Financial Accounting
Exam Materials
Course Introduction
Financial Accounting introduces students to the principles, concepts, and practices of accounting that are essential for measuring and reporting the financial performance of organizations. The course covers the preparation and interpretation of financial statements such as the balance sheet, income statement, and statement of cash flows. Emphasis is placed on understanding the accounting cycle, applying generally accepted accounting principles (GAAP), analyzing transactions, and communicating financial information to stakeholders for decision-making purposes. Students also explore ethical considerations and the regulatory environment surrounding financial accounting and reporting.
Recommended Textbook
Auditing Assurance Services and Ethics in Australia 10th Edition by Alvin Arens
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19 Chapters
2045 Verified Questions
2045 Flashcards
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Page 2
Chapter 1: Demand for audit and assurance services
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74 Verified Questions
74 Flashcards
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Sample Questions
Q1) The criteria by which an auditor evaluates the information under audit is the same for every audit.
A)True
B)False
Answer: False
Q2) 'Other assurance services' are similar to, yet differ somewhat from, attestation services.When performing 'other assurance services,' the public accountant:
A) is not required to issue a written report, and the assurance is about the reliability and relevance of information.
B) is required to issue a written report, and the assurance is about the completeness and sufficiency of information.
C) is not required to issue a written report, and the assurance is about the completeness and sufficiency of information.
D) is required to issue a written report, and the assurance is about the reliability and relevance of information.
Answer: A
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3
Chapter 2: Auditors legal environment
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89 Flashcards
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Sample Questions
Q1) A function of the Financial Reporting Council (FRC)is to:
A) review particular audits.
B) monitor individual audits and auditors.
C) require information from a professional body about reviews of a particular audit or disciplinary actions against any particular person.
D) all of the above
Answer: C
Q2) Many of the major legal cases against public accountants have dealt with:
A) disputes over income tax preparation services.
B) disputes arising in the performance of MAS contracts.
C) audited financial statements.
D) disputes over the accuracy of bookkeeping services.
Answer: C
Q3) The AWA case and the Pacific Acceptance case discussed:
A) client acceptance.
B) the duty to inform management.
C) privity letters.
D) management representation letters.
Answer: B
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Page 4
Chapter 3: Audit quality and ethics
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) The professional bodies' ethical rules have the force of law applicable to auditing standards.
A)True
B)False
Answer: True
Q2) When there are substantial unpaid fees outstanding from previous audit work:
A) the audit opinion should be withheld.
B) independence can be compromised if the unpaid fees take on the character of a loan.
C) the auditor should seek removal from office.
D) a fee premium can be applied to the current audit.
Answer: B
Q3) The audit expectations gap can be attributed to:
A) business failure.
B) the limitation to the role of the independent audit.
C) audit failure.
D) all of the above
Answer: B
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Chapter 4: Audit responsibilities and objectives
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) When comparing the auditor's responsibility for detecting employee fraud and for detecting errors, the profession has placed the responsibility:
A) equally on discovering either one.
B) on the senior auditor for detecting errors and on the manager for detecting employee fraud.
C) more on discovering errors than employee fraud.
D) more on discovering employee fraud than errors.
Q2) Which of the following is NOT an assertion relating to 'general presentation and disclosure-related audit objectives'?
A) Occurrence
B) Cut off
C) Accuracy
D) Completeness
Q3) The transaction-related audit objective that deals with whether recorded transactions have actually occurred is the completeness objective.
A)True
B)False
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6
Chapter 5: Audit evidence
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) When the auditor is gathering evidence, if the source of the evidence is independent of the client, the auditor will conclude that the evidence is:
A) not reliable.
B) reliable if the provider has no reason to be biased.
C) reliable.
D) not reliable unless the provider is qualified to provide the evidence.
Q2) When an analytical procedure reveals no unusual fluctuations, discuss what this means for the audit.
Q3) Liquidity activity ratios are useless to auditors in determining how quickly an entity can convert current assets into cash.
A)True
B)False
Q4) The reliability of audit evidence cannot be improved by testing a larger sample of items.
A)True
B)False
Q5) Physical examination is normally more reliable than observation.
A)True
B)False
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Chapter 6: Audit planning and documentation
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Sample Questions
Q1) Two major factors that affect acceptable audit risk are inherent risk and control risk.
A)True
B)False
Q2) The auditor's primary concern is the risk of material misstatements in the financial statements due to business risk.
A)True
B)False
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) 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
Q5) Distinguish between the type of data contained in an auditor's permanent files as compared to current files.
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Chapter7: Materiality and risk
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103 Flashcards
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Sample Questions
Q1) The definition of materiality in the auditing standards is consistent with that contained in accounting standards.
A)True
B)False
Q2) Most auditors would use a higher inherent risk for inventory when:
A) inventory turnover slowed during the year.
B) obsolete inventory has been identified.
C) there is a large number of errors in the previous year.
D) both A and C
Q3) Because control risk and inherent risk vary from cycle to cycle, account to account, or objective to objective:
A) detection risk will vary, but audit evidence will remain constant.
B) detection risk and required audit evidence will also vary.
C) acceptable audit risk must remain a constant.
D) detection risk will remain constant, but audit evidence will vary.
Q4) Discuss the three main factors that affect an auditor's preliminary judgement about materiality.
Q5) Identify the three strategies that auditors can use during the audit to respond to risk.
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Chapter 8: Internal control and control risk
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119 Verified Questions
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Sample Questions
Q1) The procedures for proper record-keeping should be spelled out in:
A) run manuals.
B) minutes of the board of directors.
C) the corporate bylaws.
D) systems manuals.
Q2) An effective accounting information and communication system must satisfy six transaction-related objectives.Identify the six objectives.
Q3) The primary emphasis of auditors is on internal controls over classes of transactions because:
A) the accuracy of the output of accounting systems is based on the accuracy of the input.
B) financial statements may not accurately reflect accounting standards correctly.
C) the accuracy of the output of accounting systems is based on the accuracy of the input and processing.
D) all of the above.
Q4) Describe five common procedures an auditor can use to obtain an understanding of internal control design.
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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Sample Questions
Q1) Who is responsible for implementing corporate governance and control procedures to minimise fraud?
A) the audit committee
B) the internal auditors
C) the external auditors
D) management
Q2) How is the risk of fraudulent financial reporting affected when significant judgements and estimates are involved?
A) It is marginally affected.
B) It becomes lower than for other entities.
C) It is unaffected.
D) It becomes higher than for other entities.
Q3) Which of the following elements is NOT a part of the fraud triangle?
A) incentives to perpetrate fraud
B) attitude/rationalisation of fraudulent activity
C) opportunity to perpetrate fraud
D) ability to perpetrate fraud
Q4) Discuss the three conditions commonly associated with fraud arising from fraudulent financial reporting and misappropriations of assets.
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Chapter 10: The impact of information technology on the audit process
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104 Flashcards
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Sample Questions
Q1) The major disadvantage of generalised audit software is that its complexity limits its use primarily to IT specialists.
A)True
B)False
Q2) In database management systems, each application contains its own data file, whereas in non-database environments, many applications share files.
A)True
B)False
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.
Q4) Tests of controls are normally performed only if the auditor believes the client's internal control may be effective.
A)True
B)False
Page 12
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Chapter 11: Overall audit plan and audit program
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105 Flashcards
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Sample Questions
Q1) Substantive tests of balances are sometimes done before the year-end.This can only be done if:
A) substantive tests have to be increased.
B) internal controls are effective.
C) more reliable evidence is needed.
D) none of the above
Q2) If an auditor performs substantive tests of final balances before the year end, he or she must check activities in the period between the date of this work and the year-end.This period is known as the:
A) roll forward.
B) pre-balance date period.
C) interim period.
D) continuous period.
Q3) Only when testing details of balances will audit procedures include confirmation and physical examination.
A)True
B)False
Q4) Discuss the major activities and procedures performed by the auditor in each of the four phases of an audit.
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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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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) Which of the following documents is mainly related to cash receipts?
A) customer order
B) credit note
C) cash receipt
D) all of the above
Q2) Discuss the four business functions that result in sales transactions in a typical sales and collection cycle; for each function, state the key documents and records involved.
Q3) Which of the following is NOT one of the five classes of transactions in the sales and collection cycle?
A) write-off of uncollectible accounts
B) sales returns
C) payroll for sales staff
D) cash sales
Q4) The objective of prenumbering of documents is to:
A) prevent failure to record a sale or bill.
B) prevent the issue of duplicate bills.
C) ensure documents are correctly completed.
D) both A and B
Q5) Explain what a sales return and allowance means.
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Chapter 13: Completing tests in the sales and collection cycle: Accounts receivable
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109 Verified Questions
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Sample Questions
Q1) The starting point for the evaluation of the allowance for doubtful debts is:
A) last year's audit findings.
B) a review of controls related to the auditee's credit policy.
C) an analysis of write-off authorisations.
D) the aged trial balance.
Q2) Discuss the alternative procedures an auditor can perform to test the existence objective for accounts receivable when customers do not respond to confirmation requests.
Q3) Recording a cash receipt that did NOT occur violates the existence transaction-related audit objective for the sales and collections cycle.Which balance-related audit objective for accounts receivable does it violate?
A) accuracy
B) existence
C) completeness
D) realisable value
Q4) Assess control risk for accounts receivable is part of which phase of the audit?
A) Phase I
B) Phase II
C) Phase III
D) Phase IV
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Chapter 14: Audit sampling
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144 Flashcards
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Sample Questions
Q1) When using non-statistical sampling, the sample must be a probabilistic one.
A)True
B)False
Q2) When errors are found, a common assumption in practice is to assume:
A) a 100% assumption for all errors.
B) that the population errors are smaller than the sample errors.
C) that the population errors are larger than the sample errors.
D) that misstatements in the unaudited population are proportional to the misstatements in the sample.
Q3) The advantage of systematic sample selection is that:
A) it is easy to use.
B) it is unnecessary to determine if the population is arranged randomly.
C) there is limited possibility of it being biased.
D) all of the above
Q4) For tests of details of balances, a lower frequency of misstatements can result in smaller sample sizes.
A)True
B)False
Q5) Explain the steps involved in systematic sample selection.
Q6) Discuss two ways in which the auditor can control sampling risk.
Page 16
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Chapter 15: Audit of transaction cycles and financial statement balances I
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137 Verified Questions
137 Flashcards
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Sample Questions
Q1) Which document indicates a reduction in the amount owed to a vendor because of returned goods?
A) debit note
B) credit note
C) shipping room report
D) receiving room report
Q2) A file recording payroll transactions for each employee and maintaining total wages paid for year to date is the:
A) summary payroll report.
B) payroll master file.
C) deduction authorisation form.
D) rate authorisation form.
Q3) 'Recorded payroll transactions are for the amount of time actually worked and at the proper pay rate; withholdings are properly calculated' relates to which transaction-related audit objective for payroll?
A) existence
B) authorisation
C) accuracy
D) completeness
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Chapter 16: Audit of transaction cycles and financial statement balances II
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Sample Questions
Q1) The procedure of comparing the total balance in loans payable, interest expense, and accrued interest with the prior year is to identify possible misstatements of interest expense, accrued interest, or loans payable.
A)True
B)False
Q2) It is not difficult to be sure that each intercompany transfer is correctly handled.
A)True
B)False
Q3) Deposits recorded as cash receipts near the end of the year, deposited in the bank in the same month and included in the bank reconciliation as a deposit in transit, are a type of misstatement in cash that will not normally be discovered as part of the audit of tests of a bank reconciliation.
A)True
B)False
Q4) The three most important balance-related audit objectives for loans payable are existence, realisable value, and accuracy.
A)True
B)False
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Chapter 17: Completing the audit
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Sample Questions
Q1) Inquiries of management (orally and in writing)regarding the possibility of unrecorded contingencies will NOT be useful in uncovering:
A) a particular type of contingency which management has overlooked.
B) a contingency where management does not comprehend account disclosure requirements.
C) management's intentional failure to disclose existing contingencies.
D) all of the above
Q2) If a potential loss on a contingent liability is probable and amount of the loss can be reasonably estimated, the liability should be:
A) neither reported nor disclosed in footnotes.
B) disclosed in the auditor's report but not disclosed on the financial statements.
C) disclosed in footnotes but not accrued.
D) included in the financial statements as an actual liability.
Q3) Which one of the following auditing procedures is ordinarily performed last?
A) testing the purchasing function
B) confirming accounts payable
C) reading the minutes of the directors meetings
D) obtaining a management representation letter
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Chapter 18: Audit reporting
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Sample Questions
Q1) It is appropriate to issue an opinion that contains the phrase 'does not present a true and fair view' when:
A) the auditor has not accumulated sufficient appropriate evidence to determine whether the financial report is presented fairly.
B) there has been a material misstatement on a particular matter that is material.
C) there has been a material misstatement on a particular matter that is material and pervasive.
D) none of the above
Q2) The phrase 'generally accepted accounting principles' can be found in the auditor's responsibility paragraph of a standard unmodified report.
A)True
B)False
Q3) What are the two main causes of scope limitations?
Q4) If an audit report is qualified, the qualification is included in the opinion paragraph. A)True B)False
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Page 20
Chapter 19: Other auditing and assurance engagements
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Sample Questions
Q1) Which of the following is NOT one of the general types of prospective financial statements included in the attestation standards?
A) forecasts
B) earnings estimates
C) projections
D) all of the above
Q2) Performance audits are often categorised as functional, organisational, or special assignments.
A)True
B)False
Q3) Which one of the following statements is NOT correct? Under ASA 800, the audit report for special purpose financial reports would:
A) contain an opinion section.
B) report the auditor's view of the appropriateness of the financial reporting framework used.
C) identify the financial reporting framework.
D) indicate that the financial report is a special purpose financial report.
Q4) A financial statement review emphasises four broad areas.State the four areas which are emphasised.
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