Advanced Auditing Practice Exam
Course Introduction
Advanced Auditing delves into the complex audit environment, focusing on the practical and theoretical aspects of contemporary auditing practices. This course covers advanced topics such as audit risk assessment, internal controls, audit planning and execution, forensic auditing, and the application of auditing standards in various sectors. Students develop critical skills in analyzing financial statements, evaluating audit evidence, and understanding ethical and legal responsibilities in the audit process. Through case studies and real-world scenarios, the course prepares learners for leadership roles in the auditing profession and equips them to effectively address challenges posed by evolving regulatory requirements and technological advancements in auditing.
Recommended Textbook
Auditing Assurance Services and Ethics in Australia 10th Edition by Alvin Arens
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Chapter 1: Demand for audit and assurance services
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Q1) The primary role of the Auditor-General is the enforcement of the federal tax laws as defined by Parliament and interpreted by the courts.
A)True
B)False
Answer: False
Q2) A strategic system audit approach assists the auditor to:
A) identify risks associated with the financial statements.
B) evaluate audit evidence.
C) determine which areas of the audit to focus on.
D) all of the above
Answer: A
Q3) Which of the following is classified as an attestation service?
A) Compilation
B) Tax planning engagement
C) Consulting engagement
D) Audit of historical financial statements
Answer: D
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Chapter 2: Auditors legal environment
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Q1) Which one of the following was NOT set out as a test for establishing a duty of care in Al Saudi Banque?
A) reasonableness
B) intention to induce
C) foreseeability
D) proximity
Answer: B
Q2) Legal liability and the cost of defending actions have been a significant problem for the auditing profession in Australia.
A)True
B)False
Answer: True
Q3) In rare cases, auditors have been held liable for criminal acts.A criminal conviction against an auditor can result only when it is demonstrated that the auditor:
A) caused a financial loss to an innocent third party.
B) was negligent.
C) employed a negligent assistant.
D) was involved knowingly in the presentation of False financial statements.
Answer: D
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Chapter 3: Audit quality and ethics
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Q1) Which one of the following situations is most likely to impair independence? Legal action is taken by
A) the auditee against the audit firm in relation to taxation services provided.
B) a third party against both the auditee and the audit firm.
C) the auditee against the audit firm claiming deficiencies in the prior year's audit.
D) the auditee against the audit firm in relation to management consulting advice.
Answer: C
Q2) Where the fees from an audit client are more than 15% of total fees, the public accounting firm should ensure:
A) that the audit work is reviewed by an accountant, not a member of the audit team.
B) adequate quality control procedures are in place and that the audit work is reviewed by an accountant, not a member of the audit team.
C) that all members of the audit team are independent, both in fact and in appearance.
D) that adequate quality control procedures are in place.
Answer: B
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Chapter 4: Audit responsibilities and objectives
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Q1) Professional scepticism is an attitude that includes a critical assessment of audit evidence and should be applied when planning and performing all aspects of the engagement.
A)True
B)False
Q2) ASA 240 describes auditors' responsibilities to detect fraud during an audit.In assessing the risk of fraud, identify two typical characteristics of fraudulent activity, and provide an example of each.
Q3) Which one of the following is NOT a proper match of audit objectives with management assertions?
A) Timing matches with valuation or allocation.
B) Completeness matches with completeness.
C) Existence matches with existence/occurrence.
D) Classification matches with presentation/disclosure.
Q4) How does the auditor obtain sufficient appropriate audit evidence about management assertions in the financial statements?
Q5) Discuss the differences between errors, fraud, and illegal acts.Give an example of each.
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Chapter 5: Audit evidence
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Q1) Inquiries of clients and reperformance normally have a low cost to perform.
A)True
B)False
Q2) Factors affecting the persuasiveness of an audit sample size and items to select relate to:
A) proper selection of the items in the sample.
B) adequate sample size.
C) sufficiency of the evidence.
D) all of the above
Q3) Comparing the client's data with industry averages provides:
A) an indication of the likelihood of financial failure.
B) a benchmark to be used in evaluating client's budgets.
C) an indication where errors exist in the statements.
D) a comparison of 'what is' with 'what should be'.
Q4) When an auditor calculates return on assets and compares it with previous periods, this type of evidence is an example of:
A) observation.
B) physical examination.
C) inquiry.
D) analytical procedures.
Page 7
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Chapter 6: Audit planning and documentation
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Q1) As inherent risk decreases, audit expertise should normally increase.
A)True
B)False
Q2) Which is NOT a major type of supporting schedule working papers?
A) An audit program
B) A test of reasonableness schedule
C) A reconciliation
D) Outside documentation
Q3) Material transactions between the client and the client's related parties must be disclosed in the client's financial statements and in the auditor's report.
A)True
B)False
Q4) The official record of the meetings of the board of directors and shareholders is contained in the:
A) constitution.
B) charter.
C) minutes.
D) bylaws.
Q5) Discuss the purpose of an audit engagement letter.
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Chapter7: Materiality and risk
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Q1) There are several factors that affect an audit firm's engagement risk and therefore the acceptable audit risk.Discuss three of these factors.
Q2) Auditors have difficulty applying the concept of materiality in practice because they often do not know who the users of the financial statements are or what economic decisions will be made.
A)True
B)False
Q3) One major limitation in the application of the audit risk model is the difficulty of measuring the components of the model.
A)True
B)False
Q4) Which of the following is NOT a difficulty auditors face when allocating materiality?
A) audit costs
B) reliability of audit evidence
C) understatements and/or overstatements
D) expectations of misstatements in accounts
Q5) Describe the audit risk model and each of its components.
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Chapter 8: Internal control and control risk
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Q1) The auditor can conclude that control risk is low:
A) after identifying specific controls that will reduce control risk and making an assessment of control risk.
B) after testing the controls for effectiveness.
C) after obtaining an understanding of the control environment and the accounting system at a fairly detailed level.
D) only after all three steps above are completed.
Q2) For most uses, flowcharts are superior to narratives as a method of communicating the characteristics of a system of internal control.
A)True
B)False
Q3) ASA 315 states that the auditor shall obtain an understanding of internal control ________ to the audit.
A) relative
B) realistic
C) relevant
D) required
Q4) Discuss 'monitoring activities' and give an example.
Q5) Describe the three key concepts (assumptions)in the study of internal control.
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Chapter 9: Fraud auditing
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Q1) When risks of material misstatements due to fraud are identified, how should auditors adjust their audit approach?
Q2) Which option below best explains the concept of premature revenue recognition?
A) adjusting sales returns to increase sales
B) sales from the next period are recorded in the current period
C) sales from the previous period are recorded in the current period
D) cut-off errors
Q3) An intentional misstatement or omission of amounts or disclosures with the intent to deceive users is known as:
A) erroneous financial reporting.
B) fraudulent financial reporting.
C) negligent auditing practice.
D) fraudulent audit practice.
Q4) Auditors AACSB used in using inquiry, evaluate verbal and nonverbal cues as they listen to the interviewee.Verbal cues include interviewee's reluctance to end an interview.
A)True
B)False
Q5) Discuss the role internal auditing can play in fraud prevention and detection.
Q6) Describe 'premature revenue recognition' and give an example.
Page 11
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Chapter 10: The impact of information technology on the audit process
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Q1) When auditing a computerised system, an auditor may use the test data approach as an audit tool.This technique:
A) involves introducing simulated transactions into the client's actual application program(s).
B) is a commonly used audit technique for auditing around the computer.
C) is more applicable to independent audits than internal audits.
D) should not involve the actual application programs the client uses throughout the year, since use of the actual programs would contaminate the client's accounting data.
Q2) Assume you are using generalised audit software (GAS)during your audit of accounts receivable.Discuss four kinds of tests or audit procedures you can perform with the GAS if the client's data are in machine-readable form.
Q3) Which of the following tests CANNOT be performed with the auditor's computer program?
A) Analyse exception responses returned with confirmations received from customers.
B) Verify extensions and footings.
C) Re-sequence data and perform analyses.
D) Compare data on separate files.
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Chapter 11: Overall audit plan and audit program
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Q1) A low tolerable error for a given account would result in more testing of details than a higher amount.
A)True
B)False
Q2) Analytical procedures performed during substantive testing are typically ________ those done as part of planning.
A) less focused than B) about the same as C) more focused than D) less extensive than
Q3) The audit client is a medium size business with some controls and a few inherent risks.Discuss the audit evidence mix appropriate for this client.
Q4) The reliance placed on substantive tests in relation to the reliance placed on internal control varies in a relationship that is ordinarily:
A) inverse.
B) direct.
C) equal.
D) parallel.
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Chapter 12: Audit of the sales and collection cycle: Tests of controls
and substantive tests of transactions
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Q1) An audit procedure which compares the name, amount, and dates shown on remittance advices with cash receipts journal entries and with related duplicate deposit slips would be effective in detecting:
A) sales without proper credit authorisation.
B) illicit write-offs of customers as uncollectible accounts.
C) kiting.
D) lapping.
Q2) The parts of the audit most affected by the tests of controls and substantive tests of transactions for the sales and collection cycle are the balances in:
1)accounts receivable.
2)cash.
3)bad debt expense.
4)provision for doubtful debts.
A) 1, 3, 4
B) 2, 3, 4
C) 1, 2, 3
D) 1, 2, 3, 4
Q3) Describe the substantive tests of transactions used to test the accuracy objective for sales.
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Chapter 13: Completing tests in the sales and collection cycle:
Accounts receivable
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Q1) When sending confirmations during most audits of accounts receivable, the emphasis should be on confirming larger and older accounts.
A)True
B)False
Q2) After items to be confirmed have been selected, the auditor must maintain control of the confirmations until the:
A) sealed envelopes are provided to the client's personnel to be mailed.
B) names are provided to the client's personnel to type the envelopes.
C) responses are received by the client with the return mail.
D) responses are received by the auditor from the customer.
Q3) The bad debt expense is a residual balance that can be verified by a reperformance test.
A)True
B)False
Q4) Discuss the audit procedures performed when testing the detail tie-in objective for accounts receivable, and explain why this objective is ordinarily tested before any other objectives for accounts receivable.
Q5) State the eight specific balance-related audit objectives as applied to accounts receivable.
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Chapter 14: Audit sampling
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Q1) When selecting a stratified sample, the sample size is:
A) determined for the unstratified population and then apportioned to each stratum.
B) determined for each stratum and selected from that stratum.
C) determined for each stratum and selected randomly from the entire unstratified population.
D) always larger than if unstratified sampling had been used.
Q2) Which one of the following statements regarding block sampling is NOT true?
A) It is acceptable to use block sampling for tests of transactions only if a reasonable number of blocks are used.
B) Once the first item in the block is selected, the remainder of the block is chosen automatically.
C) Block sampling is the selection of several items in sequence.
D) A 'reasonable number' for most situations is probably at least six blocks from six different months.
Q3) Discuss each of the six possible courses of action the auditor can take when he or she has concluded that the population is misstated by more than a tolerable amount.
Q4) When does allowable risk of incorrect rejection (ARIR)affect the auditor?
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Chapter 15: Audit of transaction cycles and financial statement balances I
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Q1) How is the payroll and personnel cycle different from other cycles?
A) Transactions are more significant than related balance sheet accounts.
B) Internal controls for payroll are effective for most companies.
C) There is only one class of transactions.
D) all of the above
Q2) Discuss the four aspects of the audit of cost accounting with which the auditor is most concerned.
Q3) Verifying acquisitions as part of the tests of the acquisition and payment cycle provides evidence about the accuracy of raw materials acquired and all manufacturing costs except labour.
A)True
B)False
Q4) To BEST ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditor should review and test the:
A) contractual commitments made by the purchasing department.
B) purchase invoices received on or around year-end.
C) purchase cutoff procedures.
D) terms of the open purchase orders.
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Chapter 16: Audit of transaction cycles and financial statement balances II
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Q1) The audit procedure 'foot the loans payable list and trace the totals to the general ledger' is performed when verifying the accuracy objective for loans payable.
A)True
B)False
Q2) Who should prepare the bank reconciliation?
A) someone independent of handling or recording cash receipts
B) someone independent of handling cash receipts and cash payments
C) the finance manager
D) someone independent of the finance manager
Q3) The primary accounting record for manufacturing equipment and other property, plant, and equipment accounts is generally an asset register.
A)True
B)False
Q4) The starting point for the verification of current-year acquisitions of property, plant, and equipment is normally a client-prepared schedule of all acquisitions recorded in the general ledger during the year.
A)True
B)False
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Chapter 17: Completing the audit
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Q1) Whenever subsequent events are used to evaluate the amounts included in the statements, care must be taken to distinguish between conditions that existed at the balance sheet date and those that came into being after the end of the year.The subsequent information should NOT be incorporated directly into the statements if the conditions causing the change in valuation:
A) did not take place until after year-end.
B) took place before year-end.
C) occurred both before and after year-end.
D) are reimbursable through insurance policies.
Q2) ASA 720 requires the auditor to read other information in documents containing audited financial reports that pertains directly to the financial report and to compare that information to make sure that it corresponds.If there is a material inconsistency, the client should be requested to change the information.If the client refuses, the auditor should:
A) include an explanatory paragraph in the audit report or withdraw from the engagement.
B) issue a qualified opinion or withdraw from the engagement.
C) issue an adverse opinion.
D) include an emphasis of matter section in the audit report.
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Chapter 18: Audit reporting
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Q1) An adverse opinion is used when there has been a material and pervasive scope restriction caused by the client.
A)True
B)False
Q2) A disclaimer of opinion is issued whenever the auditor:
A) believes that some material part of the financial report is not presented fairly.
B) believes that the overall financial report is not presented fairly.
C) has determined that the financial report is presented fairly.
D) has been unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the possible effects on the financial report could be both material and pervasive.
Q3) When amounts are so material that an adverse opinion is required, the opinion statement must clearly state that the financial report:
A) does not present a true and fair view.
B) should not be relied on.
C) could not be audited.
D) is not free from material error.
Q4) What are the two conditions under which a qualified opinion may be issued?
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Chapter 19: Other auditing and assurance engagements
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Q1) The assurance standards define three levels, or types, of engagements.State these three types of assurance engagements.
Q2) Which one of the following is NOT one of the broad categories of performance audits?
A) organisational audits
B) special assignment audits
C) single audit act audits
D) functional audits
Q3) Which one of the following would be done as part of a review engagement?
A) tests of details of balances
B) analytical procedures
C) an evaluation of internal control
D) all of the above
Q4) A review service includes:
A) tests of controls or transactions.
B) obtaining an understanding of the client's internal control.
C) inquiry and analytical procedures.
D) independent confirmation or physical examination.
Q5) Discuss three major differences between performance auditing and financial auditing.
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