Ch13 Practise Q's - Auditing and Governance of AIS

Question 1

__________ drives the management risk agenda.(LO1)

A The Audit Committee
B Corporate Governance
C The ASX
D None of the options are correct

Answer 1

B Corporate Governance

Question 2

Internal auditing ________ corporate governance.(LO2)

A has no impact on
B has minimal impact on
C reduces
D enhance

Answer 2

D enhance

Question 3

Which of the following statements regarding internal auditing is not true?(LO2)

A Internal auditing can improve an organisation’s operations by providing guidance for management decisions.
B Internal auditing can improve an organisation’s operations by providing guidance for more efficient business operations.
C Internal auditing is a subjective assurance and consulting activity designed to add value and improve an organisation’s operations.
D Internal auditing is undertaken by professionals who evaluate and improve an organisation’s risk management, control and governance processes to add value to the organisation.

Answer 3

Internal auditing is a subjective assurance and consulting activity designed to add value and improve an organisation’s operations.

Question 4

Guidelines in ASA 610 relate to:(LO3)

A the level of objectivity associated with the internal audit function.
B the level of technical competence associated with the internal audit function.
C whether the activities of the internal audit function has been properly planned, reviewed, supervised and documented.
D all of the options are correct.

Answer 4

D all of the options are correct.

Question 5

ASA 700 Forming an Opinion and Reporting on a Financial Report does not outline the auditor’s responsibilities to:(LO3)

A state in the report that the audit was conducted in accordance with international accounting standards.
B describe the audit including procedures on how evidence was obtained.
C state in the report that the audit was conducted in accordance with Australian accounting standards.
D state in the report that the auditor believes that sufficient and appropriate audit evidence was obtained to form an opinion.

Answer 5

A state in the report that the audit was conducted in accordance with international accounting standards.

Question 6

In Australia and New Zealand, ASX guidelines encourage the appointment and evaluation of performance of external auditors to be carried out by:(LO4)

A Chief Executive Officer (CEO).
B board of directors.
C audit committee.
D Chief Financial Officer (CFO).

Answer 6

C audit committee.

Question 7

Which of the following statements regarding an audit committee is true?(LO4)

A The Australian and New Zealand approach of the establishment of an audit committee is legislated for mandatory compliance.
B The US approach of the establishment of an audit committee encourages companies to follow best practice.
C The existence of an independent audit committee is recognised internationally as an important feature of good corporate governance.
D All of the options are correct.

Answer 7

C The existence of an independent audit committee is recognised internationally as an important feature of good corporate governance.

Question 7

AUASB stands for:(LO5)

A Australian Auditing Standards Board.
B Auditing and Assurance Standards Board.
C Australian Accounting Standards Board.
D Auditing and Accounting Standards Board.

Answer 7

B Auditing and Assurance Standards Board.

Question 8

Which of the following is not true?(LO5)

A Australian Auditing Standards (ASAs) are legally binding auditing standards.
B Australian Auditing Standards (ASAs) are issued by the Australian Auditing and Assurance Standards Board.
C Australian Auditing Standards (ASAs) set out audit requirements for listed companies under the Corporations Act.
D Australian Auditing Standards (ASAs) are legally enforceable legislative instruments.

Answer 8

C Australian Auditing Standards (ASAs) set out audit requirements for listed companies under the Corporations Act.

Question 8

The process of expressing a written opinion about the reliability of financial statements is termed an ____________ service.(LO6)

A attest
B audit
C assertion
D opinion

Answer 8

A attest

Question 9

The type of audit that examines the system of internal controls and whether they work is known as:(LO7)

A financial audit.
B information systems audit.
C IT governance audit.
D management audit.

Answer 9

B information systems audit.

Question 10

Most AIS today are computer based. Auditing the information system requires the auditors to:(LO7)

A treat the computer as a black box and work around it.
B recognise the special threats inherent in IT and include these in the audit plan.
C just look at the manual systems and procedures.
D employ ethical hackers to audit the computer system.

Answer 10

B recognise the special threats inherent in IT and include these in the audit plan.

Question 11

Auditors need to be imaginative to identify all possible paths through the AIS. Which of the following sets of test data do they use?(LO7)

A Historical test data from systems development.
B Realistic transactions to test all computational paths generated by the auditors.
C Realistic transactions based on good accounting practice that test the interface between the work procedures and the AIS.
D All of the options are correct.

Answer 11

D All of the options are correct.

Question 12

How can a generalised checklist like an internal control questionnaire (ICQ), reveal shortcomings in a specific company?(LO7)

A The auditor evaluates the factual answers against industry norms.
B It doesn’t but is useful as a starting point.
C There is a different checklist for each industry.
D Only inexperienced auditors use the checklists.

Answer 12

A The auditor evaluates the factual answers against industry norms.

Question 13

Sarbanes–Oxley Act (SOX) has legal force on which of the following?(LO6)

A US companies.
B Companies that are dual listed on a US stock exchange.
C Subsidiaries of US companies.
D All the above.

Answer 13

D All the above.

Question 14

Which of the following is not an advantage of using a master audit program?(LO6)

It will typically shorten the audit program preparation time.

It will curb the urge to follow up on ideas outside the scope of the MAP.

It will provide guidance for less experienced audit team members.

It will lessen the likelihood of omitting significant desirable test procedures.

Answer 14

It will curb the urge to follow up on ideas outside the scope of the MAP.

Question 15

Which of the following is not a feature of using a generalised audit software package?(LO7)

It can be used to produce reports in any required format.

It can be used to generate a random sample of records using statistical techniques.

It must be run on a copy of the production database.

It may incorporate artificial intelligence and expert systems characteristics.

Answer 15

It must be run on a copy of the production database.

Question 15

Which of the following is not likely to increase the inherent risk?(LO7)

Director and senior management inexperience.

Worsening general economic conditions.

Improving foreign exchange rates.

External pressures arising from market expectations.

Answer 15

Improving foreign exchange rates.

Question 15

In a company with fewer than 200 employees, client personnel procedures require that, for all new employees earning over $60 000 per annum, the new employee authorisation form is approved by the personnel manager in writing. As an auditor, how would you test the operation of this control?(LO7)

Inspecting the new employee authorisation forms for all of those employees.

Interviewing the personnel manager.

Obtaining from the computer system a printout of all new employees and inspecting it.

Inspecting the new employee authorisation forms for a sample of those employees.

Answer 15

Inspecting the new employee authorisation forms for all of those employees.

Question 16

Which of the following are classed as application controls?(LO7)

E-commerce controls.

Processing controls.

Database controls.

All of the above are classed as application controls.

Answer 16

All of the above are classed as application controls.

Question 17

Which of the following is not an access control?(LO7)

Disabling terminated employees’ accounts promptly.

Storing backup files off-site.

Logging inactive users out automatically.

Reviewing the access control log.

Answer 17

Storing backup files off-site.

Question 18

Which of the following is not a test to detect schemes to fraudulently increase profit?(LO7)

Looking for an abnormal number of credits issued in the last month of a financial year.

Overvaluing or double-counting inventory.

Checking for vendor invoices covering transactions occurring in the ‘old year’ not brought to account until the ‘new year’.

Failing to write off inventory which has been discarded, stolen or scrapped.

Answer 18

Looking for an abnormal number of credits issued in the last month of a financial year.

Question 19

An analytical review may involve identifying relationships:(LO7)

by comparing this client’s data for the current year with industry norms.

within the same client database for the current year.

by comparing this client’s data for the current year with this client’s data in prior time periods.

all of the above.

Answer 19

all of the above.

Question 20

Sarbanes–Oxley Act requirements include:(LO6)

a prohibition on the audit firm carrying out non-audit services.

mandatory rotation of lead audit partners.

an internal control report including a statement of management’s responsibility for establishing and maintaining adequate internal control.

all of the above.

Answer 20

all of the above.