Week 10

Question 1

Which of the following statements is correct?

Answer 1

The date of the auditor’s report establishes the date of the auditor’s responsibility for knowledge of events that should be reflected in the financial report.

Question 2

An auditor should obtain evidential matter relevant to all the following factors concerning third-party litigation against a client except the:

Answer 2

jurisdiction in which the matter will be resolved.

Question 3

An auditor is concerned with completing various phases of the examination after the balance date. This ‘subsequent period’ for audit testing extends to the date of the:

Answer 3

auditor’s report.

Question 4

A major customer of an audit client suffers a fire just after year-end and the audit client believes that this event could have a significant direct effect on the financial report. The auditor should:

Answer 4

advise management to disclose the event in notes to the financial report.

Question 5

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

Answer 5

Inquire of the entity’s solicitor concerning litigation, claims and assessments arising after year-end.

Question 6

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

Answer 6

Inquiring as to whether any unusual adjustments were made after year-end.

Question 7

After an auditor has issued an auditor’s report on the financial report, there is no obligation to make any further audit tests or enquiries with respect to the audited financial report covered by that report unless:

Answer 7

new information comes to the auditor’s attention concerning an event that occurred prior to the date of the auditor’s report that may have affected the auditor’s report.

Question 8

Which of the following auditing procedures is ordinarily performed last?

Answer 8

Obtaining a management representation letter.

Question 9

After an auditor has issued an auditor’s report on the financial report of an entity, the auditor should:

Answer 9

undertake further audit tests only if new information comes to the auditor’s attention concerning an event that occurred prior to the date of the auditor’s report that may have affected the auditor’s report.

Question 10

Samantha Roberts has audited the financial report of Restoration Ltd for the year ended 30 June 20X0. Although Samantha’s audit fieldwork was completed on 24 August 20X0, her auditor’s report was signed on 27 August 20X0 and sent to management that day. The management of Restoration Ltd advised Samantha that their annual report, which will be mailed to shareholders on 7 October 20X0, will also include an unaudited financial report for the first quarter ended 30 September 20X0. Under the circumstances, Samantha is responsible for undertaking subsequent events audit procedures through to:

Answer 10

27 August 20X0.

Question 11

Orange Ltd’s directors voted immediately after the year-end of 30 June 20X0 to double its advertising budget for the coming year and authorised a change in advertising agencies. What is the effect of this event on the 30 June 20X0 financial report?

Answer 11

No disclosure or adjustment necessary.

Question 12

The date of the management representation letter should coincide with the:

Answer 12

date of the auditor’s report.

Question 13

Which of the following procedures would an auditor ordinarily perform during the review of subsequent events?

Answer 13

An enquiry of the client’s solicitor concerning litigation.

Question 14

The property portfolio of Land Pty Ltd (Land) is stated at a value of $1 million in excess of its current market value. Land is a non-reporting entity and does not apply the provisions of AASB 116 in the preparation of its financial report. The directors believe that it would be inappropriate to write the properties down to market value as it is their intention to hold the properties as a long-term investment and the properties will eventually recover their value. An independent valuer has advised the auditor that the property will eventually recover its full value. Sufficient appropriate audit evidence to support the value of the property would include obtaining a letter of representation from management confirming:

Answer 14

the directors’ intention to hold the property on a long-term basis.

Question 15

Management’s refusal to furnish a written representation on a matter that the auditor considers essential constitutes:

Answer 15

a scope limitation sufficient to preclude an unmodified opinion.

Question 16

A solicitor’s response to an auditor’s request for information concerning litigation, claims and assessments will ordinarily contain which of the following?

Answer 16

An explanation regarding limitations on the scope of the response.

Question 17

When obtaining evidence regarding litigation against a client, the auditor would be least interested in determining:

Answer 17

an estimate of when the matter will be resolved.

Question 18

When an audit is made in accordance with the auditing standards, the independent auditor must:

Answer 18

obtain certain written representations from management.

Question 19

The audit letter to the client’s solicitor should be mailed only by the:

Answer 19

auditor after preparation by the client and review by the auditor.

Question 20

If a solicitor refuses to furnish corroborating information regarding litigation, claims and assessments, the auditor should:

Answer 20

consider the refusal to be a scope limitation.

Question 21

A written representation from a client’s management which, among other matters, acknowledges responsibility for the fair presentation of the financial report, should be signed by the:

Answer 21

chief executive officer and the chief financial officer.

Question 22

A representation letter issued by a client:

Answer 22

does not reduce the auditor’s responsibility.

Question 23

An auditor will ordinarily examine invoices from solicitors primarily in order to:

Answer 23

identify possible unasserted litigation, claims and assessments.

Question 24

Auditors often request that the audit client send a letter of inquiry to those solicitors who have been consulted with respect to litigation, claims or assessments. The primary reason for this request is to provide the auditor with:

Answer 24

corroborating evidence.

Question 25

An auditor has received a solicitor’s letter in which no significant disagreements with the client’s assessments of contingent liabilities were noted. The resignation of the client’s solicitor shortly after receipt of the letter should alert the auditor that:

Answer 25

undisclosed unasserted claims may have arisen.

Question 26

As a result of analytical procedures, the independent auditor determines that the gross profit percentage has declined from 30 per cent in the preceding year to 20 per cent in the current year. The auditor should:

Answer 26

consider the possibility of an error in the financial report.

Question 27

Which set of assertions are tested when, during completion of the audit, the audit partner conducts a final review of the format of the entity’s financial report?

Answer 27

Assertions about presentation and disclosure.

Question 28

Which of the following statements is not correct?

Answer 28

Engagement quality control reviews are only required of the financial reports of public companies.

Question 29

Which of the following audit procedures is most likely to assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity’s ability to continue as a going concern?

Answer 29

Review compliance with the terms of debt agreements.

Question 30

Which of the following provisions is not a basic characteristic of a letter of support?

Answer 30

The parent entity agrees not to demand repayment of debts the subsidiary owes.