University of Tasmania

BFA 713

CHAPTER 06

1)Which of the following inventory items is likely to have high inherent risk?

2. Which of the following actions cannot be taken by auditors to reduce audit risk?3. Some account balances, such as those for foreign currency transactions, are the results of complex calculations. The susceptibility to material misstatements in these types of accounts is defined as:
1. Which of the following statements is true?
2. Your audit client, Red Roses Ltd, has a new management incentive scheme in place, with bonuses calculated on the basis of the increase in net profit over the previous year. The basis of the bonus will remain the same for the next three years. Your client has had a very poor year and there is no way this year that it will be able to meet its budget or last year’s net profit. Which of the following represents a high inherent risk for this year?
3. Which of the following approaches should be part of an auditor’s planning of the audit engagement?
4. Which of the following situations does not represent an opportunity to commit fraud?
5. The auditor can respond to an increased risk of fraud by taking all of the following actions except:
6. An auditor discovers a likely fraud during an audit, but concludes that the effect of the fraud is not sufficiently material to affect the auditor’s opinion. The auditor should:
7. The primary factor that distinguishes error from fraud is:
8. With respect to illegal acts, the auditor’s responsibility is to:
9. When the auditor concludes, based on information obtained and, if necessary, consultation with legal advisers, that an illegal act has or is likely to have occurred, the auditor should:
10. The auditor is most likely to presume that a high risk of a fraud exists if:
11. In general, material frauds perpetrated by which of the following people are most difficult to detect?
12. Which of the following factors would most likely increase an auditor’s concern about the risk of fraudulent financial reporting?
13. If, as a result of auditing procedures, an auditor believes that a client may have committed illegal acts, which of the following actions should be taken immediately by the auditor?
14. If the auditor considers an illegal act to be sufficiently serious to warrant withdrawing from the engagement, the auditor should:
15. Which of the following situations would be defined as fraud under the auditing standards?
16. ASA 240 (ISA 240) provides that the primary day-to-day responsibility for prevention of fraud rests with:
17. Which of the following statements best describes the auditor’s responsibility regarding the detection of fraud?
18. Earnings management includes:
  1. intentional violations of accounting standards that are individually immaterial, but have the effect of increasing profit materially in aggregate.
  2. inappropriate revenue recognition.
  3. ‘big bath’ charges that make poor results look even worse.

1. 1. All of the given answers are correct.
2. If an illegal act is discovered during the audit of a publicly-held company, the auditor should:
3. An auditor finds evidence that warehouse staff are fraudulently claiming overtime. The auditor should:
4. The auditor should assess the risk that errors and fraud may cause the financial report to be materially misstated and, based on that assessment:
5. Which of the following is not a characteristic of whistleblowing?
6. Which of the audit procedures listed below would be least likely to disclose the existence of related-party transactions of a client during the period under audit?
7. An example of a transaction that may be indicative of the existence of related parties is:
8. For a reporting entity that has participated in related-party transactions that are material, disclosure in the financial report should include:
9. An independent auditor finds that Baron Pty Ltd occupies office space, at no charge, in an office building owned by a shareholder of Baron Pty Ltd. This finding indicates the existence of:
10. Which of the following conditions or events would be considered a mitigating factor in a going concern assessment?
  1. Disposal of land held for redevelopment that was no longer required.
  2. Obtaining a loan from a new financial institution.
  3. Reducing the current year’s dividend from the previous year’s amount.
  4. All of the given answers are correct.
11. The relevant period that the auditor needs to consider when assessing the appropriateness of the going concern assumption is:
12. The auditor’s report covers the solvency statement in the:
13. Which of the following conditions or events would most likely cause an auditor to have substantial doubt about an entity’s ability to continue as a going concern?
14. Why is the auditor concerned about the appropriateness of the going concern assumption?
  1. It may motivate management to misstate the financial report.
  2. The auditor needs to audit the solvency statement in the directors’ declaration
  3. It may affect the appropriateness of the financial report.
  4. All of the given answers are correct.

1. Which of the following audit procedures is most likely to identify doubts about the appropriateness of the going concern assumption?

Option 1

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University of Tasmania BFA 713 CHAPTER 06 1)Which of the following inventory items is likely to have high inherent risk? 2

Accounting

University of Tasmania

BFA 713