Chapter 1: An overview of auditing
Multiple-choice questions
1. The three major professional accounting bodies in Australia are:
a. ICAA, CPA and ASIC.
b. CPA Australia, IPA and AARF.
c. ATO, AUASB and ASIC.
d. ICAA, CPA Australia and IPA.
The correct option is d.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
2. Which of these is not an objective of the ASIC?
a. To maintain, facilitate and improve the performance of companies.
b. To establish new institutional arrangements for standard setting.
c. To receive, process and store information given to the Commission
under the laws.
d. All of the above are objectives of the ASIC.
The correct option is b.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
3. Which of the following is true regarding auditors and fraud?
a. Auditors are required to detect all fraud during an audit.
b. Auditors should actively investigate the possibility of fraud if suspicious
circumstances exist.
c. In the Kingston Cotton Mill case it was said that the audit role was not
primarily to detect fraud.
d. b. and c. are true.
The correct option is d.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
,4. Which of these was not an Australian corporate collapse?
a. Harris Scarfe.
b. HIH Insurance Ltd.
c. One.Tel.
d. All were Australian corporate collapses.
The correct option is d.
Section 1.1 Auditing fundamentals
5. ABC firm are the auditors of XYZ Company. The partner responsible for the
audit has recently spent a week working with XYZ as a paid consultant on
their internal control systems. The ethical principle that has been breached
is:
a. auditor competence.
b. auditor rotation.
c. auditor independence.
d. auditor appointment.
The correct option is c.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
6. Which of these is not a reform introduced by CLERP 9 in relation to Auditors
and annual general meetings (AGMs)?
a. Shareholders can submit written questions to the auditor before the
AGM relating to the auditor’s report and the conduct of the audit.
b. The auditor must attend the AGM.
c. The auditor must address the AGM.
d. A reasonable opportunity must be allowed for members as a whole to
ask questions of the auditor and for the auditor to respond.
The correct option is c.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
,7. The statutory body that is responsible for hearing applications in Australia
as to whether auditors and liquidators have breached the Corporations Act
is:
a. ASIC.
b. CALDB.
c. FRC.
d. AUASB.
The correct option is b.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
8. The auditing and accounting body with the highest number of members is:
a. The Institute of Public Accountants.
b. CPA Australia.
c. The Institute of Chartered Accountants in Australia.
d. The International Federation of Accountants.
The correct option is b.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
9. In relation to auditing the information hypothesis relates:
a. to ‘does the audit meet the demands of users’.
b. to why there is a demand for audits.
c. to what auditing is.
d. to which auditing standards are produced.
The correct option is b.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
10.Under ASA 200/ IAS 200 the primary objective of a financial report audit is
to:
a. ensure that the company is free from all fraud.
b. provide assurance about the future viability of the entity.
, c. to express an opinion as to whether the financial report is prepared in
all material aspects, in accordance with a financial reporting framework.
d. ensure the company complies with all aspects of Corporations Law.
The correct option is c.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
11.It is not a requirement to be registered as an auditor in Australia to:
a. be a fit and proper person.
b. be a member of CPA Australia, the ICAA or other approved body.
c. have a degree or diploma from a course in accounting (including
auditing) of not less than 3 years duration and in commercial
law(including company law) of not less than 2 years duration or have
other equivalent qualifications acceptable to ASIC.
d. all are requirements to be registered as an audtor in Australia.
The correct option is d.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
12.Investors shift financial responsibility for audited financial information to
the auditor in order to lower the expected loss from litigation or related
settlements. This describes which theory of auditing?
a. Agency.
b. Explanatory.
c. Insurance hypothesis.
d. Information hypothesis.
The correct option is c.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
13.In Australia the auditors opinion in the audit report must state:
a. whether the financial report is presented fairly, in all material respects,
in accordance with the applicable financial reporting framework.
Multiple-choice questions
1. The three major professional accounting bodies in Australia are:
a. ICAA, CPA and ASIC.
b. CPA Australia, IPA and AARF.
c. ATO, AUASB and ASIC.
d. ICAA, CPA Australia and IPA.
The correct option is d.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
2. Which of these is not an objective of the ASIC?
a. To maintain, facilitate and improve the performance of companies.
b. To establish new institutional arrangements for standard setting.
c. To receive, process and store information given to the Commission
under the laws.
d. All of the above are objectives of the ASIC.
The correct option is b.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
3. Which of the following is true regarding auditors and fraud?
a. Auditors are required to detect all fraud during an audit.
b. Auditors should actively investigate the possibility of fraud if suspicious
circumstances exist.
c. In the Kingston Cotton Mill case it was said that the audit role was not
primarily to detect fraud.
d. b. and c. are true.
The correct option is d.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
,4. Which of these was not an Australian corporate collapse?
a. Harris Scarfe.
b. HIH Insurance Ltd.
c. One.Tel.
d. All were Australian corporate collapses.
The correct option is d.
Section 1.1 Auditing fundamentals
5. ABC firm are the auditors of XYZ Company. The partner responsible for the
audit has recently spent a week working with XYZ as a paid consultant on
their internal control systems. The ethical principle that has been breached
is:
a. auditor competence.
b. auditor rotation.
c. auditor independence.
d. auditor appointment.
The correct option is c.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
6. Which of these is not a reform introduced by CLERP 9 in relation to Auditors
and annual general meetings (AGMs)?
a. Shareholders can submit written questions to the auditor before the
AGM relating to the auditor’s report and the conduct of the audit.
b. The auditor must attend the AGM.
c. The auditor must address the AGM.
d. A reasonable opportunity must be allowed for members as a whole to
ask questions of the auditor and for the auditor to respond.
The correct option is c.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
,7. The statutory body that is responsible for hearing applications in Australia
as to whether auditors and liquidators have breached the Corporations Act
is:
a. ASIC.
b. CALDB.
c. FRC.
d. AUASB.
The correct option is b.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
8. The auditing and accounting body with the highest number of members is:
a. The Institute of Public Accountants.
b. CPA Australia.
c. The Institute of Chartered Accountants in Australia.
d. The International Federation of Accountants.
The correct option is b.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
9. In relation to auditing the information hypothesis relates:
a. to ‘does the audit meet the demands of users’.
b. to why there is a demand for audits.
c. to what auditing is.
d. to which auditing standards are produced.
The correct option is b.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
10.Under ASA 200/ IAS 200 the primary objective of a financial report audit is
to:
a. ensure that the company is free from all fraud.
b. provide assurance about the future viability of the entity.
, c. to express an opinion as to whether the financial report is prepared in
all material aspects, in accordance with a financial reporting framework.
d. ensure the company complies with all aspects of Corporations Law.
The correct option is c.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
11.It is not a requirement to be registered as an auditor in Australia to:
a. be a fit and proper person.
b. be a member of CPA Australia, the ICAA or other approved body.
c. have a degree or diploma from a course in accounting (including
auditing) of not less than 3 years duration and in commercial
law(including company law) of not less than 2 years duration or have
other equivalent qualifications acceptable to ASIC.
d. all are requirements to be registered as an audtor in Australia.
The correct option is d.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
12.Investors shift financial responsibility for audited financial information to
the auditor in order to lower the expected loss from litigation or related
settlements. This describes which theory of auditing?
a. Agency.
b. Explanatory.
c. Insurance hypothesis.
d. Information hypothesis.
The correct option is c.
Learning objective 1.1 ~ explain what an audit is, what it provides, and why it is
demanded.
13.In Australia the auditors opinion in the audit report must state:
a. whether the financial report is presented fairly, in all material respects,
in accordance with the applicable financial reporting framework.
