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Question(s) / Instruction(s):

ACC3118

1) The auditor needs to perform procedures to satisfy the three categories of audit objectives:

transaction-related objectives, balance-related objectives, and ________ -related objectives

A) Presentation and disclosure.

B) Balance day.

C) Sufficient appropriate.

D) Financial statement.

 

2) The following events all occurred after the balance sheet date of 30 June, 2006, but prior to the date

of the audit report, 15 August, 2006. Which one would require an adjustment to the account

balances as at 30 June, 2006?

A) The client disposed of a major subsidiary on 30 July, 2006

B) Inventory valued at $100 000 on 30 June, 2006 was destroyed by a fire on 1 August, 2006

C) The auditee will market $2 million of preference shares on 31 July, 2006

D) Unused equipment recorded at $100 000 at 30 June, 2006 was disposed of on 3 July, 2006 for

$60 000

 

3) The management letter:

A) is optional and is intended to help the client operate its business more effectively.

B) spells out to the audit committee the auditor’s responsibilities under generally accepted

auditing standards.

C) is required by ASA 580 whenever there are ʹreportable conditionsʹ.

D) must follow the format prescribed by the ASIC.

 

4) How many presentation and disclosure objectives are there?

A) Two.

 B) Four.

C) Three.

D) One.

 

5) To counteract the bias that frequently enters into an auditor’s judgment:

A) it is common to gather more evidence than is actually necessary.

B) an audit engagement checklist is completed.

C) the working papers are reviewed by another member of the audit firm.

D) a financial disclosure checklist is used for every engagement.

 

6) An important part of evaluating whether the financial statements are fairly stated is summarizing

the misstatements uncovered in the audit. Whenever the auditor uncovers misstatements that are

in themselves material:

 

A) it is necessary to combine individually immaterial misstatements with the material

misstatements and make entries to correct the statements.

B) it is necessary to combine individually immaterial misstatements with the material

misstatements and make full disclosure in the footnotes.

C) entries should be made to correct the statements.

D) no entries need be made but footnote disclosure is required.

 

7) The standard letter of confirmation from the client’s legal counsel should be prepared on:

A) plain paper (no letterhead) and be unsigned.

B) client’s stationery and signed by management.

C) auditor’s stationery and signed by an audit partner.

D) lawyer’s stationery and signed by the lawyer.

 

 

8) Which of the following statements is not true? If the auditor concludes that there are contingent

liabilities, he or she must evaluate the significance of the potential liability and the nature of the

disclosure needed in the financial statements.

 

A) Disclosure may be unnecessary if the contingency is highly remote or immaterial.

B) The potential liability is sufficiently well known in some instances to be included in the

Financial statements as an actual liability.

C) Frequently, the audit firm obtains a separate evaluation of the potential liability from its own

legal counsel rather than relying on management or management’s solicitors.

D) The auditor should primarily rely on management’s judgment about potential liabilities.

 

9) If, after the accumulation of final evidence and during the evaluation of results, the auditor

concludes that sufficient evidence has not been obtained to draw a conclusion about fairness of the

client’s representations, there are two choices:

A) (1) issue a qualified opinion or (2) issue a disclaimer of opinion.

B) (1) obtain additional evidence or (2) issue a qualified opinion or a disclaimer of opinion.

C) (1) obtain additional information or (2) issue an adverse opinion.

D) (1) issue a disclaimer of opinion or (2) withdraw from the engagement.

 

10) Which one of the following items would not be of concern to the auditor as a potential contingent

liability? In each case, the event could generate a loss of $20 000.

A) Loans receivable discounted

B) Income tax disputes

C) Unused balances of outstanding letters of credit

D) Obsolete inventory

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