Chapter 18: Completing the audit
1. Financial statements are usually prepared on the going concern basis. The auditor is required by ASA
570 (ISA 570) to assess the risk of going concern problems at which stage of the audit?
a. During the final review.
b. The planning stage.
c. The planning stage and again during the final review.
d. ASA 570 (ISA 570) does not require the assessment of the risk of going concern problems, this is
left to the directors.
2. In working with the minutes of meetings of shareholders, those charged with governance, and their
subcommittees, the auditor should:
a. read the minutes of all important meetings.
b. read the minutes of a sample of meetings.
c. read the minutes of all meetings.
d. read the minutes of AGMs.
3. Which of these is among the characteristics of the procedures performed in completing the audit?
a. They involve many subjective judgements by the auditor.
b. They do not relate to specific transaction cycles or accounts.
c. They are usually performed by audit managers or seniors.
d. All of the above are characteristics of the procedures performed in completing the audit.
4. The auditor relies on the management representation letter to:
a. guarantee the absence of management fraud.
b. confirm written representations given to the auditor.
c. document the continuing materiality of management representations.
d. reduce the possibility of misunderstanding concerning management’s representations.
5. ASA 502.2 Audit Evidence – Specific Considerations for Litigation and Claims states that the auditor
shall obtain sufficient appropriate audit evidence regarding:
a. the completeness of litigation and claims involving the entity.
b. the probability of any revenue or expense arising from legal matters.
c. the adequacy of the legal representation of the entity.
d. all of the above.
6. Where an event occurring after the end of the reporting period provides new information that does not
relate to conditions existing at year end and, if its non-disclosure has the potential to adversely affect
decisions made by users of the financial statements:
a. it is required to be disclosed in the notes to the accounts.
b. it is an adjusting event.
c. it is a non-adjusting event.
d. a. and c..
7. The management representation letter will not normally be:
a. prepared on the client’s stationery.
b. addressed to the auditor.
c. dated as of the date of the auditor’s report.
d. tabled at the annual general meeting of the firm.
The correct answer is d.
8. Analytical procedures are used in the overall review for all of these reasons except:
a. to identify contingent liabilities.
b. to corroborate conclusions formed during the audit.
, c. to gain assurance that the company will remain a going concern.
d. to assist in arriving at the overall conclusion that the financial information is consistent with the
knowledge of the business.
9. In regard to identifying and evaluating subsequent events, ASA560.10 (ISA 560) specifies that the
auditor make inquiries of management. Which of the following is not an example of a specific inquiry?
a. Whether new commitments, borrowings or guarantees have been entered into.
b. Whether sales of assets have occurred or are planned.
c. Whether any unusual accounting adjustments are being contemplated.
d. The current status of items previously accounted for on the basis of preliminary or inconclusive
data.
10. If the auditor discovers that management intends to liquidate the entity:
a. it is irrelevant if they did not intend to liquidate the entity at reporting date.
b. it requires inclusion as a disclaimer of opinion.
c. it requires inclusion as an ‘except for’ opinion.
d. the going concern basis is inappropriate.
11. The event in a subsequent period that is an example of a condition existing at the reporting date is:
a. loss resulting from a flood.
b. discovery of fraud or errors.
c. purchase of a business.
d. the issue of preferred shares.
12. Ordinarily, an event indicating a material condition arising after the reporting date requires:
a. disclosure.
b. adjustment.
c. inclusion as an ‘except for’.
d. adjustment and disclosure.
13. The subsequent event that is an example of a condition occurring after the reporting date is:
a. realisation of recorded year-end receivables at a different amount than recorded.
b. settlement of recorded year-end estimated product warranty liabilities at a different amount than
recorded.
c. determining the proceeds of assets sold before the end of the reporting period.
d. purchase of a business.
14. When a question arises regarding the going-concern basis additional procedures may be necessary.
Which of the following procedures is an example of a valid additional procedure?
a. Consider the effect of unfilled customer orders.
b. Review the terms of debenture and loan agreements.
c. Analyse the final financial statements.
d. All of the above.
15. The auditing standards suggest that management representations are acceptable audit evidence where
other sufficient appropriate audit evidence:
a. management representations are never appropriate audit evidence for financial statement assertions.
b. cannot reasonably be expected to exist .
c. can reasonably be expected to exist.
d. has not been furnished to the auditor.
16. A representation letter to a lawyer would not normally ask for confirmation of, or information about:
a. directors’ description of the situation.
b. reasonableness of directors’ estimates of the likely amounts of settlement.
, c. any open files that may have been referred to other legal firms.
d. a representation letter would normally ask about all of the above.
17. The representation letter to a lawyer provides the auditor with:
a. initial information about litigation and claims.
b. corroboration of the information on litigation and claims provided by the auditor’s solicitors.
c. corroboration of the information on litigation and claims provided by management.
d. corroboration of the information on litigation and claims provided by the other party to the matter.
18. An existing condition, situation or set of circumstances that involves uncertainty as to a possible gain,
that will be resolved when one or more future events occur or fail to occur is:
a. estimated value.
b. projected event.
c. a contingent asset.
d. a contingent liability.
19. Normally the initial source of information about litigation, claims, and unrecorded or contingent
liabilities is:
a. the board of directors.
b. the client’s solicitors.
c. the audit committee.
d. management.
20. When a solicitor refuses to respond to a letter of audit inquiry and alternative audit procedures are
unsuccessful, the auditor will normally:
a. contact the client’s in-house solicitor for the relevant information.
b. issue a qualified opinion or a disclaimer of opinion.
c. issue an unqualified opinion with an emphasis of matter paragraph.
d. issue an adverse opinion.
21. The auditor has decided that the financial statements are affected by an uncertainty that is not susceptible
to reasonable estimation at the balance sheet date. If this uncertainty is adequately disclosed in the
financial statements, the auditor's report should contain a(n):
a. standard unqualified opinion.
b. adverse opinion.
c. disclaimer of opinion.
d. unqualified opinion with an ‘emphasis of matter’ paragraph.
22. Which of these responsibilities of the auditor is not undertaken as part of the evaluation of the findings?
a. Undertake a final assessment of materiality and audit risk.
b. Undertake a technical review of the financial report.
c. Prepare the written communication to those charged with governance.
d. Formulate an opinion and draft the audit report.
23. In making the technical review of the financial statements, the auditor is likely to use a detailed financial
statement checklist provided by:
a. the client.
b. CPA Australia.
c. the ASIC.
d. the audit firm.
24. During the final review of the working papers, the partner in charge of the engagement would ordinarily
be expected to review working papers:
a. prepared by seniors.
b. reviewed by managers.
, c. reviewed by seniors.
d. perceived to have high risk.
25. The manager’s review of the working papers is not designed to obtain assurance that:
a. the judgements exercised by subordinates were reasonable and appropriate in the circumstances.
b. the work done by subordinates has been completed in a cost effective manner.
c. the working papers support the auditor’s opinion.
d. all significant accounting, auditing, and reporting questions raised during the examination have been
properly resolved.
26. Before reaching a final decision on the audit opinion to be issued, a conference is generally held with the
client. At this meeting, all of the following may be expected, except:
a. an oral report of the auditor’s major findings.
b. the auditor’s rationale for proposed adjustments or additional disclosures.
c. delivery of the written communication of audit matters to those charged with governance.
d. agreement between the auditor and client on the changes to be made.
27. Legal precedent requires the auditor to report not just to management but to an appropriate level of
management, any significant matters identified as a result of audit procedures performed. Which of the
following cases is the relevant legal precedent?
a. Pacific Acceptance.
b. AWA.
c. Kingston Cotton Mills.
d. Esanda Finance.
28. Professional standards require the auditor to communicate certain matters pertaining to the audit to those
charged with governance. This communication would normally include all of the following except:
a. disagreements with management.
b. audit adjustments.
c. specific audit procedures performed.
d. material uncertainties that may cast doubt on the entity’s ability to continue as a going concern.
29. Significant matters identified as a result of audit procedures often include those relating to the internal
control structure that the auditor feels would be of particular interest to:
a. the CEO.
b. the regulators.
c. the accounting staff.
d. the audit committee.
30. Matters that would ordinarily be communicated to an audit committee do not include:
a. major issues that were discussed with management pertaining to the appointment of the auditor.
b. unreasonable delays in management providing information.
c. all errors and problems revealed by the audit.
d. all of the above matters would ordinarily be communicated to an audit committee.
1C 2C 3D 4D 5A 6D 7D 8A 9C 10D 11B 12A 13D 14D 15B 16C 17C 18C 19D 20B 21D 22C 23D 24D
25B 26C 27B 28C 29D 30C
Chapter 10:
The concept of materiality is defined in AASB 1031 in terms of the:
a. preparer.
b. auditor.
c. users of financial reports.
d. CPA Australia/ICAA members.
1. Financial statements are usually prepared on the going concern basis. The auditor is required by ASA
570 (ISA 570) to assess the risk of going concern problems at which stage of the audit?
a. During the final review.
b. The planning stage.
c. The planning stage and again during the final review.
d. ASA 570 (ISA 570) does not require the assessment of the risk of going concern problems, this is
left to the directors.
2. In working with the minutes of meetings of shareholders, those charged with governance, and their
subcommittees, the auditor should:
a. read the minutes of all important meetings.
b. read the minutes of a sample of meetings.
c. read the minutes of all meetings.
d. read the minutes of AGMs.
3. Which of these is among the characteristics of the procedures performed in completing the audit?
a. They involve many subjective judgements by the auditor.
b. They do not relate to specific transaction cycles or accounts.
c. They are usually performed by audit managers or seniors.
d. All of the above are characteristics of the procedures performed in completing the audit.
4. The auditor relies on the management representation letter to:
a. guarantee the absence of management fraud.
b. confirm written representations given to the auditor.
c. document the continuing materiality of management representations.
d. reduce the possibility of misunderstanding concerning management’s representations.
5. ASA 502.2 Audit Evidence – Specific Considerations for Litigation and Claims states that the auditor
shall obtain sufficient appropriate audit evidence regarding:
a. the completeness of litigation and claims involving the entity.
b. the probability of any revenue or expense arising from legal matters.
c. the adequacy of the legal representation of the entity.
d. all of the above.
6. Where an event occurring after the end of the reporting period provides new information that does not
relate to conditions existing at year end and, if its non-disclosure has the potential to adversely affect
decisions made by users of the financial statements:
a. it is required to be disclosed in the notes to the accounts.
b. it is an adjusting event.
c. it is a non-adjusting event.
d. a. and c..
7. The management representation letter will not normally be:
a. prepared on the client’s stationery.
b. addressed to the auditor.
c. dated as of the date of the auditor’s report.
d. tabled at the annual general meeting of the firm.
The correct answer is d.
8. Analytical procedures are used in the overall review for all of these reasons except:
a. to identify contingent liabilities.
b. to corroborate conclusions formed during the audit.
, c. to gain assurance that the company will remain a going concern.
d. to assist in arriving at the overall conclusion that the financial information is consistent with the
knowledge of the business.
9. In regard to identifying and evaluating subsequent events, ASA560.10 (ISA 560) specifies that the
auditor make inquiries of management. Which of the following is not an example of a specific inquiry?
a. Whether new commitments, borrowings or guarantees have been entered into.
b. Whether sales of assets have occurred or are planned.
c. Whether any unusual accounting adjustments are being contemplated.
d. The current status of items previously accounted for on the basis of preliminary or inconclusive
data.
10. If the auditor discovers that management intends to liquidate the entity:
a. it is irrelevant if they did not intend to liquidate the entity at reporting date.
b. it requires inclusion as a disclaimer of opinion.
c. it requires inclusion as an ‘except for’ opinion.
d. the going concern basis is inappropriate.
11. The event in a subsequent period that is an example of a condition existing at the reporting date is:
a. loss resulting from a flood.
b. discovery of fraud or errors.
c. purchase of a business.
d. the issue of preferred shares.
12. Ordinarily, an event indicating a material condition arising after the reporting date requires:
a. disclosure.
b. adjustment.
c. inclusion as an ‘except for’.
d. adjustment and disclosure.
13. The subsequent event that is an example of a condition occurring after the reporting date is:
a. realisation of recorded year-end receivables at a different amount than recorded.
b. settlement of recorded year-end estimated product warranty liabilities at a different amount than
recorded.
c. determining the proceeds of assets sold before the end of the reporting period.
d. purchase of a business.
14. When a question arises regarding the going-concern basis additional procedures may be necessary.
Which of the following procedures is an example of a valid additional procedure?
a. Consider the effect of unfilled customer orders.
b. Review the terms of debenture and loan agreements.
c. Analyse the final financial statements.
d. All of the above.
15. The auditing standards suggest that management representations are acceptable audit evidence where
other sufficient appropriate audit evidence:
a. management representations are never appropriate audit evidence for financial statement assertions.
b. cannot reasonably be expected to exist .
c. can reasonably be expected to exist.
d. has not been furnished to the auditor.
16. A representation letter to a lawyer would not normally ask for confirmation of, or information about:
a. directors’ description of the situation.
b. reasonableness of directors’ estimates of the likely amounts of settlement.
, c. any open files that may have been referred to other legal firms.
d. a representation letter would normally ask about all of the above.
17. The representation letter to a lawyer provides the auditor with:
a. initial information about litigation and claims.
b. corroboration of the information on litigation and claims provided by the auditor’s solicitors.
c. corroboration of the information on litigation and claims provided by management.
d. corroboration of the information on litigation and claims provided by the other party to the matter.
18. An existing condition, situation or set of circumstances that involves uncertainty as to a possible gain,
that will be resolved when one or more future events occur or fail to occur is:
a. estimated value.
b. projected event.
c. a contingent asset.
d. a contingent liability.
19. Normally the initial source of information about litigation, claims, and unrecorded or contingent
liabilities is:
a. the board of directors.
b. the client’s solicitors.
c. the audit committee.
d. management.
20. When a solicitor refuses to respond to a letter of audit inquiry and alternative audit procedures are
unsuccessful, the auditor will normally:
a. contact the client’s in-house solicitor for the relevant information.
b. issue a qualified opinion or a disclaimer of opinion.
c. issue an unqualified opinion with an emphasis of matter paragraph.
d. issue an adverse opinion.
21. The auditor has decided that the financial statements are affected by an uncertainty that is not susceptible
to reasonable estimation at the balance sheet date. If this uncertainty is adequately disclosed in the
financial statements, the auditor's report should contain a(n):
a. standard unqualified opinion.
b. adverse opinion.
c. disclaimer of opinion.
d. unqualified opinion with an ‘emphasis of matter’ paragraph.
22. Which of these responsibilities of the auditor is not undertaken as part of the evaluation of the findings?
a. Undertake a final assessment of materiality and audit risk.
b. Undertake a technical review of the financial report.
c. Prepare the written communication to those charged with governance.
d. Formulate an opinion and draft the audit report.
23. In making the technical review of the financial statements, the auditor is likely to use a detailed financial
statement checklist provided by:
a. the client.
b. CPA Australia.
c. the ASIC.
d. the audit firm.
24. During the final review of the working papers, the partner in charge of the engagement would ordinarily
be expected to review working papers:
a. prepared by seniors.
b. reviewed by managers.
, c. reviewed by seniors.
d. perceived to have high risk.
25. The manager’s review of the working papers is not designed to obtain assurance that:
a. the judgements exercised by subordinates were reasonable and appropriate in the circumstances.
b. the work done by subordinates has been completed in a cost effective manner.
c. the working papers support the auditor’s opinion.
d. all significant accounting, auditing, and reporting questions raised during the examination have been
properly resolved.
26. Before reaching a final decision on the audit opinion to be issued, a conference is generally held with the
client. At this meeting, all of the following may be expected, except:
a. an oral report of the auditor’s major findings.
b. the auditor’s rationale for proposed adjustments or additional disclosures.
c. delivery of the written communication of audit matters to those charged with governance.
d. agreement between the auditor and client on the changes to be made.
27. Legal precedent requires the auditor to report not just to management but to an appropriate level of
management, any significant matters identified as a result of audit procedures performed. Which of the
following cases is the relevant legal precedent?
a. Pacific Acceptance.
b. AWA.
c. Kingston Cotton Mills.
d. Esanda Finance.
28. Professional standards require the auditor to communicate certain matters pertaining to the audit to those
charged with governance. This communication would normally include all of the following except:
a. disagreements with management.
b. audit adjustments.
c. specific audit procedures performed.
d. material uncertainties that may cast doubt on the entity’s ability to continue as a going concern.
29. Significant matters identified as a result of audit procedures often include those relating to the internal
control structure that the auditor feels would be of particular interest to:
a. the CEO.
b. the regulators.
c. the accounting staff.
d. the audit committee.
30. Matters that would ordinarily be communicated to an audit committee do not include:
a. major issues that were discussed with management pertaining to the appointment of the auditor.
b. unreasonable delays in management providing information.
c. all errors and problems revealed by the audit.
d. all of the above matters would ordinarily be communicated to an audit committee.
1C 2C 3D 4D 5A 6D 7D 8A 9C 10D 11B 12A 13D 14D 15B 16C 17C 18C 19D 20B 21D 22C 23D 24D
25B 26C 27B 28C 29D 30C
Chapter 10:
The concept of materiality is defined in AASB 1031 in terms of the:
a. preparer.
b. auditor.
c. users of financial reports.
d. CPA Australia/ICAA members.
