Advance Auditing & Assurance (Online)

1. The quantity of audit working papers complied on engagement would most affected by;

a) Management’s integrity
b) Auditor’s experience & professional judgment
c) To gather sufficient appropriate evidence
d) To assess audit risk

2. Which of the following is incorrect about materiality?

a) Materiality is a relative concept

b) Materiality judgments involve both quantitative and qualitative judgments
c) Auditor’s consideration of materiality is influenced by the auditor’s perception of the need of an
informed decision maker who will rely on the financial statements
d) At the planning state, the auditor considers materiality at the financial statement level
only.

3. An audit to determine whether an entity is following specific procedures or rules set

down by some higher authority is classified as a(n)

a) Audit of financial statements

b) Compliance Audit
c) Operational Audit
d) Production Audit

4. Which of the following statements is incorrect about continuous audit?

a) It is conducted at regular interval

b) It may be carried out on daily basis
c) It is needed when the organization has a good internal control system
d) It is expensive

5. When auditor evaluate the effect of a change in accounting principle, the materiality of
the change should be evaluated based
a) On the prior years presented
b) On the current year effect of the change
c) On whatever basis auditor considers the appropriate
d) On the effect on total assets

6. In auditing financial accounting data the primary concern is with

a) Determining whether recorded information properly reflects the economic events that
occurred during the accounting period.
b) Determining if fraud has occurred.
c) Determining if taxable income has been calculated correctly
d) Analyzing the financial information to be sure that it complies with government requirements

7. The most difficult type of misstatement to detect fraud is based on:

a) Related party sales

b) Related party purchase
c) The restatement of sales
d) Omission of a sales transaction from being recorded.

8. How are management’s responsibility and the auditor’s responsibility represented in

the standard auditor’s report?

Management’s Auditor’s responsibility

Responsibility

(a) Explicitly Explicitly

(b) Implicitly Implicitly
(c) Implicitly Explicitly
(d) Explicitly Implicitly

9. Which of the following should an auditor obtain from the predecessor auditor prior to
accepting an audit engagement?
(a) Analysis of balance sheet accounts.
(b) Analysis of income statement accounts.
(c) All matters of continuing accounting significance.
(d) Facts that might bear on the integrity of management.

10. A company has changed its method of inventory valuation from an unacceptable one to
one in conformity with generally accepted accounting principles. The auditor’s report
on the financial statements of the year of the change should include

(a) No reference to consistency.

(b) A reference to a prior period adjustment in the opinion paragraph.
(c) An emphasis-of-matter paragraph explaining the change.
(d) A justification for making the change and the impact of the change on reported net income.

11. In a probability-proportional-to-size sample with a sampling interval of Rs.5,000, an

auditor discovered that a selected account receivable with a recorded amount of
Rs.10,000 had an audit amount of Rs.8,000. If this were the only error discovered by the
auditor, the projected error of this sample would be

(a) $1,000
(b) $2,000
(c) $4,000
(d) $5,000

12. When a client company does not maintain its own stock records, the auditor should
obtain written confirmation from the transfer agent and registrar concerning

(a) Restrictions on the payment of dividends.

(b) The number of shares issued and outstanding.
(c) Guarantees of preferred stock liquidation value.
(d) The number of shares subject to agreements to repurchase.

13. In auditing payroll, an auditor most likely would

(a) Verify that checks representing unclaimed wages are mailed.

(b) Trace individual employee deductions to entity journal entries.
(c) Observe entity employees during a payroll distribution.
(d) Compare payroll costs with entity standards or budgets.

14. Which of the following matters would an auditor most likely include in a management
representation letter?

(a) Communications with the audit committee concerning weaknesses in internal control.
(b) The completeness and availability of minutes of stockholders ‘and directors’ meetings.
(c) Plans to acquire or merge with other entities in the subsequent year.
(d) Management’s acknowledgment of its responsibility for the detection of employee fraud.

15. When control risk is assessed as low for assertions related to payroll, substantive
procedures of payroll balances most likely would be limited to applying analytical
procedures and

(a) Observing the distribution of paychecks.

(b) Footing and cross footing the payroll register.
(c) Inspecting payroll tax returns.
(d) Recalculating payroll accruals.

16. A sale of 50.000 to A was entered as a sale to B. This is an example of

a) Error of omission
b) Error of commission
c) Compensating error
d) Error of principle

17. When issuing unqualified opinion, the auditor who evaluates the audit findings should
be satisfied that the
a) Amount of known misstatement is documented in working papers
b) Estimates of the total likely misstatement is less than materiality level
c) Estimate of the total likely misstatement is more than materially level
d) Estimates of the total likely misstatement cannot be made

18. 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

19. The audit engagement letter, generally should include a reference to each of the
following, except

a) limitations of auditing
b) responsibilities of management with respect to audit work
c) expectation of receiving a written management representation letter.
d) a description of the auditor’s method of sample selection.

20. The date of the management representation letter should coincide with the date of
the

a) Balance sheet.
b) Latest interim financial information.
c) Auditor’s report.
d) Latest related-party transaction.
21. A significant circumstance-caused scope limitation in a Sarbanes/Oxley 404
internal control audit is more likely to result in a(n)

a) Adverse opinion.
b) Qualified opinion.
c) Unmodified (unqualified) opinion with an emphasis-of matter paragraph.
d) Scope reduction opinion

22. Which of the following is not included in a standard unqualified opinion on

internal control over financial reporting performed under PCAOB requirements?

a) Because of inherent limitations, internal control over financial reporting may not prevent
or detect misstatements.
b) In our opinion, [company name] maintained, in all material respects, effective internal
control over financial reporting.
c) Our audit included obtaining an understanding of internal control over financial reporting.
d) The [company name] management and audit committee is responsible for
maintaining effective internal control over financial reporting.

23. Which of the following information should a successor auditor obtain during the
inquiry of the predecessor auditor before accepting engagement?

I. Information about integrity of management

II. Disagreement with management concerning auditing procedures
III. Reviewing of internal control system
IV. Organization structure

a) 1&2
b) 2&3
c) 1, 2 & 3
d) 1&3

24. An emphasis of matter paragraph is used in an audit report to draw attention to 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?
I. It is used where there is a significant uncertainty
 II. It constitutes a qualified audit opinion
III. The audit report is referred to as an unmodified report
IV. The matter is deemed to be fundamental to the users understanding of the financial
statements.

a) 1&2
b) 1&4
c) 1&3
d) 2&4

25. Which of the following procedures is not likely to be a fraud risk factor relating to
management’s characteristics?

a) Tax evasion
b) Failure to correct known weakness in internal control system
c) Adoption of conservative accounting principles
d) High management turnover

26. Auditing standards differ from audit procedures in that procedures relate
to

a) Audit assumptions
b) Acts to be performed
c) Quality criterion
d) Methods of work

27. The most difficult type of misstatement to detect fraud is based on:

a) Related party purchases

b) Related party sales
c) The restatement of sales
d) Omission of a sales transaction from being recorded.

28. Which of the following information should a successor auditor obtain

during the inquiry of the predecessor auditor before accepting
engagement?

i. Information about integrity of management?

ii. Disagreement with management concerning auditing procedures
 iii. Review of internal control system.
iv. Organization structure

a) (i) and (ii)

b) (ii) and (iii)
c) (i), (ii) and (iii)
d) (i) and (iii)

29. The quantity of audit working papers complied on engagement would most
by affected by

a) Management’s integrity
b) Auditor’s experience and professional judgment
c) To gather sufficient appropriate evidence
d) To assess audit risk

30. Which of the following factors is most important in determining the

appropriations of audit evidence?

a) The reliability of audit evidence and its relevance in meeting the audit
objective
b) The objectivity and integrity of the auditor
c) The quantity of audit evidence
d) The independence of the source of evidence

31. 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
32. Management asked the internal audit activity to evaluate the
appropriateness of self-insuring against casualty losses and health care
for the organization's employees. Should the chief audit executive engage
an actuarial consultant to assist in the audit engagement if these skills do
not exist on staff?

a) No, because the internal audit activity is skilled in assessing controls and the
insurance control concepts are not distinctly different from other control
concepts.
b) No, because it is a normal audit function to assess risk; this audit
engagement is therefore not unique.
c) Yes, because an actuarial consultant is essential to determine whether the
health-care costs are reasonable.
d) Yes, because an actuarial consultant has skills, not usually found in the
internal audit activity, to identify and quantify self-insurance risks

33. Which of the following steps would not be included in a program of

selecting and developing human resources for an internal audit
department?

a) Scheduling periodic meetings with individual auditors, during which the chief
audit executive provides counsel regarding each auditor's performance and
professional career development.
b) Establishing an internal review team to assess the auditors' and audit
department's compliance with standards, level of audit effectiveness,
and compliance with departmental policy.
c) Developing specific job descriptions for audit staff, audit managers, and other
auditing positions.
d) Establishing in-house training programs and requiring continuing education
for audit staff.

34. Which of the following statements is not correct about materiality?

a) Materiality is a relative concept

b) Materiality judgments involve both quantitative and qualitative judgments
c) Auditor’s consideration of materiality is influenced by the auditor’s perception
of the needs of an informed decision maker who will rely on the financial
statements
 d) At the planning state, the auditor considers materiality at the financial
statement level only.

35. 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

36. 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?

I. It is used when there is a significant uncertainty

II. It constitutes a qualified audit opinion
III. The audit report is referred to as an unmodified report
IV. 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

37. Professional skepticism requires that the auditor assume that management
is

a) Reasonably honest
 b) Neither honest nor dishonest
c) Not necessarily honest
d) Dishonest unless proved otherwise

38. Gabriel Co operates a large department store and have a large internal
audit department in place. The management of Gabriel Co is keen to
increase the range of assignments that internal audit undertake.
Which of the following assignments could the internal audit department of
Gabriel 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.

39. Auditors have a professional duty of confidentiality; voluntary disclosure

of information may be necessary in certain situations.

For which TWO of the following situations should an auditor make

VOLUNTARY disclosure?
(1) If an auditor knows or suspects his client is engaged in money laundering
(2) Where disclosure is made to non-governmental bodies
(3) Where it is in the public interest to disclose
(4) If an auditor suspects his client has committed terrorist offences

a) 1 and 4
b) 1 and 3
c) 2 and 4
d) 2 and 3
40. Internal auditors can evaluate the effectiveness of internal controls over
the purchasing function by reviewing:

a) the policies for the physical count of inventory.

b) the policies regarding separation of the custody of inventory from the
authorization to order inventory.
c) the policies regarding the authorization to order inventory and the recording
keeping functions for inventory.
d) the daily tasks of the purchasing department including requisitioning,
ordering, and purchase approval.

41. Which of the following factors likely to be identified as a fraud factor by the
auditor?

a) the company is planning an initial public offer of quality shares to raise

additional capital for expansion.
b) bank reconciliation statement includes deposits in transit.
c) plant and machinery is sold at a loss.
d) the company has made political contributions.

42. Which of the following is not likely to be a fraud risk factor relating to
management’s characteristics?

a) tax evasion
b) failure to correct known weakness in internal control system
c) adoption of conservative accounting principles
d) high management turnover

43. Which of the following statements, relating to the auditor’s reporting

responsibilities for going concern, if any, is/are correct?

(1) Where management is unwilling to make their assessment of the

company’s ability to continue as a going concern, the auditor should
include an emphasis of matter paragraph in the audit report
(2) Where the use of the going concern assumption is inappropriate, the
auditor should include a qualified opinion in the audit report
 a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2

44. Which of the following statements is most closely associated with

analytical procedure applied to substantive stage?

a) It helps to study relationship among balance sheet accounts

b) It helps to discover material misstatements in the financial statements
c) It helps to identify possible oversights
d) It helps to accumulate evidence supporting the validity of a specific
account balance

45. Which of the following statements is most closely associated with

analytical procedure applied to substantive stage?

a) It helps to study relationship among balance sheet accounts

b) It helps to discover material misstatements in the financial statements
c) It helps to identify possible oversights
d) It helps to accumulate evidence supporting the validity of a specific
account balance

46. Which of the following statements is not true about continuous audit?

a) It is conducted at regular interval

b) It may be carried out on daily basis
c) It is needed when the organization has a good internal control system
d) It is expensive

47. Analytical procedures issued in the planning stage of an audit, generally

a) helps to determine the nature, timing and extent of other audit procedures
b) directs attention to potential risk areas
c) indicates important aspects of business
 d) All of the above

48. Balance sheet audit includes verification of

a) Assets
b) Liabilities
c) Income and expense accounts where appropriate
d) All of the above

49.When auditor evaluate the effect of a change in accounting principle, the

materiality of the change should be evaluated based

a) On the prior years presented

b) On the current year effect of the change
c) On whatever basis auditor considers the appropriate
d) On the effect on total assets

50. 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.
1 Review of aged receivables ledger to identify balances requiring write down or
allowance would normally be undertaken during a final audit.

a) Neither 1 nor 2
b) 2 only
c) 1 only
d) Both 1 and 2