Audit Task

Semester 2-2014



This assignment is to be completed in groups of three and comprises twenty per-cent of the marks for this course. There are four questions each worth five marks each (approx. 2000 words in total)


Assessment Criteria:


Student work will generally be assessed in terms of the following criteria:


  1. Effectiveness of communication – i.e. readability, legibility, grammar, spelling, neatness, completeness and presentation will be a minimum threshold requirement for all written work submitted for assessment. Work that is illegible or incomprehensible and does not meet the minimum requirement will be awarded a fail grade.
  2. Demonstrated understanding – This will be evidenced by the student’s ability to be dialectical in the discussion of contentious issues.
  3. Evidence of research – This will be evidenced by the references made to the statutes, auditing standards, books, journal articles and inclusion of a bibliography.



  1. All written work must conform with the Federation University General Guide for the Presentation of Academic Work.


  1. For all written work students must ensure that they submit their own original work. Any act of plagiarism will be severely penalised.


Plagiarism is presenting someone else work as your own and is a serious offence with serious consequences. As set out in the University Regulation 6.1.1, students who are caught plagiarising will, for a first offence, be given a zero mark for that task. A second offence will result in a failing grade for the course(s) involved and any subsequent offence will be referred to the Student Discipline Committee. Student must be aware of the University Regulation 6.1.1 Student Plagiarism.


Students must:

  • fully reference the source(s) of all material, even if you have re-expressed the ideas, facts or descriptions;
  • acknowledge all direct quotations; and
  • not submit work that has been researched and written by another person.


Question 1

Discuss the risks auditors face when considering management earnings management practices?

Question 2

List and explain the top 10 audit deficiencies.

Question 3

‘Show Me Where It Says I Can’t Do That’

In April 2003, PricewaterhouseCoopers placed a full-page advertisement in the Wall Street Journal. The advertisement—actually more of a statement of the firm’s support of principles-based accounting—said: “Rules-based systems encourage creativity (and not the good kind) in financial reporting. They allow some to stretch the limits of what is permissible under the law, even though it may not be ethically or morally acceptable. A principles-based system requires companies to report and auditors to audit the substance or business purpose of transactions; not merely whether they can qualify as acceptable under incredibly complex or overly technical rules.” It went on to say: “A rules-based system allows managers to ignore the substance and, instead ask, ‘Where in the rules does it say I can’t do this?’”

Why would they be supporting a principle based system? Explain and discuss.


Question 4.

Should auditors feel this way if a client collapses after a ‘clean’ audit report? Discuss




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