AY5110 & AY5116 Auditing online test - SAMPLE

Instructions

This test is worth 200 points and consists of 20 questions which are scored at 10 marks each.

This test will last for 60 minutes and you have one attempt to complete the test.

This test will be based on the course material for the Auditing topic covering in lectures with the related readings.

Where multiple answers are relevant, partial marks will be given for correct answers and deducted for incorrect answers.

1. Multiple Answer: Select all relevant answers

Points:10

Question Which two of the following might indicate that an audit client could have a lower than normal 'inherent' risk?
Answer
a.
A public announcement that the company had just received an aware for excellence in Corporate Governance..
b.
Recent changes in senior management.
c.
Unexpected recent trading results.

d.
The existence of an 'audit & risk' board committee.

2. Multiple Choice: Select all relevant answers

 Points:10

Question The risk of a ‘Material Misstatement in the Financial Statements of an entity is a function of:

Answer a.
The risk of fraud in the entity coupled with the competency of senior management.
b.
The competency of the Chief Financial Officer in drawing up the Financial Statements coupled with complexity of the entity’s business.

c.
The Inherent Risk of misstatement associated with the nature of the entity, and the risk that Internal Controls will not detect or prevent a misstatement.
d.
The Inherent Risk of misstatement associated with the nature of the entity, and the risk that Internal Controls will not detect or prevent a misstatement, and the
risk that the auditor will not detect a misstatement.

3. Multiple Choice: Select all relevant answers

Points:10

Question Which of the following would be considered to be a relevant source of evidence for the 'completeness’ of 'inventory':

Answer a.
Purchase department monthly report on meeting inventory reorder levels.

b.
 A record of the physical quantity of inventory lines as recorded at the yearend inventory count.

c.
A reconciliation of purchases, cost of sales, and closing inventory.
d.
File copies of 'statements' received from suppliers of invoices for inventory unpaid.

4. Multiple Choice: Select all relevant answers

Points:10

Question Which of the following best articulates the core 'Audit Objective'?

Answer a.
Eliminating the risk of the financial statements containing a 'material' misstatement.
b.
Completed of the audit in time for the publication of the company's annual report and financial statements.

c.
Expressing an appropriate opinion on the truth and fairness of the financial statements.
d.
The detection and prevention of corporate fraud.
 5. Multiple Choice: Select all relevant answers

Points:10

Question What financial statement assertions would primarily be underpinned by a re-performed bank reconciliation by the auditor as a source of audit evidence?
Answer a.
Completeness of Bank Balances.

b.
Existence of Bank Balances.
c.
Presentation and Disclosure of Bank Balances.

d.
Value of Bank Balances.

6. Multiple Choice: Select all relevant answers

Points:10

Question  What audit procedure would most likely detect the incorrect capitalization of an actual ‘expense’ as an addition to ‘plant & Equipment’?
Answer a.
Checking a sample of repairs and maintenance expenses to supporting documentation..

b.
Selecting a sample of additions to ‘plant & equipment’ and agreeing them to the underlying purchase documentation.
c.
Selecting a sample of large elements of plant for physical inspection.
 d.
Checking the ‘cut-off’ of the correct recognition of maintenance expenses in the correct reporting period.

7. Multiple Choice: Select all relevant answers

Points:10

Question Which of the following would not be relevant in obtaining an understanding of the control environment of an entity ?

Answer
a.
The existence of an ‘internal audit department’.
b.
A need to demonstrate compliance with an external regulatory authority.
c.
The existence of a sound budgetary control system.

d.
The requirement to comply with complex financial reporting standards.

8. Multiple Choice: Select all relevant answers

Points:10

Question In terms of an external auditor, the concept of 'Professional scepticism' refers to:

Answer a.
 The capacity of the auditor to identify when management are acting in self interest as opposed to in the interest of the company.

b.
The requirement to have an independent, questioning approach to the information and evidence obtained during the audit.
c.
The moral ethical positioning and training of the auditor.
d.
The need to always identify the worst possible outcome in the case of uncertainty.

9. Multiple Choice: Select all relevant answers

Points:10

Question The auditor may check balances from supplier statements to the entity’s purchases ledger in order to:

Answer
a.
Verify the existence of trade payables.

b.
Confirm that the recorded liabilities are obligations of the entity.
c.
Determine that the purchases were properly authorised.
d.
Ascertain the completeness of trade payables.

10. Multiple Choice: Select all relevant answers

 Points:10

Question If the acceptable level of detection risk is deemed to decreased, the auditor may change:

Answer
a.
Assessed level of inherent risk to a lower level.
b.
The timing of the tests of controls to cover the full reporting period.

c.
The nature and extent of substantive procedures (tests of detail) to cover a greater amount of transactions and spread of sources.
d.
The timing of substantive procedures (tests of detail) by performing them at an interim date rather than at the year end.

11. Multiple Choice: Select all relevant answers

Points:10

Question Which of the following statements, with respect to the bank confirmation, is least appropriate?
Answer a.
The confirmation is reliable because the request is made on a form that is specially designed for the purpose of the confirmation.
b.
The confirmation is reliable because its accuracy is guaranteed by the bank..
 c.
The confirmation is reliable because it is received by the auditor directly from the bank..
d.
The confirmation is reliable because banks are usually considered to maintain reliable records.

12. Multiple Choice: Select the relevant answer

Points:10

Question You are an audit senior completing testing receivables for Audit Client Ltd. You become aware that a credit note for €200,000 for goods returned by the entity to
a supplier has been incorrectly recorded as a ‘purchase’. Assume this is material and ignore any tax effect. What audit adjustment would you propose to
management?

Answer a.
DR Payables Euro 200k, CR Purchases Euro 200k.

b.
DR Payables Euro 400k, CR Purchases Euro 400k.
c.
CR Payables Euro 400k, DR Receivables Euro 400k.
d.
CR Purchases Euro 200k, CR Inventory Euro 200k.

13. Multiple Answer: Materiality in the context of the&nbs...

Points:10

Question In assessing audit materiality which of the following should the auditor ?
Answer a.
The competency of management in terms of complex financial accounting.

b.
The factors that might influence the economic decision making of users of financial statements.
c.
The quantum of 5% of the Profit Before Tax.
d.
The inherent risk assessment.

14. Multiple Answer: Select all appropriate answers

Points:10

Question You are a junior assistant on an audit and during the testing of accounts payables you have noted an immaterial error. What other procedures might you perform
to close out on this issue?

Tick all answers which you feel apply.

Answer
a.
Discuss with the audit senior to understand if there are any other errors noted during the audit which may mean that in total a wider issue exists and needs to be
investigated.
b.
Put through an adjustment yourself to correct the client's accounting records.

c.
 Communicate the error to the client's accountant.
d.
Take no further action.

15. Multiple Answer: Select all appropriate answers

Points:10

Question Which of the following factors would need to be considered in assessing if an auditor is independent from an audit client?

Answer
a.
If any member of the audit firm has a family member who is a member of the management team of the client.
b.
The integrity of the client's management team.
c.
The professional training of the auditor.

d.
That the client has failed to pay the audit fee from the previous year.

16. Multiple Choice: Select all appropriate answers

Points:10

Question Analytical procedures should be used by the auditor:

Answer
a.
 In the planning of the audit.
b.
In the testing of internal controls.
c.
When evaluating the impact of misstatements.

d.
When conducting substantive procedures.

17. Multiple Choice: Select all relevant answers

Points:10

Question What is the purpose of the ‘Management Representation Letter’??

Answer a.
Confirming the terms of engagement.

b.
Clarifying managements legal responsibilities for the financial statements.
c.
To ensure that all relevant internal controls are identified.
d.
Confirming in writing any details provided by management in verbal form that the auditor wish to place some reliance on.

18. Multiple Choice: Select all relevant answers

 Points:10

Question Which of the following are most likely to be considered to be ethically unacceptable?
Answer
a.
Making contact with an entity that has an existing auditor suggesting that your firm might provide a more ‘client centred’ service..
b.
Refusing to comply with a timetable to complete the audit that you consider to unduly pressuirsed.

c.
Agreeing to act as a ‘specialist witness’ on behalf of the client in a material legal case they are taking against a significant institutional investor.
d.
Making an arrangement with the Chairman of the Board to meet the Non-Executive directors in private without the executive directors present.

19. Multiple Choice: Select all relevant answers

Points:10

Question Which of the following statements are correct?

Answer a.
Compliance with International Financial Reporting Standards ensures that the financial statements are True & Fair.

b.
‘True and fair’ is taken to be the equivalent of ‘presents fairly’.
c.
Compliance with legal reporting requirements ensures that the financial statements are True & Fair.
 d.
The auditor has a high order responsibility in terms of the true and fair override.

20. Multiple Choice: Select one relevant answers

Points:10

Question Which of the following is not ‘preconditions’ for the acceptance of an audit engagement?

Answer
a.
The client has an ‘audit committee’.
b.
Management acknowledges and accepts their responsibilities for the preparation of the financial statements.
c.
Management accept that they must facilitate the auditor and provide them with all information relevant to their audit..
d.
The client has employed an acceptable financial reporting framework.