External Auditing
Midterm Exam
Course Introduction
External Auditing explores the principles, practices, and regulatory environment surrounding the independent examination of financial statements by external auditors. The course covers audit planning, risk assessment, internal control evaluation, evidence collection, and audit reporting processes. It emphasizes ethical and professional standards, audit methodology, legal responsibilities, and the role of external auditors in enhancing the credibility and reliability of financial information. Students gain practical insights into audit documentation, sampling techniques, and the application of international auditing standards, preparing them for careers in audit firms or regulatory bodies.
Recommended Textbook
Auditing and Assurance Services 6th Edition by Grant Gay
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14 Chapters
681 Verified Questions
681 Flashcards
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Page 2
Chapter 1: Assurance and Auditing: An Overview
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45 Verified Questions
45 Flashcards
Source URL: https://quizplus.com/quiz/52502
Sample Questions
Q1) Financial report auditing can best be described as:
A)a regulatory function that prevents the issuance of improper financial information.
B)a professional activity that measures and communicates financial and business data.
C)a discipline that attests to the results of accounting and other functional operations and data.
D)a branch of accounting.
Answer: C
Q2) To which assurance engagements does the Framework for Assurance Engagements apply?
A)Audits of historical financial information.
B)Reviews of historical financial information.
C)Assurance engagements other than audits or reviews of historical financial information.
D)All of the given answers are correct.
Answer: D
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Chapter 2: Audit Regulation, Structure of the Profession and
Auditors Liability
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45 Verified Questions
45 Flashcards
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Sample Questions
Q1) Big Ltd wished to acquire the ordinary shares of Small Pty Ltd and engaged Albert & Associates to audit the financial report of Small Pty Ltd.Albert & Associates failed to discover a significant liability when performing the audit.In a common law action against Albert & Associates, Big Ltd, at a minimum, must prove:
A)negligence on the part of Albert & Associates.
B)fraud on the part of Albert & Associates.
C)that Albert & Associates knew that the liability existed.
D)All of the given answers are correct.
Answer: A
Q2) Who is responsible for assessing whether company auditors meet the required competency standards for registration?
A)Auditing and Assurance Standards Board.
B)Australian Securities and Investments Commission.
C)Companies Auditors and Liquidators Disciplinary Board.
D)Financial Reporting Council.
Answer: B
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4
Chapter 3: Ethics, Independence and Corporate Governance
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45 Verified Questions
45 Flashcards
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Sample Questions
Q1) Audit firm rotation has been introduced:
A)in Europe by the European Parliament.
B)in the United States by the Public Company Accounting Oversight Board.
C)in Australia by the Corporations Act 2001.
D)All of the given answers are correct.
Answer: A
Q2) Williams & Associates is a small firm with three partners.The audit partner, being the only registered company auditor in the firm, retired from the firm on 31 August 20X0.On this date the partner wrote a letter to the Australian Securities and Investments Commission (ASIC) requesting permission to resign as auditor of all of his clients.ASIC gave its consent to the resignation effective from 31 October 20X0.The auditor of the audit clients in the period from 31 August to 31 October is:
A)the retiring partner.
B)Williams & Associates.
C)Australian National Audit Office as nominee.
D)the next most senior partner of Williams & Associates.
Answer: A
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Page 5
Chapter 4: Overview of Elements of the Financial Report
Audit Process
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71 Verified Questions
71 Flashcards
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Sample Questions
Q1) The risk that an auditor's procedures will lead to the conclusion that a material misstatement does not exist in an account balance when, in fact, such a misstatement does exist is:
A)audit risk.
B)detection risk.
C)control risk.
D)inherent risk
Q2) Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality?
A)Potential for fraud.
B)The entity is close to violating loan covenants.
C)Firm policy sets materiality at 5 per cent of pre-tax income.
D)A small misstatement that would interrupt an earnings trend.
Q3) The weakest form of audit evidence among the following is:
A)a letter of representation from management.
B)confirmation of an inter-company receivable from a related company.
C)a letter of representation from the client's solicitors.
D)a bank statement.
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Chapter 5: Planning, Understanding the Entity and Assessing Business Risk
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45 Verified Questions
45 Flashcards
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Sample Questions
Q1) Analytical procedures that are required in all audits of financial reports are analytical procedures:
A)relevant to achieving important audit objectives related to particular assertions.
B)expected to be efficient and effective in the circumstances.
C)based on available and reliable financial data.
D)used in the planning and overall review stages.
Q2) 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.
Q3) Which of the following factors most likely would cause an auditor to not accept a new audit engagement?
A)An inadequate understanding of the entity's internal control.
B)The close proximity to the end of the entity's financial year.
C)The conclusion that the entity's management probably lacks integrity.
D)An inability to perform preliminary analytical procedures before assessing control risk.
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Page 7
Chapter 6: Assessing Inherent Risk, and Other Specific
Business Risks
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35 Verified Questions
35 Flashcards
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Sample Questions
Q1) If, as a result of auditing procedures, an auditor believes that a client may have committed illegal acts, which of the following actions should be taken immediately by the auditor?
A)Consult with the client's legal counsel and with the auditor's legal counsel to determine how the suspected illegal acts will be communicated to the shareholders.
B)Extend normal auditing procedures to ascertain whether the suspected illegal acts may have a material effect on the financial report.
C)Inquire of the client's management and consult with the client's legal counsel and/or other specialists, as necessary, to obtain an understanding of the nature of the acts and their possible effects on the financial report.
D)Notify the audit committee about the nature of the acts and request that they give guidance with respect to the approach to be taken by the auditor.
Q2) The auditor's report covers the solvency statement in the:
A)directors' declaration.
B)chairperson's review.
C)directors' report.
D)None of the given answers are correct.
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Page 8
Chapter 7: Understanding and Assessing Internal Control
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70 Verified Questions
70 Flashcards
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Sample Questions
Q1) Which of the following is an example of a check digit?
A)An agreement of the total number of employees to the total number of cheques printed by the computer.
B)An algebraically determined number produced by the other digits of the employee number.
C)A logic test that ensures all employee numbers have nine digits.
D)A limit check that an employee's hours do not exceed 50 hours per work week.
Q2) A limit test is a:
A)test to ensure that a numerical value does not exceed some predetermined value.
B)check to ensure that the value in a field falls within an allowable range of values.
C)check to ensure that the data in a field have the proper arithmetic sign.
D)check on a field to ensure that it contains either all numeric or alphabetic characters.
Q3) The internal control environment includes all of the following except:
A)organisational structure.
B)management philosophy and operating style.
C)human resource policies and procedures.
D)tests of control.
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Chapter 8: Tests of Controls
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60 Verified Questions
60 Flashcards
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Sample Questions
Q1) Beta Pty Ltd posts to its perpetual inventory records directly from its sales invoices.Inadequate control procedures over the invoicing function allow goods to be invoiced that are not shipped.The inadequate control procedures could cause an:
A)understatement of revenues, receivables and inventory.
B)overstatement of revenues and receivables, and an understatement of inventory.
C)understatement of revenues and receivables, and an overstatement of inventory.
D)overstatement of revenues, receivables and inventory.
Q2) An auditor may decide to assess control risk at high for certain assertions because the auditor believes:
A)evaluating the effectiveness of control policies and procedures is inefficient.
B)sufficient evidential matter to support the assertions is likely to be available.
C)considering the relationship of assertions to specific account balances is more efficient.
D)more emphasis on tests of controls than substantive tests is warranted.
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Chapter 9: Substantive Tests of Transactions and Balances
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80 Verified Questions
80 Flashcards
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Sample Questions
Q1) When evaluating the risk of material misstatement with regards to defalcations involving receivables (a credit entry to accounts receivable for amounts not received), the auditor would expect an experienced bookkeeper to most likely debit which of the following accounts?
A)Cash.
B)Sales returns.
C)Miscellaneous income.
D)Accounts payable.
Q2) Which assertion for ending inventory is most likely at risk of material misstatement if the gross profit percentage is much greater than last year?
A)Existence.
B)Completeness.
C)Rights and obligations.
D)Accuracy.
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.
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Chapter 11: Completion and Review
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30 Verified Questions
30 Flashcards
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Sample Questions
Q1) Which of the following audit procedures is most likely to assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?
A)Review compliance with the terms of debt agreements.
B)Confirm accounts receivable from principal customers.
C)Reconcile interest expense with outstanding debt.
D)Confirm bank balances.
Q2) A representation letter issued by a client:
A)is essential for the preparation of the audit program.
B)is a substitute for testing.
C)does not reduce the auditor's responsibility.
D)reduces the auditor's responsibility only to the extent that it is relied upon.
Q3) Management's refusal to furnish a written representation on a matter that the auditor considers essential constitutes:
A)prima facie evidence that the financial report is not presented fairly.
B)a violation of the Corporations Act 2001.
C)an uncertainty sufficient to preclude an unmodified opinion.
D)a scope limitation sufficient to preclude an unmodified opinion.
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Chapter 12: The Auditors Reporting Obligations
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60 Verified Questions
60 Flashcards
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Sample Questions
Q1) If an entity's external auditor expresses an unmodified opinion as a result of the audit of the entity's financial report, readers of the auditor's report can assume that:
A)the entity is financially sound and the financial report is accurate.
B)the external auditor found no irregularities.
C)all material disagreements between the entity and the external auditor about the application of accounting principles were resolved to the satisfaction of the auditor.
D)the internal control structure is effective.
Q2) For a Corporations Act 2001 audit, the auditor has reporting obligations to:
A)management and the board of directors.
B)the employees and their union representatives.
C)International Federation of Independent Audit Regulators (IFIAR).
D)All of the given answers.
Q3) An auditor's report on comparative financial reports should be dated as of the date of the:
A)last subsequent event disclosed in the financial report.
B)latest financial report being reported on.
C)completion of the auditor's recent evidence collection procedures.
D)issuance of the report.
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Chapter 13: Other Assurance Services and Advanced Topics
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45 Verified Questions
45 Flashcards
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Sample Questions
Q1) Which of the following statements is true regarding the performance of an assurance service on an information system's reliability by an auditor?
A)The service will require the auditor to apply all of the auditing standards.
B)The performing of this service does not require suitable criteria to be available.
C)Performing the service must be undertaken in accordance with approved accounting standards.
D)The service may be performed even though there are no standards currently issued by the Australian Auditing and Assurance Standards Board (AUASB).
Q2) The statement that 'nothing came to our attention which would indicate that these statements are not fairly presented' expresses which of the following?
A)Limited assurance.
B)Disclaimer of an opinion.
C)Reasonable assurance.
D)Negative confirmation.
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Chapter 14: Internal Auditing
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25 Verified Questions
25 Flashcards
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Sample Questions
Q1) Which of the following is not a main goal of internal auditing?
A)Add value to an organisation's operations.
B)Help an organisation accomplish its objectives.
C)Provide reliable information to external users.
D)Improve the effectiveness of risk management of an organisation.
Q2) Factors currently driving change in internal audit include all of the following, except for:
A)the ability of internal audit to demonstrate its value-adding nature to an organisation.
B)the provision of a broader range of assurance services by the external auditor.
C)increased emphasis on corporate governance and business risk management.
D)the increased ability to benchmark against internal audit best practice.
Q3) Which of the following is not one of the interrelated components and principles of the COSO Enterprise Risk Management Framework 2013?
A)Risk assessment.
B)Control activities.
C)Substantive testing.
D)Information and communication.
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15
Chapter 15: Audit and Assurance Services in the Public Sector
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25 Verified Questions
25 Flashcards
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Sample Questions
Q1) Which of the following statements best describes the term 'efficiency'?
A)A reduction in costs through better contracting.
B)Clarifying objectives and policies.
C)Greater outputs from the inputs.
D)Rationalisation of facilities.
Q2) Which of the following objectives would not be a primary purpose of a performance audit?
A)A means of assurance that internal controls are functioning as planned.
B)A measure of management performance in meeting organisation goals.
C)Providing the results of internal examinations of financial and accounting matters to a company's top-level management.
D)An aid to the external auditor who is conducting the examination of the financial report.
Q3) Which of the following statements best describes the term 'outcomes' in a performance audit?
A)Number of units produced.
B)Service provided by a particular government program.
C)Consequences for the community of the government program.
D)Economy and efficiency of resources used in achieving outputs.
Page 16
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