Advanced Auditing Review Questions
Course Introduction
Advanced Auditing explores the principles, practices, and emerging issues in contemporary audit environments, building upon foundational auditing knowledge. The course covers advanced topics such as risk-based audit approaches, audit planning and execution, internal controls evaluation, and adherence to regulatory standards. Students will analyze complex audit scenarios, including group audits, forensic audits, and audits in specialized industries. Emphasis is placed on the application of professional judgment, ethical responsibilities, reporting standards, and the use of technology and data analytics in auditing. Through case studies and practical exercises, students will develop the skills necessary to address auditing challenges in rapidly evolving business contexts.
Recommended Textbook
Auditing and Assurance Services 5th edtion by Grant Gay
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Chapter 1: Assurance and Auditing: An Overview
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Sample Questions
Q1) Which of the following statements is not true concerning assurance services?
A) Assurance services focus on improving the quality of information, or its context, for decision makers.
B) The growth in assurance services has been driven in part by users' demands for more relevant and reliable information.
C) Auditing services can be viewed as a subset of assurance services.
D) Unlike audit engagements, an engagement to perform assurance services does not require the auditor to consider information reliability.
Answer: D
Q2) Who is the responsible party for the adequacy of the disclosure in the financial report and accompanying footnotes?
A) Auditor in charge of fieldwork.
B) Management of the entity.
C) Auditor who signs the auditor's report.
D) Audit clerk who assists in preparing the report and footnotes.
Answer: B
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3
Chapter 2: The Structure of the Profession
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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 mandatory continuing professional education (CPE) requirement for members of The Institute of Chartered Accountants in Australia is:
A) 120 CPE hours every year.
B) 120 CPE hours every three years.
C) 60 CPE hours every three years.
D) 60 CPE hours every year.
Answer: B
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Chapter 3: Ethics, Independence and Corporate Governance
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Q1) Which of the following is not one of the key areas covered by the OECD Principles of Corporate Governance?
A) Protection of shareholder's rights.
B) Responsibilities of the board.
C) Disclosure and transparency.
D) Responsibilities of the auditor.
Answer: D
Q2) An acceptable audit fee arrangement is to:
A) accept the client's corporate bond as part payment of an audit fee.
B) quote a fixed fee for an audit, based on an estimate of the total costs to be incurred.
C) quote a discounted fee on the expectation of performing other services for the client.
D) accept a reduced audit fee because the audit firm already performs a wide variety of other services for the client.
Answer: B
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Chapter 4: The Legal Liability of Auditors Part Two: Planning
and Risk
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Q1) 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.
Q2) Mars Ltd wished to acquire the ordinary shares of Saturn Ltd and engaged Sarah & Co. to audit the financial report of Saturn Ltd. Sarah & Co. failed to discover a significant liability when performing the audit. In a common law action Against Sarah & Co., Mars Ltd, at a minimum, must prove:
A) negligence on the part of Sarah & Co.
B) fraud on the part of Sarah & Co.
C) that Sarah & Co. knew that the liability existed.
D) All of the given answers are correct.
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Page 6
Chapter 5: Overview of Elements of the Financial Report
Audit Process
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Q1) As the acceptable level of detection risk decreases, the assurance directly provided from:
A) substantive tests should increase.
B) substantive tests should decrease.
C) tests of controls should increase.
D) tests of controls should decrease.
Q2) The following statements were made in a discussion of audit evidence between two auditors. Which statement is not valid concerning audit evidence?
A) 'I am seldom convinced beyond all doubt with respect to all aspects of the reports being examined.'
B) 'I would not undertake that procedure because at best the results would only be persuasive and I'm looking for convincing evidence.'
C) 'I evaluate the degree of risk involved in deciding the kind of evidence I will gather.'
D) 'I evaluate the usefulness of the evidence I can obtain against the cost of obtaining it.'
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Chapter 6: Planning, Understanding the Entity and Evaluating Business Risk
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Sample Questions
Q1) Which of the following is the most likely first step that an auditor will perform after accepting an initial audit engagement?
A) Prepare a rough draft of the financial report and of the auditor's report.
B) Assess control risk for the assertions embodied in the financial report.
C) Tour the client's facilities and review the general records.
D) Consult with and review the work of the previous auditor prior to discussing the engagement with the client management.
Q2) The auditor is most likely to rely on analytical procedures alone if a balance is:
A) material and internal controls are good.
B) immaterial and internal controls are poor.
C) immaterial and inherent risk is high.
D) immaterial and internal controls are good.
Q3) Which of the following tends to be most predictable for purposes of analytical procedures applied as substantive tests?
A) Relationships involving statement of financial position accounts.
B) Transactions subject to management discretion.
C) Relationships involving income statement accounts.
D) Data subject to audit testing in the prior year.
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Chapter 7: Assessing Specific Business Risk
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Q1) Which of the following statements is true?
A) The risk that material misstatement will not be prevented or detected on a timely basis by the internal control can be reduced to zero by effective control activities.
B) Cash is more susceptible to theft than an inventory of coal because it has a greater inherent risk.
C) Detection risk is a function of the efficiency of an auditing procedure.
D) The existing levels of inherent risk, control risk and detection risk can be changed at the discretion of the auditor.
Q2) 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.
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9
Chapter 8: Understanding and Assessing Internal Control
Part Three: Tests of Control and Tests of Details
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Sample Questions
Q1) When considering the internal control for inventory with respect to segregation of duties, an auditor would be least likely to:
A) inspect documents.
B) make inquiries.
C) observe procedures.
D) consider policy and procedure manuals.
Q2) Carmela Department Stores Ltd has a fully integrated IT accounting system and is planning to issue credit cards to credit-worthy customers. To strengthen the internal control by making it difficult for one to create a valid customer account number, the company's independent auditor has suggested the inclusion of a check digit that should be placed:
A) at the beginning of a valid account number, only.
B) in the middle of a valid account number, only.
C) at the end of a valid account number, only.
D) consistently in any position.
Q3) A flowchart is most frequently used by an auditor in connection with the:
A) preparation of generalised computer audit programs.
B) review of the client's internal accounting controls.
C) use of statistical sampling in performing an audit.
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D) performance of analytical procedures on account balances.
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Chapter 9: Tests of Controls
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Sample Questions
Q1) An auditor will use test data in order to gain certain assurances with respect to the: A) degree of keying accuracy.
B) controls contained within the program.
C) machine capacity.
D) input data.
Q2) Which of the following tests of control most likely would help assure an auditor that goods shipped are properly billed? Checking that the client has:
A) scanned the sales journal for sequential and unusual entries.
B) examined shipping documents for matching sales invoices.
C) compared the accounts receivable ledger to daily sales summaries.
D) inspected unused sales invoices for consecutive pre-numbering.
Q3) Which of the following control activities is not usually performed in the vouchers payable department?
A) Controlling the mailing of the cheque and remittance advice.
B) Matching the receiving report with the purchase order.
C) Determining the mathematical accuracy of the vendor's invoice.
D) Having an authorised person approve the voucher.
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11
Chapter 10: Substantive Tests of Transactions and Balances
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Sample Questions
Q1) An auditor using audit software would probably be least interested in which of the following fields in a computerised perpetual inventory file?
A) Quantity sold.
B) Date of last purchase.
C) Warehouse location.
D) Economic order quantity.
Q2) An auditor concluded that no excessive costs for idle plant were charged to inventory in a client's standard costing system. This conclusion most likely related to the auditor's objective to obtain evidence about the account balance Assertion for inventory of:
A) valuation and allocation.
B) completeness.
C) existence.
D) rights and obligations.
Q3) The auditor may conclude that depreciation charges are insufficient by noting:
A) large amounts of fully depreciated assets.
B) insured values greatly in excess of book values.
C) excessive recurring profits on assets retired.
D) continuous trade-ins of relatively new assets.
Page 12
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Chapter 11: Audit Sampling Part Four: Completion and Communication
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Sample Questions
Q1) For dollar-unit sampling, the number of individual accounts tested is:
A) always greater than the sample size.
B) always equal to the sample size.
C) always less than or equal to the sample size.
D) always greater than or equal to the sample size.
Q2) An auditor selects a sample of 50 for a test of controls and finds two transactions are not processed in accordance with the controls. The tolerable deviation rate was specified as six per cent. Using the extrapolation approach specified in the auditing standards, the sample results:
A) do not support the planned assessed level of control risk.
B) support the planned assessed level of control risk.
C) are indeterminate without more data.
D) None of the given answers.
Q3) When using a statistical sampling plan for a test of controls, the auditor would probably require a smaller sample if the:
A) tolerable deviation rate decreases.
B) population increases.
C) expected deviation rate increases.
D) allowable risk of over-reliance increases.
Page 13
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Chapter 12: Completion and Review
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Q1) An auditor is concerned with completing various phases of the examination after the balance date. This 'subsequent period' for audit testing extends to the date of the:
A) final review of the audit working papers.
B) auditor's report.
C) delivery of the auditor's report to the client.
D) public issuance of the financial report.
Q2) A solicitor's response to an auditor's request for information concerning litigation, claims and assessments will ordinarily contain which of the following?
A) An explanation regarding limitations on the scope of the response.
B) A statement of concurrence with the client's determination of which unasserted possible claims warrant specification.
C) Confidential information that would be prejudicial to the client's defence if publicised.
D) An assertion that the list of unasserted possible claims identified by the client represents all such claims of which the solicitor may be aware.
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Chapter 13: The Auditors Reporting Obligations Part Five:
Other Assurance Services
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Q1) When the audited financial report of the prior year is presented together with those of the current year, the continuing auditor's report covers:
A) only the current year.
B) both years.
C) only the current year, but the prior year's report should be referred to.
D) only the current year, but the prior year's report should be presented.
Q2) When an auditor expresses an adverse opinion, the opinion paragraph should include:
A) a direct reference to a separate paragraph in the auditor's report disclosing the basis for the opinion.
B) the principal effects of the departure from generally accepted accounting principles.
C) a description of the uncertainty or scope limitation that prevents an unmodified opinion.
D) the substantive reasons for the financial statements being misleading.
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15
Chapter 14: Internal Auditing
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Sample Questions
Q1) The expectation that an internal auditor does not accept bribes or gifts that may impair judgment is based on the principle of:
A) integrity.
B) objectivity.
C) confidentiality.
D) competency.
Q2) Which of the following is not explicitly a part of the definition of internal auditing contained on the IIA's website?
A) Internal auditing is an objective assurance activity.
B) Internal auditors should help external auditors complete the annual financial statement audit.
C) Internal auditing should help an organisation accomplish its objectives.
D) Internal auditing is designed to add value and improve an organisation's operations.
Q3) The types of operational audit reports given by an internal auditor are:
A) examination report, review report, or compilation report.
B) unqualified, qualified, adverse, or a disclaimer of opinion.
C) financial report or compliance report.
D) varied and are based on auditor judgment of how best to present the findings.
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Chapter 15: Auditing and Assurance Services in the Public Sector
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Q1) Governmental auditing often extends beyond examinations leading to the expression of an opinion on the fairness of financial presentation and includes audits of efficiency and effectiveness, and:
A) internal control.
B) evaluation.
C) accuracy.
D) compliance.
Q2) Why should the public sector performance auditor be concerned with avoiding commenting on government policy?
A) Any comment will undermine the public's confidence in the government of the day.
B) Government policy does not affect the performance of the entity.
C) The merits of government policy are matters for political debate and for decision by the executive government.
D) A risk may arise in that the official opposition may use the audit report to criticise the government.
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Chapter 16: Other Assurance Services and Advanced Topics
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Q1) A compiled financial report should be accompanied by a report stating all of the following except:
A) a compilation has been performed.
B) the accountant does not express an opinion or any other form of assurance on the report.
C) a compilation consists principally of inquiries of company personnel and analytical procedures applied to financial data.
D) a compilation is limited to presenting in the form of a financial report, information that is the representation of management.
Q2) Following is a list of engagements that an assurance provider may undertake:
I.compiling financial reports
II.agreed-upon procedures
III.review of interim financial information.For which of these engagements is assurance not provided?
A) I only.
B) II only.
C) III only.
D) I and II only.
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