Question 1

Which of the following would not be considered underlying accounting data?

Accepted Answer

A

Question 2

An auditor has obtained an understanding of the internal control structure and has decided that the appropriate controls are ineffective. The most appropriate audit strategy is:

Accepted Answer

When an auditor determines that the internal controls are ineffective, the most appropriate strategy is to rely more heavily on substantive procedures. This approach involves directly testing the transactions and balances to gather audit evidence, rather than relying on the effectiveness of the entity's internal controls.

Question 3

Which of the following is not a course of action an auditor may take if they discover material misstatements in the accounts?

Accepted Answer

Issuing an unqualified audit opinion when material misstatements are discovered is not appropriate because an unqualified opinion indicates that the financial statements present fairly, in all material respects, the financial position of the company, which is not the case if material misstatements exist.

Question 4

On each engagement, the specific audit objectives will normally be:

Accepted Answer

Audit objectives are specifically tailored to fit the individual client's circumstances, taking into account the unique aspects of their operations, internal controls, and financial reporting requirements. This customization ensures that the audit effectively addresses the specific risks and challenges faced by each client.

Question 5

In making judgements about materiality at the account balance level, the auditor must consider the relationship between it and overall materiality. This should lead the auditor to plan the audit to detect misstatements that:

Accepted Answer

The auditor's goal is to ensure that the financial statements as a whole are free from material misstatement, whether due to fraud or error. Misstatements that are immaterial individually may become material when aggregated with misstatements in other accounts. This approach helps in identifying the cumulative impact of misstatements that could affect the financial statements' overall fairness and reliability.

Question 6

During the audit of XYZ Ltd the auditor found a misstatement that equated to 7% of the base amount. According to the guidelines provided by AASB 1031.this amount is deemed to be:

Accepted Answer

AASB 1031 does not specify a precise threshold for materiality; rather, it suggests that materiality is a matter of professional judgement. The determination of whether a misstatement of 7% is material depends on the context of the financial information and the judgement of the auditor.

Question 7

The completeness assertion would be violated if:

Accepted Answer

The completeness assertion concerns whether all transactions and accounts that should have been recorded have been included. Unbilled shipments would mean revenue and receivables that should have been recorded have not been, thus violating the completeness assertion.

Question 8

The recorded balance in an account generally represents:

Accepted Answer

The recorded balance in an account represents the upper limit on the amount by which it may be overstated because it is the maximum amount recorded, beyond which any additional amount would be considered an overstatement.

Question 9

"Tolerable error" (or tolerable misstatement) is the term used to indicate materiality at the:

Accepted Answer

Tolerable error, or tolerable misstatement, refers to the maximum error in an account balance that auditors can accept without concluding that the financial statements are materially misstated. It is applied at the account balance level, not at the overall financial statement or individual transaction level.

Question 10

In determining the sufficiency of evidential matter, which of the following would not normally be a factor?

Accepted Answer

The answer of In determining the sufficiency of evidential matter,...

Question 11

Which of these would not be considered corroborating information?

Accepted Answer

The answer of Which of these would not be considered...

Question 12

All else being equal, as the level of materiality decreases, the amount of evidence required will:

Accepted Answer

When the level of materiality decreases, auditors consider smaller items to potentially be material, which requires them to gather more evidence to ensure the financial statements are free of material misstatement. This is because they are looking more closely at smaller transactions or balances, necessitating a higher volume of evidence to confirm their accuracy.

Question 13

The presentation and disclosure assertion often includes all of the following aspects except:

Accepted Answer

Existence is not typically included in the presentation and disclosure assertion; it is more related to the assertion about account balances.

Question 14

In planning the audit, the auditor should assess materiality at two levels:

Accepted Answer

Materiality is assessed at two levels during audit planning: the financial report level, which affects users' decisions as a whole, and the account balance level, which involves specific components of the financial statements.

Question 15

In general, as an account balance decreases, the amount of evidence required will:

Accepted Answer

As an account balance decreases, the risk associated with it typically decreases, leading to a reduced need for extensive evidence.

Question 16

Use of the auditing procedure 'confirmation' would normally involve all of the following except:

Accepted Answer

Confirmation as an auditing procedure typically involves a written request and a written response, not an oral response, to ensure there is a clear, verifiable record of the information confirmed.

Question 17

Which of these would generally be considered the least appropriate form of evidence?

Accepted Answer

Pre-numbered sales invoices prepared by the accounts receivable clerk are considered less reliable because they are internally generated documents and can be easily manipulated or altered by the client.

Question 18

The concept of materiality is defined in AASB 1031.in terms of the:

Accepted Answer

The concept of materiality, as defined in AASB 1031, is in terms of the users of financial reports. It is about the significance of transactions, balances, and errors found in financial reports, judged in the surrounding circumstances and needs of those who rely on these reports for making economic decisions.

Question 19

The auditor has determined that, as the assessment of control risk is high, the audit strategy adopted will be the predominantly substantive approach. What is the cost of this audit likely to be?

Accepted Answer

When the assessment of control risk is high, auditors tend to adopt a predominantly substantive approach, which involves more detailed testing of transactions and balances. This approach is generally more time-consuming and labor-intensive, leading to higher audit costs.

Question 20

If the bank reconciliation is incorrect the assertion violated would be:

Accepted Answer

Valuation and allocation is the assertion violated if the bank reconciliation is incorrect because it concerns the accuracy and appropriateness of financial statement amounts, including the proper recording of transactions and the correct allocation of income and expenses.

Quiz 10: Materiality and Audit Evidence