Audit Quiz Results

22/04/2021 KnowledgEquity
AAA M3 – MODULE QUIZ 1
Question 1  1 mark
Which of the following audit evidence obtained during the audit of bank and cash would be considered the most 
reliable?
A. Bank confirmation obtained from the entity's bankers.

B. Bank reconciliation prepared by the financial accountant.
C. Petty cash count undertaken by the junior and reviewed by yourself.
D. Verbal discussions with the Managing Director regarding an increase in the bank overdraft limit.
You selected A - This is correct

TOTAL MARKS : 1 MARKS OBTAINED 1
The first option is correct because the bank confirmation is obtained from an independent external source. Therefore, in
terms of ISA 500, the nature and source of the bank confirmation makes it more reliable
Audit procedures are designed to determine the existence of material going concern uncertainties. Which of the 
following going concern situations is least likely to be identified from an analysis and review of the entity’s financial
statements and accounts?
A. Loss of major customers.

B. Recurring operating losses.
C. Working capital deficiencies.
D. Regulatory breaches for industry licensing.
You selected D - This is correct

The fourth option is correct as regulatory breaches may not be identifiable from the face of the financial statements, and they
may not yet be disclosed in the notes or in the entity's financial accounts. Reviews of the Board minutes and reports of
regulatory actions would be a primary source to identify such licensing breaches. An analysis and review of the entity's
financial accounts would show the loss of major customers, and the financial statements would show recurring operating
losses and working capital deficiencies.
https://knowledgequity.com.au/members/10580138/course/course-results/?action=13556 1/5
Adam Up is auditing the accounts receivable of a retailer and noted that a majority of the receivable balances are 
large. Further, the controls are ineffective and cannot be relied upon.
To best determine the accuracy, valuation and allocation of accounts receivable, which of the following audit tests
should Adam Up perform?
A. Perform subsequent receipts testing.

B. Match invoices with purchase orders.
C. Send a negative confirmation request.
D. Perform a credit check on the customers.

Subsequent receipts testing is a reliable form of determining the accuracy, valuation and allocation of accounts receivable,
as it confirms the receivables' amount for each customer tested. A negative confirmation will only be used if controls were
working and the client didn't have a majority of receivables that were large. Further, they are primarily a test for existence of
receivables. Matching invoices with sales orders for receivables (rather than purchase orders, which would be for payables),
would likely be a control rather than an audit test. Similarly, performing credit checks is an example of a control with accounts
receivable, rather than audit procedures. These controls would likely be reviewed/tested rather than actually performed.
The auditor of XYZ Pty Ltd has tested 100% of the population. Which of the following statements is correct? 
A. This replaces audit scepticism as the evidence covers all items.
B. The auditor can issue an absolute assurance which is higher than reasonable assurance.
C. The only way to achieve 100% testing is through the use of CAATs.
D. The highest level of assurance that can be issued is reasonable assurance.

The fourth option is correct. The highest level of assurance that can be issued in the audit of historical financial information is
reasonable assurance even when 100% of the population is tested. The first option is incorrect as the auditor needs to
maintain professional scepticism even when 100% of the population has been tested. The second option is incorrect as
absolute assurance is not issued in the audit of historical financial information. The third option is incorrect as 100% testing
can be manually achieved if the population is small.
Which of the following audit procedures would help an auditor in identifying related party transactions? 
A. Performing analytical review to determine if the entity has going concern problems.
B. Reviewing solicitor's response to determine if potential contingent liabilities exist.
C. Reviewing confirmations of loan receivables and loan payables for determination of guarantees.
D. Review of trial balance and general ledger for recurring transactions which were recorded just after balance sheet
date.
You selected C - This is correct

Answer c is correct because reviewing confirmations of loans receivables and payables may reveal unusual transactions that
could have related party implications. The remaining three answers are wrong as these would not lead to possible related
party transactions occurring.
Question 6  0 marks
You are undertaking the audit of Apple Limited. After year end and before the accounts were signed, you were 
advised that Banana Limited obtained a non-controlling interest of 15% of Apple Limited.
What should the auditor do in the above situation?
A. Disclose the acquisition in the auditor's report.

B. Advise management to adjust the balance sheet to reflect the acquisition.
C. Advise management to disclose the acquisition in the notes to the financial statements.
D. Issue updated interim financial statements to incorporate the acquistion.
You selected A - This is incorrect. The correct answer is C

TOTAL MARKS : 1 MARKS OBTAINED 0
Answer c is correct because this is a Type 2 subsequent event as it occurred post year-end. Therefore a note disclosure is
more appropriate.
Which statement best describes tracing a sample of transactions to test for inventory completeness? 
A. Tracing items from the ledger to the stocktake records.
B. Testing from the accounting records to the underlying assets.
C. Tracing items from the physical count of inventory to the underlying assets.
D. Testing from the underlying assets to the accounting records.
You selected A - This is incorrect. The correct answer is D

Tracing refers to testing from source documents (or underlying assets) to the accounting records. The assertion of
completeness is tested by comparing the physical count to the ledger. Vouching is a test for existence, which moves from
ledger to the physical stock.
Which of the following best describes the auditor’s understanding of why internal controls are developed by the 
company?
A. Prevention and detection.

B. Frequency and effectiveness.
C. Effectiveness and efficiency.
D. Efficiency and implementation.

Answer a is correct as it helps to safeguard assets, manage resources effectively and to deter employees from committing
fraud.
In relation to a public company listed on the Australian Securities Exchange (ASX), when should the management 
representation letter be dated?
A. At balance sheet date.

B. At the date when the audited financial statements are lodged with ASIC.
C. At the date when the audited financial statements are lodged with the ASX.
D. As near as practicable to, but not after, the date of the auditor's report on the financial statements.

ISA 580 'Written Representations', para. 14 states the letter must be dated as near as practicable to, but not after, the date of
the auditor's report on the financial statements.
Which of the following relating to using the work of an auditor’s expert is correct? 
A. The auditor has shared responsibility for the audit opinion with the auditor's expert.
B. An auditor's expert is used to obtain sufficient appropriate evidence in the accounting and auditing field.
C. An auditor's expert is required in order to obtain sufficient appropriate audit evidence in a field other than
accounting or auditing and to reference the work in the audit report.
D. The auditor's knowledge and previous experiences with the expert should be considered in determining the nature,
timing and extent of audit procedures.
You selected C - This is incorrect. The correct answer is D

In determining the nature, timing and extent of audit procedures, the auditor should consider their knowledge and past
experiences with the expert (ISA 620, para. 8(d)). Note that the auditor has sole responsibility for the audit opinion and is
therefore not permitted to refer to the work of an expert in the audit report.
Total Marks 7 / 10

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22/04/2021 KnowledgEquity

AAA M3 – MODULE QUIZ 1

A. Bank confirmation obtained from the entity's bankers.

You selected A - This is correct

A. Loss of major customers.

You selected D - This is correct

A. Perform subsequent receipts testing.

You selected A - This is correct

You selected D - This is correct

You selected C - This is correct

What should the auditor do in the above situation?

A. Disclose the acquisition in the auditor's report.

You selected A - This is incorrect. The correct answer is C

You selected A - This is incorrect. The correct answer is D

A. Prevention and detection.

You selected A - This is correct

A. At balance sheet date.

You selected D - This is correct

You selected C - This is incorrect. The correct answer is D

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