factor.
3. The going concern assumption is made when it is believed that: A company will remain in
business for the foreseeable future.
4. Planning an audit of a financial report requires that an auditor plan their audit to reduce
audit risk to an acceptable low level. Audit risk can be defined as; The risk that the auditor
expresses and inappropriate opinion at the conclusion of the audit.
5. An auditor is usually most concerned with which of the ASX Corporate Governance Council's
principles? Safeguard integrity in financial reporting.
6. Auditors can assess the adequacy of their client's closing procedures by: NO RESPONSE IS
CORRECTor BOTH!. >WRONG> Looking at earnings trends to assess whether reported
income is in line with similar periods in prior years. And Checking the accuracy of accruals
calculations around year-end.
7. Which of the following is not an example of a mitigating factor that reduces the risk that the
going concern assumption may be in doubt? Significant rapid increase in competition
8. Preliminary risk identification can be affected by: WRONG>Corporate governance & RIGHT
None of the responses.
9. Which of the following is not an example of a risk when a client installs a new IT system? The
client has appropriate procedures for selecting new IT systems.
10. Which of the following are relevant when gaining an understanding of the client at the
economy level? Changes in interest rates.
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WEEK 2:

1. Auditor independence is:

defined as acting with integrity, objectivity and professional scepticism and essential
when complying with the ethical principles to act with integrity and objectivity.
2. It is the responsibility of the board of directors to:
ensure that the financial report is prepared so as to provide a true and fair view.
3. Which of the following is an example of a familiarity threat to independence?
a former partner of the assurance firm holdings a senior position with the client.
4. The final stage in the client acceptance and continuance decision process involves:
the preparation of an engagement letter.
5. Independence in appearance is:
the belief that independence of mind has been achieved.
6. According to the ASX Corporate Governance Council, an audit committee should:
consist of a majority of independent directors.
7. Which of these cases established the legal principle that auditors owe a duty of care to
shareholders as a group and not to individual shareholders?
Caparo.
 8. Professional behaviour refers to the obligation that all members of the professional
bodies:
ensure that they do not harm the reputation of the accounting profession.
9. What type of threat to independence arises when an accounting firm acts on behalf of
its assurance client results?
advocacy threat.
10. An auditor's assessment of their client's integrity would not include:
whether the auditor has sufficiently competent staff to complete the audit.

WEEK 1:

1. Which of the following is not a type of opinion? modified opinion.

2. The expectation gap is caused by: unrealistic user expectations.
3. Which of the following regulators do not impact on the audit process?
Auditing Professional and Ethical Standards Board (APESB).
4. Agency theory can be described as the theory of:
the relationship between the owner and the management of the business when the owner is
not the manager of the business.
5. An example of an unmodified audit opinion is:
unqualified audit opinion with an emphasis of matter.
6. Agency theory explains that audits our demanded because conflicts can arise between:
Managers and owners
7. Which of the following is incorrect? A government can be considered to be a user of the
general-purpose financial reports because: it is the basis for the calculation of taxes owed to
the government.
8. Which of the following is correct? The Accounting Professional Ethical Standards Board
(APESB): standards are required to be complied with by members of each of CAANZ, CPA
and IPA.
9. The largest accounting firms in Australia are known collectively as the: big 4
10. In addition to the preparation of financial statements, it is also the responsibility of those
charged with governance to:
- selecting and applying appropriate accounting policies and making reasonable
accounting estimates.
- identify the financial reporting framework to be used in the preparation and
presentation of their financial report.
- establish and maintain internal controls that are effective in preventing and detecting
material misstatements.
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1. An assurance engagement can be defined as: an engagement to enhance the reliability

of the subject matter.
2. An example of the three parties in an assurance engagement would be: audit client,
supplier, auditor.
3. A limitation of an audit is caused by:
4. the nature of financial reporting
5. the nature of audit procedures
6. the need for the audit to be conducted within a reasonable period of time and at a
reasonable cost.
 7. Which of the following is NOT true about Corporate Social Responsibility assurance?
8. is required to be performed by an auditor.
9. When auditors are engaged in work where no assurance is provided this means;
An assurance is not provided as the client determines the nature, timing and extent of
the evidence that is gathered and will determine their own outcome.
10. Which of the following would be an example of a reasonable assurance engagement?
the audit of annual financial statements.
11. The wording of a negative expression of opinion generally states that: there is nothing
that has come to the auditor’s attention that would lead them to believe that the
information being assured is not true and fair.
12. In a review engagement, which of the following is least likely to occur during the
13. engagement? substantive audit procedures
14. The following can be said about an emphasis of matter: it is included when the auditor’s
opinion has not changed, and the auditor wants to bring the users’ attention to a
particular matter.
15. In addition to the preparation of financial statements, it is also the responsibility of
those charged with governance to:
- identify the financial reporting framework to be used in the preparation and
presentation of their financial report.
- establish and maintain internal controls that are effective in preventing and detecting
material misstatements.
- selecting and applying appropriate accounting policies and making reasonable
accounting estimates.
16. Which of the following is not true in relation to comparability?
- able to identify trends that may influence their perception of how well the entity is
doing.
- able to assess the performance of the entity over time and with other entities.
- able to evaluate.
17. Professional scepticism does not involve:
- the professional requirement that all management representations be substantiated
with supporting documentation.
18. Under CLERP9, which of the following is not correct relating to specific disclosures in the
directors’ report?
- disclosure of material transactions between auditor and entity during the period under
audit.
19. Suppliers as a user of the financial statements would least consider which of the
following aspects of the financial statements: return on investment of the entity
20. Which of the following is incorrect? A government can be considered to be a user of
the general purpose financial reports because:
it is the basis for the calculation of taxes owed to the government
21. Agency theory can be described as the theory of:
the relationship between the owner and the management of the business when the owner is
not the manager of the business.

22. Insurance hypothesis tells us that:

*a. investors will demand that financial reports be audited as a way of insuring against some
of their loss should their investment fail.

40. The objective of the Financial Reporting Council does not include:
*c. to be involved in the technical issues around the standard-setting process.
 42. Which of the following is incorrect? The Australian Securities and Investments
Commission (ASIC)
*b. requires all auditors’ financial statements to be independently audited annually
43. The Companies and Liquidators Disciplinary Board can respond to applications made
by:
*c. the Australian Securities and Investments Commission (ASIC) or the Australian Prudential
Regulation Authority (APRA)
44. Auditor rotation in CLERP9 states that an auditor cannot perform a significant role in
the audit of a client in more than
*c. five out of seven years

1. The main assurance service the general public are familiar with are financial report audits.

Briefly describe the other services that an auditor can provide.

A compliance audit involves gathering evidence to ascertain whether the person or entity
under review has followed the rules, policies, procedures, laws and regulations with which
they must conform.
Performance audits are concerned with the economy, efficiency and effectiveness of an
organisation’s activities
A comprehensive audit may encompass elements of a financial report audit, a compliance
audit and a performance audit.
Internal audits are conducted to provide assurance about various aspects of an organisation’s
activities.
Corporate social reporting disclosures include environmental, employee and social reporting
2. Outline the reasons for the demand for assurance services.
Remoteness – As most users do not have access to the entity under review, this makes it
difficult to determine whether the information contained in the report is a fair presentation of
the entity and its activities for the relevant period.
Complexity – Most financial report users do not have the accounting and legal knowledge to
enable them to assess the complex accounting and disclosure choices being made by the
entity.
Competing incentives – management may have their own incentives to present the
information in a particular light which may help them achieve their own objectives. This may
introduce bias in what is being presented.
Reliability – As the information is being depended upon to make important decisions, it is
important that the information being presented is reliable
3. How is the expectation gap caused and how can the effects expectation gap be reduced?
In particular, the gap is caused by unrealistic user expectations such as:
• the auditor is providing complete assurance
• the auditor is guaranteeing the future viability of the entity
• an unqualified (clean) audit opinion is an indicator of complete accuracy
• the auditor will definitely find any fraud
• the auditor has checked all transactions.
The expectation gap can be reduced by:
• auditors performing their duties appropriately, complying with auditing standards and
meeting the minimum standards of performance that should be expected of all auditors;
• peer reviews of audits to ensure that auditing standards have been applied correctly;
• auditing standards being reviewed and updated on a regular basis to enhance the work being
done by auditors;
• education of the public
• enhanced reporting to explain what processes have been followed in arriving at an audit
 (reasonable assurance) or a review (limited assurance) opinion (significant improvements
have been introduced by standard setters improving assurance reporting); and
• assurance providers reporting accurately the level of assurance being provided (reasonable,
limited or none)

q5, which of the following is not a type pf opioion? Modified

Under CLERP9, which of the following is not correct relating to specific disclosures in the
directors report? disclosure of material transactions between auditor and entity during the period
under audit.

Which of the following regulators do not impact on the audit process? Auditing Professional and
Ethical Standards Board (APESB) (IPA and ASIC DO!!)

The Companies and Liquidators Disciplinary Board can respond to applications made by:  the
Australian Securities and Investments Commission (ASIC) or the Australian Prudential Regulation
Authority (APRA).

A limitation of an audit is caused by: all responses are correct.

Which of the following would be an example of a reasonable assurance engagement? the audit of
annual financial statements.

The parties relevant to an insurance engagement are: b. Assurance practitioner, uses,

responsible party

Which of the following is not true in relation to comparability? All are correct

Professional scepticism does not involve: c. the professional requirement that all management

representations be substantiated with supporting documentation.  

>Agency theory explains that audits our demanded because conflicts can arise between:
managers and owners

 An assurance engagement can be defined as: an engagement to enhance the reliability of

the subject matter.
 The function of internal audit is determined by: Those charged with governance and
management
 The order expectation gap occurs when: user beliefs do not align with what an auditor has
actually done
 An example of an unmodified audit opinion is: unqualified audit opinion with an emphasis of
matter.
 The wording of a negative expression of opinion generally states that: there is nothing that
has come to the auditor’s attention that would lead them to believe that the information being
assured is not true and fair.
 Agency theory can be described as the theory of: the relationship between the owner and
the management of the business when the owner is not the manager of the business.
 Intimidation threats to independence include:  the threat that that the client will use a
different assurance firm next year.
 Which of the following is a fundamental principle of professional ethics? All responses

Threats to the independence of auditors include: all responses> self interest/adv/familirty

 Which of the following was an observation or recommendation by Justice Owen in the HIH
Royal Commission Report? : an independent and objective audit, conducted with an appropriate
degree of professional scepticism, is required.
 Under tort law, to prove that and auditor has been negligent the plaintiff must establish: all
responses
 Objectivity refers to the obligation that all members of the professional bodies: not allow their
personal feelings or prejudices to influence their professional judgement.
 Independence in appearance is the belief that independence of mind has been achieved.
Which of the following is an example of a familiarity threat to independence? a former partner of
the assurance firm holdings a senior position with the client.

 What type of threat to independence arises when an accounting firm acts on behalf of its
assurance client results? Advocacy threat.
 Safeguards to independence are created by: all responses
 The principles established by Justice Moffitt in the Pacific Acceptance case do not include:
auditors are watchdogs but not bloodhounds.
 An auditor's assessment of their client's integrity would not include: : whether the auditor has
sufficiently competent staff to complete the audit.
 professional competence refers to the to the members of a professional body: Maintain their
level of knowledge and skill required by the professional body.
 Having policies and procedures to ensure the quality of an accounting firm's service is an
example of a safeguard to independence created by: no respose is correct (Corp Act, BOD,
clients audit committe)
 Auditors can avoid litigation by: ensuring compliance with ethical regulations and training their
staff and regularly updating their knowledge.
 Professional behaviour refers to the obligation that all members of the professional bodies:
ensure that they do not harm the reputation of the accounting profession.
 The final stage in the client acceptance and continuance decision process involves:  the
preparation of an engagement letter.
 It is the responsibility of the board of directors to: ensure that the financial report is prepared so
as to provide a true and fair view.
 According to the ASX Corporate Governance Council, an audit committee should: consist of a
majority of independent directors.
 Wk2
 Which of these cases established the legal principle that auditors owe a duty of care to
shareholders as a group and not to individual shareholders? Caparo.
 A self-interest threat refers to the threat that can occur when an accounting firm or its staff:
has a financial interest in an audit client.
 Executive directors are: part of the company's management team and full-time employees of the
company.
 The main recipients of the financial report and the attached audit report are acknowledged as
the shareholders or members.
 An example of a safeguard to independence created by accounting firms is: the existence of
client acceptance and continuation procedures.
 Examples of board committees include the: all responses> risk, remuneriation and
nomination committee.
 The ASX Corporate Governance Council's Principle 2 'Structure the board
to add value' includes which of the following recommendations? Both
response> chair should be independent director and board should hav a
nomination committee.
 Which of the following is not an example of a risk when a client installs a new IT system? The
client has approapriate procedures for selecting new IT systems.
 The 'if not, why not' approach of the ASX Corporate Governance Council to its
recommendations requires companies to: Disclose whether they have complied with the
principles and recommendations.
  The risk response phase of an audit involves: The performance of detailed tests of controls

and substantive testing of transactions and accounts.  

 Red flags that auditors can use to alert them to the possibility that a fraud may have occurred
include: A high turnover of key employees.
 Which of the following is an example of a misappropriation of assets fraud? Unauthorised
discounts or refunds to customers.

Risks associated with information technology include:  All responses. 

b. Unauthorised access to computers.

c. Errors in programs.

d. Loss of data.

Go through this######

1) By setting high detection risk, an auditor will:>WRONG reduce d level of testing of the
client’s internal control systems. Does it reduce/increase reliance placed on their detailed
substantive procedures.

2) An item that is considered material due to its nature is referred to as being; WRONG significantly
material>choose from
a. Monumentally material.

b. Quantitatively material.

c. Qualitatively material.

 If there is a risk that management's assertion that recorded inventory exists is not
valid, the auditor will>spend more time testing for the existence of recordied
inventory

 Corporate governance means: The rules, systems and processes within companies used to

guide and control them. 

 In assessing the client's relationship with its employees, the auditor will consider: all
responces> client pays staff,staff attitude, unionisation of workforce. If a client's products

or services are seasonal, this will affect revenue flow.  

 When gaining an understanding of their client, at which level do auditors not usually
consider the relevant issues? (NOT entry level, economy level!!, might be audit
committee or industry level!)
  When assessing the risk of fraud, an auditor can consider: all
responses>incentive/opportunity/attitudes...
 Attitudes and rationalisation to justify a fraud include: An excessive focus on maximising
profit.
 Unauthorised access to a company's data can occur when:.there are poor password
protection procedures.
 Opportunities to perpetrate a fraud include all the following except:Rapid Growth.
 Which of the following is an example of information used by auditors in gaining an
understanding of a client at the entity level? , b whether the client is an importer or
exporter of goods.
 When assessing fraud risk, an auditor will adopt an attitude of> professional scepticism.
 Analytical procedures are used at which of the following phases of an audit? All of the
responses>risk response, final review and risk assessment.!
 Which of the following statements relating to debt covenants is incorrect? If a company
breaches a debt covenant it will not need to renegotiate or repay the loan.
 Which of the following statements regarding key performance indicators (KPIs) is
correct? All responses are correct
 Which of the following statements about materiality is incorrect? : information is
considered material if it has no impact on the decision making process of financial report
users.

Diff Phase of an audit:

Risk Assessment: gain an understanding of client, identify risks, develop an

audit strategy and set their planning materiality>involves consideration of
issues at the entry, industrial and wider economic level, at an entry level
auditor will identify the client’s major customers, suppliers and stakeholders
(banks, shareholders, employees) if their cilient is importer/exporter. Look at
who d client compeititors r, look at clients capacity to adapt to technology
changes, what sort of warrentes r provided to cusmters.

Industrial level: look at what the client industrial position is. At an eco level:
can the client cope with government policies, changes to economic
conditions> interest rates.

Risk response>auditor to execute/carryout their detailed testing of account

balances and transactions.

Reporting>final stage of audit to review all evidence gathered throughout the

audit, arrive at a conclusion regarding the truth and fairness of the client’s
financial report. The auditor will then prepare an aaudit report with an opinion
based upon their findings.

2 types pf fraud(intentional act)> financial reporting fraud and misappropriation

of assets fraud.
Going concept> assumption that the business will continue for the foreseeable
future. ( auditor assesses this at the risk assessment phase and throughout
the audit)

Corporate governance structures> rules, systems and processes within

companies used to guide and control. It also assess the level of risk faced and
design contrls to reduce identified risks.

Auditors alos look at the IT systems and how can effect risk> during risk
assessment phase of auditing, they will look at if their clients financial reports
could have been jepodised due to IT limitations>misstated.

Materiality??

Professional Sceptisum> maintain an independent questioning mind.