CHAPTER 11
Chapter 11 MCQs (1–40) — Answers Bolded
1. The main purpose of audit sampling is to:
A. Eliminate audit risk
B. Draw conclusions about a population based on a sample
C. Replace substantive procedures
D. Guarantee fraud detection
2. A “population” in audit sampling refers to:
A. The company’s employees
B. The entire set of items from which a sample is selected
C. Only the items the auditor tests
D. Only large-value transactions
3. “Sampling risk” is the risk that:
A. The client refuses to provide evidence
B. The auditor’s conclusion based on a sample differs from the conclusion if the entire population were tested
C. Controls are ineffective
D. Financial statements are always misstated
4. Which is an example of selecting items for testing without audit sampling?
A. Random selection
B. Systematic selection
C. 100% examination of a population
D. Statistical sampling
5. Selecting specific items is used when the auditor:
A. Wants every item to have an equal chance of selection
B. Targets high-value, high-risk, or unusual items
C. Wants to generalize results to the entire population
D. Performs only statistical sampling
6. If the auditor tests 100% of a population, sampling risk is:
A. High
B. Moderate
C. Eliminated for that population
D. Increased
7. Audit sampling is most appropriate when:
A. The population is very small
B. The auditor expects consistent characteristics across items
C. Every item is unique and complex
D. Evidence is unavailable
8. Random selection means:
A. Choosing items with the largest balances
B. Choosing items conveniently
C. Each sampling unit has a known chance of selection
D. Choosing items with round numbers
9. Systematic selection typically involves:
A. Selecting based on auditor preference
B. Selecting every “nth” item after a random start
C. Selecting only exceptions
D. Selecting items at month-end only
10. Haphazard selection is:
A. A statistical method
B. A non-statistical selection without structured technique (but avoiding bias as much as possible)
C. The same as random selection
D. Always prohibited
11. Which selection method is most vulnerable to unconscious bias?
A. Random selection
B. Systematic selection with random start
C. Haphazard selection
D. Monetary unit sampling
12. “Sampling unit” refers to:
A. The audit team
B. The individual items that make up the population (e.g., invoices, entries, accounts)
C. Only monetary amounts
D. Only physical inventory units
13. A key advantage of statistical sampling is that it:
A. Eliminates non-sampling risk
B. Allows measurement of sampling risk using probability
C. Guarantees correct conclusions
D. Requires no professional judgment
14. Non-statistical sampling:
A. Is always invalid
B. Cannot be used in audits
C. Uses professional judgment to design and evaluate a sample without statistical evaluation
D. Requires a larger sample in every case
15. Which risk relates to tests of controls where the auditor concludes controls are effective when they are not?
A. Risk of incorrect rejection
B. Risk of assessing control risk too low (overreliance)
C. Detection risk eliminated
D. Risk of underreliance
16. Risk of assessing control risk too high is also known as:
A. Overreliance
B. Underreliance
C. Risk of incorrect acceptance
D. Risk of material misstatement
17. In substantive testing, “risk of incorrect acceptance” means:
A. Auditor concludes an account is misstated when it isn’t
B. Auditor concludes an account is not materially misstated when it actually is
C. Auditor fails to document procedures
D. Auditor accepts management’s estimate
18. In substantive testing, “risk of incorrect rejection” means:
A. Auditor concludes an account is misstated when it is not
B. Auditor concludes controls are effective
C. Auditor concludes no evidence is needed
D. Auditor concludes sampling is unnecessary
19. The “tolerable misstatement” is:
A. The misstatement the client allows legally
B. The maximum misstatement the auditor is willing to accept without altering the audit conclusion
C. The estimated misstatement in the population
D. The amount of projected fraud
20. Expected misstatement is:
A. Always zero
B. The misstatement the auditor anticipates may exist in the population
C. The sample size
D. The materiality level
21. When expected misstatement increases, sample size generally:
A. Decreases
B. Increases
C. Stays the same always
D. Becomes irrelevant
22. When tolerable misstatement decreases, sample size generally:
A. Increases
B. Decreases
C. Becomes unnecessary
D. Is fixed by standards
23. “Stratification” is:
A. Selecting only year-end items
B. Dividing a population into subpopulations to improve sampling efficiency
C. Selecting every 10th item
D. Testing only exceptions
24. A benefit of stratification is that it can:
A. Eliminate all audit risk
B. Reduce required sample size for a given level of assurance
C. Increase expected misstatement
D. Remove the need for substantive testing
25. Attribute sampling is generally used for:
A. Estimating dollar amounts
B. Testing the operating effectiveness of controls (rate of deviation)
C. Confirming receivables only
D. Valuing inventory
26. Variable sampling is generally used for:
A. Estimating monetary misstatement in account balances/transactions
B. Measuring control deviation rate only
C. Selecting only unusual items
D. Observing procedures
27. “Deviation rate” refers to:
A. Dollar misstatement
B. Frequency of control exceptions in the sample
C. Materiality threshold
D. Expected value of a population
28. If the sample deviation rate exceeds tolerable deviation rate, the auditor generally should:
A. Ignore it if small
B. Conclude controls may not be effective and revise audit approach
C. Reduce substantive procedures automatically
D. Increase materiality
29. Monetary Unit Sampling (MUS) is also known as:
A. Attribute sampling
B. Probability-proportional-to-size (PPS) sampling
C. Haphazard sampling
D. Block selection
30. MUS tends to select:
A. Items with equal chance regardless of size
B. Larger monetary items more often
C. Only small items
D. Only negative balances
31. MUS is generally most effective when:
A. Many items are expected to be overstated
B. Overstatement risk is the primary concern
C. Understatement is the only concern
D. Population contains no monetary amounts
32. A key limitation of MUS is that it may be less effective for:
A. Overstatements
B. Understatements (e.g., unrecorded liabilities)
C. High-value items
D. Large populations
33. “Non-sampling risk” includes:
A. Selecting a non-representative sample
B. Using inappropriate audit procedures or misinterpreting evidence
C. Sampling too few items
D. Using random selection
34. Increasing sample size reduces:
A. Non-sampling risk
B. Sampling risk
C. Inherent risk
D. Control risk
35. Using poor instructions to audit staff mainly increases:
A. Sampling risk
B. Non-sampling risk
C. Risk of incorrect acceptance only
D. Tolerable misstatement
36. “Block selection” means:
A. Randomly selecting across the population
B. Selecting a contiguous group of items (e.g., one week’s transactions)
C. Selecting every 5th item
D. Selecting only high-value items
37. Block selection may be inappropriate because:
A. It is always statistical
B. It may not represent the full population if items are not evenly distributed
C. It increases audit quality always
D. It guarantees equal chance selection
38. If an auditor wants results to be generalizable to the entire population, the auditor should use:
A. Specific item selection only
B. Audit sampling with representative selection
C. Only testing the largest items
D. Only inquiry
39. When designing a sample, the auditor must define:
A. Sample size only
B. Audit team size only
C. Population, sampling unit, selection method, and evaluation approach
D. Client’s preferred method
40. The auditor’s conclusion from a sample is valid only if:
A. The client agrees
B. The population is appropriate and the sample is selected and evaluated properly
C. The sample contains only large items
D. Sampling risk is ignored
Chapter 12 MCQs (1–40) — Completing the Audit
1. Completing the audit primarily involves:
A. Planning audit procedures
B. Performing tests of controls
C. Evaluating audit evidence and forming an opinion
D. Designing internal controls
2. The auditor’s overall conclusion is based on:
A. Management representations only
B. Analytical procedures only
C. Sufficient appropriate audit evidence obtained
D. Internal audit reports
3. Subsequent events are events that occur:
A. Before the balance sheet date
B. Between the balance sheet date and the auditor’s report date
C. After issuance of financial statements
D. Only after management approval
4. Which type of subsequent event provides additional evidence of conditions existing at the balance sheet date?
A. Type II event
B. Type I event (adjusting event)
C. Contingent event
D. Non-recognized event
5. Which subsequent event requires adjustment of financial statements?
A. Decline in market prices after year-end
B. Natural disaster after year-end
C. Settlement of a lawsuit that confirms an existing obligation
D. Issuance of new shares
6. A Type II subsequent event generally requires:
A. Adjustment of financial statements
B. Disclosure only, if material
C. No consideration by auditor
D. Change in audit opinion automatically
7. The auditor’s responsibility for subsequent events ends at:
A. Balance sheet date
B. Date management signs the representation letter
C. Date of the auditor’s report
D. Date financial statements are published
8. Management representations are:
A. A substitute for audit evidence
B. Complementary evidence supporting other audit evidence
C. More reliable than external confirmations
D. The primary source of evidence
9. The management representation letter is typically dated:
A. Balance sheet date
B. Engagement acceptance date
C. Same date as the auditor’s report
D. One day after issuance
10. Which is NOT usually included in a management representation letter?
A. Responsibility for financial statements
B. Disclosure of fraud
C. Auditor’s opinion wording
D. Completeness of information provided
11. Written representations are obtained from:
A. Internal auditors
B. Audit committee
C. Management with appropriate authority
D. External experts
12. If management refuses to provide written representations, the auditor should:
A. Ignore the issue
B. Issue an unmodified opinion
C. Consider this a scope limitation and modify the opinion
D. Reduce audit procedures
13. Going concern evaluation considers whether the entity can continue for:
A. 6 months
B. At least 12 months after the reporting period
C. Until next audit
D. Indefinitely without assessment
14. Indicators of going concern uncertainty include:
A. Increase in profits
B. New financing obtained
C. Recurring operating losses and negative cash flows
D. Strong internal controls
15. If material uncertainty related to going concern exists and is adequately disclosed, the auditor should issue:
A. Adverse opinion
B. Disclaimer of opinion
C. Unmodified opinion with an emphasis-of-matter paragraph
D. Qualified opinion only
16. If going concern uncertainty is not adequately disclosed, the auditor should issue:
A. Unmodified opinion
B. Qualified or adverse opinion
C. Disclaimer only
D. Emphasis-of-matter paragraph
17. An emphasis-of-matter paragraph:
A. Modifies the auditor’s opinion
B. Draws attention to a matter appropriately presented or disclosed
C. Replaces a qualification
D. Indicates misstatement
18. Other-matter paragraphs are used to:
A. Highlight material misstatements
B. Refer to matters not presented in the financial statements
C. Replace management representations
D. Report fraud
19. The final analytical procedures are performed to:
A. Detect fraud only
B. Test controls
C. Assess overall reasonableness of financial statements
D. Determine sample sizes
20. If final analytical procedures reveal unexplained relationships, the auditor should:
A. Ignore them
B. Issue disclaimer
C. Investigate and obtain additional evidence
D. Reduce documentation
21. Misstatements identified during the audit are accumulated to:
A. Determine tax liability
B. Evaluate their effect on the audit opinion
C. Adjust audit fees
D. Test controls
22. A factual misstatement is:
A. Based on judgment
B. Clearly incorrect with no judgment involved
C. Related only to estimates
D. Always immaterial
23. Judgmental misstatements arise from:
A. Arithmetic errors
B. Fraud
C. Differences in accounting estimates or policies
D. Missing documents
24. Projected misstatements are:
A. Known misstatements
B. Auditor’s estimate of misstatements in the population
C. Management corrections
D. Control deviations
25. If uncorrected misstatements are material, the auditor should:
A. Issue unmodified opinion
B. Ignore immaterial items
C. Request adjustment or modify the opinion
D. Withdraw automatically
26. Communication of misstatements is required to:
A. Internal audit only
B. External users
C. Management and those charged with governance
D. Regulators only
27. The audit documentation completion date refers to:
A. End of fieldwork
B. Balance sheet date
C. Date when final audit file is assembled
D. Report issuance date
28. Audit documentation should be sufficient to:
A. Train new auditors only
B. Enable an experienced auditor to understand work performed and conclusions
C. Replace financial statements
D. Eliminate audit risk
29. After the auditor’s report date, the auditor has:
A. No responsibility at all
B. No active duty, but may need to act if facts become known
C. Responsibility to search for events
D. Responsibility to update reports continuously
30. If facts are discovered after issuance that would have affected the report, the auditor should:
A. Ignore them
B. Destroy working papers
C. Discuss with management and take appropriate action
D. Resign immediately
31. The engagement quality control review (EQCR) is intended to:
A. Reduce audit fees
B. Provide an objective evaluation of significant judgments and conclusions
C. Replace partner judgment
D. Test controls
32. EQCR is required for:
A. All audits
B. Small entities only
C. Listed entities and other high-risk engagements
D. Internal audits only
33. The audit report date should not be earlier than the date when:
A. Planning is complete
B. Fieldwork begins
C. Sufficient appropriate audit evidence has been obtained
D. Management signs the contract
34. Dual dating an audit report is used when:
A. Fraud is detected
B. A subsequent event occurs after report date but before issuance
C. Management refuses representations
D. Controls are weak
35. Dual dating limits auditor responsibility to:
A. Entire period
B. Balance sheet date
C. The specific subsequent event disclosed
D. Management only
36. The auditor’s opinion addresses whether financial statements are prepared:
A. Exactly error-free
B. To maximize profit
C. In accordance with the applicable financial reporting framework
D. Based on auditor preference
37. A summary of uncorrected misstatements is usually:
A. Not documented
B. Included in audit documentation
C. Sent to tax authorities
D. Destroyed after audit
38. The final audit file should generally be assembled within:
A. 10 days
B. 30 days
C. 60 days after report date
D. One year
39. Audit documentation after completion date may be changed only to:
A. Improve appearance
B. Reduce liability
C. Correct clerical or administrative errors
D. Add new evidence
40. Completing the audit ultimately culminates in:
A. Audit planning memo
B. Management letter only
C. Issuance of the auditor’s report
D. Internal control testing