Question Solving For Auditing And Assurance

Name of Student ___________________ ID_____________

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Ozford Institute of Higher Education

T2 2021

ACC3200 Auditing and Assurance

Class Test

Time: 75 Minutes

(Marks 25; To Be Converted into 20)

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(Answers should be placed in the table given at the end of the questions. Each questions carries one mark.)

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Q1

An audit benefits a company because:

a. it reassures the shareholders that the accounts are accurate.

b. it makes the management accountable to the shareholders.

c. it guarantees that the accounts are free from fraud or error.

d. it reassures that the financial information shown is true and fair.

Q2.

Which of the following statements is not true in respect of external auditors’ responsibilities?

a. To discharge properly the statutory duty of report on the true and fair view on financial statements

b. To comply with the fundamental principles of integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.

c. To ensure that independence is not impaired.

d. The Financial Reporting Council has the power to discipline auditors who perform their work poorly.

Q3

The relationship between audit and assurances services is best described by which of the

following:

a. The relationship will depend on the terms of the contract.

b. The audit function is a subset of assurance services.

c. Assurance services are a subset of the audit function.

d. The audit function and assurance services are the same.

Q4

An example of the three parties in an assurance engagement would be:

a. audit client, supplier, auditor

b. audit client, employee, customer

c. auditor, shareholders, and employee

d. auditor, shareholders, and intended user

Q5

Which of the following is not an element of an assurance engagement?

a. Three-party relationship

b. Underlying subject matter

c. Sufficient appropriate evidence

d. Approved assurance standards

Q6

Which of the following would be an example of a reasonable assurance engagement?

a. the reporting of procedures performed by the auditor as agreed by the client

b. the audit of annual financial statements

c. the review of annual financial statements

d. all of the above

Q7

What is a direct engagement?

a. The assurance provider is directly appointed by the responsible party

b. The auditor directly measures or evaluates the underlying subject matter against the criteria

c. Shareholders directly appoint the auditor, rather than the company

d. The assurance engagement contains both financial report and performance engagement elements.

Q8

Which of the following is not one of the fundamental principles of professional ethics underlying an audit?

a. Objectivity

b. Integrity

c. Scepticism

d. Confidentiality

Q9

Which of the following is compliance engagement?

a. Analysis of financial transactions to identify unauthorised transfers of ash between companies

b. Reconstruction of incomplete accounting records to settle insurance claims

c. Assessment of energy use patterns and recommendation of energy conservation opportunities

d. Assessment of conformity of employee expense claims with a company’s policy manual

Q10

Independent auditors are referred as ‘independent’ because:

a. their offices are not at the client’s place of business

b. they are not employees of the entity being audited

c. they are paid by parties not related to audited entity

d. they report to users outside of the audited entity.

Q11

The wording of a negative expression of opinion generally states that:

a. the financial statements have been prepared in accordance with applicable legislation and accounting standards.

b. there is nothing wrong with the subject matter.

c. there is something that has come to the auditor’s attention that would lead them to believe that the information being assured is not true and fair.

d. there is nothing that has come to the auditor’s attention that would lead them to believe that the information being assured is not true and fair.

Q12

Which of the following is not the elements of expectation gap?

a. The reasonableness gap between what society expects auditors to achieve and what they can reasonably be expected to accomplish.

b. The performance gap arising from deficient standards.

c. The performance gap arising from deficient performance by auditors.

d. The unrealistic user expectation from the auditor.

Q13

In addition to the preparation of financial statements, it is also the responsibility of those

charged with governance to:

a. selecting and applying appropriate accounting policies and making reasonable accounting estimates.

b. establish and maintain internal controls that are effective in preventing and detecting material misstatements.

c. identify the financial reporting framework to be used in the preparation and presentation of their financial report.

d. All of the above

Q14.

The IAASB is responsible for:

a. Setting auditing standards which are compulsory throughout the world.

b. Monitoring auditors to ensure that they comply with auditing standards.

c. Investigating and disciplining auditors who fail to comply with auditing standards.

d. Setting auditing standards which facilitate the convergence of national and international auditing standards.

Q15

Which of the following regarding corporate governance is correct?

a. Corporate governance is the responsibility of board of directors.

b. Good corporate governance can result in excessive risk-taking.

c. Corporate governance often results in prompt and effective decision-making.

d. The aim of corporate governance is to protect the interests of shareholders and the local economies.

Q16

Which of the following is not an agency cost?

a. Residual loss

b. Bonding cost

c. Congruency cost

d. Monitoring Cost

Q17

Which of the following statements best explains why the auditing profession has found it essential to promulgate ethical standards and to establish means for ensuring their observance?

a. Ethical standards that emphasise excellence in performance over material rewards establish a reputation for competence and character.

b. Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts.

c. A distinguishing mark of a profession is its disregard of responsibility to the public.

d. A requirement for a profession is to establish ethical standards that stress primarily a responsibility to clients and colleagues.

Q18

Which of the following descriptions applicable to different types of directors and their independence is incorrect?

a. Independent executive director

b. Independent non-executive director

c. Non-independent executive director

d. Non-independent non-executive director

Q19

ABC Ltd is a mining company listed on the Australia stock exchange. It has an audit committee comprising four members. Two members are independent non-executive directors with engineering and mining qualifications. The nomination committee is currently looking to appoint an additional member to the audit committee.

In terms of the ASX principles, which of the following would most likely be the best candidate for appointment?

a. An independent non-executive director with a qualification in accounting

b. An executive director with a qualification in accounting

c. A non-independent non-executive director with qualifications in accounting and auditing

d. A non-executive director who was previously the CFO of ABC Ltd a year ago

Q20

Which of the following statements about the Australian Securities and Investments Commission (ASIC) is incorrect?

a. ASIC requires all auditors’ financial statements to be independently audited annually. 

b. ASIC is a member of the International Forum of Independent Audit Regulators.

c. ASIC enforces independence requirements for auditors.

d. ASIC monitors the functions of the Australian Auditing and Assurance Standards Board (AUASB)

Q21

Sound ethical decision making is dependent on:

a. knowledge of the basic principles on which moral values and rules are based.

b. competence in decision-making skills.

c. the ability to choose appropriate policies and decision procedures in different situations.

d. All of the above

Q22

In pursuing the audit firm’s quality control objectives, the firm may maintain records indicating which partners or employees of the firm were previously employed by the firm’s clients. Which quality control objective would this be most likely to satisfy?

a. Professional relationship

b. Supervision

c. Independence

d. Advancement

Q23

A firm of independent auditors must establish and follow explicit quality control policies and procedures because these practices:

a. are necessary to meet increasing requirements of auditors’ liability insurers.

b. give reasonable assurance that the firm will conform to the auditing standards.

c. include formal filing of records of such policies and procedures.

d. are required by ASIC for auditors of all entities.

Q24

Which of the following bodies can impose penalties on auditors who have failed to carry out their duties properly?

a. Financial Reporting Council

b. Companies Auditors and Liquidators Disciplinary Board

c. Auditing and Assurance Standards Board

d. Australian Securities Exchange

Q25

In terms of the ASX Principles, which of the following regarding the composition of the nomination committee of a listed company is most correct?

a. A minimum of three members chaired by an executive director

b. A majority of independent member chaired by an independent director

c. A maximum of three members chaired by an executive director

d. A minimum of one independent director who also chairs the committee.

Answers To Multiple Choice Questions

QuestionAnswerQuestionAnswerQuestionAnswerQ1Q11Q21Q2Q12Q22Q3Q13Q23Q4Q14Q24Q5Q15Q25Q6Q16Q7Q17Q8Q18Q9Q19Q10Q20

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