Week 1 - An Overview of Auditing

What does an auditor do?
Provide an independent opinion on the financial report.
Provide a guarantee on the ongoing viability of the company.
Help management to produce the financial report.
Ensure that the financial report contains no fraud or error.
What best describes the 'agency problem' that results in a demand for audits?
Shareholders act in their own interests and not in the interests of the company.
Banks have different information expectations to shareholders.
Managers act first in the interests of shareholders to the detriment of creditors.
Managers act in their own interests rather than the interests of shareholders.
Regulators' use of the audit function to insulate themselves from blame in a corporate failure most relates to which reason for a demand for auditing?
Insurance hypothesis.
Agency theory.
Information hypothesis.
The audit expectation gap.
Additional to those criteria that concern the financial report audit of a company, the auditor of a listed company must consider the following:
Ethical standards issued by the professional bodies.
Accounting standards.
The Corporations Act.
The ASX Listing Rules.
The key reason for radical audit reforms over the past decade is:
The disparity of revenues and practices between the big firms and the smaller accounting practices.
The inability of auditors to meet their liability claims.
The alleged accounting fraud and audit failures related to major corporate collapses.
The recommendations from the Companies Auditors and Liquidators Disciplinary Board.
The purpose of the surveillance program undertaken by ASIC is to:
Obtain evidence on the negligence of auditors and accountants.
Develop a complete framework of creative accounting mechanisms.
Evaluate the adequacy of compliance with respect to financial reporting.
Ensure dividends are not paid from financial reports that have been misstated.
The main objective of CLERP 9 was to:
Ensure Australia's legal provisions are as close as possible to US legislation.
Strengthen the financial reporting process so as to ensure the integrity of the capital market.
Limit the liability issues of the audit and legal profession.
Minimise possible conflicts of interest in the auditing profession.
A financial report audit provides which level of assurance?
A high level of assurance.
An acceptable level of assurance.
A moderate level of assurance.
A minimum level of assurance.
Who are the primary financial report users that auditors need to be concerned about?
Managers of the audited firm.
Banks who provide capital to the firm.
The general public.
Shareholders of the firm.
Why does the expectation gap as defined by Porter (1993) still exist in current times?
There are more naive users of financial reports who do not understand the nature of audit.
Mergers and failures of audit firms.
An increasing amount of auditing standards to be studied.
The increasing complexity of financial report audits and the increasing level of expectations of users.
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