Multiple choice questions

1 Is the following statement regarding stewardship true or false?

Directors are stewards of the investment made by shareholders in a company.
A True
B False
2 Which two of the following are elements of an assurance engagement?
(1) A three-party relationship
(2) Suitable criteria
(3) Determination of materiality
(4) An engagement letter
A (1) and (2) only
B (1) and (3) only
C (2) and (3) only
D (1) and (4) only
3 What is the correct order of the following stages involved in the development of an
ISA?
(1) Distribution of exposure draft for public comment
(2) Consideration of comments received as a result of the exposure draft
(3) Approval by IAASB members
(4) Establishment of task force to develop draft standard
(5) Discussion of proposed standard at a public meeting
A (1), (5), (4), (3), (2)
B (3), (4), (1), (2), (5)
C (4), (5), (1), (2), (3)
D (5), (4), (2), (1), (3)
4 Who normally appoints the external auditors of a company?
A Directors
B Shareholders
C Audit committee
D Senior management (1 mark)
5 Which of the following is the most appropriate definition of the external audit?
A The external audit is an exercise carried out by auditors in order
to give an opinion on whether the financial statements of a
company are materially misstated.
B The external audit is an exercise carried out in order to give an
opinion on the effectiveness of a company's internal control
system.
C The external audit is performed by management to identify areas of
deficiency within a company and to make recommendations to
mitigate those deficiencies.
D The external audit provides negative assurance on the truth and
fairness of a company's financial statements.
6 The level of assurance provided by an external audit is absolute.
Is this statement true or false?
A True
B False
7 Which of the following is/are not a statutory right of the auditors of a limited
liability company?
(1) A right to attend all directors' meetings and receive all notices and
communications relating to such meetings.
(2) A right to speak at general meetings on any part of the business that
concerns them as auditors.
(3) A right to attend any general meeting and receive all notices and
communications relating to such meetings.
A (1) only
B (1) and (3)
C (2) only
D (2) and (3)
8 Is the following statement true or false?
In an effective system of corporate governance the directors take
responsibility for risk management strategies within the business.
A True
B False
9 Which of the following are recognised threats to independence and
objectivity as identified in ACCA's Code of Ethics and Conduct?
(1) Familiarity
(2) Self-interest
(3) Integrity
(4) Advocacy
A (1), (2), (3) and (4)
B (1), (2) and (4)
C (2), (3) and (4)
D (2) and (4) only
10 In which of the following situations would the auditor be able to disclose
confidential information about a client?
(1) Disclosure is required by law.
(2) Disclosure is permitted by law but the auditor has not
requested the client's permission.
(3) The auditor suspects that the client has committed
money-laundering offences.
A (1) and (2) only
B (1) and (3) only
C (2) and (3) only
D (1), (2) and (3)
11 Andrew Jones has been the key audit partner of X Co, a public interest
entity, for seven years. For how long must he be rotated off the audit as
a minimum to comply with ACCA's Code of Ethics and Conduct?
A 1 year
B 2 years
C 3 years
D 4 years
12 AAB & Co is the statutory auditor of Y Co, a public interest entity.
Which of the following services is AAB & Co prohibited from providing to Y Co
under any circumstances?
A Provision of bookkeeping services
B Assistance in the resolution of tax disputes
C Internal audit services
D Valuation services where the valuation will have a material effect
on the financial statements
13 Who is ultimately responsible for a company's system of internal controls?
A External auditors
B Board of directors
C Internal auditors
D Audit committee
14 Every company must have an audit committee.
Is this statement true or false?
A True
B False
15 Which of the following statements is true regarding the audit committee?
A An audit committee must comprise at least four independent non-executive
directors.
B Where there is no internal audit function the audit
committee should consider the need for one on an annual
basis.
C The role and responsibilities of the audit committee are set out in
statute
16 Which of the following are valid disadvantages of having an audit committee?
A It can undermine the authority of the board of directors.
B The internal audit function may communicate directly with
the audit committee rather than with management.
C It may be difficult to find non-executive directors with
the relevant experience.
17 AB & Co audits DEF Co. In accordance with ACCA Code of Ethics and
Conduct which two of the following circumstances would constitute a
threat to objectivity?
(1) An employee of AB & Co owns shares in DEF Co but is not part of the
audit team
(2) The best friend of the engagement partner owns a significant indirect
financial interest in DEF Co
(3) The audit manager of DEF Co owns a small number of shares in DEF
Co
(4) The husband of the audit partner owns shares in DEF Co
A (1) and (2)
B (1) and (4)
C (2) and (3)
D (3) and (4)
18 Which of the following internal audit assignments is described below?
The examination of the economy, efficiency and effectiveness of activities and
processes.
A Regulatory compliance audit
B Value for money audit
C Financial audit
D IT audit
19 Which two of the following characteristics apply to internal audit?
(1) The purpose is to improve the company's operations.
(2) Reports to shareholders on whether the financial statements give a
true and fair view of affairs.
(3) Auditors may be employees of the company.
(4) Evidence is collected in accordance with relevant ISAs.
A (1) and (3)
B (2) and (4)
C (1) and (4)
D (2) and (3)
20 Which type of risk is the internal auditor normally responsible for monitoring?
A Audit risk
B Business risk
C Audit risk and business risk
D Neither audit risk nor business risk
21 Which of the following internal audit assignments aims to monitor
management's performance and ensure that company policy is
followed?
A Value for money
B Fraud investigation
C Financial
D Operational
22 The format of the internal audit report is governed by statute.
Is this statement true or false?
A True
B False
23 Which of the following is a limitation of the internal audit function?
A The internal audit report is not circulated to the members.
B Internal audit assignments are designed to meet the needs of the business.
C Internal auditors may be employees of the company.
D Internal auditors may report to an audit committee.
24 Is the following statement about outsourcing the internal audit function true or
false?
One of the advantages of outsourcing the internal audit function is
that the company will not need to exercise any controls over
the outsourced department.
A True
B False
25 Which of the following activities should the internal audit function not be
involved in?
A Monitoring of management's performance
B Reviewing adequacy of management information for decision-making
purposes
C Taking responsibility for the implementation of a new sales ledger
system
D Assessing compliance with regulation relevant to the business
26 The role of the internal audit function in risk management is to
identify risk and implement strategies to minimise risks.
Is this statement true or false?
A True
B False
27 Which of the following is not a benefit of establishing an audit committee?
A Reduced opportunity of fraud, as the audit committee can advise the
executive directors on managing the risks in the financial reporting
process.
B Greater external audit independence, as the audit committee can be
responsible for appointing the external auditors
C Reduced external audit fees, as the presence of the audit
committee reduces audit risk and consequently, the amount of
audit procedures required.
28 A private company has requested that its auditor prepare a valuation
report on a prospective acquisition target in order to help it obtain
finance for the acquisition from its bank.
Which two of the following threats may arise if the auditor agrees to take on
this assignment?
(1) Self-review threat
(2) Advocacy threat
(3) Familiarity threat
(4) Self-interest threat
A (1) and (2)
B (1) and (3)
C (2) and (4)
D (3) and (4)
29 Which of the following statements best reflects the auditor's duty of
confidentiality?
A Auditors must never, under any circumstances, disclose any matters
of which they become aware during the course of the audit to
third parties, without the permission of the client.
B Auditors may disclose any matters in relation to criminal
activities to the police or taxation authorities, if requested
to do so by the police or a tax inspector.
C Auditors may disclose matters to third parties without their
client's consent if it is in the public interest, and they must
do so if there is a statutory duty to do so.
D Auditors may only disclose matters to third parties without their
client's consent if the public interest or national security is
involved.
30 Which two of the following are fundamental principles as stated in the ACCA's
Code of Ethics and Conduct?
(1) Objectivity
(2) Independence
(3) Confidentiality
(4) Professional scepticism
A (1) and (4)
B (1) and (2)
C (2) and (3)
D (1) and (3)
31 Which of the following statements relate to review engagements?
(1) Subject matter is plausible
(2) Reasonable assurance
(3) Nothing has come to our attention which would indicate
that the subject matter contains material misstatements
(4) Positive assurance
A (1) and (3)
B (2) and (4)
C (2) and (3)
D (1) and (4)
31 Multiple choice questions 74 mins
1 When gaining an understanding of the specific business operations of an
audit client which of the following matters would an auditor need to
consider?
A Accounting principles and industry specific practices
relevant to the client's business
B Acquisitions or disposals of the client's business activities
C Leasing of property, plant or equipment for use in the client's business
D Products or services and markets of the client's business
2 Which of the following statements about materiality are correct?
(1) Information is material if its omission or misstatement could
influence the economic decisions of users of the financial
statements.
(2) Materiality is based on the auditor's experience and judgement.
(3) Materiality is always based on revenue.
(4) Materiality should only be calculated at the planning stage of the audit.
A (1), (2) and (3)
B (1), (3) and (4)
C (1) and (2)
D (2) and (4)
3 Which of the following procedures must the auditor use to obtain an
understanding of the entity and its environment in accordance with
ISA 315 Identifying and assessing the risks of material misstatement
through understanding the entity and its environment?
(1) Analytical procedures
(2) Inquiry
(3) Confirmation
(4) Reperformance
A (1), (2) and (3)
B (1) and (2)
C (2), (3) and (4)
D (1) and (4)
5 What are the purposes of planning the audit?
(1) To ensure appropriate attention is devoted to different areas of the audit
(2) To identify potential problem areas
(3) To facilitate delegation of work to audit team members
(4) To ensure the audit is completed within budget and time restraints
A (1), (2), (3) and (4)
B (1), (3) and (4)
C (1), (2) and (3)
D (2) and (3)
6 Which of the following factors influence the form and content of audit working
papers?
(1) Risks of material misstatement
(2) Exceptions identified
(3) Nature of the package used for documentation
(4) Cost to the audit
A (1), (2) and (4)
B (1), (3) and (4)
C (1) and (2)
D (2) and (4)
7 Performance materiality levels are higher than the materiality for the
financial statements as a whole. Is this statement true or false?
A True
B False
8 'Audit risk' represents the risk that the auditor will give an
inappropriate opinion on the financial statements when the financial
statements are materially misstated. Which of the following categories of
risk can be controlled by the auditor?
Category of risk:
(1) Control risk
(2) Detection risk
(3) Sampling risk
A (1) and (2)
B (2) only
C (1) and (3)
D (2) and (3)
9 Which of the following statements are correct with regard to the
relationship between the audit plan and the audit strategy for an external
audit engagement?
(1) The audit plan should be developed before the audit strategy is established.
(2) The audit plan and the audit strategy should be established and
developed at the same time. (3) The overall audit strategy
should be more detailed than the audit plan.
(4) The audit strategy should be established before the audit plan is developed.
A (1) and (3)
B (2) only
C (3) and (4)
D (4) only
10 The definition of the risk of material misstatement is 'Inherent Risk ×
Control Risk × Detection Risk'
. Is this statement true or false?
A True
B False
11 Which of the following would normally be included in the audit plan?
A Reporting objectives
B Industry-specific financial reporting requirements
C Nature, timing, and the extent of planned risk assessment
procedures
12 Is the following statement regarding the interim audit true or false?
The higher the risk of material misstatement the more likely it is
that the auditor will decide to perform substantive procedures during
the interim audit rather than at the period end.
A True
B False
13 The auditor of Z Co has set performance materiality at $100,000.
Which of the following could be the materiality level set for the
financial statements as a whole for Z Co?
A $80,000
B $95,000
C $100,000
D $120,000
14 Which of the following statements is/are true with respect to analytical
procedures?
(1) Analytical procedures can be used throughout the audit.
(2) Analytical procedures must be used as risk assessment procedures.
A (1) only
B (2) only
C (1) and (2)
D Neither (1) nor (2)
15 Who is responsible for the prevention and detection of fraud?
A Internal auditors
B External auditors
C Those charged with governance and management
D The audit committee
16 Which of the following is an appropriate response to the risks of
material misstatement at the assertion level?
A Emphasising the need to maintain professional scepticism
B Increasing supervision on the audit
C Increasing sample sizes for inspecting recorded assets where assets
are more susceptible to theft
D Making changes to the nature of the audit procedures
17 The auditor of A Co wishes to reduce audit risk. Which of the following
actions could the auditor take to achieve this?
(1) Increase sample sizes
(2) Reduce control risk
(3) Assign more experienced staff to the engagement team
A (1) only
B (2) only
C (1) and (3)
D (2) and (3)
18 Which of the following correctly describes the auditors' responsibilities
in accordance with ISA 240 The auditor's responsibilities relating to
fraud in an audit of financial statements?
A The auditor is responsible for the prevention and detection of fraud and error .
B The auditor is not responsible for the prevention of fraud and error but is
responsible for detection.
C The auditor is responsible for obtaining reasonable assurance that the
financial statements are free from material misstatement whether caused
by fraud or error.
D The auditor is responsible for detecting all errors and should attempt to detect
fraud where information comes to light as a result of standard audit procedures.
(2 marks)
19 Is the following statement true or false regarding the retention of
working papers? ACCA recommends that working papers should be
retained for a minimum period of five years.
A True
B False
20 When determining whether the preconditions for an audit are present the
auditor obtains management's agreement that it acknowledges and
understands its responsibilities. Which of the following is not included
in the agreement obtained by the auditor?
A Management's responsibility for preparing the financial statements
B Management's responsibility for internal control to enable the preparation
of financial statements which are free from material misstatement
C Management's responsibility to provide the auditor with all information
relevant to the preparation of the financial statements
D Management's responsibility to prevent and detect fraud
21 Which of the following must be included in an audit engagement letter?
A Arrangements concerning the use of experts
B Obligations to make audit working papers available to other parties
C Expected form and content of any reports
D Basis on which fees are computed
22 It is not the auditor's responsibility to ensure that the entity complies
with relevant laws and regulations. Is this statement true or false?
A True
B False
23 F Co owns a chain of four restaurants, and is subject to national
regulation concerning hygiene in the food preparation process.
Non-compliance can result in a large fine, or closure of the restaurant
concerned.
As F Co's external auditor, what is your responsibility regarding the
company's compliance with the hygiene regulations?
A Actively prevent and detect non-compliance with the regulations
B Perform specific audit procedures to identify possible
non-compliance
C Obtain sufficient appropriate audit evidence about F Co's
compliance with the regulations
D Nothing – the food hygiene regulations do not have a direct
effect on the financial statements
24 In accordance with ISA 250 Consideration of laws and regulations in an
audit of financial statements what are the responsibilities of the
external auditor?
A To obtain sufficient appropriate evidence regarding compliance with
laws and regulations that have both a direct and indirect effect on
the financial statements
B To obtain sufficient appropriate evidence regarding compliance
with laws and regulations that have a direct effect on the
financial statements only
C To obtain sufficient appropriate evidence regarding compliance with
laws and regulations that have an indirect effect on the financial
statements only regulations which affect the business
25 Auditors usually carry out their audit work at different stages known as the
interim audit and the final audit. Which of the following statements, if
any, is/are correct?
(1) Carrying out tests of control on the company's sales day books would
normally be undertaken during an interim audit.
(2) Review of aged receivables ledger to identify balances requiring
write down or allowance would normally be undertaken during
a final audit.
A Neither (1) or (2)
B Both (1) and (2)
C (1) only
D (2) only
26 During the planning stages of the final audit, the auditor believes
that the probability of giving an inappropriate audit opinion is
too high.
How should the auditor amend the audit plan to resolve this issue?
A Increase the materiality level
B Decrease the inherent risk
C Decrease the detection risk
56 Multiple choice questions 65 mins
1 Is the following statement regarding the assurance provided by an internal control
system true or false?
An effective internal control system provides the auditor with absolute
assurance that control objectives have been achieved.
A True
B False
2 Which of the following methods of recording an accounting and controls
system is a series of questions used to determine whether controls
exist which meet specific control objectives?
A Internal control questionnaire
B Internal control evaluation questionnaire
C Flowchart (1 mark)
3 Application controls relate to procedures used to initiate, record, process
and report transactions and other financial data.
Which two of the following are application controls?
(1) Records of program changes
(2) Virus checks
(3) Batch reconciliations
(4) Document counts
A (1) and (2)
B (1) and (4)
C (2) and (3)
D (3) and (4)
4 General IT controls are policies and procedures that relate to many
applications and support the effective functioning of application
controls.
Which two of the following are general IT controls?
(1) Testing procedures using test data
(2) One for one checking
(3) Disaster recovery procedures
(4) Hash totals
A (1) and (3)
B (1) and (4)
C (2) and (3)
D (2) and (4)
5 One of the control objectives of the sales system of B Co is to ensure that
goods and services are sold to credit-worthy customers.
Which of the following control activities would assist B Co in achieving
this objective?
A All sales orders are based on authorised price lists.
B Credit limits are checked before sales orders are accepted.
C Overdue debts are chased each month by the credit controller.
D The aged-debt listing is reviewed by the finance director on a
monthly basis.
6 A control objective of the purchases system of D Co is to ensure that all
liabilities for purchases are valid obligations of the company.
Which of the following control activities would help to ensure that this
objective is achieved?
A Reconciliation of the payables control account to the purchase ledger
B Matching of suppliers' invoices to purchase orders and goods
received notes
C Checking of the mathematical accuracy of the supplier invoice
D Sequential numbering of goods received notes
7 Which of the following controls helps to ensure that payroll
payments are only made to bona fide employees?
(1) Personnel records maintained for all employees
(2) Comparison of bank transfer listing with payroll
(3) Segregation of duties between staff involved in
human resources and payroll functions (4)
Reperformance of the calculation of a sample of payroll
deductions
A (1) and (2)
B (1) and (3)
C (2) and (4)
D (3) and (4)
8 B Co maintains perpetual inventory records.
Which of the following control activities would contribute to the
auditor's confidence that inventory recorded in the financial
statements exists?
(1) Procedures to identify obsolete and damaged inventory
(2) Physical safeguards to protect inventory from theft
(3) Sequential numbering of goods dispatched notes
(4) Reconciliation of inventory records to results of inventory counts
A (1) and (2)
B (1) and (3)
C (2) and (3)
D (2) and (4)
9 C Co ensures that two individuals are always present when the post is
opened. Which control objective does this help to achieve?
A That cash is banked on a regular basis .
B That cash and cheques are accurately recorded in the general ledger.
C That cash and cheques are not misappropriated.
10 Which control objective would be satisfied by the authorisation of capital
expenditure by the board?
A To ensure that investment in non-current assets is
made for valid business purposes
B To ensure that expenditure is correctly classified as
capital expenditure
C To ensure that all non-current assets are recognised in the
non-current asset register
D To ensure that non-current assets are valued correctly
11 Is the following statement regarding tests of control true or false?
Tests of control are designed to detect material misstatements in the financial
statements.
A True
B False
12 Which of the following is not a test of control?
A Inspection of purchase order documentation to
confirm that it has been authorised
B Review of monthly bank reconciliations performed
by the audit client
C Examination of purchase invoices for evidence of mathematical
accuracy checks
D Agreement of the cost of non-current asset additions to
purchase documentation
13 S Co ensures that all goods received are valid business purchases by
matching all deliveries to an authorised order before issuing a goods
received note.
Which of the following would be an appropriate test of control
to confirm that the control is operating effectively?
A For a sample of orders check that there is a matching goods received
note
B Check that the numerical sequence of purchase orders is complete
C For a sample of goods received notes check that there is an
authorised purchase order
D Check that the numerical sequence of goods received notes is
complete
14 The sales invoices of Z Co are matched to dispatch notes with any
mismatched items investigated before they are recorded in the sales
day book.
Which of the following control objectives does this help to achieve?
A It ensures that sales and receivables are valid and accurate .
B It ensures that all goods dispatched are recognised as sales and
receivables.
C It ensures that all goods ordered by customers are dispatched.
D It ensures that customers do not exceed their credit limits
15 Which of the following controls would be designed to ensure accuracy over
input of data?
A A range check
B A sequence check
C Password protection
D Authorisation
16 The auditor of Q Co has identified that Q Co does not match dispatch
notes to sales invoices as part of the controls in the sales system.
What is the potential consequence of this deficiency?
A Customer orders may not be fulfilled accurately.
B Sales and trade receivables may be overstated.
C Sales and trade receivables may be understated.
D Sales invoices may be posted inaccurately in the receivables
control account
Co.
17 The external auditor has identified a deficiency in the internal controls of S
Which of the following factors would indicate that the deficiency
is a significant deficiency in accordance with ISA 265
Communicating deficiencies in internal control to those charged
with governance and management?
(1) The likelihood of the deficiency leading to material misstatement is
low
(2) There is a risk of fraud
(3) The number of transactions affected by the deficiency is low
(4) The deficiency interacts with other deficiencies identified
A (1) and (2)
B (1) and (3)
C (2) and (4)
D (3) and (4)
18 Which of the following statements is true regarding the controls in a small
company?
(1) The external auditor will never be able to rely on
the controls in a small company.
(2) Segregation of duties may be inadequate due to
staff numbers.
(3) Evidence of the operation of controls is more likely to
be available in documentary form.
(4) The external auditor will assess the attitudes,
awareness and actions of management.
A (1) and (3)
B (1) and (4)
C (2) and (3)
D (2) and (4)
19 Is the following statement regarding internal control questionnaires true or
false?
Internal control questionnaires are used to determine whether
there are controls which prevent or detect specified errors or
omissions.
A True
B False
20 During the course of the audit the auditor may identify deficiencies in
internal control which must be reported to management.
Which of the following statements is correct regarding the report to
management sent by the auditor?
(1) The report must include a description of the deficiencies and an
explanation of their potential effects.
(2) The report includes an explanation of the purpose of the audit.
(3) The report states that the results of the audit work have enabled the
auditor to express an opinion on the operating effectiveness of
internal control.
A (1) and (2) only
B (1) and (3) only
C (2) and (3) only
D (1), (2) and (3)
21 Is the following statement regarding the auditor's responsibility to report
deficiencies in internal controls true or false?
All deficiencies in internal controls should be reported to management must be
reported in writing.
A True
B False
22 Fellaini Co operates a large department store and has a large internal
audit department in place. The management of Fellaini Co are keen
to increase the range of assignments that internal audit undertake.
Which of the following assignments could the internal audit department of
Fellaini Co be asked to perform by management?
A Internal audit department members could undertake 'mystery shopper'
reviews, where they enter the store as a customer, purchase goods and rate the
overall shopping experience
B Internal audit could be asked to assist the external auditors by
requesting bank confirmation letters
C Internal audit could be asked to implement a new payroll package for the
payroll department
D Internal audit could be asked to assist the finance department with the
preparation of the year end financial statements
23 Application controls are manual or automated procedures that operate
over accounting applications to ensure that all transactions are
complete and accurate.
Which two of the following are application controls?
(1) Password protection of programs
(2) Batch controls
(3) One for one checking
(4) Regular back up of programs
A (1) and (4)
B (3) and (4)
C (1) and (2)
D (2) and (3)
24 ISA 315 Identifying and assessing the risks of material misstatement
through understanding the entity and its environment sets out the five
components of internal control.
Which of the following is not set out as a component of internal control
within ISA 315?
A Control environment
B The information system relevant to financial reporting
C Human resource policies and practices
79 Multiple choice questions 83 mins
1 Which two of the following would be classified as substantive
procedures?
(1) Tests of control
(2) Walk-through tests
(3) Analytical procedures
(4) Tests of details
A (1) and (2)
B (1) and (4)
C (2) and (3)
D (3) and (4)
2 Is the following statement true or false regarding directional testing?
An audit procedure which tests for the understatement of a class of
expenditure will simultaneously test for the overstatement of the
related liability.
A True
B False
3 The draft financial statements of T Co show the following information:
$'000
Revenue 420
Cost of sales 270
Gross profit 150
Trade receivables 160
Trade payables 130
What is the receivables collection period?
A 139 days (160/420)*365
B 175 days
C 758 days
D 958 days
4 Is the following statement regarding audit sampling true or false?
Audit sampling is the application of audit procedures to less than
100% of items within a population of audit relevance such that all
sampling units have a chance of selection.
A True
B False
5 The auditor of L Co has identified an unexpectedly high deviation rate when
carrying out tests of control on a sample of sales invoices.
Which two of the following would be a satisfactory course of action?
(1) Extend the sample size
(2) Replace the sample
(3) Ignore the deviations as they only affect some of the items tested
(4) Perform alternative substantive procedures
A (1) and (3)
B (1) and (4)
C (2) and (3)
D (2) and (4)
6 The auditor of P Co is planning the audit work on trade receivables.
Which of the following procedures could not be performed by using
computer-assisted audit techniques?
A Selection of a sample of receivables for confirmation
B Calculation of receivables days
C Production of receivables' confirmation letters
D Evaluation of the adequacy of the allowance for
irrecoverable receivables
7 Computer assisted audit techniques include test data and audit software.
In respect of which of the following activities would the use of audit
software be most relevant?
A Tests of online passwords
B Testing of computerised in-put controls on sales invoices
C Totalling of the purchase ledger
D Testing controls over computerised credit-limits
8 Is the following statement regarding audit software true or false?
Audit software is used to assist with substantive procedures.
A True
B False
9 Which of the following statements is true regarding an auditor's expert?
(1) The expert must be a partner or member of staff of the audit firm.
(2) Provided that the auditor has assessed the expert to be competent
audit evidence provided by the expert can be relied upon.
(3) Unless required to do so by law or regulation the auditor must not
refer to the expert in an auditor's report which contains an
unmodified opinion.
A (1) only
B (2) only
C (3) only
D (1), (2) and (3)
10 X Co has an internal audit function. The external auditor has concluded
that the internal audit function does not apply a systematic and
disciplined approach to its work.
How does this affect the extent to which the external auditor can rely on the
work of the internal audit function?
A The external auditor must not use the work of the internal audit function.
B The external auditor can use the work of the internal audit function
provided the individuals have been assessed as competent .
C The external auditor can use the work of the internal audit function provided
the organisational status of the function supports its objectivity.
D The external auditor can use work performed by the internal audit function
which relates to low risk areas of the external audit only.
11 Is the following statement regarding the use of internal audit work by the
external auditor true or false?
The external auditor must reperform some of the work carried out
by the internal audit function if the work of the internal auditor is
to be relied on.
A True
B False
12 The auditor of G Co is performing audit procedures to confirm the
company's ownership of motor vehicles. Which of the following would
provide the most persuasive evidence of this?
A Physical inspection of the motor vehicles
B Inspection of vehicle registration documents
C Checking that the motor vehicles are recorded in the non-current asset
register
D Review of vehicle insurance documentation
13 Which of the following audit procedures would provide the auditor
with evidence of completeness of inventory?
A Tracing test counts performed at the inventory count to the
detailed inventory listing
B Reviewing the physical condition of inventory when attending
the inventory count
C Casting the inventory listing
D Vouching the cost of a sample of inventory items to suppliers' invoices
14 Which two of the following statements are true regarding the auditor's attendance
at the inventory count?
(1) It is the auditor's responsibility to organise the inventory count.
(2) The auditor observes client staff to determine whether inventory
count procedures are being followed.
(3) The auditor reviews procedures for identifying damaged, obsolete and
slow-moving inventory.
(4) If the results of the auditors' test counts are not satisfactory, the auditor
should arrange for the inventory to be recounted.
A (1) and (2)
B (1) and (4)
C (2) and (3)
D (3) and (4)
15 The auditor of Q Co has performed purchases cut-off procedures and has
identified that in two material instances goods received prior to the
inventory count have not been included on the schedule of 'goods
received not invoiced'
. At the period end purchase invoices have not
been received. What is the auditor's conclusion based on this
evidence?
A Inventory is overstated and liabilities are understated.
B Inventory is understated and liabilities are understated.
C Inventory is overstated and liabilities are overstated.
D Inventory is understated and liabilities are overstated.
16 Which of the following statements is/are true regarding direct
confirmation of accounts receivable?
(1) Responses from the customer must be returned directly to the client.
(2) Under the positive method the customer only replies if the amount
stated is agrees with the customer's records.
A (1) only
B (2) only
C (1) and (2)
D Neither (1) nor (2)
17 The key audit risk associated with trade payables is understatement.
Which of the following procedures would provide the most reliable
evidence of the completeness of amounts due?
A Tracing of amounts due per the payables ledger to purchase invoices
B Matching of purchase invoices to goods received notes
C Reconciliation of year-end supplier statements
D Reconciliation of the payables ledger with the payables ledger
control account
18 Is the following statement true or false in respect of litigation and claims?
When the auditor believes that litigation or claims may exist the
auditor seeks to communicate directly with the client's legal
advisers through a letter of inquiry.
A True
B False
19 The auditor of Z Co is auditing share capital. Z Co employs an
independent registrar to deal with its share registration work.
Which of the following is the most reliable evidence of the
validity of the issued share capital stated in the financial
statements?
A The balance on the share capital account in the general ledger
B A certificate of share capital in issue from the registrar
C Z Co's incorporation documentation
D Details of share capital recorded on the previous year's audit
file
20 The auditor of F Co is auditing bank and cash at 31 December 20X4 and
has identified a significant number of remittances recorded in the cash
book on the last day of the year which do not appear on the bank
statement until late January 20X5.
Which of the following steps would the auditor take to help
determine whether F Co is involved in window dressing?
A Request copies of the cheques from the bank and agree the amounts of
the cheques to the entries in the cash book
B Agree the bank statement balance to the balance according to the bank
confirmation letter
C Examine the paying-in slips for the remittances to determine the
date that they were actually paid in to the bank
21 The auditor is performing the audit of a charity whose main source of income is
derived from street collections.
Which of the following controls would provide the auditor with evidence of
completeness of income?
(1) Numerical controls over collection boxes
(2) Sealing of collection boxes at the end of each shift
(3) Matching of paying-in slip details to the bank statement
A (1) and (2)
B (1) and (3)
C (2) and (3)
22 Is the following statement regarding audit considerations when the entity has used
a service organisation
true or false?
The user auditor may request a report from the service auditor which includes a
description of the system at
the service organisation and details the design of the controls.
A True
B False
23 The auditor of M Co has agreed a sample of non-current assets selected by physical
inspection back to the non-current asset register.
For which of the following assertions does this test provide assurance?
A Completeness
B Existence
C Rights and obligations
D Accuracy and valuation
24 Which of the following techniques is generally accepted to be the most efficient to
obtain evidence regarding the existence of bank balances?
A Reperformance
B Confirmation
C Analytical procedures
D Observation
25 Which of the following assertions about classes of transactions and events for the
period under audit is defined below:
'Amounts and other data relating to recorded transactions and events have been
recorded appropriately'
.
A Cut-off
B Accuracy
C Occurrence
D Classification
26 Is the following statement regarding audit evidence true or false?
Appropriateness is the measure of the quality of audit evidence.
A True
B False
27 As the audit senior on the year-end audit of Z Co, you have instructed the audit
junior to obtain and inspect
supporting sales contracts for large sales transactions.
Which of the following assertions are you seeking to test with this audit procedure?
A Cut-off
B Accuracy
C Occurrence
D Completeness
28 Is the following statement regarding direct confirmation of accounts receivable true
or false?
The verification of trade receivables by direct confirmation provides evidence that the
debts are recoverable.
A True
B False
29 Which of the following sampling methods correctly describes systematic
sampling?
A A sampling method which is a type of value-weighted selection in which sample
size, selection and evaluation results in a conclusion in monetary amounts
B A sampling method which involves having a constant sampling interval, the
starting point for testing is determined randomly
C A sampling method in which the auditor selects a block(s) of contiguous items from
within the population
30 An audit junior has been assigned to the audit of bank and cash balances of
Howard Co. He has obtained the following audit evidence:
(1) Bank reconciliation carried out by the cashier
(2) Bank confirmation report from Howard's bankers
(3) Verbal confirmation from the directors that the overdraft limit is to be increased
(4) Cash count carried out by the audit junior
What is the order of reliability of the audit evidence starting with the most reliable
first?
A (4), (2), (1) and (3)
B (2), (1), (4) and (3)
C (4), (3), (2) and (1)
D (2), (4), (1) and (3)
31 When placing reliance on the work of an expert is the following statement true or
false?
In order to place reliance, the auditor is required to evaluate the work performed by
the expert.
A True
B False
120 Multiple choice questions 83 mins
1 As part of the review stage of an audit, the auditor will consider subsequent events.
Up to which date does the auditor have an active responsibility to perform procedures
designed to identify
subsequent events?
A The reporting date
B The date of the auditor's report
C The date of issue of the financial statements
D The date of approval of the financial statements
2 Which of the following procedures will be performed by the auditor as part of a
subsequent events review?
(1) Request for written representations from management
(2) Review of minutes of board meetings held after the date of the financial statements
A (1) only
B (2) only
C (1) and (2)
D Neither (1) nor (2)
3 Is the following statement regarding the purpose of subsequent events true or false?
The purpose of the subsequent events review performed by the auditor is to ensure
that the effects of all
subsequent events identified are reflected in the financial statements.
A True
B False
4 Is the following statement regarding the going concern assumption true or false?
Under the going concern assumption it is assumed that the business will never have
cause to cease trading.
A True
B False
5 Is the following statement regarding the auditor's responsibilities regarding going
concern true or false?
It is the auditor's responsibility to assess an entity's ability to continue as a going
concern.
A True
B False
6 M Co has a year end of 31 December 20X4. The auditor has identified that
management's assessment of
M Co's ability to continue as a going concern covers the period to 30 June 20X5.
What action should the auditor take?
A Request that management extends the assessment period to 30 September 20X5
B Request that management extends the assessment period to 31 December 20X5
C Request that management extends the assessment period to 31 December 20X6
D No action is required provided the auditor is satisfied with management's
assessment to 30 June 20X5
84 Questions
7 ISA 570 Going concern identifies events and conditions that may cast doubt about
the going concern
assumption.
Which of the following are identified by ISA 570 as financial factors?
(1) Loss of key customers
(2) Net liability position
(3) Substantial operating losses
(4) Shortages of key raw materials
A (1) and (2)
B (1) and (4)
C (2) and (3)
D (3) and (4) (2 marks)
8 Z Co has a year end of 30 June 20X4. Management has assessed the ability of the
company to continue as a
going concern based on the period to 30 June 20X5.
Which of the following procedures must the auditor perform to identify factors that
may affect Z Co's ability
to continue as a going concern beyond 30 June 20X5?
A Analysis of cash flow forecasts
B Review of board minutes
C Review of loan terms
D Inquiry of management
9 The auditor of S Co has concluded that the use of the going concern assumption is
appropriate and that the
material uncertainty has been adequately disclosed.
What is the impact of this conclusion on the auditor's report?
A Adverse opinion
B Qualified opinion
C Unmodified opinion without an emphasis of matter paragraph
D Unmodified opinion with an emphasis of matter paragraph
10 The auditor of Y Co has concluded that Y Co is not a going concern. The financial
statements have been
prepared on a going concern basis and management has refused to change them.
What form of audit opinion will be issued by the auditor?
A An unmodified opinion
B A qualified 'except for' opinion due to material misstatement
C A qualified 'except for' opinion due to insufficient appropriate audit evidence
D An adverse opinion
11 T Co has a year end of 31 July 20X4. The auditor completed the audit work on 10
September 20X4 and the
auditor's report was signed on 30 September 20X4. The financial statements were
issued on 1 November
20X4.
Which of the following would be the most appropriate date for the directors to sign
the written
representations letter?
A 31 July 20X4
B 10 September 20X4
C 30 September 20X4
D 1 November 20X4
Questions 85
12 Is the following statement regarding written representations true or false?
Written representations by management regarding specific assertions in the financial
statements provide
sufficient appropriate audit evidence in their own right.
A True
B False
13 For which of the following matters must written representations be sought?
(1) That management has fulfilled its responsibility for the preparation of the financial
statements
(2) That management has provided the auditor with all the information relevant to the
audit
(3) That accounts receivable are recoverable
(4) That inventory is correctly valued at the lower of cost and net realisable value
A (1) and (2)
B (1) and (3)
C (2) and (4)
D (3)
14 Which of the following statements regarding analytical procedures is correct?
A Analytical procedures must be used as part of the overall review of the
financial statements.
B Analytical procedures may be used as part of the overall review of the financial
statements.
C Analytical procedures are only used as risk assessment procedures.
15 Misstatements can arise from error or fraud.
Which of the following statements is correct regarding the auditor's accumulation of
identified
misstatements?
A The auditor must accumulate all misstatements identified during the audit.
B The auditor must only accumulate individually material misstatements identified
during the audit.
C The auditor must accumulate misstatements identified during the audit, other
than those that are clearly trivial.
16 ISA 700 Forming an opinion and reporting on financial statements sets out the
basic elements of an auditor's report.
Which of the following is not included in an unmodified auditor's report?
A Management's responsibility for the financial statements
B Auditors' responsibilities
C Audit opinion
D Deficiencies of internal controls
17 The auditor of Q Co has completed the audit and has concluded that sufficient
appropriate evidence has been obtained, which confirms that the financial statements
are not materially misstated.
Which form of audit opinion will the auditor issue?
A Adverse opinion
B Qualified opinion
C Unmodified opinion
D A disclaimer of opinion
18 ISA 705 Modification to the opinion in the independent auditor's report identifies
three possible types of modification.
In which of the following circumstances would a disclaimer of opinion be issued?
A The auditor concludes that the financial statements include misstatements which are
material but not
pervasive to the financial statements.
B The auditor concludes that the financial statements include misstatements which are
both material
and pervasive to the financial statements.
C The auditor has not been able to obtain sufficient appropriate audit evidence on
which to base an opinion but has concluded that the possible effects of any undetected
misstatements could be
material but not pervasive .
D The auditor has not been able to obtain sufficient appropriate audit evidence
on which to base an opinion and has concluded that the possible effects of any
undetected misstatements could be both
material and pervasive.
19 The auditor of B Co has concluded that inventory is overstated as a number of lines
have not been valued at the lower of cost and net realisable value. The overstatement
is material but not pervasive to the financial statements. Management has refused to
make an adjustment to the financial statements.
What form of modified opinion should the auditor issue?
A Adverse opinion
B Disclaimer of opinion
C Qualified opinion due to a material misstatement
D Qualified opinion due to insufficient appropriate evidence on which to base an
opinion (2 marks)
20 The financial statements of Z Co include a receivables balance of $20,000 which
the auditors do not believe will be recovered. Materiality has been set at $100,000.
There are no other unadjusted misstatements.
What form of audit opinion would be issued by the auditor?
A Adverse opinion
B Unmodified opinion
C Disclaimer of opinion
D Qualified opinion due to overstatement of receivables (2 marks)
21 P Co is being sued by a customer for the supply of faulty products. At the year end
the outcome of the legal case is still uncertain. The directors have fully disclosed the
matter as a contingent liability and the auditors are satisfied with the treatment and the
level of disclosure. The auditors have concluded that the uncertainty is fundamental to
the understanding of the financial statements.
What form of audit opinion would the auditor give?
A Disclaimer
B Unmodified opinion with an emphasis of matter paragraph
C Unmodified opinion without an emphasis of matter paragraph
D Qualified opinion
22 The auditor may wish to draw the users' attention to a matter which is not
presented or disclosed in the financial statements but which is relevant to the users'
understanding of the auditor's report.
How would this affect the auditor's report?
A An emphasis of matter paragraph would be included.
B The audit opinion would be qualified.
C An other matters paragraph would be included.
D The auditor's report would not be affected as the auditor's report only refers to
matters presented or disclosed in the financial statements.
23 The majority of the books and records of Q Co have been destroyed by a flood and
the auditor has no other realistic means of obtaining sufficient, appropriate audit
evidence.
Which form of opinion will the auditor issue?
A An adverse opinion
B A disclaimer of opinion
C Qualified opinion on the basis that sufficient appropriate evidence is not available
D Unmodified opinion with an emphasis of matter paragraph explaining the
circumstances of the flood
24 The statement of financial position of R Co includes a material amount of
$200,000 in respect of costs capitalised in the year as development expenditure. The
auditor has concluded that these costs are research expenditure.
If the auditor is to issue an unmodified opinion which financial statements will require
adjustment?
A Statement of financial position only
B Statement of profit or loss only
C Statement of financial position and statement of profit or loss
D Neither the statement of financial position nor the statement of profit or loss (2
marks)
25 An emphasis of matter paragraph is used in an audit report to draw attention to a
matter affecting the financial statements.
Which two of the following are correct in relation to an Emphasis of Matter Paragraph
in the Auditor's
Report?
(1) It is used when there is a material uncertainty.
(2) It constitutes a modified audit opinion.
(3) The auditor's report is referred to as an unmodified report.
(4) The matter is deemed to be fundamental to the users understanding of the financial
statements.
A (1) and (2)
B (1) and (4)
C (1) and (3)
D (2) and (4) (2 marks)
26 The audit of Giggs Co's financial statements for the year ended 31 October 20X4
has been completed; the audit report and the financial statements have been signed but
not yet issued.
The finance director of Giggs Co has just informed the audit team that he has received
notification that a material receivable balance has become irrecoverable and Giggs Co
will not receive any of the amounts owing.
What actions, if any, should the auditor now take to satisfy their responsibilities under
ISA 560 Subsequent events?
A No actions required as the audit report and financial statements have already been
signed
B Request management to adjust the financial statements, verify the adjustment
and provide a new audit report
C Request management to make disclosure of this event in the financial statements
D Request that management adjust for this event in the following year's financial
statements as it
occurred in year ending 31 October 20X5
1. For each of the following statements seclect whether they are true or false in
respect of the audit engagement letter: The engagement letter should be sent
before acceptance of appointment
True
False
2. For each of the following statements seclect whether they are two of false in
respect of the audit engagement letter: The engagement letter should be sent
after the appointment of the auditor but before the commencement of the audit
True
False
3. C&C company, an assurance firm, has the following two clients among its
client portfolio. For each client, seclect whether inherent risk is high or low.
Tulip Ltd is planning to list on the local stock exchange within the next two
years.
High risk
Low risk
4. C&C company, an assurance firm, has the following two clients among its
client portfolio. For each client, seclect whether inherent risk is high or low.
Hana Ltd is currently facing financial difficulties and is seeking alternative
forms of finance.
High risk
Low risk
5. For each of the following statements seclect whether they are two of false in
respect of the audit engagement letter: The engagement letter should be sent
after commencement of the audit but before the signing of the auditor's report
True
False
6. Which THREE of the following procedures should be carried out after the audit
firm has decided to accept appointment as auditor?
Ensure that the outgoing auditors' removal/resgination has been properly
conclucted
Ensure that a resolution has been passed at the general meeting to appoint the
new auditors
Perform checks to ensure that there are no legal or ethical reasons why the new
audit firm cannot act as auditor
Submit a letter of engagement to the directors
7. For each of the following factors at a prospective client seclect whether that
factor indicates that client is high risk or low risk: Company has prudent
accounting policies
High risk
Low risk
8. Which of the following best describes professional scepticims. The assurance
provider shoud:
Notbelieve anything that management tells him
Not believe anything that management tells him, without obtaining supporting
evidence
Apply a questioning mind to the information and evidence he obtains
Always assume the worst outcome in cases of uncertainty
9. Which ONE of the following is NOT a on benefit of an engagement letter in
respect of assurance services?
Clearly defines the extent of the assurance provider's responsibilities
Provides written confirmation of the acceptance of the engagement
Confirms the scope of the engagement
Certifies the assurance provider's opinion
[Link] each of the following statements seclect whether they are two of false in
respect of the audit engagement letter: An engagement letter should be sent to
all new clients
True
False
[Link] each of the following factors at a prospective client seclect whether that
factor indicates that client is high risk or low risk: Company carries out unusual
transactions
High risk
Lowrisk
[Link] TWO of the following might indicate that an assurance client could be
higher than normal inherent or control risk?
Poor recent performance
Strong internal controls
Unusual transactions
The existence of an internal audit department
[Link] TWO of the following are auditors always required to do on being
invited to accept an audit engagement?
Ensure they are professionally existing resources to carry out the audit
Ensure they have adequate existing resources to carry out the audit
Obtain references for key personnel within the entity to be audited
Communicate with the existing auditors to discover any reasons they should not
accept appointement
[Link] each of the following factors at a prospective client seclect whether that
factor indicates that client is high risk or low risk: Company currently has no
finance director
High risk
Low risk
[Link] ONE of the following correctly describes the period for which client
identification documents must be kept under money laundering regulation?
For a minimum of five years and until five years have elaped since the relationship
with the client has ceased
For a minimum of seven years and until seven years have elaped since the relationship
with the client has ceased
For a minimum of five years and until seven years have elaped since the relationship
with the client has ceased
For a minimum of seven years and until five years have elaped since the relationship
with the client has ceased
[Link] THREE of the following are on purposes of a letter of engagement?
Setting out the form of any report to be issued
Providing constructive suggestions to management concerning improvements in
internal control
Documenting and confirming acceptance of the appoitment
Narrowing the expectations gap
Providing evidence on matters where other evidence is not expected to exist
[Link] one of the following qualifications is required for individuals working
on audits in the UK?
University degree
Professional qualification
Membership of a recognised supervisory body
Employment by a firm controlled by qualified persons
[Link] statement: "Relevant criteria for assurance engagements relating to FSs are
likely to be accounting standards" is true or false?
True
False
[Link] each of the following statements select whether they are true or false.
Astatutory audit gives reasonable assurance that the FSs give a true and fair
view?
True
False
[Link] ONE of the following statements best describes the evidence obtained
and the opinion given in a resonable assurance engagement?
Sufficient appropriate evidence and a negative opinion
A lower level of evidence and a negative opinion
A lower level of evidence and a positive opinion
Sufficient appropriate evidence and a positive opinion
[Link] any assurance engagement there are three parties involved: the responsible
party, the practitioner and user. In respect of given subject matter state which
party provides an opinion on whether the subject matter complies with the
criteria?
User
Practitioner
Responsible party
[Link] statement: "The criteria for all assurance engagements will be the same" is
true or false?
True
False
[Link] level of assurance given by an assurance engagement wwill depend on the
type of engagement. For statutory audit, select what level of assurance you
would expect to be given:
Absolute
Reasonable
[Link] any assurance engagement there are three parties involved: the responsible
party, the practitioner and user. In respect of given subject matter state which
party determines the suitable criteria?
User
Practitioner
Responsible party
[Link] following is an extract from an independent accountant's unmodified report
on a profit forecast: "Base on our examination of the evidence supporting the
assumptios, nothing has come to our attention which causes us to believe that
these assumptions do not provide a reasonable basis for the [Link]
ONE of the following BEST describes the type of assurance provided by this
statement?
Positive assurance expressed negatively
Negative assurance expressed positively
Limited level of assurance expressed negatively
High level of assurance expressed negatively
[Link] are two types of assurance engagement: reasonable assurance
engagements and limited assurance engagements, There are two types of
assurance conclusion: Positive and Negative. For limited assurance
engagement, select the appropriate conclusion given?
Positive
Negative
[Link] the context of a statutory audit which THREE of the following are examples
of the expectaion gap? The belief that:
The auditor's report certifies the financial statements as correct
The auditor's principal duty is to detect fraud
The auditor is employed by the directors
The auditor checks all transactions
[Link] are two types of assurance engagement: reasonable assurance
engagements and limited assurance engagements. There are two types of
assurance conclusion: Positive and Negative. For reasonable assurance
engagement, select the appropriate conclusion given?
Positive
Negative
[Link] each of the following statements select whether they are true or false.
Anegative assurance conclusion gives a limited level of assurance
True
False
[Link] one of the following best describes the concept of assuarance?
An assurance firm's high level of satisfaction as to the reliability of an assertion being
made by one party for the use of another party
An assurance firms satisfaction as to the reliability of an assertion being made by one
party for the use of another party
A user's satisfaction as to the reliability of an assertion being made by another party
An assurance firm's limited level of satisfaction as to the reliability of an assertion
being made by one party for the use of another party
[Link] two of the following are limitations of the provision of assurance?
Assrurance work is carried out by people independent of the entity
Sampling is used in assurance work
Client system have inherent limitations
Unqualified staff may be used on assurance engagements
[Link] statement: "Suitable criteria can only be identified for assurance
engagements relating to financial statements" is true or false?
True
False
[Link] each of the following statements select whether they are true or false.
Reasonable assurance is absolute assurance of the correctness of the subject
matter
True
False
[Link] level of assurance given by an assurance engagement wwill depend on the
type of engagement. For Report on profit and cash flow forecasts, select what
level of assurance you would expect to be given:
Reasonable
Limited
[Link] level of assurance given by an assurance engagement wwill depend on the
type of engagement. For Review of financial information, select what level of
assurance you would expect to be given:
Reasonable
Limited
36. Which one of the following is NOT a benefit of an assurance report on
Financial information? An assurance report
Enhances the credibility of the information being reported upon
Reduces the risk of management bias in the information being reported upon
Attets to the correctness of the information being reported upon
Draws the attention of the user to deficiencies in the information being reported upon
[Link] three of the following describe aspects of the expectations gap with
respect to the external audit
Users do not understand the meaning of the audit opinion
Users do not aware of the limitations of the audit process
Users do not appreciate that reasonable assurance is a low level of assurance
Users do not understand what the audit process involves
[Link] any assurance engagement there are three parties involved: The responsible
party, the practitioner and the user. In respect of given subject matter state
which party gathers evidence on the subject matter?
Responsible party
Practitioner
User
[Link] three of the following are key elements of a general assurance
engagement?
A user
A subject matter
Suitable criteria
An assurance file
[Link] any assurance engagement there are three parties involved: The responsible
party, the practitioner and the user. In respect of given subject matter state
which party prepares the subject matter
responsible party
practitioner
User
SECTION 1: AUDIT AND ASSURANCE ENGAGEMENTS
1.1. MCQ – AUDIT AND ASSURANCE ENGAGEMENTS
1. Which of the following is the most appropriate definition of the external
audit?
A The external audit is an exercise carried out by auditors in order to
give an opinion on whether the financial statements of a company are
materially misstated.
B The external audit is an exercise carried
out in order to give an opinion
on the effectiveness of a company's internal
control system.
C The external audit is performed by
management to identify areas of
deficiency within a company and to make
recommendations to mitigate those
deficiencies.
D The external audit provides negative
assurance on the truth and fairness
of a company's financial statements
2.
Is the following statement regarding
stewardship true or false? Directors
are stewards of the investment made by
shareholders in a company.
A True
False
3. Which two of the following are elements of an assurance engagement?
(1) A three-party relationship
(2) Suitable criteria
(3) Determination of materiality
(4) An engagement letter
A (1) and (2) only
B (1) and (3) only
C (2) and (3) only
D (1) and (4) only
4
.
Who normally appoints the external auditors of a company?
A Directors
B Shareholders
C Audit committee
D Senior management
5. The level of assurance provided by an external audit is absolute. Is this
statement true or false?
A True
B False
6. Limited assurance engagements give what sort of assurance?
A. Moderate
B. Low
7. Which of the following is NOT the element of assurance service?
A. Sufficient appropriate audit evidence
B. Suitable criteria
C. A written report in the appropriate form
D. A three party relationship consisting of the responsible party, users, and
subject matter
8. Which of the following is NOT a level of assurance provided by an assurance
engagement?
A. Absolute assurance
B. Negative assurance
C. Limited assurance
D. Reasonable assurance
9. The following conclusions have been reported on two engagements:
“ The insurance claim presents a true and fair estimate of the amount of inventory
lost in the warehouse fire"
“The cash flow forecast contains no assumptions that appear unreasonable"
Which of the following describes the level of assurance expressed in these
conclusions:
A. (1) negative assurance; (2) No assurance
B. (1) Positive assurance; (2) No assurance
C. (1) negative assurance; (2) Negative assurance
D. (1) Positive assurance; (2) Negative assurance
10. Is the following statement true or false?
“Assurance engagements can relate only to financial measures and results"
A. True
B. False
11. Which of the following is the correct definition of an audit?
A: The independent examination of and expression of opinion on the financial
statements of an entity by a duly appointed auditor in pursuit of that
appointment
C: The process by which the director can state that the FS show a true and fair view.
B: The examination and certification of opinion on the FS of an entity by a duly
appointed auditor in pursuit of that appointment
D: The process that produces a report stating that nothing has been found wrong in
the financial statements.
12.
"Based on our review, nothing has come to our attention that causes us to
believe that the accompanying financial statements do not present fairly, in all
material respects... in accordance with International Financial Reporting
Standards.
" Lited + vegative. Which of the following BEST describes the type
of assurance provided by this statement?
A. Positive assurance expressed negatively
B. Negative assurance expressed positively
C. High level of assurance expressed negatively
D. Limited level of assurance expressed negatively
13. The level of assurance given by an assurance engagement will depend on the
type of engagement. Assurance levels are often described as being either:
1. Absolute
2. Reasonable
3. Limited
4-Zero
What level of assurance would normally be given to an audit of financial
statements?
A: 1
B. 2
C:3
D:4
14. Which of the following best describes professional skepticism?
A. To disbelieve management professional scepticisms = questioning
B. To not believe anything that management asserts, without obtaining
supporting evidence X
C. To apply a questioning mind to information and evidence
D. To be prudent and always assume the worst outcome in the case of uncertainty
15. Who is ultimately responsible for ensuring that the annual financial
statements of a listed company are prepared in accordance with IFRS and
relevant legislation?
A. The auditor
B. The board of directors
C. The company secretary
D. The listing exchange
16. What is the objective of an audit of financial statements of a company?
Obgrative of an audit of FS assurance about credibility
A. To protect the interests of minority shareholders
B. To detect fraud and other irregularities
C. To assess the effectiveness of the company's performance
D. To provide assurance on credibility of the financial statements
17. Which of the following is the most appropriate definition of the external
audit?
A The external audit is an exercise carried out by auditors in order to give an
opinion on whether the financial statements of a company are materially
misstated.
B The external audit is an exercise carried out in order to give an opinion on the
effectiveness of a company's internal control system.
C. The external audit is performed by management to identify areas of deficiency
within a company and to make recommendations to mitigate those deficiencies.
D. The external audit provides negative assurance on the truth and fairness of a
company's financial statements
18. Is the following statement regarding stewardship true or false? Directors
are stewards of the investment made by shareholders in a company.
A True
B False
19. Which two of the following are elements of an assurance engagement?
(1) A three-party relationship
(2) Suitable criteria
(3) Determination of materiality
(4) An engagement letter
A (1) and (2) only
B (1) and (3) only
C (2) and (3) only
D (1) and (4) only
Câu 133: Which of the following are the responsibilities of the external auditor
in auditing financial statements?
(1) Maintaining internal controls and preparing financial report;
(2) Providing internal assurance on internal control and financial reports;
(3) Providing internal oversight of the reporting process
A. All of the above
B. None of the above
C. (1) and (2)
D. (2) and (3)
Câu 134: Which THREE of the following are key elements of a general assurance
engagement?
A. Subject matter
B. Sufficient appropriate evidence
C. An assurance file
D. Written report
Câu 135: Which one of the following best describe the concept of assurance?
A. Assurance refer to an assurance firm’s high level of satisfaction as to the reliability
of an assertion being made by one party for the use of another party
B. Assurance refer to an assurance firm’s satisfaction as to the reliability of an
assertion being made by one party for the use of another party
C. Assurance refer to a user’s satisfaction as to the reliability of an assertion being
made by another party D. Assurance refer to an assurance firm’s limited level of
satisfaction as to the reliability of an assertion being made by one party for the use of
another party
Câu 136: Which of the following body is responsible for setting International Standard
on Auditing?
A. IASB
B. FRC
C. IAASB
D. ACCA
Câu 137: Which of the following is a general principle for the auditor to follow?:
(1) Compliance with applicable ethical principles;
(2) Compliance with International Standard on Auditing;
(3) Keeping an attitude of professional skepticism when planning and performing the
audit
A. (1) and (2)
B. (1) and (3)
C. (2) and (3)
D. (1) and (2) and (3)
SECTION 2: CODE OF ETHICS AND CONDUCT
1. Which of the following could cause ADVOCACY?
‘a. Audit team to be offered a balloon flight entertainment
‘b. Tax fee to be based on a percentage of tax saved
‘c. Firm to represent Stark in a dispute with the tax authorities
2. You are an audit manager of Ali & Co and have just been assigned the audit of
Stark Co (Stark). In an initial meeting with the finance director of Stark, you
learn that the audit team will not be entertained on Stark's yacht this year,
instead, he has arranged a balloon flight costing less than one-tenth of the
expense of using the yacht and hopes this will be acceptable.
Which of the following actions should be taken to ensure the firm complies with
ACCA’s Code of Ethics and Conduct?
‘a. The gift may be accepted as Stark has taken appropriate measures to reduce the
value of the gift compared to previous years.
‘b. The value of the gift should be assessed to determine whether it is of material
value to the financial statements.
‘c. The gift should only be accepted if its value is trivial and inconsequential to
the recipients.
‘d. Only the audit partner and audit manager should accept the gift.
3. You are the audit manager of Jones & Co and you are planning the audit of
LV Fones Co, a listed company, which has been an audit client for four years
and specializes in manufacturing luxury mobile phones. The employees of LV
Fones Co are entitled to purchase smartphones at a discount of 10%. The audit
team has in previous years been offered the same level of staff discount.
Which of the following options best identifies the valid potential threats to
independence in the audit of LV Fones and allocates the threat to the most
appropriate category?
a) Familiarity
b) self-interest
c) Self-review
d) intimidation
4. The audit team being offered a 10% discount on mobile phones of the client.
Which of the following statements is true in accordance with ACCA's Code of
Ethics and Conduct?
a) The audit team can accept the discount as it is on the same terms as that offered to
staff
b) Junior members of the audit team are allowed to accept the discount, but the
auditnmanager and audit partner should not
c) Unless the value of the discount is trivial and inconsequential to the audit
team members, the offer should be declined
D) The audit team is only allowed to accept a discount of up to 5%
5. Which TWO of the following are fundamental principles as stated in the
ACCA’s Code of Ethics and Conduct?
1 Objectivity
2 Independence
3 Confidentiality
4 Professional skepticism
A 1 and 4
B 1 and 2
C 2 and 3
D 1 and 3
6. Which of the following are recognised threats to independence and
objectivity as identified in ACCA's Code of Ethics and Conduct?
(1) Familiarity
(2) Self-interest
(3) Integrity
(4) Advocacy
A (1), (2), (3) and (4)
B (1), (2) and (4)
C (2), (3) and (4)
D (2) and (4) only
7. In which of the following situations would the auditor be able to disclose
confidential information about a client?
(1) Disclosure is required by law.
(2) Disclosure is permitted by law but the auditor has not requested the client's
permission.
(3) The auditor suspects that the client has committed money-laundering offences.
A (1) and (2) only
B (1) and (3) only
C (2) and (3) only
D (1), (2) and (3)
8. Andrew Jones has been the key audit partner of X Co, a public interest
entity, for seven years. For how long must he be rotated off the audit as a
minimum to comply with ACCA's Code of Ethics and Conduct?
A 1 year
B 2 years
C 3 years
D 4 years
9. Who is ultimately responsible for a company's system of internal controls?
A External auditors
B Board of directors
C Internal auditors
D Audit committee
10. AB & Co audits DEF Co. In accordance with ACCA Code of Ethics and
Conduct which two of the following circumstances would constitute a threat to
objectivity?
(1) An employee of AB & Co owns shares in DEF Co but is not part of the audit
team
(2) The best friend of the engagement partner owns a significant indirect financial
interest in DEF Co
(3) The audit manager of DEF Co owns a small number of shares in DEF Co
(4) The husband of the audit partner owns shares in DEF Co
A (1) and (2)
B (1) and (4)
C (2) and (3)
D (3) and (4)
11. Which two of the following are fundamental principles as stated in the
ACCA's Code of Ethics and Conduct?
(1) Objectivity
(2) Independence
(3) Confidentiality
(4) Professional skepticism
A (1) and (4)
B (1) and (2)
C (2) and (3)
D (1) and (3)
12. Which of the following principles of ACCA’s code of ethics does this
statement mention?
“Auditor should not allow bias, conflicts of interest or undue influence of others to
override professional or business judgements”
A. Integrity
B. Objectivity
C. Professional competence and due care
D. Confidentiality
E. Professional behaviour
13. Which of the following statement explain for “self-interest” threat?
A. The auditor’s own personal interest in client which could influence the
auditor’s independence
B. Auditors review work that their own firm has undertaken previously during
the audit, e.g. preparing accounts or making a valuation
C. If the auditors get involved in disputes concerning the client, they may end up
acting for or against the client, which undermine the appearance of objectivity
D. The auditors may be intimidated by a dominant or aggressive atmosphere at
the client
14. In Which of the following situations would the auditor has duty to disclose
confidential information about a client?
A. Disclosure is not required by law
B. The auditor suspects that the client has committed money-laundering
offences
C. Disclosure is necessary for the public interest
15. Which of the following threats does this situation create
You are senior auditor of Smartwear Ltd. The director of Smartwear have requested
you to assist them ưith the preparation ò the statutory financial statements
A. Self-interest
B. Self- review
C. Familiarity
D. Intimidation
16. Which THREE of the following are started fundamental principles of the
IESBA code?
A. Independence
B. Confidentiality
C. Objectivity
D. Integrity
17.
“Auditors have a continuing duty to maintain professional knowledge and
skill at the level required and should act diligently and in accordance with
applicable technical and professional standards”
. Which of the following
principles of ACCA’s code of ethics does this statement mention to?
A. Integrity
B. Objectivity
C. Professional competence and due care
D. Professional behaviour
SECTION 3: RISK ASSESSMENT
1. When gaining an understanding of the specific business operations of an audit
client which of the following matters would an auditor need to consider?
A Accounting principles and industry specific practices relevant to the client's
business
B Acquisitions or disposals of the client's business activities
C Leasing of property, plant or equipment for use in the client's business
D Products or services and markets of the client's business
2. Which of the following procedures must the auditor use to obtain an
understanding of the entity and its environment in accordance with ISA 315
Identifying and assessing the risks of material misstatement through
understanding the entity and its environment?
(1) Analytical procedures
(2) Inquiry
(3) Confirmation
(4) Reperformance
A (1), (2) and (3)
B (1) and (2)
C (2), (3) and (4)
3. What are the two elements of the risk of material misstatement at the
assertion level?
A Inherent risk and detection risk B Audit risk and detection risk
C
ri
Inherent risk and control risk D Detection risk and control
sk
4.
'Audit risk' represents the risk that the auditor will give an inappropriate
opinion on the financial statements when the financial statements are
materially misstated. Which of the following categories of risk can be controlled
by the auditor? Category of risk:
(1) Control risk
(2) Detection risk
(3) Sampling risk
A (1) and (2)
B (2) only
C (1) and (3)
D (2) and (3)
5. The definition of the risk of material misstatement is 'Inherent Risk ×
Control Risk × Detection Risk'
. Is this statement true or false?
A True
B False
6. Which of the following statements about materiality are correct?
(1) Information is material if its omission or misstatement could influence
the economic decisions of users of the financial statements.
(2) Materiality is based on the auditor's experience and judgment.
(3) Materiality is always based on revenue.
(4) Materiality should only be calculated at the planning stage of the audit.
A (1), (2) and (3)
B (1), (3) and (4)
C (1) and (2)
D (2) and (4)
7. Performance materiality levels are less than the materiality for the financial
statements as a whole. Is this statement true or false?
A True
B False
8. Is the following statement regarding the interim audit true or false? The
higher the risk of material misstatement the more likely it is that the auditor
will decide to perform substantive procedures during the interim audit rather
than at the period end.
A True
B False
9. Who is responsible for the prevention and detection of fraud?
A Internal auditors
B External auditors
C Those charged with governance and management
D The audit committee
10. The auditor of A Co wishes to reduce audit risk. Which of the following
actions could the auditor take to achieve this?
(1) Increase sample sizes
(2) Reduce control risk
(3) Assign more experienced staff to the engagement team
A (1) only
B (2) only
C (1) and (3)
D (2) and (3)
11. Which of the following example illustrates Inherent Risk?
A. Director’s pay related to company’s profitability
B. The company has a high turnover staff in the accounting department
C. Senior management regularly override the internal control system
D. Audit staff are inexperienced
12. Which of the following example illustrates Control Risk?
A. The financial statements include complex transactions
B. The company has recently listed on the local stock exchange with high profit
expectations from analysts
C. Senior management regularly override the internal control system
D. Sample sizes have been calculated incorrectly by the auditor and are too small
13. Which of the following case could lead to the assessment that inherent risk is
lower than normal
A. The company operates in a profit-related pay scheme
B. The busisness of the company is cash-based
C. Financial statements contain balances with straightforward financial
accounting
Requirements
14. For each of the following statements about materiality, Which ONE of the
following statement is true?
A. Materiality only depends on the size of the error in the context of its omission or
misstatement.
B. Materiality should be considered when planning audit procedures and when
evaluating discovered misstatements.
C. Materiality must be expressed as a proportion of asset
D. Materiality will not influence the audit opinion given
2. Which of the following is true regarding Materiality?
A. Materiality is always expressed as a proportion of profits
B. Materiality is always expressed as a proportion of revenue
C. Materiality should be considered when planning audit procedures and when
evaluating discovered misstatements
3. For each of the following statements about concept of materiality, Which ONE
of the following statement is false?
A. Materiality should be calculated at the planning stage of all audits
B. Materiality can be expressed as a proportion of asset
C. Materiality will influence the audit opinion given
D. Once established, the materiality level initially set cannot be revised during
the course of the audit
2. Which of the following is NOT a reason for obtaining an understanding about
the
entity and its environment?
A. To identify and assess the risks of material misstatement in the financial statements
B. To enable the auditor to design and perform further audit procedures
C. To provide a frame of reference for exercising audit judgement, for example, when
setting audit materiality
D. To identify the relevant internal control and test its operating effectiveness
1. Two types of procedures used in gathering evidence are tests of controls and
substantive procedures. Sometimes, a specific procedure can serve as both a test
of
control and substantive procedure. If sales for the year are compared to the
budget,
which ONE of the type of procedures is used to illustrate?
A. Test of control
B. Substantive procedure
C. Both a test of control and a substantive procedure
D. Neither a test of control nor a substantive procedure
2. Which TWO of the following would be classified as substantive procedures?
A. Analytical procedures
B. Tests of control
C. Walk-through tests
D. Tests of details.
3. Which THREE of the following are procedures that could be used by auditors
to
provide evidence relating to a balance in the financial statements?
A. Analytical procedures
B. Tests of control
C. Walk-through tests
D. Tests of details
SECTION 4: AuDIT PLANNING AND DOCUMENTATION
1. Which of the following would normally be included in the audit plan?
A Reporting objectives
B Industry-specific financial reporting requirements
C Nature, timing, and the extent of planned risk assessment procedures
2. Which of the following statements are correct with regard to the relationship
between the audit plan and the audit strategy for an external audit
engagement?
(1) The audit plan should be developed before the audit strategy is established.
(2) The audit plan and the audit strategy should be established and developed at
the same time.
(3) The overall audit strategy should be more detailed than the audit plan.
(4) The audit strategy should be established before the audit plan is developed.
A (1) and (3)
B (2) only
C (3) and (4)
D (4) only
3. What are the purposes of planning the audit?
(1) To ensure appropriate attention is devoted to different areas of the audit
(2) To identify potential problem areas
(3) To facilitate delegation of work to audit team members
(4) To ensure the audit is completed within budget and time restraints
A (1), (2), (3) and (4)
B (1), (3) and (4)
C (1), (2) and (3)
D (2) and (3)
4. Which of the following factors influence the form and content of audit
working papers?
(1) Risks of material misstatement
(2) Exceptions identified
(3) Nature of the package used for documentation
(4) Cost to the audit
A (1), (2) and (4)
B (1), (3) and (4)
C (1) and (2)
D (2) and (4) (2 marks)
5. Is the following statement regarding audit evidence true or false?
Appropriateness is the measure of the quality of audit evidence.
A True
B False
7. Which of the following is assertions used by auditor about class of
transaction
A. Existence
B. Cut-off
C. Right and obligation
8. Which of the following assertions are NOT relevant to the audit of tangible
non-current assets
A. Existence
B. Occurrence
C. Classification
D. Presentation
E. Right and obligation
9. The following test are carried out by an auditor: “Tracing non-current asset
which have been observed in use back to the non-current asset register”
A. Existence
B. Completeness
C. Classification
D. Right and obligation
2. Which of the following is NOT objective of audit planning?
A. To determine the scope of the engagement and sign the engagement letter
B. To identify and resolve potential problems on a timely basis.
C. To ensure appropriate attention to important areas of the audit
D. To select appropriate team members and assign work to them
1. Which of the following is NOT the reason why auditor need to record their
work
in working papers?
A. To confirm the terms of the engagement
B. To help the audit team to plan and perform the audit
C. To retain a record of matters of continuing significance to the engagement
D. To enable the conduct of quality control reviews and inspections
2. Which of the following is likely to be kept on a permanent audit file?
A. Supporting documents to demonstrate the audit adjustment
B. Audit manager’s review notes
C. Previous year’s signed financial statements
D. This year’s trial balances, accounting ledgers
1. Which of the below factors influence the auditor's judgement regarding the
reliability of the evidence obtained?
A. The source of audit evidence
B. The materiality of the account
C. The volume of audit evidence obtained
D. The size of the account
2. In respect of an audit engagement, which of the following is the least
persuasive
method of gathering evidence?
A. Inspection of a supplier’s invoice
B. A receivables confirmation letter sent directly from the customers to the auditor
C. Recalculation of depreciation
D. Inspection of a sales invoice
3. Which of the following is true regarding audit evidence?
A. Audit evidence from internal sources is more reliable than that obtained from
external
sources
B. A sales invoice is more reliable than a purchase invoices as it is internally
generated
C. Original documents are more reliable than copies
D. A bank statement is less reliable than the cash at bank nominal ledger account as it
is
generated by third party
1. Which one of the following assertions is the auditor LEAST concerned with
when
testing a non-current asset balance?
A. Existence
B. Rights and Obligations
C. Completeness
D. Cut-off
2. Which of the following procedures would provide evidence of Rights and
Obligations of motor vehicles?
A. Vouching a sample of motor vehicles in the asset register to registration
documents
B. Physical inspection of motor vehicles
C. Recalculation of the depreciation of motor vehicles charge in the period
D. Recalculation of gain or loss from disposal of motor vehicles during the year
1. What is the purpose the following procedures will provide appropriate audit
evidence in respect of the completeness of non-current assets?
A. For a sample of non-current assets listed on the non-current assets register,
physically
inspect the asset.
B. For a sample of assets on the assets register, recalculate the net book values in
accordance with the entity's accounting policies
C. For a sample of assets on the assets register, inspect relevant purchase invoices or
deeds
D. For a sample of assets selected by physical inspection, agree that they are
listed on the non-current assets register
2. Auditors obtain evidence using procedures set out in ISA (UK) 500, Audit
Evidence. The auditor examines a title deed to confirm that the company has
ownership of a plot of land. Which ONE of the following procedures is being
used?
A. Inspection
B. Observation
C. Inquiry
D. Re-performance
3. The auditor of Mondays Ltd is performing a test to ensure that there are no
omissions from the non- current asset register. In respect of which ONE of the
following assertions will this procedure provide audit evidence?
A. Existence
B. Accuracy, valuation and allocation
C. Completeness
D. Classificatio
SECTION 5: INTERNAL CONTROLS
1. Which of the following is NOT an inherent limitation of internal control
systems?
A. Insufficient segregation of duties
B. Possibility that employees may collude together fraudulently
C. Possibility of human error in undertaking tasks
2. Which of the following controls of a sales system ensure that all goods
despatched are completely and accurately invoiced?
a) Good despatched notes are matched to sales invoices
b) Sales invoices are sequentially numbered
c) Sales invoices are matched to customer orders
3. ISA 315 Identifying and Assessing the Risks of Material Misstatement
through Understanding the Entity and Its Environment sets out the five
components of internal control. Which of the following is NOT set out as a
component of internal control within ISA 315?
A. Control environment
B. The information system relevant to financial reporting
C. Human resource policies and practices
4. Which of the following procedures are TESTS OF CONTROL an auditor
should perform in testing the inventory cycle of their client whilst attending the
inventory count?
(1) Observe whether the client’s staff are following the inventory count
instructions
(2) Review inventory present in the warehouse for evidence of damage or
obsolescence
(3) Obtain a sample of the last goods received notes and goods despatched
notes and follow through to ensure inclusion in the correct accounting period
(4) Inspect and review management’s inventory count instructions
A 2 and 3
B 1 and 4
C 1 and 2
D 3 and 4
5. Is the following statement regarding the assurance provided by an internal
control system true or false? An effective internal control system provides the
auditor with absolute assurance that control objectives have been achieved.
A. True
B. False
6. Which of the following methods of recording an accounting and controls
system is a series of questions used to determine whether controls exist which
meet specific control objectives?
A. Internal control questionnaire
B. Internal control evaluation questionnaire
C. Flowchart
7. One of the control objectives of the sales system of B Co is to ensure that
goods and services are sold to credit-worthy customers. Which of the following
control activities would assist B Co in achieving this objective?
A. All sales orders are based on authorized price lists.
B. Credit limits are checked before sales orders are accepted.
C. Overdue debts are chased each month by the credit controller.
D. The aged-debt listing is reviewed by the finance director on a monthly basis
8. The draft financial statements of T Co show the following information:
$’000
Revenue - 420
Cost of sales - 270
Gross profit - 150
Trade receivabl- 160
Trade payables - 130
What is the receivables collection period?
A. 139 days
B. 175 days
C. 758 days
D. 958 days
9. Which of the following controls helps to ensure that payroll payments are
only made to bona fide employees?
(1) Personnel records maintained for all employees
(2) Comparison of bank transfer listing with payroll
(3) Segregation of duties between staff involved in human resources and
payroll functions
(4) Reperformance of the calculation of a sample of payroll deductions
A. (1) and (2)
B. (1) and (3)
C. (2) and (4)
D. (3) and (4)
10. B Co maintains perpetual inventory records. Which of the following control
activities would contribute to the auditor's confidence that inventory recorded in
the financial statements exists?
(1) Procedures to identify obsolete and damaged inventory
(2) Physical safeguards to protect inventory from theft
(3) Sequential numbering of goods dispatched notes
(4) Reconciliation of inventory records to results of inventory counts
A. (1) and (2)
B. (1) and (3)
C. (2) and (3)
D. (2) and (4)
11. Which of the following is not a test of control?
A. Inspection of purchase order documentation to confirm that it has been
authorised
B. Review of monthly bank reconciliations performed by the audit client
C. Examination of purchase invoices for evidence of mathematical accuracy
checks
D. Agreement of the cost of non-current asset additions to purchase
documentation
12. ISA 315 Identifying and assessing the risks of material misstatement
through understanding the entity and its environment sets out the five
components of internal control. Which of the following is not set out as a
component of internal control. Which of the following is not set out as a
component of internal control within ISA 315?
A. Control environment
B. The information system relevant to financial reporting
C. Human resource policies and practices
1. Which of the following is NOT a component of internal control?
A. Control risk
B. The entity’s risk assessment procedures
C. Control activities
D. Control environment
2. Which of the following is NOT a control activity?
A. Physical control
B. The control environment
C. Reconciliations and comparisons
D. Authorization
3. Which of the following represent inherent limitations of a system of internal
controls?
A. Lack of controls over the purchase system
B. Lack of staff to ensure segregation of duties
C. The possibility that staff members will collude in fraud
4. Which of the following is true regarding to internal control system in small
entities?
A. Smaller companies are more likely to be successful in the implementation of
segregation of duties controls.
B. Management override is more likely to take place in smaller companies
C. Smaller companies usually maintain internal audit function
5. Which of the following is NOT true regarding limitation of any system of
internal
controls?
A. The cost of implementing controls may be more expensive than the cost of any
potential risk arising.
B. The effectiveness of many controls rely on the integrity of those applying them.
C. Internal controls are only applied to material items.
D. Standard controls may not be designed to deal with unusual transactions
SECTION 6: AUDIT SUBSTANTIVE PROCEDURES
1. Which of the following substantive procedures provides evidence over the
EXISTENCE of non-current assets?
A Select a sample of assets included in the non-current asset register and
physically verify them at the client premises
B Review the repairs and maintenance expense account to identify any items of
a capital nature
C For assets disposed of, agree the sale proceeds to supporting documentation
and cash book
2. Which of the following is a substantive audit procedure for wages and
salaries?
A Inspect a sample of clock cards for evidence of authorization by a
responsible official
B Recalculate a sample of payroll deductions such as employment taxes to
confirm accuracy
C Attempt to access and make changes to the payroll master file using the log
on for a junior clerk
3. Which of the following NOT should be included in an audit engagement
letter?
a) Objective and scope of the audit
b) Results of previous audits
c) Management’s responsibilities
4. Which of the following is NOT a responsibility of the auditor?
A To provide an opinion on the truth and fairness of the financial statements
B To conduct an audit in accordance with International Standards on Auditing
C To express an opinion on the company’s going concern status
5. Which TWO of the following substantive procedures provide evidence over
the EXISTENCE of trade receivables?
(1) Agreeing a sample of goods despatched notes to sales invoices and to the
sales ledger
(2) Undertaking a receivables circularisation
(3) Review of post year-end cash receipts, if these relate to year-end receivables
follow through to the sales ledger
(4) Recalculating the allowance for uncollectible accounts
A 1 and 3
B 2 and 4
C 2 and 3
D 1 and 4
16.
receivable true or false? The
verification of trade receivables by
direct confirmation provides evidence
that the debts are recoverable.
A True
Is the following statement regarding
direct confirmation of accounts
False
B
1. In the audit of a client where controls have been assessed as strong. Which of the
following is the most appropriate approach which should be used by the auditor?
A. Tests of controls only
B. Substantive tests only
C. A mix of tests of controls and substantive procedures
2. Which of the following statements is/are true regarding direct confirmation of
accounts receivable? (1) Responses from the customer must be returned directly to
the client. (2) Under the positive method the customer only replies if the amount
stated is agrees with the customer's records.
A. (1) only
B. (2) only
C. (1) and (2)
D. Neither (1) nor (2)
3. Which of the following techniques is generally accepted to be the most efficient to
obtain evidence regarding the existence of bank balances?
A. Reperformance
B. Confirmation
C. Analytical procedures
D. Observation
4. Which of the following audit procedures would provide the auditor with evidence
of completeness of inventory?
A. Tracing test counts performed at the inventory count to the detailed inventory
listing
B. Reviewing the physical condition of inventory when attending the inventory count
C. Casting the inventory listing
D. Vouching the cost of a sample of inventory items to suppliers' invoices
5. Which of the following statements is/are true with respect to analytical
procedures? (1) Analytical procedures can be used throughout the audit; (2)
Analytical procedures must be used as risk assessment procedures.
A. (1) only
B. (2) only
C. Neither (1) nor (2)
D. (1) and (2)
SECTION 7: REPORTING
7.1MCQ AUDIT REPORT
1. The auditor of S Co has concluded that the use of the going concern
assumption is appropriate and that the material uncertainty has been
adequately disclosed. What is the impact of this conclusion on the auditor's
report?
A Adverse opinion
B Qualified opinion
C Unmodified opinion without an emphasis of matter paragraph
D Unmodified opinion with an emphasis of matter paragraph
2. The auditor of Y Co has concluded that Y Co is not a going concern. The
financial statements have been prepared on a going concern basis and
management has refused to change them. What form of audit opinion will be
issued by the auditor?
A An unmodified opinion
B A qualified 'except for' opinion due to material misstatement
C A qualified 'except for' opinion due to insufficient appropriate audit evidence
D An adverse opinion
3. Misstatements can arise from error or fraud. Which of the following
statements is correct regarding the auditor's accumulation of identified
misstatements?
A The auditor must accumulate all misstatements identified during the audit.
B The auditor must only accumulate individually material misstatements
identified during the audit.
C The auditor must accumulate misstatements identified during the audit,
other than those that are clearly trivial
4. ISA 700 Forming an opinion and reporting on financial statements sets out
the basic elements of an auditor's report. Which of the following is not included
in an unmodified auditor's report?
A Management's responsibility for the financial statements
B Auditors' responsibilities
C Audit opinion
D Deficiencies of internal controls
6. ISA 705 Modification to the opinion in the independent auditor's report
identifies three possible types of modification. In which of the following
circumstances would a disclaimer of opinion be issued?
A The auditor concludes that the financial statements include misstatements
which are material but not pervasive to the financial statements.
B The auditor concludes that the financial statements include misstatements
which are both material and pervasive to the financial statements.
C The auditor has not been able to obtain sufficient appropriate audit evidence
on which to base an opinion but has concluded that the possible effects of any
undetected misstatements could be material but not pervasive .
D The auditor has not been able to obtain sufficient appropriate audit
evidence on which to base an opinion and has concluded that the possible
effects of any undetected misstatements could be both material and
pervasive.
7. The auditor of B Co has concluded that inventory is overstated as a number
of lines have not been valued at the lower of cost and net realisable value. The
overstatement is material but not pervasive to the financial statements.
Management has refused to make an adjustment to the financial statements.
What form of modified opinion should the auditor issue?
A Adverse opinion
B Disclaimer of opinion
C Qualified opinion due to a material misstatement
D Qualified opinion due to insufficient appropriate evidence on which to base
an opinion
8. The financial statements of Z Co include a receivables balance of $20,000
which the auditors do not believe will be recovered. Materiality has been set at
$100,000. There are no other unadjusted misstatements. What form of audit
opinion would be issued by the auditor?
A Adverse opinion
B Unmodified opinion
C Disclaimer of opinion
D Qualified opinion due to overstatement of receivables
9. The auditor may wish to draw the users' attention to a matter which is not
presented or disclosed in the financial statements but which is relevant to the
users' understanding of the auditor's report. How would this affect the
auditor's report?
A An emphasis of matter paragraph would be included.
B The audit opinion would be qualified.
C An other matters paragraph would be included.
D The auditor's report would not be affected as the auditor's report only refers to
matters presented or disclosed in the financial statements.
10. The statement of financial position of R Co includes a material amount of
$200,000 in respect of costs capitalised in the year as development expenditure.
The auditor has concluded that these costs are research expenditure. If the
auditor is to issue an unmodified opinion which financial statements will
require adjustment?
A Statement of financial position only
B Statement of profit or loss only
C Statement of financial position and statement of profit or loss
D Neither the statement of financial position nor the statement of profit or loss
11. An emphasis of matter paragraph is used in an audit report to draw
attention to a matter affecting the financial statements. Which two of the
following are correct in relation to an Emphasis of Matter Paragraph in the
Auditor's Report?
(1) It is used when there is a material uncertainty.
(2) It constitutes a modified audit opinion.
(3) The auditor's report is referred to as an unmodified report.
(4) The matter is deemed to be fundamental to the users understanding of the
financial statements.
A (1) and (2)
B (1) and (4)
C (1) and (3)
D (2) and (4)
12. P Co is being sued by a customer for the supply of faulty products. At the
end of the year the outcome of the legal case is still uncertain. The directors
have fully disclosed the matter as a contingent liability and the auditors are
satisfied with the treatment and the level of disclosure. The auditors have
concluded that the uncertainty is fundamental to the understanding of the
financial statements. What form of audit opinion would the auditor give?
A Disclaimer
B Unmodified opinion with an emphasis of matter paragraph
C Unmodified opinion without an emphasis of matter paragraph
D Qualified opinion
13. The majority of the books and records of Q Co have been destroyed by a
flood and the auditor has no other realistic means of obtaining sufficient,
appropriate audit evidence. Which form of opinion will the auditor issue?
A An adverse opinion
B A disclaimer of opinion
C Qualified opinion on the basis that sufficient appropriate evidence is not
available
D Unmodified opinion with an emphasis of matter paragraph explaining the
circumstances of the flood
1. The auditor of AA Co has completed the audit and has concluded that sufficient
appropriate evidence has been obtained, which confirms that the financial
statements are not materially misstated. Which form of audit opinion will the
auditor issue?
A. Adverse opinion
B. Qualified opinion
C. Unmodified opinion
D. A disclaimer of opinion
2. The auditor of AA Co has concluded that inventory is overstated as a number of
lines have not been valued at the lower of cost and net realisable value. The
overstatement is material but not pervasive to the financial statements.
Management has refused to make an adjustment to the financial statements. What
form of modified opinion should the auditor issue?
A. Adverse opinion
B. Disclaimer of opinion
C. Qualified opinion due to a material misstatement
D. Qualified opinion due to insufficient appropriate evidence on which to base an
opinion
3. Which of the following could be included in an auditor’s report? : (1) Statement
of directors’ responsibilities; (2) Identification of criteria; (3) Auditor’s opinion; (4)
Title of audit report
A. 1, 2 and 3 only
B. 1,3 and 4 only
C. 2 and 4 only
D. 1, 2, 3 and 4
4. Which of the following statements is TRUE about “Other matter” paragraph in
an auditor’s report?
A. It is an alternative name for an “Emphasis of Matter” paragraph
B. It may be used to refer to information in the directors’ report that conflicts with the
financial statements
C. It may be used to draw attention to matters of most significant to the audit
D. It is used to draw attention to a matter that is appropriately disclosed in the
financial
statement
KTRA ĐK
1. Which of the following is NOT control activity?
A. Authorisation
B. The control environment
C. Physical controls
D. Reconciliations
2. Which of the following most likely would give the most assurance
concerning the valuation assertions of account receivable?
A. Tracing amounts in the subsidiary ledger to details on shipping documents
B. Comparing receivable turnover rates to industry statistics for
reasonableness
C. Inquiring about receivables pledged under loan agreements
D. Assessing the allowance for uncollectible accounts for reasonableness
3. Which of the following statements regarding responsibility for fraud are
true?
(1) Only those charged with governance are responsible for the prevention
and detection of fraud.
(2) Both those charged with governance and management are responsible
for the prevention and detection of fraud.
(3) Auditor is responsible for detecting any material fraud
A. 1 and 3
B. 1 only
C. 2 only
D. 2 and 3
4.
“Based on our review, nothing has come to our attention that causes us
to believe that the accompanying financial statements do not present
fairly, in all material respects … in accordance with International
Financial Reporting Standards.
” Which of the following BEST describes
the type of assurance provided by this statement?
Positive assurance expressed negatively
Negative assurance expressed positively
High level of assurance expressed negatively
Limited level of assurance expressed negatively
5. Which of the following statements is NOT true regarding purpose of risk
assessment in planning audit?
A. The risk assessment will help the audit team gain an understanding of the
entity for audit purposes
B. The risk assessment will enable the audit senior to produce an
accurate budget for the audit assignment
C. The risk assessment will form the basis of the audit strategy and the
detailed audit plan
D. Once the risks have been assessed, audit firm can select audit team
members with sufficient skill and experience to maximize the chance of those
risks being addressed
6. Ranking the reliability of the following items of audit evidence from best (1)
to worst (4)
1. Bank statement provided by the bank
2. The finance director says an invoice has been paid
3. A list of unpaid invoices extracted from the client’s accounting records
4. A customer confirms his balance in response to a telephone enquiry
A. 1,2,3,4
B. 1,3,4,2
C. 1,4,3,2
D. 1,4,2,3
7. Which of the following statements about “Other matter” paragraph in an
auditor’s report is true?
A. It is alternative name for an “Emphasis of matter”
B. It is used to draw attention to a matters that is appropriately disclosed in
the financial statement.
C. It may be used to draw attention to matters that most significant to the
audit.
D. It is used to draw attention to matters which is fundamental to
understanding the audit and has not been presented or disclosed in the
financial statement.
8.
“All transactions that were supposed to be recorded have been recognized in
the financial statement” Which assertion does the statement explain?
A. Occurrence
B. Presentation and disclosure
C. Completeness
D. V aluation or allocation
9. According to the audit risk model: When inherent risk is high and control
risk is high, detection risk will be
and the level of substantive
_____
procedures required will be
.
_____
Which of the following fills the blanks to complete the sentence correctly?
A. high, increased
B. high, decreased
C. low, increased
D. low, decreased
10.
“Auditors should comply with relevant laws and regulations and avoid any
action that discredits the profession”
. Which of the following principles of
IESBA ’s code of ethics does this statement mention to?
A. Integrity
B. Objectivity
C. Professional competence and due care
D. Confidentiality
E. Professional behaviour
11. Which of following statements regarding the appropriateness of audit
evidence is/are true?
(1) It concerns the quantity of audit evidence needed
(2) It concerns the relevance and reliablitity of audit evidence
A. Neither (1) nor (2)
B. 1 only
C. 2 only
D. Both (1) and (2)
[Link] auditor has discovered a $5,000 calculation error in the depreciation
expense for the year. The director have refuse to alter the financial statement.
The carrying amount of non-current asset is $1m and draft profit for the year is
$150,000. What is the most appropriate form of audit opinion?
A. Unmodified
B. Qualified opinion on the basis of insufficient evidence
C. Unmodifed with an emphasis of matter paragraph to draw attention to the
error.
D. Qualified opinion on the basis of misstatement.
13. Y our firm has been the external auditor of Dulce Ltd (Dulce) for a number
of years. Lois Janson has been the engagement partner for approximately 6
years. Dulce is in the process of becoming a listed company and its director
have requested that Lois Janson continue as the engagement partner once the
company listed.
Which ethical issues arising when your firm accept the director’s request?
A. Self-interest
B. Self-review
C. Integrity
D. Familiarity
14. A matter is material if it satisfies which of the following criteria?
A. It would reasonably be expected to influence the economic decisions of
users taken on the basis of the financial statements.
B. It is more than 5% profit before tax
C. A member of the audit team believes it to be material
D. A shareholder or provider of loan finance believes it to be material.
15. The level of assurance provided by an assurance will depend on the type of
engagement. Which of the following level of assurance that a “review of
financial information” engagement would give?
A. No assurance
B. Absolute assurance
C. Reasonable assurance
D. Limited assurance
16. The following is deficiency within the payroll system: “Many employees
work overtime but there is no system for authorising the level of overtime
claimed”
. Which of the following is the most likely consequence which might
arise as a result of that deficiency?
A. Employees may be paid at wrong amount
B. The computerised payroll may contain miscalculations
C. Payroll payments are only made to bona fide employees
D. Total payroll cost are not matched to budgets
17. Which concept means that directors are responsible for the management of
the shareholders property?
A. Conflict of interest
B. Stewardships
C. Agency
D. Accountability
18. What of the following statements correctly describes the respective
responsibilities of an audior and the client’s management for a physical
inventory count?
A. It is management’s responsibility to undertaken the inventory count in line
with the auditor’s instructions
B. The auditor and management have joint responsibility for physical
inventory counting.
C. It is auditor’s responsibility to carry out the inventory count under the
guidance of management.
D. It is the auditor’s responsibility to observe the inventory count
performed in accordance with management’s count procedures.
19. In any assurance engagement, there are three parties involved: the
responsible party, the practitioner and the user. In respect of given subject matter,
which party determines suitable criteria?
A. User
B. Employee
C. Practitioner
D. Responsible party
20. Which of the following statements are true?
(1) A sound system of internal control system provides conclusive evidence
that control objectives are achieved
(2) The absence of misstatement detected by substantive test provides audit
evidence that related internal controls are effective
A. Both (1) and (2)
B. 2 only
C. 1 only
D. Neither (1) or (2)
Bổ sung
Câu 1:Which ONE of the following is NOT a test that could be used by assurance
providers to provide evidence relating to a balance in the financial statement?
A. Walk-through test
B. Test of control
C. Test of detail
D. Analytical procedure
Câu 3: Which THREE of the following are assertions used by the auditor about
classes of transactions?
Câu trả lời đúng
Occurrence
Completeness
Cut - off
Câu 4: Which THREE of the following statements are valid?
Câu trả lời đúng
Positive assurance will be given on a statutory audit assignment
Positive assurance requires more rigorous work to be undertaken than
negative assurance does
Negative assurance is assurance given in the absence of any indications to
the contrary
Câu 5: Which TWO of the following describe manifestations of the expectations gap
Câu trả lời đúng
Users blaming the auditors for a fraud discovered in a company
subsequent to an audit
Users relying on the audited financial statements as a fair valuation of the
company
Câu 6: The level of assurance given by an assurance engagement will depend
on the type of engagement.
For each of the following examples, select the level of assurance you would
expect to be given:
A. Statutory audit
B. Absolute
C. Reasonable
D. Limited
Câu 7: The level of assurance given by an assurance engagement will depend
on the type of engagement.
For each of the following examples, select the level of assurance you would
expect to be given:
Report on prospective financial information
A. Absolute
B. Reasonable
C. Limited
Câu 8: The level of assurance given by an assurance engagement will depend
on the type of engagement.
For each of the following examples, select the level of assurance you would
expect to be given:
Report on review of interim financial information
A. Absolute
B. Reasonable
C. Limited
Câu 9: For each of the following situations select the most appropriate approach
which should be used by the assurance firm in the given circumstances:
The auditor of a client where controls have been assesed as deficient.
A. Test of controls only
B. Substantive procedures only
C. A mix of test of controls and substantive procedures
Câu 10: The following are types of test that might be carried out by an assurance
provider. For each example select the financial statement assertion that is being tested:
Review of the financial statements using a Companies Act checklist
A. Existence
B. Completeness
C. Classification
Câu 11: The following are types of test that might be carried out by an assurance
provider. For each example select the financial statement assertion that is being tested:
Tracing non- current assets which have been observed in use back to the non-current
asset register:
A. Existence
B. Completeness
C. Classification
Câu 12: For each of the following situations select the most appropriate approach
which should be used by the assurance firm in the given circumstances:
The auditor of a client where controls have been assesed as strong
A. Test of controls only
B. Substantive procedures only
C. A mix of test of controls and substantive procedures
Câu 13: Which TWO of the following are assertions used by the auditor about account
balances at the period end?
Câu trả lời đúng
Existence
Completeness
Câu 14: Which TWO of the following are assertions used by the auditor about
presentation and disclosure?
A. Allocation
B. Accuracy
C. Cut-off
D. Completeness
Câu 15: For each of the following statements select whether they are true of false in
respect of substanctive procedures.
The auditor must carry out substantive procedures on all material items
A. True
B. False
Câu 16: For each of the following statements select whether they are true of false in
respect of substanctive procedures.
The auditor only carry out substantive procedures if the results of test of controls are
inconclusive
A. True
B. False
Câu 17: For each of the following statements select whether they are true of false in
respect of substanctive procedures.
Substantive procedures include both analytical procedures and test of details
A. True
B. False
Câu 18: Two types of procedures used in gathering evidence are test of controls and
substantive procedures.
For each of the following examples select the type of procedure illustrated.
Observation of opening the post
A. Test of control
B. Substantive procedure
Câu 19: Two types of procedures used in gathering evidence are test of controls and
substantive procedures.
For each of the following examples select the type of procedure illustrated.
Calculation of the gross profit margin and comparison with that of the previous
accounting period
A. Test of controls
B. Substantive procedure
Câu 20: Two types of procedures used in gathering evidence are test of controls and
substantive procedures.
For each of the following examples select the type of procedure illustrated.
Reviewing invoices paid for evidence of authorisation
A. Test of control
B. Substantive procedure
Câu 21: An auditor's report prepared in accordence with ISA 700 (UK & Ireland). The
auditor's report on financial statements expresses an opinion on a number of matters.
Some of these matters are required by the Companies Act 2006 to be reported on by
exception only.
Which TWO of the following are reported on by exception only?
A. The financial statements have been prepared in accordance with the requirements
of the Companies Act 2006
B. Adequate accounting records have been kept
C. Director's remuneration has been disclosed correctly
D. Information in the director's report is consistent with the financial statement
Câu 1: Which TWO of the following might indicate that an assurance client could be
higher than normal inherent or control risk?
A. Poor recent performance
B. Strong internal controls
C. Unusual transactions
D. The existence of an internal audit department
Câu 2. C&C company, an assurance firm, has the following two clients among its
client portfolio. For each client, select whether inherent risk is high or low.
Hana Ltd is currently facing financial difficulties and is seeking alternative forms of
finance.
A. High risk
B. Low risk
Câu 3. Which of the following best describes professional scepticims. The assurance
provider shoud:
A. Not believe anything that management tells him
B. Not believe anything that management tells him, without obtaining
supporting evidence
C. Apply a questioning mind to the information and evidence he
obtains
D. Always assume the worst outcome in cases of uncertainty
Câu 4. For each of the following statements seclect whether they are two of false in
respect of the audit engagement letter: The engagement letter should be sent after
commencement of the audit but before the signing of the auditor's report
A. True
B. False
Câu 5. For each of the following factors at a prospective client seclect whether that
factor indicates that client is high risk or low risk: Company carries out unusual
transactions
A. High risk
B. Low risk
Câu 6. For each of the following factors at a prospective client seclect whether
that factor indicates that client is high risk or low risk: Company has prudent
accounting policies
A. High risk
B. Low risk
Câu 7. Which THREE of the following are purposes of a letter of engagement?
A. Setting out the form of any report to be issued
B. Providing constructive suggestions to management concerning
improvements in internal control
C. Documenting and confirming acceptance of the appoitment
D. Narrowing the expectations gap
E. Providing evidence on matters where other evidence is not expected
to exist
Câu 8. Which ONE of the following is NOT a benefit of an engagement letter in
respect of assurance services?
A. Clearly defines the extent of the assurance provider's responsibilities
B. Provides written confirmation of the acceptance of the engagement
C. Confirms the scope of the engagement
D. Certifies the assurance provider's opinion
Câu 9. Which THREE of the following procedures should be carried out after the
audit firm has decided to accept appointment as auditor?
A. Ensure that the outgoing auditors' removal/resgination has been properly
conclucted
B. Ensure that a resolution has been passed at the general meeting to appoint the
new auditors
C. Perform checks to ensure that there are no legal or ethical reasons why the new
audit firm cannot act as auditor
D. Submit a letter of engagement to the directors
Câu 10. For each of the following statements seclect whether they are two of false in
respect of the audit engagement letter: The engagement letter should be
sent after the appointment of the auditor but before the commencement of the
audit
A. True
B. False
Câu 11. Which TWO of the following are auditors always required to do on being
invited to accept an audit engagement?
A. Ensure they are professionally existing resources to carry out the audit
B. Ensure they have adequate existing resources to carry out the audit
C. Obtain references for key personnel within the entity to be audited
D. Communicate with the existing auditors to discover any reasons they should not
accept appointement
Câu 12. Which ONE of the following correctly describes the period for which client
identification documents must be kept under money laundering regulation?
A. For a minimum of five years and until five years have elaped since the
relationship with the client has ceased
B. For a minimum of seven years and until seven years have elaped since the
relationship with the client has ceased
C. For a minimum of five years and until seven years have elaped since the
relationship with the client has ceased
D. For a minimum of seven years and until five years have elaped since the
relationship with the client has ceased
Câu 13. For each of the following statements seclect whether they are two of
false in respect of the audit engagement letter: An engagement letter should be
sent to all new clients
A. True
B. False
Câu 14. For each of the following factors at a prospective client seclect whether that
factor indicates that client is high risk or low risk: Company currently has no finance
director
A. High risk
B. Low risk
Câu 15. For each of the following statements seclect whether they are true or false in
respect of the audit engagement letter: The engagement letter should be
sent before acceptance of appointment
A. True
B. False
Câu 16. C&C company, an assurance firm, has the following two clients among its
client portfolio. For each client, seclect whether inherent risk is high or low.
Tulip Ltd is planning to list on the local stock exchange within the next two years.
A. High risk
B. Low risk
Câu 17: In each of the following three cases, select whether control risk is higher or
lower than normal.
The company has an established and well resourced internal audit function
Control risk is higher than normal
Control risk is lower than normal
Câu 18: The following are examples of ‘computer controls which operate in the
payroll system at ABC Ltd. For example, select the type of ‘computer control which it
illustrates: Manual checks to ensure that timesheets are authorised before
details are processed
General
Application
Câu 19: For each of the following statements select whether they are true or false
in respect of business risk: Business risk is of no relevance to the auditor, The auditor
is only concemed with audit risk
True
False
Câu 20: ISA315 states that an internal control system in an organisation consists of
five components: the control enviroment, the entity's risk assessment process, the
information system, control activities and ‘monitoring of controls.
For each of the following examples, select the component which it illustrates:
The process of preparing the financial statements.
Control enviroment
Information system
Control activities
Câu 21: In each of the following three cases, select whether control risk is higher or
lower than normal: (1) The paybles ledgers is not regularly reconciled to the payables
ledger control account
Control risk is higher than normal
Control risk is lower than normal
Câu 22: One of the five elements of internal controls is monitoring of controls.
Which TWO of the following are activities which would be used to monitor controls
Management's review of whether bank reconciliations are being prepared on a
timely basis
Internal auditor's evaluation of whether the sales team are followingncompany
policy regarding customer discounts
Authorisation of purchase invoices before they are paid
Authorisation of purchase orders by the department manager
Câu 23: The following are examples of ‘computer controls which operate at
PQ plc. For the example, select the type of ‘computer control which it illustrates:
Manual checks to ensure that input data was authorised
General
Application
Câu 24: Which TWO of the following are reasons why organisations need to have
effective systems of control? To assist the organisation in
Minimising business risks
Maximising its profitability
Managing its assets and liabilities
Cutting down the time needed for the audit
Complying with laws and regulations
Câu 25: According to ISA 315 which THREE of the following are respects of an
entity's control environment?
The attitude of the directors to internal controls
The attitude of staff to internal controls
‘The awareness of internal control issues in the company
The actions of senior management in relation to internal control
Câu 26:The following are examples of internal controls which operate at
ABC plc. For each example, select the type of control activity which it illustrates:
There are two keys to the locked finance department safe: one held by the finance
director and the other by the managing director
Authorisation
Information processing ;
Physical control
Câu 27: Which TWO of the following will reduce password effectiveness as a
means of restricting access to a computer system?
Frequent changes of passwords
User selection of passwords
‘Automatic disconnection after failed attempts to access system
Disciplinary offence if passwords revealed
Displaying the password on screen
Câu 28: ISA315 states that an internal control system in an organisation consists of
five components: the control environment, the entity's risk assessment process, the
information system, control activities and monitoring of controls.
For each of the following examples select the component which it illustrates:
Training programme for all staff
Control environment .
Control activity
Monitoring of controls
Câu 29: Most entities make use of IT systems' for financial reporting and operational
purposes. Controls operating in an IT environment can be split into general controls
and application controls.
Which ONE of the following is an application control?
Use of passwords
Testing of new systems
Authorisation of data for input
Disaster recovery plan
Câu 30: SA315 states that an internal control system in an organisation consists of five
components: the monitoring of controls.
For each of the following examples select the component which it illustrates: Review
of actual performance against budget
Control environment
Control activity
Monitoring of controls
Câu 31: The following are examples of internal controls which operate at XYZ plc.
For each example, select the type of control activity which it illustrates: The controller
reconciles the receivables ledger to the receivables control account montly
Performance review
Information processing
Segregation of duties
Câu 32: Which regards to internal control systems in small entities, select whether
each of the following ‘statements is true or false:
Management override is more likely to take place in smaller companies
True
False
Câu 33: The following are examples of computer controls which operate at PQ plc.
For the example, select the type of computer control which it illustrates:
Programmes to check data fields on input transactions
General
Application
Câu 34: Which one of the following would be the simipest way of recording a
straightforward system not subject to a great deal of change annually?
Flowchart
Narrative notes
Questionnaire
Family tree.
Câu 35: For each of the following internal controls, which is the principal imitation?
The preparation of a bank reconciliation
Human error
Collusion
Câu 36: Which ONE of the following is NOT a general control?
Disaster recovery procedures
Back-up copies of programs stored at an alternative safe location
Procedures for resubmission of rejected data
Staff training in the use of new/revised programs
Câu 37: In each of the following three cases, select whether control risk is higher
or lower than normal.
The company has a history of reviewing financial performance on a regular basis at
board level
Control risk is higher than normal
Control risk is lower than normal .
Câu 38: The following are examples of internal controls which operate at ABC plc.
For each example, select the type of control activity which it illustrates:
The financial controller counts petty cash on a monthly basis
Authorisation
Information processing
Physical control
Câu 39: The following are examples of internal controls which operate at ABC Ltd.
For example, select the type of control activity which it illustrates:
The finance director compares monthly expenditure on consumables to budgeted
expenditure
Authorisation
Performance review
Câu 40: ISA 315 states that an internal control system in an organisation consists of
five components: the control environment, the entity's risk assessment process, the
information system, control activities and monitoring of controls.
For each of the following examples select the component which it illustrates:
The entity's organisational Structure
- Control environment
- Control activity
- Monitoring of controls.
Câu 41: For each of the following statements select whether they are true or false in
respect of the limitations of a system of internal control.
Internal controls are only applied to material items
True
False
Câu 42:
Listed companies are required to have an audit committee
Audit committees are considered to be good practice for all large companies
Audit committees are an important aspect of a company's control enviroment
Câu 43: ISA315 states that an internal control system in an organisation consists of
five components: the control environment, the entity's risk assessment process, the
information system, control activities and monitoring of controls.
For each of the following examples select the component which it illustrates:
Review by management of monthly bank reconeiliations
Control environment
Control activity
Monitoring of controls.
Câu 44: For each of the following statements select whether they are true or false in
respect of the limitations of a system of internal control.
The effectiveness of many controls rely on the integrity of those applying them
True
False
Câu 45: ISA 315 states that an internal control system in an organisation consists of
five components: the control enviroment, the entity's risk assessment process, the
information system, control activities and monitoring of controls.
For each of the following examples, select the component which it illustrates:
Locking the inventory storeroom.
Control enviroment
Information system
Control activities
Câu 46: For each of the following statements select whether they are true or false in
respect of business risk:
Management are responsible for identifying and controlling business risks
False
True
Câu 47: An effective system of internal control requires segregation of basic
functions.
Which THREE of the following functions should ideally be segregated?
Authorisation of transactions
Preparation of financial statements
Custody or handling of assets
Recording of transactions
Budgetary control
Câu 48: ABC plc is large organisation with a complex accounting and information
system. Critical to an understanding of the system are the reporting lines and
relationships between different departments.
In this situation which ONE of the following methods is most likely to be used by the
auditor to record the system of document flow?
Narrative notes
Flowcharts
Questionnaires
Organisational charts
Câu 49: Which regards to internal control systems in small entities, select whether
each of the following statements is true or false:
Smaller companies are more likely to be successful in the implementation of
segregation of duties controls
True
False
Câu 50: For each of the following statements, select whether they are true or false in
respect of the information system in a company.
The information system includes the process of preparing the financial statements,
such as the production of journals
True
False
Câu 51: The following are examples of computer controls which operate in the payroll
system at ABC Ltd.
For example, select the type of computer control which it illustrates:
Password protection limiting access to data
General
Application
Câu 52: Which TWO of the following represent inherent limitations of a system of
internal control?
Lack of controls over the purchases system
Lack of understanding of the purposes of controls
Lack of staff to ensure segregation of duties
The possibility that staff members will collude in fraud
Câu 53: Which Three of the following would be the best sources of information
about a company's systems?
The company’s procedures manual
The internal audit function's system notes
The prior year audit file
Inquiries made of company staff
The company's website
Câu 54: For each of the following statements select whether they are true or false
in respect of the limitations of a system of intemal control
The cost of implementing controls may be more expensive than the cost of any
potential risk arising
True
False
Câu 55: For each of the following statements select whether they are true or false in
respect of business risk:
Business risk is the risk inherent to the company in its operations.
True
False
Câu 56: In each of the following three cases, select whether control risk is higher
or lower than normal:
(2) Management often override internal controls
Control risk is higher than normal
Control risk is lower than normal
Câu 57: The following are examples of computer controls which operate in the payroll
system at ABC Ltd.
For example, select the type of computer control which it illustrates:
Range checks on payroll processing
General
Application
Câu 58: For each of the following statements select whether they are true or false in
respect of the limitations of a system of internal control.
Standard controls may not be designed to deal with unusual transactions
True
False
Câu 59: Most entities make use of IT systems for financial reporting and operational
purposes. Controls operating in an IT environment can be split into general controls
and application controls.
Which ONE of the following is an application control?
Training staff in new IT procedures
Taking back - up copies of programs
Maintenance agreements over IT equipment
Cyclical reviews of all master files
Câu 60: For each of the following statements, select whether they are true or false in
respect of the information system In a company.
The information system companies only the IT system in a company
True
False
Câu 61: For each of the following internal controls, which is the principal limitation?
Segregation of duties in a sales system
Human error
Collusion
Câu 62: The following are examples of internal controls which operate at ABC plc.
For example, select the type of control activity which it illustrates:
The financial controller reconciles the payables ledger to the payables ledger control
account on a monthly basis
Performance review
Information processing .
Câu 63: In each of the following three cases, select whether control risk is higher
or lower than normal.
Purchase invoices are not authorised prior to payment
Control risk is higher than normal
Control risk is lower than normal
Câu 64: In each of the following three cases, select whether control risk is higher
or lower than normal:
(3) Entry to the inventory storeroom is only for authorised personnel
Control risk is higher than normal
Control risk is lower than normal
Câu 65: The following are examples of computer controls which operate at PQ ple.
For the example, select the type of computer control which it illustrates:
Storing extra copies of programs and data files off-site
General
Application
Câu 66: The following are examples of internal controls which operate at XYZ ple.
For each example, select the type of control activity which it illustrates:
The receivables ledger clerk posts invoices to the receivables ledger.
The cash book clerk posts cashreceipts to the receivables ledger
Performance review
Information processing
Segregation of duties
Câu 67: The following are examples ofninternal controls which operate at ABC Ltd.
For example, select the type of contro! activity which it illustrates:
The financial accountant signs the bank reconciliation, which has been prepared by a
member of his staff.
Authorisation
Performance review
Câu 68: Which TWO of the following are authorisation control activities
A bank reconciliation signed by the finance director
A cheque payment run approved by the finance director
An appraisal ofthe sales ledger clerk by the finance director
A trial balance complied by the finance director
Câu 69: ‘An audit committee is a committee with responsibility for audit related
matters
Which ONE of the following should be members of an audit committee?
Executive directors only
Non-executive directors only
Non-executive directors and internal auditors
Non-executive directors and external auditors
Câu 70: The following are examples of internal controls which operate at ABC ple.
For example, select the type of control activity which it illustrates:
The payables ledger clerk posts invoices to the payables ledger.
The cash book clerk posts cash receipts to the payables ledger
Segregation of duties
Performance review.
Câu 71: Which ONE of the following is not part of an entity's risk assessment
process?
Identify relevant business risks
Estimate the impact of risks
Assess the likelihood of occurrence
Decide upon actions to manage the risks
Report the process to the auditors
Câu 72: financial statements expresses annopinion on a number of matters. Some of
these matters are required by the Companies Act 2006 to be reported on by exception
only.
Which TWO of the following are reported on by exception only?
The financial statements have been
Prepared in accordance withthe requirements of the Companies Act 2006
Adequate accounting records have been kept
Directors remuneration has been disclosed correctly
Information in the director's report is consistent with the financial statement
Câu 73: Two types of procedures used in gathering evidence are test of controls and
substantive procedures.
For each of the following examples select the type of procedure illustrated.
Reviewing invoices paid for evidence of authorisation
Test of control
Substantive procedure
Câu 74; substantive procedures.
Two types of procedures used inngathering evidence are test of controls and
For each of the following examples select the type of procedure illustrated.
Calculation of the gross profit margin and comparison with that of the previous
accounting period
Test of controls
Substantive procedure
Câu 76: For each of the following statements select whether they are true of false
in respect of substanctive procedures.
Substantive procedures include both analytical procedures and test of details
True
False
Câu 77: For each of the following statementsnselect whether they are true of false in
respect of substanctive procedures.
The auditor only carry out substantive procedures if the results of test of controls are
inconclusive
True
False
Câu 78: For each of the following statements select whether they are true of false in
respect of substanctive procedures.
The auditor must carry out substantive procedures on all material items
True
False
Câu 79: Which TWO of the following arenassertions used by the audito about
presentation and disclosure?
Allocation
Accuracy
Cut-off
Completeness
Câu 80: Which TWO of the following are assertions used by the auditor about
account balances at the period end?
Existence
Accuracy
Cut-off
Completeness
Câu 81: For each of the following situations select the most appropriate approach
which should be used by the assurance firm in the given circumstances:
The auditor of a client where controls have been assesed as strong
Test of controls only
Substantive procedures only
A mix of test of controls and substantive procedures
Câu 82: The following are types of test that might be carried out by an assurance
provider. For each example select the financial statement assertion that is being tested:
Tracing non- current assets which have been observed in use back to the non-current
asset register:
Existence
Completeness
Classification
Câu 83: The following are types of test that might be carried out by an assurance
provider. For each example select the financial statement assertion that is being tested:
Review of the financial statements using a Companies Act checklist
Existence
Completeness
Classification
Câu 84: For each of the following situations select the most appropriate approach
which should be used by the assurance firm in the given circumstances:
The auditor of a client where controls have been assesed as deficient.
Test of controls only
Substantive procedures only
A mix of test of controls and substantive procedures
Câu 85; The level of assurance given by an assurance engagement will depend on the
type of engagement.
For each of the following examples, select the level of assurance you would expect to
be given:
Report on review of interim financial information
Absolute
Reasonable
Limited
Câu 86: The level of assurance given by an assurance engagement will depend on the
type of engagement.
For each of the following examples, select the level of assurance you would expect to
be given:
Report on prospective financial information
Absolute
Reasonable
Limited
Câu 87: The level of assurance given by annassurance engagement will depend on the
type of engagement.
For each of the following examples, select the level of assurance you would expect to
be given:
Statutory audit
Absolute
Reasonable
Limited
Câu 88: Which TWO of the following descirbe manifestations of the expectations gap
Users blaming the auditors for a fraud discovered in a company subsequent to an
audit
Users discovering that the directors refuse to cooperate in providing the auditor with
the evidence he requests
Shareholders approving the appointment of the auditor at an annual general meeting
Users relying on the audited financial statements as a fair valuation of the
company
Câu 89: Which THREE of the following on statements are valid?
Positive assurance will be given on a statutory audit assignment
Positive assurance requires more rigorous work to be undertaken than negative
assurance does
Positive assurance will be given on a review assignment
Negative assurance is assurance given in the absence of any indications to the
contrary
Câu 90: Which THREE of the following are assertions used by the auditor about
classes of transactions?
Occurence
Existence
Completeness
Cut - off
Rights and obligations
Câu 91: Which TWO of the following are valid comments about the quality of
assurance evidence?
Evidence from external sources is more reliable than evidence obtained from the
entity's records
Evidence from internal sources is more reliable when related internal controls
operate effectively
Evidence from internal sources is more reliable than evidence created by the assurance
provider
Photocopies are more reliable than facsimiles
Câu 92: Which ONE of the following is NOT a test that could be used by assurance
providers to provide evidence relating to a balance in the financial statement?
Walk-through test
Test of control
Test of detail
Analytical procedure
Câu 93: the types of risk illustrated: The organisation has few employees in its
accounting department.
Inherent risk
Control risk
Detection risk
Câu 94: In each of the following case, select whether inherent riskn is higher or lower
than normal: The company operates a profit related by scheme:
Inherent risk higher than normal
Inherent risk lower than normal
Câu 95; Audit risk can be split into three components: inherent risk, control risk and
detection risk.
For the following example, seclect the types of risk illustrated: The organisation has
few employees in its accounting department.
Inherent risk
Control risk
Detection risk
Câu 96: Which ONE of the following best describes the principal difference
between fraud and errors?
Fraud may result in the financial statements being material misstated
Fraud is an intentional act whereas error is unintentional
A misstatement can be material whether It is caused by fraud or by error
Fraud may be the result of negligence whereas error is unintentional
Câu 97: Which of the following statements correctly describes the principal purpose
of an external audit of a limited company?
To assist in the preparation of the company's financial statements
To prevent fraud within the company
To examine and express an opinion on the company's financial statements
To assist the directions in improving the company's financial reporting process
Câu 98: Audit risk can be a split into three components: inherent risk; control tisk and
detection risk. For each the following examples, select thetypes of risk Illustrated: The
auditor will be using samples in testing
Inherent
Control
Detection
Câu 99: For of the following statements, select whether they are true or false in
respect of the concept of materiality: Materiality is always expressed as a proportion
of profit
True
False
Câu 100: Audit risk can be a split into three components: inherent risk; control risk
and detection risk. For each of the following examples, select the types of risk
Illustrated: Directors’pay is related to company profitability
Inherent
Control
Detection
Câu 101: With respect to ISA 315, which three of the following procedures shall be
used in understanding the entity and its environment
Inquiries of management and others within the entity
Inquiries the third party
Analytical procedures
Observation and inspection
Câu 102: ABC Ltd's quick ratio has fallen from 1.8:1 to 1.5:1.
Which ONE of the following might help to explain this decline?
The allowance for receivalbes has been reduced
Credit control has been poor
The entity has purchased a property for cash
Inventory levels have fallen
Câu 103: For of the following statements, select whether they are true or false in
respect of the concept of materiality: Materiality should be considered when planning
audit procedures and when evaluating discovered misstatement
True
False
Câu 104: Which three of the following or constitutes analytical procedures
Considerations of comparable comparable information for prior periods
Considerations of relationships we between elements of financial information
that are expected to conform to a predicted pattern
Consideration of whether a balance has been calculated correctly
Consideration of similar industry we information
Câu 105: In each of the following case, select whether inherent riskn is higher or
lower than normal: Financial statements contain balances with straighfoward
Financial Accounting requirements
Inherent risk higher than normal
Inherent risk lower than normal
Câu 106; For the following statements, select whether they are true or false in respect
of the concept of materiality. Materiality may depend on either the nature of an item or
its monetary amount
True
False
Câu 107: Audit risk can be a split into three components: inherent risk; control tisk
and detection risk. For each of the following examples, select the types of risk
Illustrated: Senior management regularly override the system of controls
Inherent
Control
Detection
Câu 108: Select the MOST appropriate on approach which should be used by the
assurance firm in the given circumstance
The auditor of a long - standing client with a sophisticated IT system and an internal
department?
Test of control only
Substantive proceduress only
A mix of tests of control and substantive procedures
Câu 109: Cost of sales:
Warrents futhur testing
No futher testing required
Câu 110: For the following statements, select whether they are true or false in respect
of the concept of materiality.
Materiality is a matter of professional judgment
True
False
Câu 111: In the following case, select whether inherent is higher or lower than normal:
Inventory is largest balance on the statement of financial position
Inherent risk higher than normal
Inherent risk lower than normal
Câu 112; Which TWO of the following are true in respect of related part transactions?
Related party transactions tend to be low-risk to the auditor
Disclosure of related party transactions is unlikely to be material to the financial
statements
Related party transactions must be competely disclosed in the financial
statements
There may be a significant control risk in relation to related party transactions
Câu 113: Which one of the following does setting a preliminary materiality threshold
not help auditors to decide?
What audit staff to assign to the audit
How many items to examine
Whether to use sampling
What level of errors is likely to lead the auditor not being able to give an unqualified
opinion
Câu 114: Audit risk can be split into three components: inherent risk, control risk and
detection risk.
For the following example, seclect the types of risk illustrated: The organisation
operates in a fast - moving, high tech enviroment
Inherent risk
Control risk
Detection risk
Câu 115: Audit risk can be a split into three components: inherent risk; control tisk
and detection risk. For each of the following examples, select the types of risk
lllustrated: The organisation is seeking to raise finance for a new venture
Inherent
Control
Detection
Câu 116: For each of the following statements, select whether they are true or false in
respect of the concept of materiality: material should be calculated at the planning
stage of all audits
True
False
Câu 117: Which one of the following is normally designed to detect possible material
monetary errors in the figures in financial statements?
Test of control
Walk - through test
Analytical procedure
Observation of a procedures
Câu 118: For each of the following statements, select whether they are true or false in
respect of the concept of materiality: Once established, the materiality level initially
set cannot be revised during the course of the audit
True
False
Câu 119: Which three of the following would increase inherent risk
Sample size have been calulated incorrectly by the auditor and are too small
A significant number of balances are based on estimates
The financial statements include complex transactions
Audit staff are inexperienced
A company is seeking to raise Finance
Câu 120: Repairs and renewals
Warrents futhur testing
No futher testing required
● Advertising: Warrents futhur testing
Câu 121: Audit risk can be a split into three components: inherent risk; control risk
and detection risk. For each of the following examples, select the types of risk
illustrated: The organisation has a number of estimate in its financial statements.
Inherent
Control
Detection
Câu 122: Select the MOST appropriate approach which should be used by the
assurance firm in the given circumstance.
The auditor of a new client, recently started up, with few employees in its accounting
department?
Test of control only
Substantive proceduress only
A mix of tests of control and substantive procedures
Câu 123: In the following case, select whether inherent is higher or lower than
normal:
The company has recently listed on the local stock exchange with high profit
expectations from analysts
Inherent risk higher than normal
Inherent risk lower than normal
Câu 124: In each of the following case, select whether inherent riskn is higher or
lower than normal: The business is of the company is cash - based
Inherent risk higher than normal
Inherent risk lower than normal
Câu 125: Which three of the following are of the objectives of the audit planning
To determine the scope of the engagement
To ensure appropriate attention it devoted to the important areas of the audit
To identify potential problems and resolve them on the timely basis
To assign work to remembers of the audit team
Câu 126: For of the following statements, select whether they are true or false in
respect of the concept of materiality: materiality may depend on the size of the error in
the context of its omission or misstatement
True
False
Câu 127: Which two of the following would be used in understanding the entity in
accordance with ISA 315?
Industry, regulatory and other external factors
Apreliminary review of intemal controls
The results of tests of details
The results of a review events after the date of the financial statements
Câu 128: Audit risk Can be a split into three components: inherent risk; control risk
and detection risk. For each of the following examples, select the types of risk
illustrated: The organisation has a high turnover of staff in the accounts department
Inherent
Control
Detection
Câu 129: In the following case, select whether inherent is higher or lower than
normal:
The company operates in a slow - moving, stable industry
Inherent risk higher than normal
Inherent risk lower than normal
Câu 130: For the following statements, select whether they are true or false in respect
of the concept of materiality.
Materiality depends only on the monetary amount of an item?
True
False
Câu 131: Which three of the following would normally be included in the overall
audit strategy?
Details of economic factors and industry conditions
The results of initial analytical procedures
Confirmation of management's responsibility for the financial statements
Identification of specific audit risks
Câu 132: Which TWO of the following options are signs of overtrading?
Inventory decreasing
Cash decreasing
Payalbe decreasing
Receivalbes increasing