Audit and Assurance, 2nd Edition Leung (1)

Testbank to accompany Audit and assurance 2 nd edition by Leung et al. © John Wiley & Sons Australia, Ltd 2023 Chapter 1: Auditing and governance © John Wiley & Sons Australia, Ltd 2023 1.2 Chapter 1: Auditing and governance Multiple-choice questions 1. The three major professional accounting bodies in Australia are: a. CAANZ, CPA and ASIC. b. CPA Australia, IPA and AARF. c. ATO, AUASB and ASIC. *d. CAANZ, CPA Australia and IPA. The correct option is d. Learning objective 1.1 ~ explain the fundamental nature and value of audits. 2. 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. Learning objective 1.1 ~ explain the fundamental nature and value of audits. 3. 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 the fundamental nature and value of audits. 4. 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 the fundamental nature and value of audits. Testbank to accompany Auditing and assurance 2e © John Wiley & Sons Australia, Ltd 2023 1.3 5. 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, CAANZ or other approved body. c. Has 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 auditor in Australia. The correct option is d. Learning objective 1.1 ~ explain the fundamental nature and value of audits. 6. 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 the fundamental nature and value of audits. 7. In Australia, the auditor’s 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. b. Whether the financial report presents a true and fair view, in all material respects, in accordance with the applicable financial reporting framework. c. Whether the financial report provides a reasonable level of assurance, in all material respects, in accordance with the applicable financial reporting framework. *d. a or b. The correct option is d. Learning objective 1.1 ~ explain the fundamental nature and value of audits. 8. In Australia, all of the following are required to have an annual audit, except: a. Not-for-profit organisations. b. Statutory authorities. *c. Small proprietary companies. d. All of the above are required to have an annual audit with no exceptions. The correct option is c. Learning objective 1.1 ~ explain the fundamental nature and value of audits. Chapter 1: Auditing and governance © John Wiley & Sons Australia, Ltd 2023 1.4 9. Which theory of auditing focuses more towards the decision usefulness role of accounting? a. Insurance hypothesis. b. Agency theory. *c. Information hypothesis. d. None of the above. The correct option is c. Learning objective 1.1 ~ explain the fundamental nature and value of audits. 10. The separation of ownership and control in large organisations has resulted in: *a. An agency problem. b. The insurance hypothesis. c. CLERP. d. An audit expectation gap. The correct option is a. Learning objective 1.1 ~ explain the fundamental nature and value of audits. 11. Any situation where information is prepared by one party and then attested as to its accuracy by another party is known as: a. Agency theory. b. An audit engagement. c. An assertion engagement. *d. An assurance engagement. The correct option is d. Learning objective 1.2 ~ describe the nature of assurance and how it relates to auditing. 12. Auditing bears what relationship to assurance? *a. Auditing is a sub-category of assurance. b. Assurance is a sub-category of auditing. c. They are different names for the same thing. d. Public accounting firms perform auditing engagements but not assurance engagements. The correct option is a. Learning objective 1.2 ~ describe the nature of assurance and how it relates to auditing. 13. Governance is a concept that can be applied to: Testbank to accompany Auditing and assurance 2e © John Wiley & Sons Australia, Ltd 2023 1.5 a. Not-for-profit organisations. b. The public sector. c. Corporations. *d. All of the above. The correct option is d. Learning objective 1.3 ~ describe the nature of governance. 14. The overall objectives of an auditor are: a. To obtain a reasonable assurance about whether the financial report as a whole is free from material misstatement. b. To report on financial reports. c. To communicate the findings as required by Australian Auditing Standards. *d. All of the above. The correct option is d Learning objective 1.4 ~ discuss the role of the auditor in governance. 15. Earnings management occurs when: a. Income and expenses are managed to influence the performance of the entity. *b. Financial statements and transactions are manipulated to influence perceptions about the entity. c. Executive salaries are increased surreptitiously by including the raises in late night meetings. d. Earnings are manipulated to improve the company’s tax position. The correct option is b. Learning objective 1.5 ~ evaluate the issues relating to governance. 16. Incentives for earnings management are inherent in the management structure but are least likely to originate from: a. Executive remunerations. b. Situations including financial distress. c. Political considerations. *d. High positive cash flows. The correct option is d. Learning objective 1.5 ~ evaluate the issues relating to governance. 17. The COSO enterprise risk management integrated framework covers five components of internal control. Which of the following is not a component? a. Governance and culture. b. Strategy and objective-setting. c. Performance. Chapter 1: Auditing and governance © John Wiley & Sons Australia, Ltd 2023 1.6 *d. Risk management. The correct option is d. Learning objective 1.5 ~ evaluate the issues relating to governance. 18. The SEC proposal on audit committees did not require: a. The audit committee to be directly responsible for the hiring of an independent auditor. b. The audit committee to be directly responsible for the oversight of an independent auditor. *c. The audit committee to be directly responsible for the internal auditor. d. The names of the committee members to be disclosed