University of Tasmania

BFA 713

CHAPTER 12

1)For a corporations act 2001 audit, the auditor has reporting obligations to:

2. The corporations act 2001 requires the auditor to report on certain matters only on an exception basis. This means that the auditor need only report particulars of any deficiency, failure or shortcoming in respect of these matters. Which of the following matters should not be reported on an exception basis?
3. How are the governing body’s and auditor’s responsibilities stated in the current auditor’s report?
4. When an auditor expresses an adverse opinion, the opinion paragraph should include:
5. The basic elements of the auditor’s standard report for a corporations act 2001 audit include all of the following except:
6. The information gap is:
7. The auditor’s report now requires a description of key audit matters, which are:

8. When an adverse opinion is expressed, the opinion paragraph should include a direct reference to:
9. Which combination of the following three possibilities for improving the communication effectiveness has been adopted in the recently enhanced standard form auditor’s report?

I: giving the auditor’s opinion on the financial report greater emphasis by placing it at the beginning of the auditor’s report.

Ii: allowing for changing the presentation and positioning of generically-worded paragraphs explaining the respective responsibilities of management (or those charged with governance) and of the auditor to make them more useful.

Iii: the auditor providing additional information about key audit matters.

10. For the purposes of the approved auditing standards, what are the differences, if any, between the phrases ‘true and fair view’ and ‘presents fairly, in all material respects’?
11. Your client has followed approved accounting standards but a note to the financial report indicates the early application of an accounting standard that has a pervasive effect on the financial report in advance of its effective date. The note details the reasons for this view. You, as the auditor, concur that this additional note disclosure is necessary to give a true and fair value. What type of opinion should you issue?
12. Which of the following statements is true for fair presentation frameworks? A fair presentation framework:
13. If the auditor believes that there is minimal likelihood that resolution of an uncertainty will have a material effect on the financial report, the auditor would issue a(n):.
14. When a financial report is presented that is not in conformity with accounting standards, an auditor may issue
15. A solicitor limits a response concerning a litigation claim because the solicitor is unable to determine the likelihood of a favourable outcome. Which type of opinion should the auditor express if the litigation is adequately disclosed and the range of potential loss is material in relation to the client’s financial report considered as a whole?

16. Muir ltd is required to but does not wish to prepare and issue a statement of cash flows as part of its financial report. In these circumstances, the auditor’s report should include:

17. When restrictions are imposed by the client that significantly limit the auditor’s ability to audit fixed assets (a material part of the balance sheet), the auditor generally should issue which of the following opinions?
18. Your client, Sharpe ltd, is being sued by one of its competitors for $40 million for an alleged patent infringement. Your client has assets of $80 million and a reported profit of $20 million. The client has disclosed the lawsuit in a note to the accounts along with a statement indicating that they intend to vigorously defend the suit and are confident of winning the suit. Your independent legal advice supports this view and you are satisfied with the details provided by the client in the notes to the accounts. What type of opinion should you express on the financial report of Sharpe Ltd?

19. An auditor was unable to obtain an audited financial report or other evidence supporting an entity’s investment in a foreign subsidiary considered material to the financial report. Between which of the following opinions should the entity’s auditor choose?
20. Your client has followed approved accounting standards but a note to the financial report indicates that the application of certain standards results in the financial report being materially misstated. The note details the reasons for this view. You do not concur with this view. What type of opinion should you issue?
21. Swift ltd has disclosed the fact that they are being sued for $3 million. Swift ltd reported a profit for the year of $300 million and has total assets of

$75 million. You conclude that disclosure of the litigation is adequate. What type of opinion should you express on the financial report of swift ltd?

22. An auditor has been unable to obtain the audited financial report for the entity’s major foreign subsidiary due to civil unrest in that country. The appropriate auditor’s report is:
23. Your audit client has not written inventory down to net realisable value in accordance with approved accounting standards. The write-down would reduce current assets by 8 percent and net profit before income tax by 12 percent. What type of auditor’s report should you issue?
24. An entity is facing significant litigation as a result of dumping oil in the ocean. This is adequately disclosed in the notes to the financial report. The appropriate auditor’s report is:
25. When a client will not make essential corporate minutes available to the auditor, the auditor’s report will probably contain a(n):
26. Cassidy ltd, a listed company, refuses to separately disclose directors’ fees of $2.5 million on the basis that they believe they are quantitatively immaterial. Profit for the last year was $980 million. The auditor should issue a(n):
27. Richards ltd has reported losses two years in a row and has a debt to total assets ratio of 0.90. In addition, a $5 million debenture is maturing next year and the company has not set aside any funds to repay the debt. The parent entity of Richards Ltd has decided to repay the debenture when it matures and provide sufficient funding to cover any additional losses that Richards Ltd might incur. Richards Ltd has not disclosed these arrangements in its financial report and the auditor is adamant that it should be brought to the shareholders’ attention. What type of opinion should the auditor express on the financial report of richards ltd?
28. Coggin Ltd changed from the straight-line method to the declining balance method of depreciation for all newly acquired assets. This change has no material effect on the current year’s financial report but is reasonably certain to have a substantial effect in later years. If the change is adequately disclosed in the notes to the financial report the auditor should issue a report with a(n):
29. An auditor concludes that there is substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time. If the entity’s disclosures concerning this matter are adequate, the auditor’s report may include:
30. On 2 july 20x0 Fluro paint ltd received a notice from its primary suppliers that all wholesale prices would be increased by 10 percent, to be effective immediately. On the basis of the notice fluro paint ltd revalued its 30 june 20x0 inventory to reflect the higher costs. The details of the adjustment were disclosed in the notes to the financial report. The inventory adjustment was material. The auditor of the 30 june 20x0 financial report would issue:
31. Due to time and staff restrictions the auditor was unable to attend the inventory stocktake at a remote branch location for Outback ltd. The inventory at this site accounted for 30 per cent of total assets. Alternative procedures were applied satisfactorily. The auditor should issue:
32. The financial report of Charger ltd indicates that there are going concern problems. After considering additional audit evidence, the auditor concludes that the client will not continue as a going concern during the next year. What type of audit opinion should the auditor express?

33. The auditor of Kennedy ltd has serious doubts that the entity will continue as a going concern. There is adequate disclosure of this significant uncertainty in the notes to the financial report. The uncertainty is the result of a single factor affecting the client. What type of audit opinion should the auditor express?
34. Juan Donald, an independent auditor, was engaged to perform an audit of the financial report of Pinnacle ltd one month after its financial year had ended. Although the inventory count was not observed by Donald and accounts receivable were not confirmed by direct communication with debtors, Donald was able to gain satisfaction by applying alternative auditing procedures. Donald’s auditor’s report will probably contain:
35. The financial report of Fast dollar ltd indicates that there may be some going concern problems. However, the auditor concludes, based on mitigating factors, that the client will most likely continue as a going concern during the next year. The mitigating factors are adequately disclosed in the accounts. What type of audit opinion should the auditor express?
36. The directors of a listed company refuse to disclose directors’ remuneration of $400000 on the basis that it is not material. Net profit after tax is $25 million and net assets are $100 million. The appropriate auditor’s report is:
37. Costello, as principal auditor for the consolidated financial report, finds that the audit of a major subsidiary is qualified by another auditor. Costello does not consider the qualification to be material relative to the consolidated financial report. What recognition, if any, must costello make in his auditor’s report to the qualified report of the auditor of the subsidiary?
38. At the end of the audit the auditor has two issues outstanding. The first is a disagreement with those charged with governance concerning the use of an inappropriate valuation method for inventory (LIFO). The second issue is significant uncertainty as to whether the entity will continue as a going concern, which is adequately disclosed in the notes to the accounts. What type of audit opinion should the auditor express?
39. Higgins insurance Ltd is trading profitably at 30 June 20x0 as reflected in its financial report. On 24 July 20x0 there is a hailstorm in Sydney that creates unprecedented damage. Although higgins had undertaken all the normal reinsurance processes, it is unlikely that they will be able to pay all claims and there is a high probability that the company will have to be wound up. The auditor believes that the financial report as at 30 june 20x0 is true and fair and that this natural disaster is adequately disclosed. The auditor should issue:
40. An entity operates in a highly regulated industry with special, legislated reporting requirements, with which it has complied. However, this has resulted in it not complying with the requirements of some australian accounting standards. Note 1 to the accounts states that the accounts are prepared in conformity with both the special legislated reporting requirements and the australian accounting standards. What type of audit opinion should be issued?
41. If an entity’s external auditor expresses an unmodified opinion as a result of the audit of the entity’s financial report, readers of the auditor’s report can assume that:
42. Certain circumstances, while not affecting the auditor’s opinion on the financial report, may require the auditor to add an emphasis of matter paragraph to the report. These circumstances include all of the following except where:
43. An auditor would issue an adverse opinion if:
44. When a client declines to include a statement of cash flows in its financial report, the auditor’s report will usually:
45. In which of the following circumstances would an adverse opinion be appropriate?
46. When a contingency is resolved immediately subsequent to the issuance of a report that was modified with respect to the contingency, the auditor should:
47. Under which of the following sets of circumstances might an auditor disclaim an opinion?
48. Which of the following situations will not result in modification of the auditor’s report because of a scope limitation?
49. When an audited financial report is presented in a client’s annual report containing other information, the auditor should:
50. When the audited financial report of the prior year is presented together with those of the current year, the continuing auditor’s report covers:
51. When an audited financial report is presented in a document containing other information, the auditor:
52. The auditor’s best course of action with respect to ‘other financial information’ included in an annual report containing the auditor’s report is to:
53. An auditor’s report on comparative financial reports should be dated as of the date of the:
54. An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing an audited financial report. If the auditor concludes that the financial report does not require revision (it is the other information which is inconsistent with the auditor’s knowledge) but the client refuses to revise or eliminate the material inconsistency, the auditor may:

55. Information in the chairman’s address, accompanying the financial report in an entity’s annual report, is inconsistent with information contained in the audited financial report. The entity refuses to alter the chairman’s address. The appropriate auditor’s report is:
56. All of the following are true with respect to the auditor’s consideration of information other than the audited financial report that are included in a client’s annual report except:
57. An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing an audited financial report. If the auditor concludes that the financial report does require revision, but the client refuses to revise or eliminate the material inconsistency, the auditor may:
58. Prince, an auditor, was engaged to audit the financial report of randwick company after its financial year had ended. Prince neither observed the inventory count nor confirmed the receivables by direct communication with debtors but was satisfied concerning both after applying alternative procedures. ’Prince’s auditor’s report most likely contained a(n):
59. With respect to the auditor’s duty to determine that certain matters related to the conduct of the audit are communicated to the audit committee, the communication:
60. Which of the following statements is not true with regards to the auditor’s responsibility where a client entity decides to publish its audited financial report on its website.