Question 1

International Auditing and Assurance Standards Board (IAASB)is not responsible for the redrafting of International Auditing Standards (ISAs)to Australian Auditing Standards (ASAs).

Accepted Answer

The IAASB sets and maintains the ISAs, but it is the responsibility of the Australian Auditing and Assurance Standards Board (AUASB) to adopt and redraft them as ASAs for use in Australia.

Question 2

The nature of audit procedures refers to the reliance on evidence provided by the client and its management.

Accepted Answer

Audit procedures rely on evidence provided by the client and its management to evaluate the design and effectiveness of internal controls and to obtain sufficient and appropriate evidence to support the financial statements.

Question 3

All modified audit reports are qualified audit opinions.

Accepted Answer

Modified audit reports can include qualified opinions, adverse opinions, or disclaimers of opinion, not just qualified opinions.

Question 4

The expectation gap is caused by unrealistic user expectations such as the auditor providing a moderate level of assurance.

Accepted Answer

The expectation gap arises when there is a difference between what users expect from an audit and what the audit actually provides, not necessarily due to unrealistic expectations.

Question 5

You must complete further study after a bachelor's degree to become a member of the CAANZ,CPA Australia or the IPA.

Accepted Answer

To become a member of the Chartered Accountants Australia and New Zealand (CAANZ), CPA Australia, or the Institute of Public Accountants (IPA), further study is required after obtaining a bachelor's degree. This may include completing a postgraduate degree or a professional qualification such as the CA program, the CPA program, or the IPA program.

Question 6

A reasonable level of assurance is the highest level of assurance that an auditor can provide.

Accepted Answer

A reasonable level of assurance is the highest level of assurance auditors can provide, indicating that the financial statements are free from material misstatement, though not guaranteeing absolute assurance.

Question 7

A no assurance engagement is of little use as no assurance is given to the client.

Accepted Answer

A no assurance engagement may still provide valuable services and information to the client, such as identifying areas of risk or providing recommendations for improvement. The lack of assurance simply means that the financial information has not been verified or audited by the accountant.

Question 8

An assurance engagement is performed by an auditor or consultant to enhance the reliability of the subject matter.

Accepted Answer

An assurance engagement is specifically designed to provide objective assurance to interested parties about the reliability of the subject matter, such as financial statements, internal controls, or sustainability reports. The auditor or consultant provides an opinion or conclusion based on their assessment of the information and their professional judgment. This opinion can enhance the credibility and usefulness of the subject matter and help stakeholders make informed decisions.

Question 9

An example of the three parties in an assurance engagement would be:

Accepted Answer

In an assurance engagement, the three parties typically involved are the auditor (who provides the assurance), the audit client (the entity whose information is being audited), and the intended users (who rely on the auditor's report). In choice A, "audit client, supplier, auditor," the audit client is the entity being audited, the auditor is the party providing the assurance, and the supplier can be seen as an intended user who relies on the audit report, making it the closest to the correct representation of the three parties in an assurance engagement.

Question 10

Insurance hypothesis is a means whereby the investor can guarantee the success of their investment.

Accepted Answer

The insurance hypothesis is a theory that suggests that investors cannot guarantee the success of their investment through diversification alone because all asset classes are correlated to some extent. Therefore, insurance through options or other hedging strategies may be necessary to protect against unexpected market movements. However, this does not guarantee the success of the investment, but rather reduces the risk of loss.

Question 11

A negative expression of opinion is only given when there is a disagreement with management and the auditor.

Accepted Answer

A negative expression of opinion can also be given when there are material misstatements in the financial statements or when sufficient evidence cannot be obtained to support the auditor's opinion. It does not necessarily require a disagreement with management.

Question 12

An audit of a financial report by the contracted auditors will give absolute assurance that the financial reports give a true and fair view of the financial performance of the entity.

Accepted Answer

An audit can provide reasonable assurance, but not absolute assurance, that financial statements give a true and fair view of the financial performance of an entity. Absolute assurance is impossible because audits are conducted on a test basis and are subject to inherent limitations such as the possibility of material misstatements going undetected due to factors such as fraud or collusion.

Question 13

An auditor can provide a reasonable level of assurance on information other than historical financial information.

Accepted Answer

An auditor can provide reasonable assurance on non-financial information such as the effectiveness of internal controls or the reliability of certain data. This is often referred to as an attestation engagement.

Question 14

A compliance audit involves gathering evidence to ascertain whether the person or entity under review has followed the rules,policies,procedures,laws and regulations with which they must conform.

Accepted Answer

A compliance audit is specifically designed to determine whether a person or entity has followed the rules, policies, procedures, laws, and regulations that apply to them, so the statement is true.

Question 15

It is the auditor's responsibility to prepare the financial statements.

Accepted Answer

It is not the auditor's responsibility to prepare the financial statements. The auditor's role is to perform an independent examination of the financial statements prepared by management and express an opinion on their accuracy and fairness.

Question 16

An audit engagement is performed by an Auditor to provide a reasonable assurance that the financial report gives a true and fair view of the business activities for the period.

Accepted Answer

This statement accurately describes the purpose of an audit engagement. The auditor's goal is to provide reasonable assurance that the financial report is free from material misstatement and gives a true and fair view of the company's financial performance and position during the period under review.

Question 17

Only current investors (not potential investors)are considered to be users of the financial statements.

Accepted Answer

Both current and potential investors are considered users of financial statements, as they use the information to make decisions about buying, holding, or selling equity or debt instruments.

Question 18

An operational audit is an example of a compliance audit.

Accepted Answer

An operational audit and a compliance audit are two different types of audits. An operational audit focuses on evaluating the efficiency and effectiveness of an organization's operations, while a compliance audit focuses on evaluating whether the organization is following laws and regulations. Therefore, an operational audit is not an example of a compliance audit.

Question 19

The most common types of assurance engagements are financial report audits,confirmation audits,performance audits,comprehensive audits and assurance on corporate social responsibility (CSR)disclosures.

Accepted Answer

The answer of The most common types of assurance engagements...

Question 20

An assurance engagement can be defined as

Accepted Answer

An assurance engagement is an engagement in which an independent professional is engaged to enhance the reliability of the subject matter. This can include, but is not limited to, the financial statements, internal controls, sustainability reporting, and other non-financial information. The objective of assurance engagements is to provide users with more confidence in the reliability of the subject matter. Option A, C, and D do not fully encompass the definition of an assurance engagement.

Quiz 1: Introduction and Overview of Audit and Assurance