Chapter 10 - MCQ With Answer
Chapter 10 - MCQ With Answer
1. Which of the following is not among the risk assessment procedures that the
auditor should perform in obtaining an understanding of the entity and its
environment, including its internal control?
a. Inquiries of management and others within the entity.
b. Analytical procedures
c. Observation and inspection
d. Confirmation
ANSWER: D
ANSWER: D
ANSWER: D
ANSWER: D
ANSWER: D
6. PSA 315 (Clarified) requires that the auditor should obtain an understanding
of relevant industry, regulatory and other external factors including the
applicable financial reporting framework. Which of the following is not an
example of matters relating to regulatory environment that the auditor would
usually consider?
a. Regulatory framework for a regulated industry
b. Legislation and regulation significantly affecting the entitys operation
c. Taxation
d. Product technology relating to the entitys product
ANSWER: C
7. PSA 315 (Clarified) requires that the auditor should obtain an understanding
of relevant industry, regulatory and other external factors including the
applicable financial reporting framework. Which of the following is not among
the items that relate to industry conditions?
a. Energy, supply and cost
b. Cyclical or seasonal activity
c. Market and competition
d. Inflation and currency revaluation
ANSWER: B
8. PSA 315 (Clarified) requires that the auditor should obtain an understanding
of the entitys selection and application of accounting policies and consider
whether they are appropriate for its business and consistent with the
applicable financial reporting framework and accounting policies used in the
relevant industry. The understanding does not encompass
a. The methods the entity uses to account for significant and unusual
transactions
b. The effect of significant accounting policies in contractual or emerging
areas for which there is a lack of authoritative guidance or consensus.
c. Changes in the entitys accounting policies
d. Criteria in the selection of the companys chief accounting executive
ANSWER: D
9. PSA requires that the auditor should obtain an understanding of the entitys
objectives and strategies and the related business risks that may result in
material misstatement of the financial statements. Which of the following is
not an example of business risks that may have financial consequences and
may affect the financial statements?
a. A contracting customer base due to industry consolidation that may
increase the risk of misstatement associated with the valuation of
receivables
b. Use of new IT
c. New accounting requirements
d. Contracting economy
ANSWER:
ANSWER: D
11.This involves developing an overall strategy for the expected conduct and
scope of the examination; the nature, extent, and timing of which vary with
the size and complexity, and experience with and knowledge of the entity
a. Audit planning
b. Audit procedure
c. Audit program
d. Audit working pen
ANSWER: A
ANSWER: C
13.Initial audit planning involves four matters. Which of the following is not one
of these?
a. Develop an overall audit strategy
b. Request that bank balances be confirmed
c. Schedule engagement staff and audit specialists
d. Identify the clients reason for the audit
ANSWER: B
ANSWER: A
ANSWER: D
16.In developing the overall audit plan for a new client, factor not to be
considered is.
a. Materiality levels
b. The clients business, including the structure of the organization and
accounting system used.
c. The amount of estimated audit fee.
d. The audit risks and procedures to be performed to achieve audit
objectives.
ANSWER: C
17.In planning the audit engagement, the auditor should consider each of the
following except
a. Matters relating the entitys business and the industries in which it
operates.
b. The entitys accounting policies and procedures
c. Anticipated levels of control risk and materiality
d. The kind of opinion that is likely to be expressed
ANSWER: D
ANSWER: A
19.Prior to beginning the field work on a new audit engagement in which a CPA
does not possess expertise in the industry in which the client operates, the
CPA should
a. Reduce audit risk by lowering the preliminary levels of materiality.
b. Design special substantive tests to compensate for the lack of industry
expertise.
c. Engage financial experts familiar with the nature of the industry.
d. Obtain a knowledge of matters that relate to the nature of the entitys
business.
ANSWER: D
20.The audit team gathers information about a new clients business and
industry in order to obtain
a. An understanding of the clients internal control system for financial
reporting
b. An understanding of how economic events and transactions affect the
companys financial statements
c. Information about engagement risk
d. Information regarding whether the company is engaging in financial
statement fraud
ANSWER: B
25.For initial engagements, PSA 510 does not require the auditor to obtain
evidence:
a. That the opening balances do not contain material misstatements that
materially affect the current periods financial statements
b. That the prior periods ending balances have been correctly brought
forward to the current period or, when appropriate, have been restated.
c. That appropriate accounting policies are consistently applied or changes
in accounting policies have been properly accounted for and adequately
disclosed
d. That the prior period financial statements were audited by an independent
CPA
ANSWER: D
26. Auditors frequently refer to the terms audit assurance, overall assurance,
and level of assurance to refer to
a. Detection risk
b. Audit report risk
c. Acceptable audit risk
d. Inherent risk
ANSWER: C
27.A measure of how willing the auditor is to accept that the financial
statements may be materially misstated after the audit is completed and an
unmodified opinion has been issued is the:
a. Inherent risk
b. Acceptable audit risk
c. Statistical risk
d. Financial risk
ANSWER: B
ANSWER: D
33.A measure of the auditors assessment of the likelihood that there are
material misstatements in an account before considering the effectiveness of
the clients internal control is called
a. Control risk
b. Acceptable audit risk
c. Statistical risk
d. Inherent risk
ANSWER: D
ANSWER: B
36.Which of the following is the best definition of detection risk?
a. The auditor will compute audit materiality incorrectly
b. The auditor will fail to detect material misstatements that exist
c. The auditor will apply more audit procedures than are required in the
circumstances
d. The auditor will fail to modify the audit opinion on financial statements
that are materially misstated
ANSWER: B
37.The risk that the audit will fail to uncover a material misstatement is
eliminated
a. If a client has strong internal control
b. If a client is not publicly accountable entity
c. When the auditor has complied with the Philippine Standard on Auditing
d. Under no circumstances
ANSWER: D
38.The audit risk model is used primarily
a. For planning purposes in determining how much evidence to accumulate
b. To test the effectiveness of controls
c. To determine the type of opinion to express
d. To evaluate the evidence which has been gathered.
ANSWER: A
39.The risk of material misstatement refers to:
a. Control risk and acceptable audit risk
b. Inherent risk
c. The combination of inherent risk and control risk
d. Inherent risk and audit risk
ANSWER: C
40.As the risk of material misstatement increases, detection risk should:
a. Increase
b. Decrease
c. Stay the same
d. Increase or decrease depending on materiality level
ANSWER: D
41.The risk of material misstatement differs from detection risk in that it:
a. Arises because audit procedures have been misapplied
b. Can be controlled and changed by the auditor
c. Can be assessed in quantitative and non-quantitative terms
d. Is controllable by the client
ANSWER: D
42. Inherent risk and control risk:
a. Are inversely related to each other
b. Are inversely related to detection risk
c. Are directly related to detection risk
d. Are directly related to audit risk
ANSWER: B
43.Which of the following is an incorrect statement?
a. Detection risk cannot be changed at the auditors discretion
b. If individual audit risk remains the same, detection risk bears an
inverse relationship to inherent and control risk
c. The greater the inherent and control risk the auditor believes exists,
the less detection risk that can be accepted
d. The auditor might make separate or combined assessments of inherent
risk and control risk
ANSWER: A
ANSWER: A
ANSWER: C
ANSWER: C
ANSWER: D
ANSWER: A
ANSWER: C