Auditing- Exam Preparation

1. Do all countries have legally enforceable auditing standards? No 2. What is meant by negligence, reasonable foreseeability, damages and contributory negligence Negligence- not exercising due care ReasonableforeseeabilityDamages- an amount awarded as compensation for the losses suffered by plaintiff in a legal action Contributory negligence- relates to the failure of the plaintiff to meet certain required standards of care. 3. How can a company become an authorised audit company? The company should meet the statutory requirements in s1299B. Evidence must be shown that the company satisfies the requirements laid out in s1299B. 4. What are the objectives of an audit committee? Assisting the directors in discharging their responsibilities with due care, diligence and skill. Improving the credibility and objectivity of the accountability process. Improving the effectiveness of the internal and external audit functions and providing an objective forum for improving communication between the board and the internal and external auditors. Facilitating the independence of the internal and external auditors. 5. Who has the legal responsibility to remove an auditor? Company 6. What does section 302 of the corporations act state about when an entity must prepare reports? Prepare a financial report and directors report for each half-year. 7. What is an internal control questionnaire and what are the advantages and disadvantages. An ICQ consists of a series of questions about accounting and control policies and procedures that the auditor considers necessary to prevent material misstatements in the financial statements. Adv- developed by experienced professionals and provides guidance for less experienced staff who may be assigned to obtain the understanding on a particular audit. -relatively easy to use and reduce the possibility that the auditor may overlook important control matters. Disadv-to cater for varied types of information systems, they may be long and unwieldy. 8. What Australian statutory body is responsible for assessing whether the auditors and liquidators have breached the corporations act? CALDB Companies Auditors & Liquidators Disciplinary Board. Established in 1990.

9. What does information hypothesis state? The audit improves the quality of information which provides benefits through the reduction of risk, improvements of decisions and the increase in profits. Investors will demand this information because it is useful for decision making and will assist them in assessing the risks and returns associated with their investments. 10. With respect to the work of an internal auditor what does ASA610 state? The external auditor shall consider the activities of internal audit and their effect, if any, on external audit procedures. 11. How do you describe the relationship between an external auditor and the management of the client? There is extensive interaction between the auditor and management during the course of an audit. Auditor requires confidential data about the entity to obtain the evidence so a relationship based on mutual trust and respect is essential. Approach towards managements assertions may be characterised by professional scepticismthe auditor should neither disbelieve managements assertions nor thoughtlessly accept them without concern for their truthfulness. ASA 200-auditor should plan and perform an audit with professional scepticism recognising that circumstances may exist that cause the financial report to be materially misstated. ASA 580 written representations- provide necessary audit evidence but they do not provide sufficient appropriate audit evidence on their own. Auditor should ensure that they do not rely on management representations for the sake of convenience when alternative evidence is available. 12. Describe what privity of contract is? Contractual relationship that exists between two or more contracting parties. 13. Who does an auditor register with? ASIC -Criteria set out in s1280 14. What is the lapse time between the balance sheet date and the presentation of the audit report? Upto 4 months 15. How does a small entity overcome the absence of safeguards?

16. What is the main purpose of an audit engagement letter? ASA 210. The purpose of the engagement letter is to have a clear agreement among the parties regarding the accounting work to be done and related particulars.

17. When is an unqualified opinion given? When auditors believe that the company financial statements are sound; that is the statements are free from material misstatements. 18. What is an internal control? ASA 315-

19. Discuss what is meant by an auditor giving a qualified audit report due to inability to obtain sufficient appropriate information.

20. What is primary objective of a financial report?