Each multiple choice is worth two (2) marks with one mark for the correct answer and one mark for the explanation for your answer. Explanations must include Auditing standard references to get full marks. Multiple Choice Question One (2 Marks)

1 - Which shows the correct ranking of audit evidence from the least persuasive to the most persuasive?

a) (i) Bank statement, (ii) management representation letter, (iii) client prepared bank reconciliation, (iv) bank confirmation

b) (i) Bank statement, (ii) bank confirmation, (iii) client prepared bank reconciliation, (iv) management representation letter

c) (i) Management representation letter, (ii) client prepared bank reconciliation, (iii) bank statement, (iv) bank confirmation

d) (i) Bank confirmation, (ii) management representation letter, (iii) client prepared bank reconciliation, (iv) bank statement

QUESTION 2 Each multiple choice is worth two (2) marks with one mark for the correct answer and one mark for the explanation for your answer. Explanations must include Auditing standard references to get full marks.

You are conducting the audit of DEF Ltd which operates a large property investment business across Australia. In your discussions with management, you identify that the property market has been booming during the year and rental returns have also increased substantially. Which of the following is true in relation to the audit.

a) The overall audit risk would need to increase due to the improved property valuations causing less risk of impairment.

b) Control risk will increase which will mean that detection risk will need to decrease in the audit.

c) The level of materiality will increase because there is less risk of errors due to a lower inherent risk.

d) A more substantive audit strategy on the property would be required due to a lower detection risk approach required.

3- You are completing the audit for DEF Ltd which has a yearend of 30 June 2020. You are due to sign the audit report on the 21st August 2020 and the company will release the accounts on the 28th August 2020. On the 25th August 2020, you hear on the news that the companys largest customer, which represents 80% of its income has gone into liquidation. There was no provision for doubtful debts recognised in the financial statements. What is your responsibility as the auditor?

a) Discuss the matter with management and determine if the accounts need to be amended. Perform additional testing if they are.

b) No responsibility. You have completed all your audit procedures and signed the report. Your job is done.

c) Notify ASIC of a potential going concern risk.

d) Perform additional audit testing to determine if the accounts need to be adjusted or not as a type one subsequent event.

QUESTION 4 Each multiple choice is worth two (2) marks with one mark for the correct answer and one mark for the explanation for your answer. Explanations must include Auditing standard references to get full marks.

You are auditing a company which makes a large amount of purchases of stock from a related party overseas in Italy which generally takes several weeks to arrive in Australia by ship. Ownership of the stock for the company occurs when the goods have left Italy as they insure for the shipping period. You are currently auditing the purchases and closing stock account. Which assertions would be most at risk?

a) Accuracy for purchases and valuation for closing stock

b) Completeness for purchases and cut-off for closing stock

c) Cut-off for purchases and completeness for closing stock

d) Cut-off for purchases and accuracy for closing stock

QUESTION 5 Each multiple choice is worth two (2) marks with one mark for the correct answer and one mark for the explanation for your answer. Explanations must include

Auditing standard references to get full marks. Which of the following would be an example of a preventitive control and a suitable test of this control?

a) Having a lock on a door where valuable closing stock is stored. A suitable test of the control would be to complete a stock take.

b) Running an exception report for any negative numbers of specific stock items. A test of this control would include reviewing the printed reports and the adjusting journals in the stock system which rectify any errors.

c) Not allowing negative amounts of stock to be entered into the inventory system. A test of this control would be to try to enter in a negative amount.

d) Performing a stocktake to compare the actual stock items with the amount recorded in the accounts for stock. A test of this control would include reviewing any items of stock in particular that look damaged.