Auditing Mcqs

____________ is a systematic examination of the books Which of the following is NOT the responsibility of a
and records or a business? company’s directors?
A. Auditing A. Reporting to the shareholders on the accuracy of the
B. Vouching accounts
C. Verification B. Establishment of internal controls
D. Checking C. Keeping proper accounting records
The term ‘Audit’ is derived from a Latin word “audire” D. Supplying information and explanations to the auditor
which means___________? International auditing standards are issued by
A. To inspect the______________?
B. To examine A. International Accounting Standards Board
C. To hear B. International Federation of Accountants
D. To investigate C. International Standards Board
The main object of an audit is _____________? D. Auditing Practices Board
A. Expression of opinion Which of the following is not true about opinion on
B. Detection and Prevention of fraud and error financial statements?
C. Both (A) and (B) A. The auditor should express an opinion on financial
D. Depends on the type of audit. statements.
An auditor is like a_______________? B. His opinion is no guarantee to future viability of business
A. Blood haunt C. He is responsible for detection and prevention of
B. Watch dog frauds and errors in financial statements
C. May both according to situation D. He should examine whether recognised accounting
D. None of these principle have been consistently
Process of verifying the documentary evidences of A sale of Rs. 50.000 to A was entered as a sale to B.
transactions are known as___________? This is an example of____________?
A. Auditing A. Error of omission
B. Testing B. Error of commission
C. Vouching C. Compensating error
D. Verification D. Error of principle
Auditing is compulsory for____________? When an auditor is proposed for removal from office,
A. Small scale business which one of the following is he NOT permitted to do?
B. Partnership firms A. Circulate representations to members
C. Joint stock Companies B. Apply to the court to have the proposal removed
D. Proprietary Concerns C. Speak at the AGM/EGM where the removal is proposed
Concealment of shortage by delaying the recording of D. Receive notification of the AGM/EGM where the
cash receipts is known as_____________? removal is proposed
A. Embezzlement Which one of the following is NOT a duty of the
B. Misappropriation auditor?
C. Lapping A. Duty to report to the company’s bankers
D. None of these B. Duty to report to the members
The fundamental objective of the audit of a company is C. Duty to sign the audit report
to_____________? D. Duty to report on any violation of law
A. Protect the interests of the minority shareholders Assuming that it is not the first appointment of the
B. Detect and prevent errors and fraud auditor, who is responsible for the appointment of the
C. Assess the effectiveness of the company’s performance auditor?
D. Attest to the credibility of the company’s accounts A. The shareholders in a general meeting
The concept of stewardship means that a company’s B. The managing director
directors________________?A. Are responsible for C. The board of directors in a board meeting
ensuring that the company complies with the law D. The audit committee
B. Are responsible for ensuring that the company pays its The independent auditor’s primary responsibility is
tax by the due date to______________?
C. Safeguard the company’s assets and manage them A. the directors
on behalf of the shareholders B. the company’s creditors (payables)
D. Report suspected fraud and money laundering to the C. the company’s bank
authorities D. the shareholders
Why do auditors concentrate their efforts on material How long is the auditor’s term of office?
items in accounts? A. Until the audit is complete
A. Because they are easier to audit B. Until the financial statements are complete
B. Because it reduces the audit time C. Until the next AGM (Annual General Meeting)
C. Because the risk to the accounts of their being D. Until the directors remove them
incorrectly stated is greater Which of the following is correct in relation to
D. Because the directors have asked for it materiality?

1
 Auditing Mcqs
A. A matter is material only if it changes the audit report C. Reliability & extensiveness
B. A matter is material if the auditor and the directors both D. Objectivity & independence
decide that further work needs to be done in the area under Which of the following is normally the most reliable
question source of audit evidence?
C. A matter is material only if it affects directors’ A. Internal audit
emoluments B. Suppliers’ statements
D. A matter is material if its omission or misstatement C. Board minutes
would reasonably influence the decisions of an D. Analytical review
addressee of the auditors’ report The degree of effectiveness of an internal control
Which one of the following is NOT considered to be system depends on:
part of planning? A. The design of the internal control system and the
A. Background i.e. industry implementation of the controls
B. Previous year’s audit i.e. any qualifications in the report B. The design of the internal controls and the
C. Considering the work to be done by the client staff e.g. implementation of the control system
internal audit C. The implementation of the controls and the correctness
D. Considering whether the financial statements show of the accounting records
a true and fair view D. The design of the internal control system and the
Audit risk is composed of 3 factors. Which of the correctness of the accounting recor
following is NOT one of those factors? According to ISA 315, which of the following is NOT
A. Compliance risk an element of the control environment?
B. Detection risk A. Participation of management
C. Control risk B. Information processing
D. Inherent risk C. Commitment to competence
Which of the following should NOT be considered at D. Human resource policies and practices
the planning stage? According to ISA 315, which of the following is NOT a
A. The timing of the audit control activity?
B. Analytical review A. Performance reviews
C. Last year’s written representation letter B. Physical controls
D. Obtaining written representations C. Organizational structure
At the planning stage you would NOT D. Segregation of duties
consider____________? Lapping is also known as___________?
A. the timing of the audit A. Teeming and lading
B. whether corrections from the inventory count have B. Looping
been implemented C. Embezzlement
C. last year’s audit D. Hacking
D. the potential use of internal audit Goods sent on approval basis’ have been recorded as
Which of the following describes sampling risk? ‘Credit sales’. This is an example of____________?
A. The risk of the auditor carrying out a test the wrong way A. Error of principle
round B. Error of commission
B. The risk of reliance on unsuitable audit evidence C. Error of omission
C. The risk that the sample does not reflect the D. Error of duplication
population Which of the following statements is not true?
D. The risk of the auditor reaching the wrong conclusions A. Management fraud is more difficult to detect than
from testing employee fraud
Which of the following is NOT an accepted method of B. Internal control system reduces the possibility of
selection in sampling? occurrence of employee fraud and management fraud
A. Systematic selection C. The auditor’s responsibility for detection and prevention
B. Pervasive selection of errors and frauds is similar.
C. Random selection D. All statements are correct.
D. Haphazard selection Internal audit is undertaken:
Which of the following are you unlikely to see in the A. By independent auditor
current file of auditors’ working papers? B. Statutorily appointed auditor
A. Memorandum & articles of association C. By a person appointed by the management
B. Audit planning memorandum D. By a government auditor
C. Summary of unadjusted errors The scope of internal audit is decided by
D. Details of the work done on the inventory count the___________?
According to ISA 500, the strength of audit evidence is A. Shareholders
determined by which two qualities? B. Management
A. Appropriateness & competence C. Government
B. Sufficiency & appropriateness D. Law
Audit of banks is an example of_____________?

2
 Auditing Mcqs
A. Statutory audit C. Higher, Lower, Lower
B. Balance sheet audit D. Lower, Higher, Higher
C. Concurrent audit When issuing unqualified opinion, the auditor who
D. All of the above evaluates the audit findings should be satisfied that
Concurrent audit is a part of____________? the___________?
A. Internal check system Amount of known misstatement is documented in working
B. Continuous audit papers
C. Internal audit system B. Estimates of the total likely misstatement is less
D. None of these than materiality level
Audit in depth is synonymous for____________? C. Estimate of the total likely misstatement is more than
A. Complete audit materially level
B. Completed audit D. Estimates of the total likely misstatement cannot be
C. Final audit made
D. Detailed audit In determining the level of materiality for an audit,
Institute of Chartered Accountants of Pakistan was what should not be considered?
established in____________? A. Prior year’s errors
A. 1949 B. The auditor’s remuneration
B. 1956 C. Adjusted interim financial statements
C. 1961 D. Prior year’s financial statements
D. 1972 Analytical procedures issued in the planning stage of
Which of the following statements is not true about an audit, generally
continuous audit? A. Helps to determine the nature, timing and extent of other
A. It is conducted at regular interval audit procedures
B. It may be carried out on daily basis B. Directs attention to potential risk areas
C. It is needed when the organization has a good C. Indicates important aspects of business
internal control system D. All of the above
D. It is expensive Which of the following statements is most closely
Internal check is carried on by___________? associated with analytical procedure applied at
A. Staff specially appointed for the purpose substantive stage?
B. Internal auditor A. It helps to study relationship among balance sheet
C. Supervisor of the staff accounts
D. Members of the staff B. It helps to discover material misstatements in the
Errors of Omission are_____________? financial statements
A. Technical errors C. It helps to identify possible oversights
B. Errors of principle D. It helps to accumulate evidence supporting the
C. Compensating errors validity of a specific account balance
D. None of the above Verification refers to_________?
Window dressing implies_______________? A. Examining the physical existence and valuation of
A. Curtailment of expenses assets.
B. Checking of Wastages B. Examining the journal and ledger
C. Under valuation of assets C. Examination of vouchers related to assets.
D. Over Valuation of assets D. None of the above.
Test Checking refers to___________? Stock should be valued at_________?
A. Testing of accounts and records A. Cost
B. Checking of selected number of transactions B. Market price
C. Examination of adjusting and closing entries C. Cost or Market price whichever is lower.
D. Checking of all transactions recorded D. Cost less depreciation.
Which of the following statements is not correct about Floating assets are valued at____________?
materiality? A. cost
A. Materiality is a relative concept B. Market price
B. Materiality judgments involve both quantitative and C. Cost or market price whichever is lower
qualitative judgments D. Cost less depreciation
C. Auditor’s consideration of materiality is influenced by the Goods sold on the basis of ‘sales or return ‘ should:
auditor’s perception of the needs of an informed decision A. Be included in the stock
maker who will rely on the financial statements B. Not be included in the stock
D. At the planning state, the auditor considers C. Not be checked by auditor
materiality at the financial statement level only D. None of the above
______the audit risks_______the materiality Of the following, which is the least persuasive type of
and_________the audit effort. audit evidence?
A. Lower, Higher, Lower A. Bank statements obtained from the client
B. Lower, Lower, Higher B. Documents obtained by auditor from third parties

3
 Auditing Mcqs
directly. C. Risk of incorrect acceptance
C. Carbon copies of sales invoices inspected by the D. Both A and C
auditor What would most effectively describe the risk of
D. Computations made by the auditor incorrect acceptance in terms of substantive audit
Which of the following statements is, generally, correct testing?
about the reliability of audit evidence? A. The auditor has ascertained that the balance is
To be reliable, evidence should conclusive rather than materially correct when in actual fact it is not
persuasive B. The auditor concludes the balance is materially misstated
B. Effective internal control system provides reliable when in actual fact is not
audit evidence C. The auditor has rejected an item from sample which was
C. Evidence obtained from outside sources routed through not supported by documentary evidence
the client D. He applies random sampling on data which is inaccurate
D. All are correct. and inconsistent
In an audit of financial statements, substantive tests are Audit programme is prepared by____________?
audit procedures that __________? A. The auditor
A. May be eliminated for an account balance under certain B. The client
conditions C. The audit assistants
B. Are designed to discover significant subsequent events D. The auditor and his audit assistants
C. Will increase proportionately when the auditor decreases The working papers which auditor prepares for
the assessed level of control risk financial statements audit are___________?
D. May be test of transactions, test of balance and A. Evidence for audit conclusions
analytical procedures B. Owned by the client
The nature, timing and extent of substantive C. Owned by the auditor
procedures is related to assessed level of control risk D. Retained in auditor’s office until a change in auditors
A. Randomly The quantity of audit working papers complied on
B. Disproportionately engagement would most be affected by__________?
C. Directly A. Management’s integrity
D. Inversely B. Auditor’s experience and professional judgment
Which of the following factors is most important in C. Auditor’s qualification
determining the appropriations of audit evidence? D. Control risk
A. The reliability of audit evidence and its relevance in Which of the following best describes the primary
meeting the audit objective purpose of audit programme preparation?
B. The objectivity and integrity of the auditor A. To detect errors or fraud
C. The quantity of audit evidence B. To comply with GAAP appropriate evidence
D. The independence of the source of evidence C. To gather sufficient
When is evidential matter, generally, considered D. To assess audit risk
sufficient? Which of the following is not an advantage of the
A. When it constitutes entire population preparation of working paper?
B. When it is enough to provide a basis for giving A. To provide a basis for review of audit work
reasonable assurance regarding truthfulness B. To provide a basis for subsequent audits
C. When it is objective and relevant C. To ensure audit work is being carried out as per
D. When auditor collects and evaluates it independently programme
Which of the following is not corroborative evidence? D. To provide a guide for advising another client on
A. Minutes of meetings similar issues
B. Confirmations from debtors The auditor’s permanent working paper file should not
C. Information gathered by auditor through observation normally, include__________?
D. Worksheet supporting consolidated financial A. Extracts from client’s bank statements
statements B. Past year’s financial statements
What would most appropriately describe the risk of C. Attorney’s letters
incorrect rejection in terms of substantive testing? D. Debt agreements
A. The auditor concludes balance is materially correct when For what minimum period should audit working papers
in actual fact it is not be retained by audit firm?
B. The auditor concludes that the balance is materially A. For the time period the entity remains a client of the
misstated when in actual fact it not audit firm.
C. The auditor has rejected an item for sample which was B. For a period of ten years
material C. For a period auditor opines them to be useful in
D. None of the above servicing the client
Which of the following affects audit effectiveness? D. For the period the audit firm is in existence.
A. Risk of over reliance Which of the following factors would least likely affect
B. Risk of incorrect rejection the quantity and content of an auditor’s working papers

4
 Auditing Mcqs
A. The assessed level of control risk Which of the following statements is not true about
B. The possibility of peer review continuous audit?
C. The nature of auditor’s report It is conducted at regular interval
D. The content of management representation letter B. It may be carried out on daily basis
Which of the following statement is true regarding an C. It is needed when the organization has a good
auditor’s working papers? internal control system
A. They document the level of independence maintained by D. It is expensive
the auditor Balance sheet does not include:_____________?
B. They should be considered as the principle support A. Verification of assets and liabilities
for the auditor’s report B. Vouching of income and expense accounts related to
C. They should not contain details regarding weaknesses in assets and liabilities
the internal control system C. Examination of adjusting and closing entries
D. They help the auditor to monitor the effectiveness of the D. Routine checks
audit firm’s quality control Which of the following statements is not correct about
Which of the following statement best describes the materiality?
understanding with respect to ownership and custody A. Materiality is a relative concept
of working papers prepared by an auditor? B. Materiality judgments involve both quantitative and
A. The working papers may be obtained by third qualitative judgments
parties when they appear to be relevant to issues raised C. Auditor’s consideration of materiality is influenced by the
in litigation auditor’s perception of the needs of an informed decision
B. The safe custody of working papers is the responsibility maker who will rely on the financial statements
of client, if kept at his premises D. At the planning state, the auditor considers
C. The working papers must be retained by an audit firm for materiality at the financial statement level
a period of 10 years only
D. Successor auditors may have access to working papers of _______the audit risk,_______the materiality and
the predecessor auditors. The approval of client is not _______the audit effort?
required. A. Lower, Higher, Lower
The current file of the auditor’s working papers, B. Lower, Lower, Higher
generally, should include____________? C. Higher, Lower, Lower
A. A flowchart of the internal controls D. Lower, Higher, Higher
B. Organisation charts When issuing unqualified opinion, the auditor who
C. A copy of financial statements evaluates the audit findings should be satisfied that
D. Copies of bond and debentures the_____________?
Auditing is what? A. Amount of known misstatement is documented in
A. Reporting the financial information working papers
B. Examination of financial statements B. Estimates of the total likely misstatement is less
C. Preparation financial statements than materiality level
D. maintaining the ledger records C. Estimate of the total likely misstatement is more than
Audit of banks is an example of__________? materially level
A. Statutory audit D. Estimates of the total likely misstatement cannot be
B. Balance sheet audit made
C. Concurrent audit In determining the level of materiality for an audit,
D. Both (A. and (B. what should not be considered?
E. All of the above A. Prior year’s errors
In Pakistan, balance sheet audit is synonymous B. The auditor’s remuneration
to___________? C. Adjusted interim financial statements
A. Annual audit D. Prior year’s financial statements
B. Continuous audit Analytical procedures issued in the planning stage of
C. Detailed audit an audit, generally?
D. Statutory audit A. helps to determine the nature, timing and extent of other
Audit in depth is synonymous for_____________? audit procedures
A. Complete audit B. directs attention to potential risk areas
B. Completed audit C. indicates important aspects of business
C. Final audit D. All of the above
D. Detailed audit Which of the following statements is most closely
Balance sheet audit includes verification associated with analytical procedure applied at
of____________? substantive stage?
A. Assets A. It helps to study relationship among balance sheet
C. Income and expense accounts where appropriate accounts
B. Liabilities B. It helps to discover material misstatements in the
D. All of the above financial statements

5
 Auditing Mcqs
C. It helps to identify possible oversights The nature, timing and extent of substantive
D. It helps to accumulate evidence supporting the procedures is _________ related to assessed level of
validity of a specific account balance control risk?
The basic assumption underlying the use of analytical A. randomly
procedures is:____________? B. disproportionately
A. It helps the auditor to study relationship among elements C. directly
of financial information D. inversely
B. Relationship among data exist and continue in the Which of the following statements is, generally, correct
absence of known condition to the contrary about the reliability of auditevidence?
C. Analytical procedures will not be able to detect unusual A. To be reliable, evidence should conclusive rather than
relationships persuasive
D. None of the above. B. Effective internal control system provides reliable
What are analytical procedures? audit evidence
A. Substantive tests designed to assess control risk C. Evidence obtained from outside sources routed through
B. Substantive tests designed to evaluate the validity of the client
management’s representation letter D. All are correct.
C. Substantive tests designed to study relationships When is evidential matter, generally, considered
between financial and nonfinancial sufficient?
D. All of the above A. When it constitutes entire population
Which of the following is not an analytical procedure? B. When it is enough to provide a basis for giving
A. Tracing of purchases recurred in the purchase book reasonable assurance regarding truthfulness
to purchase invoices. C. When it is objective and relevant
B. Comparing aggregate wages paid to number of employees D. When auditor collects and evaluates it independently
C. Comparing the actual costs with standard costs Which of the following is not a corroborative evidence?
D. All of them are analytical procedure A. Minutes of meetings
When applying analytical procedures, an auditor could B. Confirmations from debtors
develop independent estimate of an account balance to C. Information gathered by auditor through observation
compare it to___________? D. Worksheet supporting consolidated financial
A. client’s unedited account balance statements
B. client’s unedited account balance adjusted for trends in Which of the following affects audit effectiveness?
the industry A. Risk of over reliance
C. Prior year audited balance B. Risk of incorrect rejection
D. Prior year audited balance adjusted for trends in the C. Risk of incorrect acceptance
industry D. Both A. and C.
What is the primary objective of analytical procedures Which of the following statements is not true with
used in the overall review stage of an audit? respect to management representations obtained as per
A. To help to corroborate the conclusions drawn from AAS11?
individual components of financial statements A. Authenticated copy of relevant minutes of meetings may
B. To reduce specific detection risk be regarded as management representation
C. To direct attention to potential risk areas B. It should always be in working
D. To satisfy doubts when questions arise about a client’s C. It may be dated prior to the report date
ability to continue D. It should be addressed to the auditor
Of the following, which is the least persuasive type of What would most appropriately describe the risk of
audit evidence? incorrect rejection in terms of substantive testing?
A. Bank statements obtained from the client A. The auditor concludes balance is materially correct when
B. Documents obtained by auditor from third parties in actual fact it is not
directly. B. The auditor concludes that the balance is materially
C. Carbon copies of sales invoices inspected by the misstated when in actual fact it not
auditor C. The auditor has rejected an item for sample which was
D. Computations made by the auditor material
In an audit of financial statements, substantive tests are D. None of the above
audit procedures that___________? What would most effectively describe the risk of
A. may be eliminated for an account balance under certain incorrect acceptance in terms of substantive audit
conditions testing?
B. are designed to discover significant subsequent events A. The auditor has ascertained that the balance is
C. will increase proportionately when the auditor decreases materially correct when in actual fact it is not
the assessed level of control risk B. The auditor concludes the balance is materially misstated
D. may be test of transactions, test of balance and when in actual fact is not
analytical procedures C. The auditor has rejected an item from sample which was
not supported by documentary evidence

6
 Auditing Mcqs
D. He applies random sampling on data which is inaccurate When restrictions that significantly affect the scope of
and inconsistent the audit are imposed by the client, the auditor
Which of the following factors is most important in generally should issue which of the following opinion?
determining the appropriations of audit evidence? A. Qualified opinion
A. The reliability of audit evidence and its relevance in B. Disclaimer of opinion
meeting the audit objective C. Adverse opinion
B. The objectivity and integrity of the auditor D. Unqualified report with ‘an emphasis of matter’
C. The quantity of audit evidence paragraph;
D. The independence of the source of evidence The auditor has serious concern about the going
Which of the following is not a revenue expense? concern of the company. It is dependent on company’s
A. Cost of raising a loan obtaining a working capital loan from a bank which has
B. Cost of accessories of motor vehicles spent at the been applied for. The management of the company has
time of purchase made full disclosure of these facts in the notes to the
C. Expenses incurred for laying of sewers on land purchased balance sheet. The auditor is satisfied with the level of
D. Insurance premium paid at the time of registration of the disclosure. He should issue___________?
ship A. unqualified opinion
Depreciation does not arise form _______ B. unqualified opinion with reference to notes to the
A. effluxion of time accounts
B. use C. qualified opinion
C. obsolescence through technology be market changes D. disclaimer of opinion
D. remarket expectation Which of the following is true about explanatory notes?
Which of the following will not lead to creation of A. These are given by the directors of the company
secret reserve? B. These are given to adhere to requirements of section 211.
A. Undervaluation of closing stock C. These are given by auditors of the company in auditor’s
B. Charging capital expenditure to revenue report
C. Goods sent on consignment being shown as actual D. All of the above
sales The client changed method of depreciation from
D. Charging higher rates of depreciation on fixed assets than straight line to written down value method. This has
actually required been disclosed as a note to the financial statements. It
Which of the following is a revenue reserve? has an immaterial effect on the current financial
A. Capital redemption reserve statements. It is expected, however, that the change
B. Security premium account will have a significant effect on future periods. Which
C. Debenture redemption reserve of the following option should the auditor express?
D. Capital reserve A. Unqualified opinion
The auditor has a right to___________? B. Qualified opinion
A. Obtain information and explanation C. Disclaimer of opinion
B. Obtain information and explanation from the employees D. Adverse opinion
and officers Which of the following documents is not relevant for
C. Obtain information and explanation necessary for the vouching cash sales?
purpose of audit A. Daily cash sales summary
D. Both B. and C. B. Salesmen’s summary
The branch auditor is appointed by___________? C. Monthly statements sent to customers
A. Shareholders in an annual general meeting D. Bank statement
B. Shareholders in general meeting To test whether sales have been recorded, the auditor
C. Board of directors in board meeting should draw a sample from a file of__________?
D. Any of the above A. purchase orders
Auditor of a___________company does not have right B. sales orders
to visit foreign branches of the company? C. sales invoices
A. Unlimited liability D. bill of loading
B. Manufacturing The auditor should examine subsequent realization of
C. Banking revenue such as dividends, interest,commission, etc
D. Nonprofit making to:_____________?
The date on auditor’s report should not A. identify cases of unrecorded revenue
be____________? B. ensure proper disclosure in the balance sheet
A. the data of AGM C. recompute accrued income on the data of balance sheet
B. later than the date on which the accounts are approved in D. Any of these
board’s meeting What is meant by negative assurance?
C. earlier than the date on which the accounts are A. The auditor cannot give an opinion due to lack of
approved by the management evidence.
D. Both A. and B. B. The client’s financial statements were found to be
materially misstated.

7
 Auditing Mcqs
C. The auditor could not conduct any tests due to lack of A. Other audit clients
controls. B. Previous years
D. The auditor did not find anything to indicate that a C. Other companies in the same industry
material misstatement exists. D. Budget
For companies required to produce interim financial Which of the following is true about written
statements (IFI): representations?
A. one audit firm should audit the IFI and a different firm A. They are the best source of audit evidence
should audit the financial statements for the year as a whole. B. They should be used only when there is a lack of
B. one accountancy firm should review the IFI and a other substantive audit evidence
different firm should audit the financial statements for the C. They should be used only when there is other substantive
year as a whole. audit evidence to complement it
C. the same firm should audit the IFI and the financial D. Shareholders receive a copy of all material written
statements for the year as a whole. representations
D. the same firm should review the IFI and the Which of the following statements is INCORRECT?
financial statements for the year as a whole. A. An auditor may serve on the board of directors of an
Which of the following statements is correct? audit client.
A. When a company negotiates a ‘friendly’ takeover, it B. An auditor who is an immediate family member of the
usually appoints a firm of accountants to carry out due director of an audit client must not be assigned to the audit
diligence on the takeover target. team.
B. In an attestation engagement, the accountant is required C. Purchasing goods from an audit client on normal
to report on the quality of work performed. commercial terms does not create a threat to the auditor’s
C. In a review engagement, evidence is gathered mainly by independence.
means of computation and inspection. D. An auditor who was recently a director of an audit client
D. In an engagement to review financial statements, the must not be assigned to the audit team for that client.
amount of work required is the same as for an audit An auditor should not accept a loan on favourable
What sort of assurance is provided in a review commercial terms from an audit client because of the
engagement? threat to his or her independence. The threat would be
A. Positive assurance a___________?
B. Negative assurance A. Self-interest threat
C. High level of assurance B. Self-review threat
D. No assurance C. Advocacy threat
Which one of the following is part of the auditor’s D. Familiarity threat
function? Which of the following are fundamental ethical
A. Conducting the inventory count principles for professional accountants?
B. Obtaining and evaluating audit evidence on the 1 Competence
financial statements 2 Compliance
C. Calculating the year-end accruals figure for inclusion in 3 Integrity
the accounts 4 Objectivity
D. Providing representations to management A. 1, 2 and 3 only
Which of the following does NOT belong in the B. 1, 3 and 4 only
auditors’ report? C. 2, 3 and 4 only
A. Introductory paragraph specifying the pages to which the D. 1, 2 and 4 only
report relates and the accounting convention adopted Which one of the following may auditors NOT perform
B. Basis of the opinion for their client?
C. Involvement of any specialist A. Taking management decisions
D. Statement of responsibilities of directors and auditors B. Preparation of accounting records
What is meant by the expression ‘expectation gap’? C. Preparing tax computations
A. The gap between how the directors of a company D. Advising on weaknesses in the internal control systems
perform their duties and how the shareholders expect them You have been proposed as auditor of a company. What
to perform is the first step that you should take?
B. The gap between how the directors of a company A. Obtain the client’s permission to communicate with
perform their duties and how the general public expects the existing auditor
them to perform B. Obtain the existing auditor’s working papers
C. The gap between the public perception of the role of C. Obtain a copy of the company’s most recent board
company auditors and their statutory role and minutes
responsibilities D. Obtain a copy of the existing auditor’s letter of
D. The gap between the auditors’ own perception of their engagement
duties and how they are set out in the Companies Act
Which of the following would you not use as a
benchmark for comparison when undertaking
analytical procedures?