11/04/2026, 15:20 AAA Practice Exam 1 – S1 2026 - KnowledgEquity
AAA Practice Exam 1 S1 2026
YOU SCORED 64 OUT OF A POSSIBLE 90
Question 1 Marks: 1
James is the auditor of Entity X. During the audit, James went to a restaurant for lunch, taking his work papers with him. James left
confidential client information unattended on his table at the restaurant. A reporter who happened to be walking past noticed the
documents and, the next day, the front pages of major business newspapers revealed this information to the detriment of the Entity X.
While the tip-off to the newspapers was from an ‘anonymous sourceʼ, it was clearly linked back to the carelessness of James, as the
auditor.
Which of the following fundamental principles of ethics is not likely to be breached by the situation with James.
Answer Options
You answered A. The correct answer is A
USER SELECTION CORRECT ANSWER
A Objectivity
B Confidentiality
C Professional behaviour
D Professional competence and due care
Answer Explanation
Objectivity relates to being impartial and not biased. The careless action by James in terms of his treatment of confidential
documents does not affect his impartiality and ability to be independent. However, he is likely to have breached confidentiality
(although perhaps, unknowingly), acted unprofessionally and without due care of the client's documents.
Module: 1 1.2 Assurance engagement framework > Ethical principles > Page: 12-18
Question 2 Marks: 1
During the audit, the trainee auditor has identified unusual transactions which resulted in an inflation of profit before tax at year end.
The trainee auditor has a good relationship with management and has documented the results of a discussion, in which management
management representation letter in which they take responsibility for any fraud, if it were to occur. The trainee auditor has accepted
Which of the following did the trainee auditor fail to properly apply in the performance of audit work?
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,11/04/2026, 15:20 AAA Practice Exam 1 – S1 2026 - KnowledgEquity
Answer Options
USER SELECTION
Professional behaviour and due care
Answer Explanation
understanding. The trainee auditor accepted management's explanations without seeking corroborative evidence to support those
Module: 1 Professional Scepticism > Page: 36
Also see: Fraud risk (128-134)
Question 3 Marks: 1
You are performing activities related to gaining an understanding of an entity that you are auditing. You have noted that the same
person is responsible for authorising purchase orders and for authorising payments of accounts payable.
Which control activity is most adversely affected by this observation?
Answer Options
You answered B. The correct answer is B
USER SELECTION CORRECT ANSWER
A Authorisation of purchases and payables cycle.
B Segregation of duties.
C Physical asset controls.
D Information processing.
Answer Explanation
B is correct. Segregation of duties is the control activity most adversely affected here. If the same person authorises purch ase orders
as the person that authorises payments to accounts payable, one risk that may arise is that the person may create fictitious purchase
orders, which they may subsequently authorise for payment fraudulently. Note that authorisation refers more so to whether the
individual has appropriate authority to authorise a purchase order and/or to authorise a payment. An individual may have authority to
perform both roles, but the fact that they are authorising both areas is an issue relating to lack of segregation of duties.
All other options are incorrect.
Module: 3 3.2 Tests of controls > Tests of controls procedures > Page: 184-186
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,11/04/2026, 15:20 AAA Practice Exam 1 – S1 2026 - KnowledgEquity
Question 4 Marks: 1
The auditor of Entity U is concerned with the valuation of a large amount of debtors with individually small balances.
Which of the following would be the most appropriate procedure to test for the valuation of these debtors?
Answer Options
You answered B. The correct answer is B
USER SELECTION CORRECT ANSWER
A Send out positive debtors' circularisation to balances above performance materiality.
B Send out negative debtors' circularisation.
C Inspect bank statements receipts in the year.
D Compare debtor balance to set credit limit.
Answer Explanation
B is correct. Sending out negative debtors' circularisation is the most appropriate to confirm valuation of large volume debtors with
small balances.
A is incorrect because a positive debtors' circularisation would not be efficient because there is a large volume of debtors with small
balances. Furthermore, accounts receivables are made up of small balances and consequent most if not all individual debtors will fall
below the performance materiality threshold.
C is incorrect because inspecting bank statements in the year does not provide much proof about the valuation of those debtors as at
year end.
D is incorrect because comparing the debtor balance to the set credit limit is not likely to apply, as the individual debtor amounts are
of small value, so they are unlikely to be over their credit limit. It is also unlikely to be helpful in testing valuation, because if they are
over the credit limit, this is an issue with internal controls rather than valuation.
Module: 3 3.3 Substantive audit procedures > Tests of details > Page: 200-205
Question 5 Marks: 1
Ruth is the auditor of Reckless Ltd. During the audit, Ruth has reasonable grounds to suspect Reckless Ltd of trading while insolvent
In terms of s.311 of the Corporations Act 2001 (Cwlth), which of the following is correct?
Answer Options
Ruth cannot report the matter to ASIC because she only 'suspects' insolvent trading and cannot prove it beyond a
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, 11/04/2026, 15:20 AAA Practice Exam 1 – S1 2026 - KnowledgEquity
Ruth needs to first discuss the matter with the directors and consider whether reference to the matter in the audit report
Answer Explanation
D is correct. In terms of s.311 of the Corporations Act, the auditor should only report suspected non-compliance to ASIC if notification
-
296
Question 6 Marks: 0
Which of the following is the most accurate in describing the initiative to reduce the regulatory burden on small businesses?
Answer Options
You answered C. The correct answer is D
USER SELECTION CORRECT ANSWER
A Small companies are exempt from audit and reviews.
B Small companies that fall within Tier 3 are not required to have an audit of their financial statements.
C Small companies with a turnover less than $250,000 are only required to have a review of their financial statements.
Small companies limited by guarantee and in Tier 1 are exempt from undertaking audit and review engagements due to
D their size.
Answer Explanation
D is correct.
Small companies limited by guarantee are within Tier 1 and are exempt from preparing financial statements. Note that 'small
companies' could fall within Tier 2 in which case they would be required to have either an audit or review. Companies in Tier 3 are
required to have an audit. Companies with a turnover less than $250,000 fall within Tier 1 and are not required to have an audit or
review as they are not required to prepare financial statements in accordance with the Corporations Act.
All other options are incorrect.
Module: 5 5.2 Review engagements > Review of financial information for SMEs > Page: 311
Question 7 Marks: 1
Which of the following is a key focus area/impact of a sustainability report?
Answer Options
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AAA Practice Exam 1 S1 2026
YOU SCORED 64 OUT OF A POSSIBLE 90
Question 1 Marks: 1
James is the auditor of Entity X. During the audit, James went to a restaurant for lunch, taking his work papers with him. James left
confidential client information unattended on his table at the restaurant. A reporter who happened to be walking past noticed the
documents and, the next day, the front pages of major business newspapers revealed this information to the detriment of the Entity X.
While the tip-off to the newspapers was from an ‘anonymous sourceʼ, it was clearly linked back to the carelessness of James, as the
auditor.
Which of the following fundamental principles of ethics is not likely to be breached by the situation with James.
Answer Options
You answered A. The correct answer is A
USER SELECTION CORRECT ANSWER
A Objectivity
B Confidentiality
C Professional behaviour
D Professional competence and due care
Answer Explanation
Objectivity relates to being impartial and not biased. The careless action by James in terms of his treatment of confidential
documents does not affect his impartiality and ability to be independent. However, he is likely to have breached confidentiality
(although perhaps, unknowingly), acted unprofessionally and without due care of the client's documents.
Module: 1 1.2 Assurance engagement framework > Ethical principles > Page: 12-18
Question 2 Marks: 1
During the audit, the trainee auditor has identified unusual transactions which resulted in an inflation of profit before tax at year end.
The trainee auditor has a good relationship with management and has documented the results of a discussion, in which management
management representation letter in which they take responsibility for any fraud, if it were to occur. The trainee auditor has accepted
Which of the following did the trainee auditor fail to properly apply in the performance of audit work?
https://knowledgequity.com.au/course/advanced-audit-assurance/aaa-practice-exam-1-s1-2026 1/51
,11/04/2026, 15:20 AAA Practice Exam 1 – S1 2026 - KnowledgEquity
Answer Options
USER SELECTION
Professional behaviour and due care
Answer Explanation
understanding. The trainee auditor accepted management's explanations without seeking corroborative evidence to support those
Module: 1 Professional Scepticism > Page: 36
Also see: Fraud risk (128-134)
Question 3 Marks: 1
You are performing activities related to gaining an understanding of an entity that you are auditing. You have noted that the same
person is responsible for authorising purchase orders and for authorising payments of accounts payable.
Which control activity is most adversely affected by this observation?
Answer Options
You answered B. The correct answer is B
USER SELECTION CORRECT ANSWER
A Authorisation of purchases and payables cycle.
B Segregation of duties.
C Physical asset controls.
D Information processing.
Answer Explanation
B is correct. Segregation of duties is the control activity most adversely affected here. If the same person authorises purch ase orders
as the person that authorises payments to accounts payable, one risk that may arise is that the person may create fictitious purchase
orders, which they may subsequently authorise for payment fraudulently. Note that authorisation refers more so to whether the
individual has appropriate authority to authorise a purchase order and/or to authorise a payment. An individual may have authority to
perform both roles, but the fact that they are authorising both areas is an issue relating to lack of segregation of duties.
All other options are incorrect.
Module: 3 3.2 Tests of controls > Tests of controls procedures > Page: 184-186
https://knowledgequity.com.au/course/advanced-audit-assurance/aaa-practice-exam-1-s1-2026 2/51
,11/04/2026, 15:20 AAA Practice Exam 1 – S1 2026 - KnowledgEquity
Question 4 Marks: 1
The auditor of Entity U is concerned with the valuation of a large amount of debtors with individually small balances.
Which of the following would be the most appropriate procedure to test for the valuation of these debtors?
Answer Options
You answered B. The correct answer is B
USER SELECTION CORRECT ANSWER
A Send out positive debtors' circularisation to balances above performance materiality.
B Send out negative debtors' circularisation.
C Inspect bank statements receipts in the year.
D Compare debtor balance to set credit limit.
Answer Explanation
B is correct. Sending out negative debtors' circularisation is the most appropriate to confirm valuation of large volume debtors with
small balances.
A is incorrect because a positive debtors' circularisation would not be efficient because there is a large volume of debtors with small
balances. Furthermore, accounts receivables are made up of small balances and consequent most if not all individual debtors will fall
below the performance materiality threshold.
C is incorrect because inspecting bank statements in the year does not provide much proof about the valuation of those debtors as at
year end.
D is incorrect because comparing the debtor balance to the set credit limit is not likely to apply, as the individual debtor amounts are
of small value, so they are unlikely to be over their credit limit. It is also unlikely to be helpful in testing valuation, because if they are
over the credit limit, this is an issue with internal controls rather than valuation.
Module: 3 3.3 Substantive audit procedures > Tests of details > Page: 200-205
Question 5 Marks: 1
Ruth is the auditor of Reckless Ltd. During the audit, Ruth has reasonable grounds to suspect Reckless Ltd of trading while insolvent
In terms of s.311 of the Corporations Act 2001 (Cwlth), which of the following is correct?
Answer Options
Ruth cannot report the matter to ASIC because she only 'suspects' insolvent trading and cannot prove it beyond a
https://knowledgequity.com.au/course/advanced-audit-assurance/aaa-practice-exam-1-s1-2026 3/51
, 11/04/2026, 15:20 AAA Practice Exam 1 – S1 2026 - KnowledgEquity
Ruth needs to first discuss the matter with the directors and consider whether reference to the matter in the audit report
Answer Explanation
D is correct. In terms of s.311 of the Corporations Act, the auditor should only report suspected non-compliance to ASIC if notification
-
296
Question 6 Marks: 0
Which of the following is the most accurate in describing the initiative to reduce the regulatory burden on small businesses?
Answer Options
You answered C. The correct answer is D
USER SELECTION CORRECT ANSWER
A Small companies are exempt from audit and reviews.
B Small companies that fall within Tier 3 are not required to have an audit of their financial statements.
C Small companies with a turnover less than $250,000 are only required to have a review of their financial statements.
Small companies limited by guarantee and in Tier 1 are exempt from undertaking audit and review engagements due to
D their size.
Answer Explanation
D is correct.
Small companies limited by guarantee are within Tier 1 and are exempt from preparing financial statements. Note that 'small
companies' could fall within Tier 2 in which case they would be required to have either an audit or review. Companies in Tier 3 are
required to have an audit. Companies with a turnover less than $250,000 fall within Tier 1 and are not required to have an audit or
review as they are not required to prepare financial statements in accordance with the Corporations Act.
All other options are incorrect.
Module: 5 5.2 Review engagements > Review of financial information for SMEs > Page: 311
Question 7 Marks: 1
Which of the following is a key focus area/impact of a sustainability report?
Answer Options
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