ACC311- Fundamentals of Auditing current Subjective & MCQs Final term papers

1. Control procedures of petty cash book? 5 Marks
2. Define Unqualified opinion and Qualified Opinion of an Auditor? 3 Marks
3. How Auditor will verify the internal control of a firm which sanction loans to customers according to their needs? 5 Marks

ACC311 Fundamental of auditing Solved MCQs

Question:

Which one of the following persons are responsible for the preparation of Audit

engagement later?

Options:

Auditor

Client

Company registrar

Company secretary

Question:

Who is responsible for designing and preparing the financial statements?

Options:

Auditor

Management

Accountant

Company secretary

Question:

Which one of the following is the method of assessing the internal control system of an

entity?

Options:

Audit procedures

Audit evidence

Compliance audit

Technical analysis

Question:

The purpose of engagement letter includes the following EXCEPT:

Options:

To defines the auditors responsibilities clearly

To minimize misunderstandings between the client and auditors

To educate the client

To help the auditor in preparing audit report

Question:

A manufacturing company wants to hire external auditors who examine the activities

operations procedures and processes of each department of the company. The company

follows the local and international laws rules ad regulations and also has set standards for

the efficiency and effectiveness. The company shall have to provide the access of all kind

of operational information that will be required to the auditors as audit evidences.

Considering the above situation select the most suitable type of audit which the company

should opt?

Options:

Compliance audit

Operational audit

Technology audit

Financial audit

Question:

Which one of the following is considered as the formal opinion or disclaimer thereof

issued by an independent auditor as a result of audit or evaluation performed on a legal

entity?

Options:

Financial report

Financial statement

Directorâtreport

Auditor’s report

Question:

Which of the following statements is true?

Options:

The auditing profession is unregulated

The auditing profession is regulated only by its own professional body

Outside bodies sometimes become involved in the regulation of the audit profession

The auditing profession is regulated only by the government

Question:

Which one of the following primary assertions is satisfied when an auditor ensures that

there are no unrecorded assets liabilities transactions or events or undisclosed items in the

client financial records?

Options:

Valuation

Completeness

Existence

Rights and obligations

Question:

Internal control is primarily established within a company to do which of the following?

Options:

To prevent fraud in the company affairs

To provide reasonable assurance that the company’s objectives will be achieved

To catch all errors that may occur in the company

To aid in the effective auditing of the company

The following authorities can determine fixation of remuneration of auditors EXCEPT:

(Companies Ordinance 1984)

Options:

Directors

Company secretary

Commission

Members

Question:

A leather goods manufacturing company has started its operations in year 2001. After

five years of conducting successful business, it has become a listed company recently.

Now the company is required to hire its first auditors but neither the directors nor the

members could appoint the auditors during the past 4 months since the incorporation of

the company. Select among the following authorities who can appoint the auditors in this

situation? (Companies Ordinance 1984)

Options:

Company secretary

Company registrar

Commission

Institute of Chartered Accountants of Pakistan (ICAP)

Question:

A company has hired auditors who have performed the audit process in accordance with

the auditing standards but they fail to present its report. According to the Company law

1984 the auditors shall be liable for which one of the following liabilities?

Options:

Criminal liability

Liability for misfeasance

Liability for negligence

Accounting liability

Question:

DBMSes & Databa ses are same things.

Options: false true

Question:

Audit sampling conducted

Options:

On selected number of items

On Whole population

On specific no of items

All of the given options

Question:

Advantages of Audit Sampling

Options:

Economical

Time Saving

More Practical

All of the given options

Question:

Which of the following is the component of audit risk?

Options:

Inherent risk

Control risk

Detection risk

All of the given options

Question:

Which of the following is not needed to be verified at the time of verification of Equity?

Options:

Share capitalâtclassification

Movement in share capital

Preliminary expenses are properly write off

Movements in reserves

*

Question:

Which of the following is needed to be verified at the time of verification of Account

Balances?

Options:

Look over any significant reconciling items of an unusual nature

Inspect about outstanding stale cheques

Acquire direct bank confirmation

All of the given options

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Permalink Reply by + M.Tariq Malik + on May 15, 2012 at 10:34pm

Question:

Tolerable error and sample size have

Options:

A direct relationship

An inverse relationship

No relation

None of the given options

Question:

Sample risk and sample size have

Options:

A direct relationship

An inverse relationship

No relation

None of the given options

Question:

Where the auditor relies more on the system of internal control the circumstance warrant:

Options:

He spends more time on audit

Effectiveness of the audit is affected

Efficiency of the audit is affected

Reliability of the results of the tests is affected

Question:

The auditor should select sample in such a way that:

Options:

All important items should be selected

All items containing misstatement should be selected

All items in the population are selected

All items in population have an opportunity of being selected

Question:

Stratification is a process of dividing a population into sub- populations which have

Options:

Heterogeneous characteristics

Nothing in common

Lot of sampling units

Homogeneous characteristics

Question:

Test of controls comprise of testing of all EXCEPT

Options:

Design

Implementation

Operating efficiency

Operating effectiveness

Question:

Analytical procedures are carried out for which one of the following purposes?

Options:

To reduce detection risk

To assess inherent risk

To reduce control risk

To determine detection risk

Question:

Nature of audit procedure’ refers to which one of the following desc ription?

Options:

It refers to the purpose i.e. (tests of controls or substantive procedures) and their

type that is inspections observation inquiry confirmation recalculation reperformances

or analytical procedures

. It refers when audit procedures are to be performed or the period or date to which the

audit evidence applies

. It refers to sample size or number of observations of a control activity (quantity of audit

evidence)

. It refers to the nature of testing and their procedures that is designing structuring and

compiling work to be done

Question:

The auditors are required to perform tests of controls when

Options:

The internal controls are operating inefficiently

Substantive procedures alone provide sufficient appropriate audit evidence at the

assertion level.

Substantive procedures alone do not provide sufficient appropriate audit evidence

at the assertion level.

Analytical procedures alone do not provide sufficient appropriate audit evidence at the

assertion level.

Question:

Following descriptions are the examples of substantive testing EXCEPT:

Options:

Test of account balances to verify the correctness of the amounts

Verification that an operating system and/or applications are configured

appropriately to the companies needs

Review of minutes of directors; meetings and inquiry

Use of statistical sampling to determine the accuracy of financial statement figures

Question:

How often the Bank reconciliations should be prepared?

Options:

Weekly

Monthly

Quarterly

Annually

Question:

How often Inventory levels should be checked against the inventory records in order to

keep its control effectively?

Options:

Rarely

Periodically

Never

Daily

Question:

What auditors seek in the register of non current assets for each major group of assets?

Options:

Details of each item its cost and residual value

Details of each item its cost and accumulated depreciation

Details of each item its cost and depreciation

Details of each item its cost and capital investment expected returns

Question:

Which one of the following may NOT consist of any verification methods?

Options:

Closing balance

Acquisitions

Disposals

Reconciliation

Question:

Which one of the following may not be any matter relevant to verification of assets?

Options:

Taxation

Vouching

Insurance

The letter of representation

Question:

Which one of the following aspects of assets must be verified?

Options:

Cost and authorization

Value and existence

Beneficial investment

Presentation in the accounts

Question:

An Automobile Company hires auditors at the year end. Auditors are at the stage of

verification and vouching of companyâtfinancials. Before examining the equity section

they develop general aspects concerning the ownerâtequity. In your opinion which one of

the following aspects may NOT be considered by the auditors during this assessment?

Options:

Share capital is properly classified and described in the accounts

Capital stock is enough to execute the companyâtfinancial needs

Reserves are properly classified and presented

Movements in reserves are properly authorized

Question:

Non current assets manufactured or constructed by the company itself should reflect

which types of costs in the costing records?

Options:

Direct costs plus relevant overhead but not include any profit

Direct costs plus relevant overhead and any profit earned on it

Indirect costs plus relevant overhead but not include any profit

Indirect costs plus relevant overhead and any profit earned on it

Question:

Which one of the following matters should be included in the letter of representation?

Options:

Existence of any immaterial mistake in the statements

Existence of any fraud or error in the statements

Companyâtgrowth trend in the future in figures

Market value of the companyâtstock

Question:

Who should prepare the annual capital expenditure budgets of the company in order to

keep effective?

Options:

Someone directly responsible to the shareholders

Someone directly responsible for goods delivery to the customers

Someone directly responsible to the board of directors

Someone directly responsible to deal with the suppliers

Read more: ACC311 Current Mid Term Papers Spring 2012 Date: 11-5-2012 to 22-05-2012 -

Virtual University of Pakistan

http://vustudents.ning.com/group/acc311fundamentalsofauditing/forum/topics/acc311-currentmid-

term-papers-spring-2012-date-11-5-2012-to-22-0#ixzz2CeZr5Mv1

Get latest quiz of ACC 311 and please solved it as soon as possible for Mid-Term Exams . . .

Quiz No. # 01: During audit of the financial statements, the auditors are concerned with the

verification and determination of which one of the following items?

> Statements, accuracy, and feasibility

> Date, accuracy, and reliability

> Policies, value, and reliability

> Cycle, policies, and reliability

Quiz No. # 02: Which one of the following authorities shall fix the remuneration of the auditors,

if auditors are appointed by the SECP? (Companies Ordinance, 1984)

> Directors

> Shareholders

> Company registrar

> SECP

Quiz No. # 03: The phrase (Scope of an Audit) refers to which one of the followings?

> Engagement letters

> Audit procedures

> Audit evidence

> Reasonable assurance

Quiz No. # 04: Following statements are true about the legal requirements of books accounts for

the companies EXCEPT: (Companies Ordinance, 1984)

> Books of accounts should be preserved for 10 years

> Books of accounts are to be kept at the registered office of the company

> Directors can review the books of account during the business hours

> If a company fails to maintain books of accounts according, it may leads to demolish the entity

Quiz No. # 05: The factors that affect reasonable assurance include all of the following

EXCEPT:

> Use of testing (Sampling)

> Interest limitations of accounting and internal control

> Remuneration of the auditor

> Persuasive nature of audit evidence

Quiz No. # 06: A well designed Internal Control Questionnaire (ICQ) should incorporate the

following EXCEPT:

> Be a sufficient source of data for the evaluation of internal controls

> Identity the internal control system’s strengths and weaknesses

> Be organized by individual functional organizations

> Should include simple yes or no responses but no narrative responses

Quiz No. # 07: Which one of the following is FALSE about Internal Control Evaluation

Checklists (ICEC)?

> ICEC is developed to overcome the shortcomings of Internal Control Questionnaire

> The rules of constructing ICEC is different than construction of Internal Control Questionnaire

> It is designed to determine, whether desirable internal controls are present

> It is normally employed where system’s information has already been recorded

Quiz No. # 08: An auditor’s flow chart of an entity’s information system is a diagrammatic

representation. It depicts what kind of information?

> Program for tests of control

> Understanding of the system

> Understanding of the types of irregularity that are probable given by the present system

> Documentation of the study and evaluation of the system

Quiz No. # 09: Which one of the following is NOT a factor included in the control environment

of an entity?

> Integrity and ethical values

> Risk assessment

> Commitment to competence

> Organization structure

Quiz No. # 10: The audit which is a review of any part of an entity’s operating procedures and

methods is known as:

> Financial statement audits

> Operational audits

> Technical Audits

> Compliance audits

Quiz No. # 11: While considering internal control system of an entity, the auditor is basically

concerned that the system provides reasonable assurance about which one of the following?

> That the management can not override the system

> Operational efficiency has been achieved according to management plans

> Errors have been prevented or detected

> Controls have not been circumvented by collusion

Quiz No. # 12: Which one of the following is the source document for staff salaries?

> Approved payrolls

> Vouchers

> Accounting statements

> Cash memos

Quiz No. # 13: Analytical procedures used in planning an audit should focus on identifying

which one of the followings?

> Areas that may represent specific risks relevant to the audit

> Material weaknesses in the internal control structure

> The predictability of financial data form individual transactions

> The various assertions that are embodied in the financial report

Quiz No. # 14: Which one of the following meetings is considered as a ‘meeting of directors or

management?

> General meeting

> Extra ordinary general meeting

> Board meeting

> Management meeting

MCQz was bit confusing

disqualifications of an auditor ?section 253

if you hired by a government bank as an auditor what you do for permot bank’s credibility?

what is audit process and what is its importance?

audit risk assessment

Which of the following is one of the most fundamental and effective internal controls?

Increased use of computers for recording accounting transactions

Increased reliance on internal auditors to monitor accounting systems

Segregation of incompatible duties across several people

Having internal auditors report only to the Board of Directors

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MIDTERM EXAMINATION

Spring 2009

ACC311- Fundamentals of Auditing (Session – 1)

Question No: 1 ( Marks: 1 ) – Please choose one

Which of the following is a primary objective of an operational audit?

Past protection provided by existing internal control

The verification that a company’s financial report is fairly presented

The accuracy of the data reflected in management’s financial records

Future improvements to accomplish the goals of management

Question No: 2 ( Marks: 1 ) – Please choose one

Which of the following auditors especially focus upon exceptions, oddities, accounting

irregularities, patterns of conduct, and not on errors or omissions?

Financial auditors

Fraud auditors

External auditors

Internal auditors

Question No: 3 ( Marks: 1 ) – Please choose one

Which of the following ‘audit process stages’ shall generally be conducted at the end in relation

to the others?

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Auditing business processes and related accounts

Preliminary assessment of materiality and audit risk

Preliminary analytical procedures e.g. ratio analysis

Consideration of internal control systems

Question No: 4 ( Marks: 1 ) – Please choose one

Which of the following primary assertion is satisfied when an auditor ensures that there is no

false transaction recorded and all recorded transactions have actually taken place?

Occurrence

Completeness

Existence

Rights and obligations

Question No: 5 ( Marks: 1 ) – Please choose one

Which one of the following statements is NOT true about the internal control system of a

company?

Internal control is affected by people working in an organization

Internal control is a process of bringing accuracy and improvements in the systems

Internal control systemt is expected to provide absolute assurance about the performance

of a company

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Internal control is geared to achieve objectives of financial reporting, compliance and

operations

Question No: 6 ( Marks: 1 ) – Please choose one

Which one of the following meetings is considered as a ‘meeting of members’?

General meeting

Board meeting

Management meeting

Employees meeting

Question No: 7 ( Marks: 1 ) – Please choose one

The first auditors

of a company are required to hold office till which one of the following events?

(Companies Ordinance, 1984)

Board meeting

Completion of one year

First annual general meeting

Extra ordinary general meeting

Question No: 8 ( Marks: 1 ) – Please choose one

A sports goods manufacturing company has started its operations in year 2003 as a private limited

company. After five years of conducting successful business, it has incorporated as a listed

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company in year 2008. Now, the company is required to hire its first auditors, but neither the

directors nor the members could appoint the auditors within four months since the incorporation

of the company.

Select among the following authorities who can appoint the auditors in this situation? (Companies

Ordinance, 1984)

Company secretary

Company registrar

Securities and Exchange Commission

Institute of Chartered Accountants of Pakistan

Question No: 9 ( Marks: 1 ) – Please choose one

Which one of the following actions shall give rise to tort, while performing audit of a company?

Negligence

Negligent misconduct

Assault

All of the given options

Question No: 10 ( Marks: 1 ) – Please choose one

Suppose that a private limited company has just been incorporated as public limited company.

After how much time the company is required to present its first annual accounts before the

Annual General Meeting (AGM)? (Companies Ordinance, 1984)

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Within 12 months

Within 13 months

Within 16 months

Within 18 months

Question No: 11 ( Marks: 1 ) – Please choose one

A listed company has just hired the auditors who have been involved in using ratio analysis, trend

analysis, and common size analysis of financial as well as non financial information pertaining to

the entity for about a month. In your opinion, auditors should be considered at which one of the

following stages of risk assessment?

Inspection of the entity and others within the entity

Inquiries of management and others within the entity

Observation of the entity’s procedures and all within the entity

Using analytical tools of risk assessment

Question No: 12 ( Marks: 1 ) – Please choose one

Suppose an auditor makes the assessment that there is a low level of control risk and inherent risk

for a client, what would you expect the auditor to do in this situation?

Perform no substantive procedures

Perform no control tests because of the low level of control risk

Perform a relatively small number of substantive procedures

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Re-evaluate his or her acceptable level of audit risk

Question No: 13 ( Marks: 1 ) – Please choose one

During the audit, an independent auditor identifies the existence of a reportable condition in the

client’s system of internal controls and orally communicates this finding to the client’s senior

management and audit committee. In your opinion, the auditor should perform which one of the

following actions instead of reporting to management in this way?

Consider the reportable condition a scope limitation and therefore disclaim an opinion

Document the matter in the working papers and consider the effects of the condition on

the audit

Suspend all audit activities pending directions from the client’s audit committee

Withdraw from the engagement

Question No: 14 ( Marks: 1 ) – Please choose one

Which one of the following statement best describes the inherent risk

in auditing?

Auditors fail to discover a material misstatement in the course of their audit and do not

modify their audit opinion

A company’s internal control fails to identify a material misstatement in a timely fashion

Auditing procedures fail to find a material misstatement

The possibility that an account or class of transactions contains material misstatements

irrespective of the effects of the internal controls

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Question No: 15 ( Marks: 1 ) – Please choose one While considerating the internal control system, the auditor is basically concerned that the system

provides reasonable assurance about which one of the following?

That the management can not override the system

Operational efficiency has been achieved according to management plans

Errors have been prevented or detected

Controls have not been circumvented by collusion

Question No: 16 ( Marks: 1 ) – Please choose one

Which of the following is one of the most fundamental and effective internal controls?

Increased use of computers for recording accounting transactions

Increased reliance on internal auditors to monitor accounting systems

Segregation of incompatible duties across several people

Having internal auditors report only to the Board of Directors

Question No: 17 ( Marks: 1 ) – Please choose one

An audit firm audited a Leather Manufacturing company and presented its report addressed to the

management. They found significant material misstatements in the company’s internal controls

system. They strongly recommended that there should be sufficient controls in existence to ensure

management can effectively control the business operations. In your opinion, auditors are

emphasizing on which one of the following categories of SOAP MAPS?

Authorization

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Management and Monitoring

Arithmetic and Accounting

Segregation of duties

Question No: 18 ( Marks: 1 ) – Please choose one

Which one of the following statements best describes the term ‘Observation’ that is performed

during the audit testing stage?

Reviewing or examining records, documents or tangible assets

Looking at an operation or procedure being performed by others with a view to determine

the manner of its performance

Examining that an operating system and/or applications are configured appropriately to

the companies needs and lockdown requirements

Seeking relevant information from knowledgeable persons inside or outside the enterprise,

whether formally or informally

Seeking relevant information from knowledgeable persons inside or outside the enterprise,

whether formally or informally

Question No: 19 ( Marks: 1 ) – Please choose one

In which one of the following situations auditors are required to perform tests of controls?

When the internal controls are operating inefficiently

When substantive procedures alone do not provide sufficient appropriate audit evidence at

the assertion level

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When substantive procedures alone provide sufficient appropriate audit evidence at the

assertion level

When analytical procedures alone do not provide sufficient appropriate audit evidence at

the assertion level

Question No: 20 ( Marks: 1 ) – Please choose one

Which one of the following elements is NOT related to audit quality?

Due diligence

Independence

Audit fees

Audit competence

Question No: 21 ( Marks: 1 ) – Please choose one

One of the main objectives of performing analytical review procedures is to obtain evidence in

the planning phase of the audit that helps to identify which one of the followings?

Transactions that have not been properly authorized

Illegal acts undetected as a result of poor internal controls

Inefficient operational activities

Unusual changes that may signal possible account misstatements

Question No: 22 ( Marks: 1 ) – Please choose one

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An audit firm audited a company and presented its report addressed to the management. They

found discrepancies in the Financial System of the company and strongly recommended the

company to incorporate adequate controls to ensure the completeness and accuracy of its

financial records. In your opinion, auditors are emphasizing on which one of the following

categories of SOAP MAPS?

Authorization

Management and Monitoring

Arithmetic and Accounting

Segregation of duties

Question No: 23 ( Marks: 1 ) – Please choose one

An audit firm audited a company and presented its report addressed to the management. They

found significant material misstatements in the company’s records and its operations and strongly

recommended the company to define a proper allotment of responsibilities to reduce the

opportunity for fraud and manipulation. In your opinion, auditors are emphasizing on which one

of the following categories of SOAP MAPS?

Arithmetic and Accounting

Segregation of duties

Authorization

Management and Monitoring

Question No: 24 ( Marks: 1 ) – Please choose one

Which one of the following descriptions best define the term ‘Flowchart’ used in evaluating

internal control system of the entities?

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Entity relationship diagram of an accounting system

Diagrammatical representation of an accounting system

Show how data move between different entities

Narrative description of the audit files

Question No: 25 ( Marks: 1 ) – Please choose one

Which one of the following is the possible application of Arithmetic and Accounting category of

internal control?

A supervisor or manager reviews and checks the work of a subordinate in order to check

the work quality

Using of standard accounting procedures e.g. control accounts, reconciliation procedures,

arithmetic checks on accounting records

Authorization of purchases, cash and bank payments, sale of non-current assets, sales to

customers on credit, bad debt write offs

Lines of authority within an organization make it clear which individuals are responsible

for decisions and transactions

Question No: 26 ( Marks: 1 ) – Please choose one

In auditing, Flowcharts have the following disadvantages EXCEPT:

When the program logic is very complex the flow chart may become difficult to

comprehend.

Any modifications in the process may require the creation of a new flow chart.

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Generating a flowchart is a tedious procedure, as flowchart symbols cannot be typed.

Force the auditors to understand how the company controls operations

Question No: 27 ( Marks: 1 ) – Please choose one

A public limited company hires First statutory auditors who take extensive information about

business operations for understanding the entity’s environment. For this, they asked for

company’s records and internal control manuals. They also visited the plant and documented the

information about its activities. In your opinion, auditors should be considered at which one of

the following stages of risk assessment

in this case?

Inspection of the entity and others within the entity

Inquiries of management and others within the entity

Observation of the entity’s procedures and all within the entity

Using analytical tools of risk assessment

Question No: 28 ( Marks: 1 ) – Please choose one

When the Cashier of a bank is also appointed to maintain the books of accounts then which one of

the following internal control principles is violated?

Rotating employee duties

Establishment of responsibility

Documentation procedures

Segregation of duties

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Question No: 29 ( Marks: 1 ) – Please choose one Which of the following may NOT be considered as the essential feature of Auditing?

Auditing is the examination of financial statements of a firm

Auditing includes preparation of financial statements of a firm

The end result of an audit is an opinion to assist the users of the financial statements

An audit should be independent

Question No: 30 ( Marks: 1 ) – Please choose one

What is the primary difference between an operational audit

and a compliance audit?

Operational audit focuses on business efficiencies and effectiveness, while compliance

audit focuses on whether laws and other requirements are being followed

Operational audit focuses on reliability of the financial statements, while compliance audit

focuses on whether laws and other requirements are being followed

Operational audit focuses on business growth prospects, while a compliance audit focuses

on reliability of the financial statements

Operational audit focuses on business size and potential to grow, while compliance audit

focuses on reliability of accounting records

Question No: 31 ( Marks: 5 )

Mr.Kamran is a partner of an audit firm. He bought shares of a company for which his firm is

also conducting audit. However, he sold out all these shares within thirty days and immediately

informed the company secretary about the whole transaction. Is the company secretary required to

take any step under the Companies Law, 1984?

Question No: 32 ( Marks: 10 )

Why books of accounts

are required to be kept by companies? Discuss the types of books of

accounts with examples.

Fundamentals of Auditing (ACC311)

Quiz # 01

1. Which one of the following cannot be considered as the essential feature of Auditing?

a. An auditor is involved in the examination of financial statements

b. The auditor is responsible for the preparation of the financial statements

c. The end result of an audit is an opinion to assist the user of the financial

statements.

d. The auditor should be independent of the entity

2. Which one of the following best describes why an independent auditor is asked to express

an opinion on the presentation of financial reports?

a. It is difficult to prepare financial reports that fairly present a company’s financial

position without the expertise of an external auditor

b. It is management’s responsibility to seek available independent aid in the

appraisal of financial information shown in its financial reports

c. The opinion of an independent party is needed because a company may not be

objective with respect to its own financial reports

d. It is a customary courtesy that all shareholders of a company receive an

independent report on management’s stewardship of the affairs of the business

3. The audit which is a review of any part of an entity’s operating procedures and methods

is known as which one of the following?

a. Financial statement audits

b. Operational audits

c. Technical Audits

d. Compliance audits

4. Which one of the following is considered as the formal opinion, or disclaimer thereof,

issued by an independent auditor as a result of audit or evaluation performed on a legal

entity?

a. Financial report

b. Financial statement

c. Director’s report

d. Auditor’s report

5. Which of the following statements is true?

a. The auditing profession is unregulated

b. The auditing profession is regulated only by its own professional body

c. Outside bodies sometimes become involved in the regulation of the audit profession

d. The auditing profession is regulated only by the government

6. Which one of the following primary assertions is satisfied when an auditor ensures that there are no

unrecorded assets, liabilities, transactions or events or undisclosed items in the client’s financial

records?

a. Valuation

b. Completeness

c. Existence

d. Rights and obligations

7. Internal control is primarily established within a company to do which of the following?

a. To prevent fraud in the company affairs

b. To provide reasonable assurance that the company’s objectives will be achieved

c. To catch all errors that may occur in the company

d. To aid in the effective auditing of the company

8. Fixation of remuneration of auditors can be determined by the following authorities EXCEPT:

(Companies Ordinance, 1984)

a. Directors

b. Company secretary

c. Commission

d. Members

9. A leather goods manufacturing company has started its operations in year 2001. After five years of

conducting successful business, it has become a listed company recently. Now, the company is

required to hire its first auditors, but neither the directors nor the members could appoint the

auditors during the past 4 months since the incorporation of the company.

Select among the following authorities who can appoint the auditors in this situation? (Companies

Ordinance, 1984)

a. Company secretary

b. Company registrar

c. Commission

d. Institute of Chartered Accountants of Pakistan (ICAP)

10. A company has hired auditors who have performed the audit process in accordance with the

auditing standards, but they fail to present its report. According to the Company law, 1984, the

auditors shall be liable for which one of the following liabilities?

a. Criminal liability

b. Liability for misfeasance

c. Liability for negligence

d. Accounting liability

ACC311

Fundamental of auditing

Solved MCQz

Question:

Which one of the following persons are responsible for the preparation of Audit

engagement later?

Options:

Auditor

Client

Company registrar

Company secretary

Question:

Who is responsible for designing and preparing the financial statements?

Options:

Auditor

Management

Accountant

Company secretary Answ er

Question:

Which one of the following is the method of assessing the internal control system of an

entity?

Options:

Audit procedures

Audit evidence

Compliance audit

Technical analysis

Question:

The purpose of engagement letter includes the following EXCEPT:

Options:

To defines the auditorâtresponsibilities clearly

To minimize misunderstandings between the client and auditors

To educate the cliet

To help the auditor in preparing audit report

Question:

A manufacturing company wants to hire external auditors who examine the activities

operations procedures and processes of each department of the company. The company

follows the local and international laws rules ad regulations and also has set standards for

the efficiency and effectiveness. The company shall have to provide the access of all kind

of operational information that will be required to the auditors as audit evidences.

Considering the above situation select the most suitable type of audit which the company

should opt?

Options:

Compliance audit

Operational audit

Technology audit

Financial audit

Question:

Which one of the following is considered as the formal opinion or disclaimer thereof

issued by an independent auditor as a result of audit or evaluation performed on a legal

entity?

Options:

Financial report

Financial statement

Directorâtreport

Auditor’s report

Question:

Which of the following statements is true?

Options:

The auditing profession is unregulated

The auditing profession is regulated only by its own professional body

Outside bodies sometimes become involved in the regulation of the audit

profession

The auditing profession is regulated only by the government

Question:

Which one of the following primary assertions is satisfied when an auditor ensures that

there are no unrecorded assets liabilities transactions or events or undisclosed items in the

client financial records?

Options:

Valuation

Completeness

Existence

Rights and obligations

Question:

Internal control is primarily established within a company to do which of the following?

Options:

To prevent fraud in the company affairs

To provide reasonable assurance that the company’s objectives will be achieved

To catch all errors that may occur in the company

To aid in the effective auditing of the company

The following authorities can determine fixation of remuneration of auditors EXCEPT:

(Companies Ordinance 1984)

Options:

Directors

Company secretary

Commission

Members

Question:

A leather goods manufacturing company has started its operations in year 2001. After

five years of conducting successful business, it has become a listed company recently.

Now the company is required to hire its first auditors but neither the directors nor the

members could appoint the auditors during the past 4 months since the incorporation of

the company. Select among the following authorities who can appoint the auditors in this

situation? (Companies Ordinance 1984)

Options:

Company secretary

Company registrar

Commission

Institute of Chartered Accountants of Pakistan (ICAP)

Question:

A company has hired auditors who have performed the audit process in accordance with

the auditing standards but they fail to present its report. According to the Company law

1984 the auditors shall be liable for which one of the following liabilities?

Options:

Criminal liability

Liability for misfeasance

Liability for negligence

Accounting liability

Question:

DBMSes & Databa ses are same things.

Options: false true

Question:

Audit sampling conducted

Options:

On selected number of items

On Whole population

On specific no of items

All of the given options

Question:

Advantages of Audit Sampling

Options:

Economical

Time Saving

More Practical

All of the given options

Question:

Which of the following is the component of audit risk?

Options:

Inherent risk

Control risk

Detection risk

All of the given options

Answ er

Question:

Which of the following is not needed to be verified at the time of verification of Equity?

Options:

Share capitalâtclassification

Movement in share capital

Preliminary expenses are properly write off

Movements in reserves

*

Question:

Which of the following is needed to be verified at the time of verification of Account

Balances?

Options:

Look over any significant reconciling items of an unusual nature

Inspect about outstanding stale cheques

Acquire direct bank confirmation

All of the given options

Answ er

Question:

Tolerable error and sample size have

Options:

A direct relationship

An inverse relationship

No relation

None of the given options

Question:

Sample risk and sample size have

Options:

A direct relationship

An inverse relationship

No relation

None of the given options

Question:

Where the auditor relies more on the system of internal control the circumstance warrant:

Options:

He spends more time on audit

Effectiveness of the audit is affected

Efficiency of the audit is affected

Reliability of the results of the tests is affected

Question:

The auditor should select sample in such a way that:

Options:

All important items should be selected

All items containing misstatement should be selected

All items in the population are selected

All items in population have an opportunity of being selected

Question:

Stratification is a process of dividing a population into sub- populations which have

Options:

Heterogeneous characteristics

Nothing in common

Lot of sampling units

Homogeneous characteristics

Question:

Test of controls comprise of testing of all EXCEPT

Options:

Design

Implementation

Operating efficiency

Operating effectiveness

Question:

Analytical procedures are carried out for which one of the following purposes?

Options:

To reduce detection risk

To assess inherent risk

To reduce control risk

To determine detection risk

Question:

Nature of audit procedure’ refers to which one of the following desc ription?

Options:

It refers to the purpose i.e. (tests of controls or substantive procedures) and their

type that is inspections observation inquiry confirmation recalculation reperformances

or analytical procedures

. It refers when audit procedures are to be performed or the period or date to which

the audit evidence applies

. It refers to sample size or number of observations of a control activity (quantity of

audit evidence)

. It refers to the nature of testing and their procedures that is designing structuring

and compiling work to be done

Answ er

Question:

The auditors are required to perform tests of controls when

Options:

The internal controls are operating inefficiently

Substantive procedures alone provide sufficient appropriate audit evidence at the

assertion level.

Substantive procedures alone do not provide sufficient appropriate audit

evidence at the assertion level.

Analytical procedures alone do not provide sufficient appropriate audit evidence at

the assertion level.

Question:

Following descriptions are the examples of substantive testing EXCEPT:

Options:

Test of account balances to verify the correctness of the amounts

Verification that an operating system and/or applications are configured

appropriately to the companies needs

Review of minutes of directors; meetings and inquiry

Use of statistical sampling to determine the accuracy of financial statement figures

Question:

How often the Bank reconciliations should be prepared?

Options:

Weekly

Monthly

Quarterly

Annually

Question:

How often Inventory levels should be checked against the inventory records in order to

keep its control effectively?

Options:

Rarely

Periodically

Never

Daily

Question:

What auditors seek in the register of non current assets for each major group of assets?

Options:

Details of each item its cost and residual value

Details of each item its cost and accumulated depreciation

Details of each item its cost and depreciation

Details of each item its cost and capital investment expected returns

Question:

Which one of the following may NOT consist of any verification methods?

Options:

Closing balance

Acquisitions

Disposals

Reconciliation

Question:

Which one of the following may not be any matter relevant to verification of assets?

Options:

Taxation

Vouching

Insurance

The letter of representation

Question:

Which one of the following aspects of assets must be verified?

Options:

Cost and authorization

Value and existence

Beneficial investment

Presentation in the accounts

Question:

An Automobile Company hires auditors at the year end. Auditors are at the stage of

verification and vouching of companyâtfinancials. Before examining the equity section

they develop general aspects concerning the ownerâtequity. In your opinion which one of

the following aspects may NOT be considered by the auditors during this assessment?

Options:

Share capital is properly classified and described in the accounts

Capital stock is enough to execute the companyâtfinancial needs

Reserves are properly classified and presented

Movements in reserves are properly authorized

Question:

Non current assets manufactured or constructed by the company itself should reflect

which types of costs in the costing records?

Options:

Direct costs plus relevant overhead but not include any profit

Direct costs plus relevant overhead and any profit earned on it

Indirect costs plus relevant overhead but not include any profit

Indirect costs plus relevant overhead and any profit earned on it

Question:

Which one of the following matters should be included in the letter of representation?

Options:

Existence of any immaterial mistake in the statements

Existence of any fraud or error in the statements

Companyâtgrowth trend in the future in figures

Market value of the companyâtstock

Question:

Who should prepare the annual capital expenditure budgets of the company in order to

keep effective?

Options:

Someone directly responsible to the shareholders

Someone directly responsible for goods delivery to the customers

Someone directly responsible to the board of directors

Someone directly responsible to deal with the suppliers

Which of the following should be done with the copies of cancelled invoices in sales system?

Select correct option:

Should be discarded

Should be retained

CORRECT

Should be dispatched to the suppliers

Should be dispatched to the customers

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Auditing Standards require that all cheques and postal orders should be restrictively crossed for the control purposes. According

to your knowledge, this control procedure explains which one of the following statements?

Select correct option:

Can be presented on the cash counter

Account payee only, and negotiable

CORRECT

Account payee only, not negotiable

Cheque may not be paid for a specific time period

According to the requirements of auditing standards, the record of cash receipts by post should be made immediately for which

one of the following items?

Select correct option:

Cheques, cash and postal orders received

CORRECT

Cash and cheque received

Postal orders received

Cash, cheque and goods received

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Which one of the following testing objectives refers to the assertion “Completeness” in obtaining audit evidence?

Select correct option:

All transactions and events that should be recorded have been recorded

Transactions arising during the period are reflected in the period’s financial statements

The amounts at which assets and liabilities are stated is correct

Assets and liabilities included on the balance sheet actually exist

The term ‘Reconciliation’ refers to which one of the following statements in the context of auditing?

Select correct option:

Reconciliation refers to a process that compares two sets of financial records to make sure they are in agreement

CORRECT

A special Congressional procedure often used to implement the revenue and spending targets established in the budget resoluti

Reconciliation refers to an audit test that compares three sets of financial records to make sure they are in agreement

Reconciliation refers to a process that of preparing final audit opinion

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What auditors seek in the register of non current assets for each major group of assets?

Select correct option:

Details of each item, its cost and residual value

Details of each item, its cost and accumulated depreciation

Details of each item, its cost and depreciation

CORRECT

Details of each item, its cost and capital investment expected returns

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which one of the following ways the record of cheques and cash received may be kept?

Select correct option:

Computer database

Cash registers

Rough cash book

CORRECT

Copies of Cash notes

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Which one of the following is TRUE about Auditing requirements for transparency of the Payroll system of a company?

Select correct option:

The duties of the wages staff should preferably be rotated during the year

The duties of the wages staff should preferably be rotated during the year

CORRECT

The duties of the wages staff should preferably be rotated monthly

The duties of the wages staff should preferably be rotated according to their performance

The duties of the wages staff should preferably be rotated with respect to company

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When should cash payments receipts of each day be recorded?

Select correct option:

Should be recorded next day in the cash book

Should be recorded promptly in the cash book

CORRECT

Should be recorded monthly in the cash book

Should not be recorded in the cash book

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According to the requirements of International Auditing Standards (ISAs), the authority to write off a bad debt should be in

which form?

Select correct option:

Verbal

Written

CORRECT

Photo copied

Using a legal paper

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GRN (Goods Recieved No)should be checked against which of the following document?

Select correct option:

Purchase Order

Correct

Sales Order

Purchase requisition

Invoice received

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“Input VAT” refers to which one of the following statements?

Select correct option:

It refers to the tax which a company would charge on items which it sells

It refers to the tax which a company would charge on items which it sells internationally

It refers to the tax which the company is charged when it makes its purchases

It refers to the tax which the company is charged when it makes its purchases

Correct

It refers to the tax which the company is charged when it sells its products to the retailers

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Which one of the following may NOT be the control procedure at key stages of the sales cycle?

Select correct option:

Receipt of goods

Correct

Receivables

Bad Debts

Invoicing and credit notes

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Petty cash book should be maintained by which one of the following personnel?

Select correct option:

Teller

Operations manager

Accountant

Petty cashier

Correct

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The term ‘Reconciliation’ refers to which one of the following statements in the context of auditing?

Select correct option:

Reconciliation refers to a process that compares two sets of financial records to make sure they are in agreement

Correct

Reconciliation refers to a process that compares two sets of financial records to make sure they are in

agreement

A special Congressional procedure often used to implement the revenue and spending targets established in the budget resoluti

Reconciliation refers to an audit test that compares three sets of financial records to make sure they are in agreement

Reconciliation refers to a process that of preparing final audit opinion

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How unused cheques should be handled in order to exercise effective internal control?

Select correct option:

Should be held in a secure place

Correct

Should be sent to the central bank

Should be discarded immediately

Should be sent to the clearing agency

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Mr. Ali works in an organization on piece rate system. The pay he received monthly is best described by the term:

Select correct option:

Remuneration.

Salary.

Wages.

Correct

All of the given.

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Which statement from the following is true for describing the Sinking Funds?

Select correct option:

That type of funds which are kept aside by the organization to meet the normal loss

That type of funds which are kept aside by the organization to meet the Abnormal loss

That type of funds which are kept aside by the organization to meet the needs of daily routine works

That type of funds which are kept aside by the organization to meet the debts

Correct

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which one of the following ways the record of cheques and cash received may be kept?

Select correct option:

Computer database

Cash registers

Rough cash book

Correct

Copies of Cash notes

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Which one of the following tests may be applied to the goods returned notes?

Select correct option:

Adherence to authority limits

Evidence of approval of requisitions

Evidence of a sequence check

Correct

Proof of issuance date

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Auditor adopts different control procedures for testing of sales system of a company. Which control procedure is Not used in

testing the sales system?

Select correct option:

Orders

Dispatches

Return inwards

Return outwards

Correct

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Which one of the following is an appropriate evidence for verifying the existence of inventory?

Select correct option:

Checking valuation of that inventory

Identifying the slow-moving inventory

Obtaining a letter of representation from the management of the entity about it

Observing the counting of inventory

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Any cancellation of sale/purchase invoice leads toward further cancellation of which one of the following:

Select correct option:

Credit note

Dispatch note

Correct

Requisition note

Return inwards note

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What auditors seek in the register of non current assets for each major group of assets?

Select correct option:

Details of each item, its cost and residual value

Details of each item, its cost and accumulated depreciation

Details of each item, its cost and depreciation

Correct

Details of each item, its cost and capital investment expected returns

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For getting strong control over cash system salesmen and other personals are required to remit cash and report sales at:

Select correct option:

The end of month

The end of sales target achieved

The end of fulfills the order by customer

Regular intervals

Correct

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Which of the following items are observed while verification of the interest of the owners in net assets of the company?

Select correct option:

Share capital and reserves

Correct

Investments

Assets and liabilities

Retained earnings

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Mathematical accuracy of documents or records can be performed for the purpose of obtaining audit evidence with which one

of the following resources?

Select correct option:

Company resources

Information technology

Correct

Auditor resources

Mechanical devices

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Following are usual methods of recording workers attendance EXCEPT:

Select correct option:

Manual method

Mechanical method

Correct

Electronic method

Technical method

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Inventory should be identified and marked with accordance to relevant information, this information can be related to;

Select correct option:

Size

Grade

Origin

All of above

Correct

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A telecom company has hired auditors who have been inquiring and analyzing the company’s records since a week. For this

purpose, they calculate figures or multiple accounts to check accuracy. In your opinion, auditors are using which one of the

following types of audit-testing procedures?

Select correct option:

Inspection

Enquiry

Computation

Correct

Analytical procedures

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1 Acc311 Quiz No. 5 Solved

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Quiz No. 5 – ACC311 Fundamentals of Auditing – Fall 2012

The access should be _________ for controlling the assets and records in better way.

Select correct option:

grunted

Prohibited

Banned

Restricted

Correct

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Which one of the following is of least concern to an auditor regarding the client’s internal control system?

Select correct option:

Efficiency and effectiveness of operations

Controls related to the reliability of financial reporting

Controls over classes of transactions

Auditors are equally concerned with each of the given issues

Correct

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2 Acc311 Quiz No. 5 Solved

For better results an ICQ should carry basic information as: I. Yes and No answer II. Comments with Yes and No answer are

not applicable III. Consists of open ended questions only IV. All respondents should properly literate

Select correct option:

I & II only

II & III only

III & IV only

IV & I only

Correct

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The powers of an auditor include the following EXCEPT:

Select correct option:

Right of access to books of account and vouchers

Right to receive information and explanations

Right to make report on declaration of solvency in case of voluntary winding up

Correct

Right of access to books and papers of branch

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3 Acc311 Quiz No. 5 Solved

Following are usual methods of recording workers attendance EXCEPT:

Select correct option:

Manual method

Mechanical method

Correct

Electronic method

Technical method

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Common size analysis is an important tool which is used to analyze the financial statements. Which one of the followings best

describes the said analysis method?

Select correct option:

Items were expressed in dollar amounts of some figure

Items were expressed in percentage of some figure

Items were expressed in percentage of some figure

Correct

Items were expressed according to previous history

All of above

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4 Acc311 Quiz No. 5 Solved

Which one of the following audit techniques ordinarily provides an auditor with the least assurance about the operating

effectiveness of an internal control activity?

Select correct option:

Inquiry of client personnel

Inspection of documents and reports

Correct

Observation of client personnel

Preparation of system flowcharts

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Following statements are true about the legal requirements of books of accounts for the companies EXCEPT: (Companies

Ordinance, 1984)

Select correct option:

Books of accounts should be preserved for 10 years

Books of accounts are to be kept at the registered office of the company

Directors can review the books of account during the business hours

If a company fails to maintain books of account according, it may leads to demolish the entity

If a company fails to maintain books of account according, it may leads to demolish the entity

Correct

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5 Acc311 Quiz No. 5 Solved

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Highlight the statements which truly described the method of re-performance by auditor EXCEPT;

Select correct option:

To inspect the documents

To verify control over cash receipt

To Prepare Final accounts

Correct

Prepare Bank reconciliation

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When should the petty cash book entries be made for keeping effective control?

Select correct option:

At the day end

Next day

Monthly

Promptly

Correct

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6 Acc311 Quiz No. 5 Solved

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Which one of the following is FALSE about Internal Control Evaluation Checklists (ICEC)?

Select correct option:

ICEC is developed to overcome the shortcomings of Internal Control Questionnaire

The rules of constructing ICEC is different than construction of Internal Control Questionnaire

It is designed to determine; whether desirable internal controls are present

It is normally employed where system’s information has already been recorded

Correct

Which one of the following is NOT one of the five major components of internal control?

Select correct option:

Risk assessment

Staffing

Correct

Control procedures/activities

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7 Acc311 Quiz No. 5 Solved

Information and communication system

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Which one of the following tests may be applied to the goods returned notes?

Select correct option:

Adherence to authority limits

Evidence of approval of requisitions

Evidence of a sequence check

Correct

Proof of issuance date

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Which one of the following documents is NOT included in purchase system while applying different control procedures on it?

Select correct option:

Goods received note

Good returned note

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8 Acc311 Quiz No. 5 Solved

Goods dispatched note

Correct

GRN Invoice

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Which one of the following is an example of designing control procedure for achieving control objectives?

Select correct option:

List all the orders in a transaction cycle & generate appropriate test of skills

List all the invoices in a transaction cycle & generate appropriate test of details

List all the documents in a transaction cycle & generate appropriate test of controls

List all the returns in a transaction cycle & generate appropriate evidence for their existence

Correct

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9 Acc311 Quiz No. 5 Solved

Sound internal control helped out the auditor to entertain some relaxation, such as:

Select correct option:

Reduces the volume of transactions testing required in conducting an audit

Helped the auditor to check available records

Helped the auditor to express his opinion at the end of audit process

All of the given options

Correct Page 58

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Work in process inventory is directly comparable with;

Select correct option:

Input supplied

Total units produced in actual

Correct

Total capacity of machine

Required output

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10 Acc311 Quiz No. 5 Solved

Test of controls comprise of testing all of the following three things EXCEPT:

Select correct option:

Design

Implementation

Operating efficiency

Correct

Operating effectiveness

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An auditor’s flow chart of an entity’s information system is a diagrammatic representation. It depicts what kind of information?

Select correct option:

Program for tests of control

Understanding of the system

Understanding of the types of irregularity that are probable, given by the present system

Documentation of the study and evaluation of the system

Correct

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11 Acc311 Quiz No. 5 Solved

Test of control is a brief method to obtain the audit evidence. It comprises of three things such as:

Select correct option:

Design, implement & get results

Design, implement & Analyze the results

Design, implement & Checked the Operating effectiveness

Design, implement & Checked the Operating efficiency

Correct

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ACC311 Fundamentals of Auditing Solved

MCQs

During audit of the financial statements, the auditors are concerned with the verification

and determination of which one of the following items?

Statements, accuracy, and feasibility

Date, accuracy, and reliability

Policies, value, and reliability

Cycle, policies, and reliability

Which one of the following authorities shall fix the remuneration of the auditors, if

auditors are appointed by the SECP? (Companies Ordinance, 1984)?

Directors

Shareholders

Company registrar

SECP

The phrase (Scope of an Audit) refers to which one of the followings?

Engagement letters

Audit procedures

Audit evidence

Reasonable assurance

Following statements are true about the legal requirements of books accounts for the

companies EXCEPT: (Companies Ordinance, 1984)

Books of accounts should be preserved for 10 years

Books of accounts are to be kept at the registered office of the company

Directors can review the books of account during the business hours

If a company fails to maintain books of accounts according, it may leads to demolish the

entity

The factors that affect reasonable assurance include all of the following EXCEP:

Use of testing (Sampling)

Interest limitations of accounting and internal control

Remuneration of the auditor

Persuasive nature of audit evidence

A well designed Internal Control Questionnaire (ICQ) should incorporate the following

EXCEPT:

Be a sufficient source of data for the evaluation of internal controls

Identity the internal control system’s strengths and weaknesses

Be organized by individual functional organizations

Should include simple yes or no responses but no narrative responses

Which one of the following is FALSE about Internal Control Evaluation Checklists

(ICEC)?

ICEC is developed to overcome the shortcomings of Internal Control Questionnaire

The rules of constructing ICEC is different than construction of Internal Control Questionnaire

It is designed to determine, whether desirable internal controls are present

It is normally employed where system’s information has already been recorded

An auditor’s flow chart of an entity’s information system is a diagrammatic

representation. It depicts what kind of information?

Program for tests of control

Understanding of the system

Understanding of the types of irregularity that are probable given by the present system

Documentation of the study and evaluation of the system

Which one of the following is NOT a factor included in the control environment of an

entity?

Integrity and ethical values

Risk assessment

Commitment to competence

Organization structure

The audit which is a review of any part of an entity’s operating procedures and methods is

known as:

Financial statement audits

Operational audits

Technical Audits

Compliance audits

While considering internal control system of an entity, the auditor is basically concerned

that the system provides reasonable assurance about which one of the following?

That the management can not override the system

Operational efficiency has been achieved according to management plans

Errors have been prevented or detected

Controls have not been circumvented by collusion

Which one of the following is the source document for staff salaries?

Approved payrolls

Vouchers

Accounting statements

Cash memos

Analytical procedures used in planning an audit should focus on identifying which one of

the followings?

Areas that may represent specific risks relevant to the audit

Material weaknesses in the internal control structure

The predictability of financial data form individual transactions

The various assertions that are embodied in the financial report

Which one of the following meetings is considered as a ‘meeting of directors or

management?

General meeting

Extra ordinary general meeting

Board meeting

Management meeting

ACC311 Fundamentals of Auditing Final 2009

FINALTERM EXAMINATION

Spring 2009

ACC311- Fundamentals of Auditing (Session – 1)

Question No: 1 ( Marks: 1 ) – Please choose one

Which one of the following is an objective of the internal audit?

To report on financial statements

To check accounting system and internal control are operating efficiently

To determine the accuracy of financial statement values and disclosures

To establish a control system in the company

Question No: 2 ( Marks: 1 ) – Please choose one

Which one of the following statements is NOT correct in respect of the internal auditor?

The scope of audit performed by internal auditors is primarily in respect of financial report audits

An internal auditor does not require a license to practice

Internal auditors are usually employed by companies and government units

Primary responsibility of the internal auditor is to the board of directors

Question No: 3 ( Marks: 1 ) – Please choose one

After how many days the Securities and Exchange Commission may appoint the auditors,

if the Directors of a company could not appoint the auditors to fill casual vacancy?

(Companies Ordinance, 1984)

30 days

60 days

80 days

120 days

Question No: 4 ( Marks: 1 ) – Please choose one

Suppose that during audit of a company, an auditor accepted the schedule of bad debts

furnished by the client, though it was apparent that debts were not recoverable. The

auditor shall be held liable for which one of the following liabilities?

Liability for negligence

Liability for misfeasance

Criminal liability

Personal liability

Ref: Page no.19

Question No: 5 ( Marks: 1 ) – Please choose one

The books of accounts of a company should be kept at which one of the following

offices?(Companies Ordinance, 1984)

Registered office of the company

Accounts office of the company

Record office of the company

Registrar office

Question No: 6 ( Marks: 1 ) – Please choose one

Which of the following is one of the most fundamental and effective internal controls?

Increased use of computers for recording accounting transactions

Increased reliance on internal auditors to monitor accounting systems

Segregation of incompatible duties across several people

Having internal auditors report only to the Board of Directors

Question No: 7 ( Marks: 1 ) – Please choose one

Which of the following is NOT a major component of an internal control system?

Risk assessment Staffing

Control procedures/activities

Information and communication system

Question No: 8 ( Marks: 1 ) – Please choose one

An audit firm audited a Leather Manufacturing company and presented its report

addressed to the management. They found significant material misstatements in the

company s internal controls system. They strongly recommended that there should be

sufficient controls in existence to ensure management can effectively control the business

operations. In your opinion, auditors are emphasizing on which one of the following

categories of SOAP MAPS?

Authorization

Management and Monitoring

Arithmetic and Accounting

Segregation of duties

Question No: 9 ( Marks: 1 ) – Please choose one

Which of the following statements best describes the purpose of an internal control

questionnaire (ICQ)?

An internal control questionnaire is a series of questions regarding accounting and control

policies and procedures that the auditor considers necessary to prevent all misstatements in the

financial report.

An internal control questionnaire is a series of questions regarding accounting and control

policies and procedures that the auditor considers necessary to prevent material misstatements in

the financial report.

An internal control questionnaire is a series of questions regarding accounting and control

policies and procedures that the auditor considers necessary to detect material misstatements in

the financial report.

An internal control questionnaire is a series of questions prepared by the entity about the entity’s

accounting and control policies and procedures for which the entity seeks guidance on from the

auditor in order to detect material misstatements in the financial report.

Question No: 10 ( Marks: 1 ) – Please choose one

A Beverages company is being audited by an audit firm. Audit procedures are being

undertaken in all of its departments. During this, the audit team has to spend more time on

physical examination of the company assets to get reliable audit evidence. In your opinion,

auditors are considering which type of audit inquiry in this case?

Recalculations Inspection of tangible assets Analytical procedures Confirmations

Existence of any immaterial mistake in the statements

Existence of any fraud or error in the statements

Company s growth trend in the future in figures Market value of the company s stock

Question No: 11 ( Marks: 1 ) – Please choose one

Which one of the following matters should be included in the letter of representation?

Existence of any immaterial mistake in the statements

Existence of any fraud or error in the statements

Company s growth trend in the future in figures

Market value of the company s stock

Question No: 12 ( Marks: 1 ) – Please choose one

Which one of the following may NOT be a type of control of the purchase cycle of an

entity?

Receipt of goods

Invoicing and returns

Invoicing and credit notes

Purchase ledger and suppliers

Ref : Page no.93

Question No: 13 ( Marks: 1 ) – Please choose one

While testing the purchase system of an entity, which one of the following control tests may

be applied to the Credit Notes by the auditors?

Evidence of matching credit notes to goods returned notes

Evidence of approval of credit notes

Evidence of a sequence check

Proof of issuance date

Question No: 14 ( Marks: 1 ) – Please choose one

During the audit work of testing the purchase system of an entity, which one of the

following control tests may be applied to the Payables Ledger by the auditors?

Evidence of authorization of adjustments to payables ledger

Evidence of review of reconciliation of purchase ledger listing

Evidence of authorization of adjustments to payable ledger control account

Evidence of authorization of adjustments to purchase ledger

Ref: Page no.93

Question No: 15 (Marks: 1) – Please choose one

Which one of the following possible misstatements related to payroll does not involve the

audit objective of Validity?

Payments to fictitious employees

Payments to terminated employees

Payments to valid employees who have not worked

Payments to valid employees at a rate in excess of the authorized amount

Question No: 16 ( Marks: 1 ) – Please choose one

In order to ensure effective control, how often a full inventory count should be held when

perpetual inventory records are not kept adequately?

On a daily basis

At least once a year

At least monthly

At least weekly

Ref: Page no.101

Question No: 17 (Marks: 1 ) – Please choose one

An oil exploring company employs 1500 personal in its international market. All of its

personnel are paid on monthly basis. The company should compensate them in which form

of payment?

Salary

Cheque

Wages

None of the given option

Question No: 18 ( Marks: 1 ) – Please choose one

For the purpose of keeping effective control in the cash system, who should have no access

to the cash or the preparation of the paying-in slip?

Sales ledger personnel

Teller/cashier

Cash officers

Operations manager

Ref: Page no.99

Question No: 19 ( Marks: 1 ) – Please choose one

When should the petty cash book entries be made?

At the day end

Next day

Promptly

Monthly

Question No: 20 ( Marks: 1 ) – Please choose one

How often the physical inspection of non current assets should be carried out?

Rarely

Periodically

Never

Daily

Question No: 21 ( Marks: 1 ) – Please choose one

In which one of the following ways auditors can choice the verification techniques in a

given set of circumstances?

It depends upon the available audit evidence to the auditor

It depends upon the nature of business operations of the entity

It depends upon the audit procedures planned by the auditor

It depends upon the judgmental skills of the auditor

Question No: 22 ( Marks: 1 ) – Please choose one

Which one of the following may NOT ensure that the movement in share capital of a

company is properly authorized and correctly shown and described in accordance with the

Companies Ordinance, 1984?

Check that directors were authorized to allot shares

Agree authorized capital with memorandum of association

Consider special rules for allotments of public company shares

Test payments with supporting evidence and trace entries in register

Question No: 23 ( Marks: 1 ) – Please choose one

Which one of the following testing objectives refers to the management assertion

Occurrence in obtaining audit evidence?

Assets shown include all rights under the control of the enterprise

Transactions and events that have been recorded have occurred and pertain to the entity

The amounts at which assets and liabilities are stated is correct

Assets and liabilities included on the balance sheet actually exist

Question No: 24 ( Marks: 1 ) – Please choose one

Which one of the following certain expense items may be verified in order to keep control

of stock-in-trade and stores & spares?

Interest on short term loan

Accumulated depreciation on assets

Director s fees

Wages and salaries

Question No: 25 ( Marks: 1 ) – Please choose one

Which one of the following is NOT an advantage of using statistical sampling?

It aids in the design of an efficient sample

It allows the auditor to measure the sufficiency of the evidential matter obtained

It allows the auditor to greatly reduce substantive testing

It provides means for mathematically measuring the degree of sampling risk

Question No: 26 ( Marks: 1 ) – Please choose one

Which one of the following is an underlying feature of random-based selection of items?

Each stratum of the accounting population be given equal representation in the sample

All items in the accounting population be randomly ordered.

Every item in the population should have an opportunity to be selected

Every item must be systematically selected using replacement

Question No: 27 ( Marks: 1 ) – Please choose one

Which one of the following matters is generally included in an auditor’s engagement letter?

Management’s responsibility for the entity’s compliance with laws and regulations

The factors to be considered in setting preliminary judgments about materiality

Management’s vicarious liability for illegal acts committed by its employees

The auditor’s responsibility to search for significant internal control deficiencies

Question No: 28 ( Marks: 1 ) – Please choose one

What should be the next step of an auditor after establishing the overall audit strategy of

an entity?

To develop an audit plan

To define the scope of audit

To determine the focus of engagement team efforts

To determine the objectives of audit

Question No: 29 ( Marks: 1 ) – Please choose one

The establishment of the overall audit strategy involves the following EXCEPT:

To determine the characteristics of the engagement

To ascertain the reporting objectives of the engagement

To consider the important factors i.e. materiality levels, higher risks of material

misstatement etc.

To guide the development of detailed business activities to occur in future

Question No: 30 ( Marks: 1 ) – Please choose one

Which one of the following mainly affects the auditors opinion?

Agreement on accounting policies

Limitation on the scope of the auditors work

Dispute among the members of the company

Future prospects of the company s growth

Question No: 31 ( Marks: 1 ) – Please choose one

Which one of the following matters does NOT affect Auditor s Opinion?

When there is a limitation on the scope of the auditor s work

When there is a disagreement with management regarding the accounting policies selected

When there is a disagreement with management regarding the method of applying

accounting policies

When an auditor modify the auditor s report by adding a paragraph to highlight a material matter

Question No: 32 ( Marks: 1 ) – Please choose one

Tracing selected shipments to the sales journal to be sure that each one is included is a test

of which of the following?

Accuracy

Classification

Completeness

Existence

Question No: 33 ( Marks: 1 ) – Please choose one

Which one of the following best describes the term Input VAT?

Input VAT is charged on a firm when it makes its purchases

Input VAT is charged on a firm when it makes its investments

Input VAT is charged on a firm when it produces highly quality products

Input VAT is charged on a firm when it exports the products

Question No: 34 ( Marks: 1 ) – Please choose one

The duties of the wages staff should preferably be rotated during the year when the salary

payment is made by which of the following systems?

By cheque

In cash

By demand draft

Direct transfer to employees bank account

Question No: 35 ( Marks: 1 ) – Please choose one

Which of the following are the three audit objectives that are most important for cash, and

that receive the greatest attention during the audit?

Existence, accuracy, and completeness

Existence, cutoff, and presentation

Accuracy, cutoff, and presentation & disclosure

Completeness, realizable value, and cutoff

Question No: 36 ( Marks: 1 ) – Please choose one

Which one of the following is most likely to indicate fraud?

Several overpayments are made for goods received from a supplier

The year end cash balance does not include cash in transit to the company at year-end

A check received after year end was inadvertently recorded as if received before year-end

A documented loan is sanctioned to an officer of the company

Question No: 37 ( Marks: 1 ) – Please choose one

When an auditor increases the assessed level of control risk because certain control

activities were determined to be ineffective, which of the following would most likely be

increased by the auditor?

Extent of tests of controls

Level of detection risk

Extent of tests of details

Level of inherent risk

Question No: 38 ( Marks: 1 ) – Please choose one

Which one of the following statements is TRUE regarding control procedures?

They are not required if the control environment is strong

They should generally be all manual

They should generally be all automated

They can be either manual or automated

Question No: 39 ( Marks: 1 ) – Please choose one

Which one of the following statements does not apply to the Institute of Chartered

Accountants of Pakistan (ICAP) in Pakistan?

An autonomous body incorporated under the Chartered Accountants Ordinance 1961

Regulatory body that formulates auditing standards in Pakistan

Its affairs are run by a council which is elected by its member (Chartered Accountants).

ICAP is a member of the International Federation of Accountants (IFAC)

Question No: 40 ( Marks: 1 ) – Please choose one

Which one of the following statements indicates a primary difference between an

operational audit and a compliance audit?

Operational audit focuses on business efficiencies and effectiveness, while compliance audit

focuses on whether laws and other requirements are being followed

Operational audit focuses on reliability of the financial statements, while compliance audit

focuses on whether laws and other requirements are being followed

Operational audit focuses on business growth prospects, while a compliance audit focuses on

reliability of the financial statements

Operational audit focuses on business size and potential to grow, while compliance audit focuses

on reliability of accounting records

Question No: 41 ( Marks: 1 ) – Please choose one

Which one of the following primary assertions is satisfied when an auditor ensures that

there is no false transaction recorded and all recorded transactions have actually taken

place?

Occurrence

Completeness

Existence

Rights and obligations

Question No: 42 ( Marks: 1 ) – Please choose one

Following are the points considered during the verification of bank balances EXCEPT:

Obtain direct bank confirmation

Obtain direct bank confirmation

Investigate about outstanding stale cheques

Investigate any significant reconciling items of an unusual nature

Ensure that the creditors have been paid for their loan amount

Question No: 43 ( Marks: 3 )

Enlist the typical control procedures at key stages of the sales cycle.

Solution:

1. Orders

2. Dispatch

3. Invoicing and credit notes

4. Returns inwards

5. Receivables

6. Bad Debts

Question No: 44 ( Marks: 3 )

What steps an auditor should take in order to ensure that the reserves are properly

classified and described in the accounts in accordance with the Companies Ordinance,

1984?

Question No: 45 ( Marks: 3 )

Throughout the 1960s and 70s, the largest accounting firms devoted extensive resources to

the development and implementation of statistical sampling procedures. Enlist several

sample selection methods now available to an auditor for selecting items in the populations.

Question No: 46 ( Marks: 5 )

Suppose you have been appointed as an auditor of a manufacturing company. You are at

the stage of testing the purchase system. According to your knowledge of Auditing

Standards, what control objectives would you develop in respect of the Purchase system of

the entity?

Question No: 47 ( Marks: 5 )

Discuss the factors which influence auditor s judgment regarding sample size for tests of

control.

Question No: 48 ( Marks: 10 )

Suppose that your supervisor has asked you to carry out an internal control review of the

inventory system of a manufacturing company. What internal control procedures would

you examine in respect of the following functions of the inventory system?

1. Arithmetical Accuracy

2. Control Accounts

3. Access to Assets and Records

Question No: 49 ( Marks: 10 )

A company has hired auditors at the year end. Auditors used audit sampling techniques

which made them enable to gather audit evidence efficiently. State the objectives auditors

might have defined first to achieve by using sampling techniques and also briefly explain

further steps the auditors might undertake to complete the sampling process.

Which one of the following audit processes determines that whether the entity is following specific procedures, rules, or

regulations set down by some higher authority?

Select correct option:

Technical audit

Financial statement audit

Compliance audit

TRUE

Operational audit

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The factors that affect reasonable assurance include all of the following EXCEPT:

Select correct option:

Use of testing (Sampling)

Inherent limitations of accounting and internal control

Remuneration of the auditor

TRUE

Persuasive nature of audit evidence

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The powers of an auditor include the following EXCEPT:

Select correct option:

Right of access to books of account and vouchers

Right to receive information and explanations

Right to make report on declaration of solvency in case of voluntary winding up

TRUE

Right of access to books and papers of branch

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Auditor is bound to take interest in statutory books. Highlight the reason which does not helps the auditor to compel him for

doing so:

Select correct option:

Failure to maintain proper record may leads toward doubt about accuracy and reliability of records

Because he used it to dealt with professional skepticism approach

TRUE

Because it directly concerned with accounts

Because it is used as a audit evidence for verifying the details

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The auditor’s opinion does NOT provide any assurance about the following EXCEPT:

Select correct option:

Future viability of the entity

Efficiency or effectiveness of management

Credibility of financial statements

The honesty and competency level of the auditor

TRUE

According to law the companies were forced to preserved the books of accounts for:

Select correct option:

1 Year

2 Years

5 Years

10 Years

TRUE

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An auditor is a person who involves in auditing process, a part from that auditor can also spend some time to perform other

activities. Highlight the activities which can be performed by auditor EXCEPT:

Select correct option:

Can help management to prepare minutes of meeting

TRUE

Can help in tax management and in system consultancy

Can help in liquidation and disposal process

Can help for investigation of fraud

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Auditors perform risk assessment procedures for which one of the following purposes?

Select correct option:

To understand the entity’s business

To understand the entity’s accounting systems

To understand the entity’s environment

TRUE

To understand the entity’s legal status

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Which one of the following is NOT an objectives of using differnt methods for reducing audit risk

Select correct option:

Growth maximization

Profit maximization

Cost effectiveness

Quality leadership

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The phrase “Scope of an Audit” refers to which one of the followings?

Select correct option:

Engagement letter

Audit procedures

TRUE

Audit evidence

Reasonable assurance

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Fundamentals of Auditing (ACC311)

Quiz # 01

1. Which one of the following cannot be considered as the essential feature of Auditing?

1. An auditor is involved in the examination of financial statements

2. b. The auditor is responsible for the preparation of the financial

statements

1. The end result of an audit is an opinion to assist the user of the financial

statements.

2. The auditor should be independent of the entity

1. It is difficult to prepare financial reports that fairly present a company’s financial

position without the expertise of an external auditor

2. It is management’s responsibility to seek available independent aid in the

appraisal of financial information shown in its financial reports

3. c. The opinion of an independent party is needed because a company may

not be objective with respect to its own financial reports

3. It is a customary courtesy that all shareholders of a company receive an

2. Which one of the following best describes why an independent auditor is asked to express

an opinion on the presentation of financial reports?

independent report on management’s stewardship of the affairs of the business

1. The audit which is a review of any part of an entity’s operating procedures and methods

Technical Audits

Compliance audits

While considering internal control system of an entity, the auditor is basically concerned

that the system provides reasonable assurance about which one of the following?

That the management can not override the system

Operational efficiency has been achieved according to management plans

Errors have been prevented or detected

Controls have not been circumvented by collusion

Which one of the following is the source document for staff salaries?

Approved payrolls

Vouchers

Accounting statements

Cash memos

Analytical procedures used in planning an audit should focus on identifying which one of

the followings?

Areas that may represent specific risks relevant to the audit

Material weaknesses in the internal control structure

The predictability of financial data form individual transactions

The various assertions that are embodied in the financial report

Which one of the following meetings is considered as a ‘meeting of directors or

management?

General meeting

Extra ordinary general meeting

Board meeting

Management meeting

.

ACC311 Fundamentals of Auditing MCQs

from Quiz # 3

For better assessing the audit risk, auditor inquires different groups in the organizations EXCEPT:

Board of governance and top level management

Legal counsel

Middle level management

Stakeholders

Internal sources of audit evidence for an entity includes the following EXCEPT:

Associated companies of the entity

Accounting systems, records and documents

Non-financial data and records

Management representation and discussion

Associated company is not internal source.

An “Associated Company” is an entity in which the Company has significant influence, but not a

controlling interest, over the operating and financial management policy decisions of the entity.

Associated Companies are accounted for using the equity method. Significant influence is

generally presumed when the Company holds between 20 percent and 50 percent of the voting

rights.

Which of the following is the least concern to an auditor regarding the client’s internal control system?

Efficiency and effectiveness of operations

Controls related to the reliability of financial reporting

Controls over classes of transactions

Auditors are equally concern with each of the given issues

Reference

During test of control procedure its design can easily tested with the help of:

ICQs and walk through tests

ICQs and judgment sample

ICQs and random sample

ICQS and ICEC

Lesson no.21 Handouts

Testing the Design:

– Proper design of internal control is tested through ICQs and ICEC.

Which of the following is TRUE?

The audit profession is unregulated

The audit profession is regulated by its own professional body

Outside bodies sometimes become involved in the regulation of audit profession

The audit profession is regulated only by the government

Auditing firms do not describe themselves as auditors. They describe themselves as Chartered

Accountants.

In Pakistan auditing profession is allied with the Institute of Chartered Accountants of Pakistan

(ICAP). It is an autonomous body incorporated under the Chartered Accountants Ordinance

1961.

ICAP is a regulatory body that enjoys a self regulatory status. Its affairs are run by a council

which is elected by its member (Chartered Accountants).

The small audit firms provide the following services EXCEPT:

Liquidation and receivership work, fraud auditing

Financial management and system consultancy

Financial system planning and preparation

Tax management and statutory form filling

The small chartered accountant firms especially may spend more time on other services than on

auditing.

The other services may include:

a. Writing up books of accounts (Book keeping)

b. Balancing books of accounts (Extracting trial balance)

c. Preparing final accounts

d. Tax management

e. Statutory form filling

f. Financial consultancy

g. Management and system consultancy

h. Liquidation and receivership work

i. Investigations (Fraud audit)

Which of the following is not included in the category of cash?

Deposit with banks

Checks

Postdated checks

Money orders

Reference

Which of the following letter should be included in the letter of representation?

Existence of immaterial mistake in the statement

Existence of any fraud or any error in the statement

Company’s growth trend in the future in figures

Market value of the company’s stock

Lesson No.34

The contents of the letter of representation should not include routine matters, for example, that all

fixed assets exist and are the property of the company or that stock is valued at the lower of cost and

net realizable value.

The letter should include only matters which:

a. are material to the financial statements, and

b. the auditors cannot obtain independent corroborative evidence.

For measuring the quality of audit evidence auditors used the tool of appropriateness; in case if auditor

wants to measure quantity of audit evidence which tools from the following should be adopted?

Relevance

Reliability

Sufficiency

Effectiveness

Lesson No. 22

Sufficient appropriate Audit Evidence

Sufficiency: The measure of quantity of audit evidence.

Appropriateness: The measure of quality i.e. relevance and reliability in providing support of detecting

misstatements in account balance classes of transactions and disclosures and relevant assertions.

Which statement cannot be highlighted as a merit of audit process?

(a)It settles the dispute between management

(b)It helps the auditor to give more constructive advice top management

(c)Its help to restrict sole proprietor to by changing some fee

(d)It gives strength to the company for acquiring the finance

When the cash sales should be recorded by the companies in order to achieve control objectives?

(a)Record the cash sales when purchase order is received from the customer

(b)Record the cash sales at the point they are made

(c)Record the cash sales after some period

(d)Record the cash sales weekly

Controls over Cash Sales:

a) Cash sales should be recorded at the point the sale is made. Usually this is by means of a Cash

Till or the use of cash sale invoices or receipts.

Auditors conduct auditing in accordance with :

(a)International Financial Reporting Standards

(b)Local pronouncements/Legislations

(c)Financial Accounting Standards Board

(d)All of the given options

True and fair presentation means that the financial statement are prepared and presented in

accordance with the requirements of the applicable International Financial Reporting Standards

(IFRS) and local pronouncements/legislations.

Which of the following primary assertions is satisfied when an auditor ensures that there are no

unrecorded assets, liabilities, transactions or events or undisclosed items in the client s financial

records?

(a) Valuation

(b)Completeness

(c)Existence

(d)Rights and obligations

(a) Assertions about classes of transactions and events for the period under audit;

(i) Occurrence – transactions and events that have been recorded have occurred and pertain to the

entity;

(ii) Completeness – all transactions and events that should have been recorded have been

recorded;

(iii) Accuracy – amounts and other data relating to recorded transactions and events have been

recorded appropriately.

(iv) Cutoff – transactions and events have been recorded in the proper period.

(v) Classification – transactions and events have been recorded in the proper accounts.

1. Standard format of Auditor’s Report as per the Companies Ordinance 1984 is described in which one

of the following Legal Forms?

A. Form31A

B. Form32A

C. Form30A

D. Form35A

Form35A.http://www.vuzs.net/

2. IFRS stands for which one of the following?

A. International Financial Reporting Standards

B. International Financial Recording Systems

C. International Financial Recording Statements

D. International Financial Reporting Systems

International Financial Reporting Standards.

3. Which of the following is NOT one of the five major components of internal control?

A. Risk assessment

B. Control activities

C. Information and communication system

D. Human resource background checks

Human resource background checks.

4. All of the following should be observed and inspected by the auditors during the risk

assessment process of an entity EXCEPT:

A. Observations of Activities and operations

B. Inspection of Documents and records

C. Reading Management reports

D. Visit to other companies in the industry

Visit to other companies in the industry.

5. Which one of the following audit techniques ordinarily provides an auditor with the least

assurance about the operating effectiveness of an internal control activity?

A. Inquiry of client personnel

B. Inspection of documents and reports

C. Observation of client personnel

D. Preparation of system flowcharts

Inspection of documents and reports.

6. Which one of the following opinions advocates that the auditor should form an opinion only

after obtaining sufficient audit evidence instead of blindly accepting any information given by

the management?

A. Auditor’s liability

B. Professional ethics

C. Professional Skepticism

D. Auditor’s opinion

Professional ethics.

7. Which one of the following is NOT required as part of the audit process?

A. Substantive procedures

B. Tests of control

C. Assessment of materiality

D. Procedures to obtain an understanding of the internal control structure

Procedures to obtain an understanding of the internal control structure.

8. SECP stands for which one of the following?

A. Securities and Exchange Collaboration of Pakistan

B. Securities and Exchange Consortium of Pakistan

C. Securities and Exchange Commission of Pakistan

D. Securities and Exchange Constitution of Pakistan

Securities and Exchange Commission of Pakistan.

9. One type of analytical procedure is the ‘Trend Analysis’. Which one of the following is the

best example of trend analysis?

A. Comparison of company financial ratios to that of its competitors

B. Comparison of accounting records to budgeted amounts

C. Comparison of inventory levels over the past 3 years

D. Comparison of interest expenses to outstanding loan balances

Comparison of inventory levels over the past 3 years.

10. While conducting operational audit, which one of the following auditing procedures does the

auditor primarily rely upon?

A. Inquiry and observation

B. Analytical procedures

C. Physical inspection

D. Tracing and vouching

Analytical procedures.

11. Which one of the following helps to achieve reasonable assurance about the fairness of

financial statements during an audit process?

A. Audit report

B. Audit evidence

C. Audit engagement

D. Audit program

Audit report.

In which one of the following meetings the ‘Subsequent Auditors’ are appointed of a company every year? (Companies

Ordinance, 1984)

Select correct option:

Board meeting

Annual general meeting

TRUE

Auditors meeting

Extra ordinary general meeting

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Which one of the following is responsible for preparing the financial statements of a company?

Select correct option:

Company secretary

Management

TRUE

Auditor

Shareholders

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An auditor can obtained the information regarding financial performance of the entity through different sources. Which one

from the following is not a valid sources of information?

Select correct option:

Old or retired auditors views

Competitors

TRUE

Credit rating agencies

Analysts

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For better results an ICQ should carry basic information as: I. Yes and No answer II. Comments with Yes and No answer are

not applicable III. Consists of open ended questions only IV. All respondents should properly literate

Select correct option:

I & II only

II & III only

III & IV only

IV & I only

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Which one of the following is NOT the type of Audit?

Select correct option:

Financial Statements Audits

Operational Audits

Technical Audits

TRUE

Compliance Audits

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A company has a contract with the A & M Auditors Co. Which one of the following can sue the auditors if the parties perform

‘breach of contract’?

Select correct option:

Banks of the company

The Company itself

TRUE

Creditors of the company

Shareholders of the company

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During audit of the financial statements, the auditors are concerned with the verification and determination of which one of the

following items?

Select correct option:

Statements, accuracy, and feasibility

Date, accuracy, and reliability

TRUE

Policies, value, and reliability

Cycle, policies, and reliability

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ISAs stands for:

Select correct option:

International Standards on Accounting

International Standards on Auditing

TRUE

International Systems of Accounting

International Systems of Auditing

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In which one of the following meetings, the first auditors appointed by the directors may be removed by the members?

(Companies Ordinance, 1984)

Select correct option:

Board meeting

Auditors meeting

Extra ordinary general meeting

TRUE

Annual general meeting

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Which statement can not be highlighted as a merit of audit process?

Select correct option:

It settled the disputes between management

It helps the auditor to give more constructive advice to management

It helps to restrict sole proprietors to be a member by charging some fee

TRUE

It gives strength to the company for acquiring the finance

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Internal controls are designed to achieve company objectives in all of the following areas EXCEPT:

Select correct option:

Safeguarding of assets

Reliability of financial reporting

Reduction of debt financing costs

TRUE

Compliance with laws and regulations

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Suppose that a private limited company has just been incorporated as public limited company. After how much time the

company is required to present its first annual accounts before AGM? (Companies Ordinance, 1984)

Select correct option:

Within 12 months

Within 13 months

Within 16 months

Within 18 months

TRUE

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What do you understand by the settlement term 5/20, n/60:

Select correct option:

Its mean if payment is made within 20 days, seller can offered

TRUE

Its mean if payment is made between 20 to 60 days,

Its mean if payment is made 5 days early in due date (

Its mean if payment is made before 60 days then 20

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Which one of the following is the source document for electricity, gas, water, and phone bills?

Select correct option:

Vouchers

Metered invoices

TRUE

Memos

Accounting statements

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If members of the company fails to appoint the first auditor in 60 days then who will be responsible for auditor’s appointment:

Select correct option:

Directors

Boar of Governors

Share holders

TRUE

SECP

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Existence of purchasing department entertain the auditor in following manner:

Select correct option:

Give awareness to auditor about nature of goods purchased

Give awareness whether ordering is centralized or not

Give awareness about entity’s minimum and maximum re

All of the given options

TRUE

Following statements are true about the legal requirements of books of accounts for the companies EXCEPT: (Companies

Ordinance, 1984)

Select correct option:

Books of accounts should be preserved for 10 years

Books of accounts are to be kept at the registered office of the company

Directors can review the books of account during the business hours

If a company fails to maintain books of account according, it may leads to demolish the entity

TRUE

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The auditor’s understanding of the client’s internal control system is documented in order to substantiate which one of the

following requirements?

Select correct option:

Conformity of the accounting records with company’s policies

Compliance with generally accepted auditing standards

Adherence to requirements of management and local legislations

The fairness of the financial statement presentation

Financial information is generated initially through which one of the following sources?

Select correct option:

Financial report

Source documents

TRUE

Accounting register

Books of accounts

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Auditor can start auditing process of listed companies by obtaining QCR rating from:

Select correct option:

SEC (Securities Exchange Commission)

ICAP (Institute of Certified Chartered Accountants of Pakistan)

ICAP (Institute of Chartered Accountants of Pakistan)

TRUE

ICAP (Institute of Certified Accountants of Pakistan)

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IN DOUBT

FINALTERM EXAMINATION

Spring 2009

ACC311- Fundamentals of Auditing (Session – 1)

Marks: 81

Question No: 1 ( Marks: 1 ) – Please choose one

Which one of the following is an objective of the internal audit?

To report on financial statements

To check accounting system and internal control are operating efficiently

To determine the accuracy of financial statement values and disclosures

To establish a control system in the company

Question No: 2 ( Marks: 1 ) – Please choose one

Which one of the following statements is NOT correct in respect of the

internal auditor?

The scope of audit performed by internal auditors is primarily in respect of

financial report audits

An internal auditor does not require a license to practice

Internal auditors are usually employed by companies and government units

Primary responsibility of the internal auditor is to the board of directors

Question No: 3 ( Marks: 1 ) – Please choose one

After how many days the Securities and Exchange Commission may

appoint the auditors, if the Directors of a company could not appoint the

auditors to fill casual vacancy? (Companies Ordinance, 1984)

30 days

60 days

80 days

120 days

Question No: 4 ( Marks: 1 ) – Please choose one

Suppose that during audit of a company, an auditor accepted the schedule

of bad debts furnished by the client, though it was apparent that debts

were not recoverable. The auditor shall be held liable for which one of the

following liabilities?

Liability for negligence

Liability for misfeasance

Criminal liability

Personal liability

Ref: Page no.19

An internal control questionnaire is a series of questions regarding accounting

and control policies and procedures that the auditor considers necessary to

prevent material misstatements in the financial report.

An internal control questionnaire is a series of questions regarding accounting

and control policies and procedures that the auditor considers necessary to

detect material misstatements in the financial report.

An internal control questionnaire is a series of questions prepared by the entity

about the entity’s accounting and control policies and procedures for which the

entity seeks guidance on from the auditor in order to detect material

misstatements in the financial report.

Question No: 10 ( Marks: 1 ) – Please choose one

A Beverages company is being audited by an audit firm. Audit procedures

are being undertaken in all of its departments. During this, the audit team

has to spend more time on physical examination of the company assets to

get reliable audit evidence. In your opinion, auditors are considering which

type of audit inquiry in this case?

Recalculations Inspection of tangible assets Analytical procedures Confirmations

Existence of any immaterial mistake in the statements

Existence of any fraud or error in the statements

Company s growth trend in the future in figures Market value of the company s

stock

Question No: 12 ( Marks: 1 ) – Please choose one

Which one of the following may NOT be a type of control of the purchase

cycle of an entity?

Receipt of goods

Invoicing and returns

Invoicing and credit notes

Purchase ledger and suppliers

Ref : Page no.93

Question No: 13 ( Marks: 1 ) – Please choose one

While testing the purchase system of an entity, which one of the following

control tests may be applied to the Credit Notes by the auditors?

Evidence of matching credit notes to goods returned notes

Evidence of approval of credit notes

Evidence of a sequence check

Proof of issuance date

Question No: 14 ( Marks: 1 ) – Please choose one

During the audit work of testing the purchase system of an entity, which

one of the following control tests may be applied to the Payables Ledger by

the auditors?

Evidence of authorization of adjustments to payables ledger

Evidence of review of reconciliation of purchase ledger listing

Evidence of authorization of adjustments to payable ledger control account

Evidence of authorization of adjustments to purchase ledger

Ref: Page no.93

Question No: 15 (Marks: 1) – Please choose one

Which one of the following possible misstatements related to payroll does

not involve the audit objective of Validity?

Payments to fictitious employees

Payments to terminated employees

Payments to valid employees who have not worked

Payments to valid employees at a rate in excess of the authorized amount

Question No: 16 ( Marks: 1 ) – Please choose one

In order to ensure effective control, how often a full inventory count should

be held when perpetual inventory records are not kept adequately?

On a daily basis

At least once a year

At least monthly

At least weekly

Ref: Page no.101

Question No: 17 (Marks: 1 ) – Please choose one

An oil exploring company employs 1500 personal in its international

market. All of its personnel are paid on monthly basis. The company

should compensate them in which form of payment?

Salary

Cheque

Wages

None of the given option

Question No: 18 ( Marks: 1 ) – Please choose one

For the purpose of keeping effective control in the cash system, who

should have no access to the cash or the preparation of the paying-in slip?

Sales ledger personnel

Teller/cashier

Cash officers

Operations manager

Ref: Page no.99

Question No: 24 ( Marks: 1 ) – Please choose one

Which one of the following certain expense items may be verified in order

to keep control of stock-in-trade and stores & spares?

Interest on short term loan

Accumulated depreciation on assets

Director s fees

Wages and salaries

Question No: 25 ( Marks: 1 ) – Please choose one

Which one of the following is NOT an advantage of using statistical

sampling?

It aids in the design of an efficient sample

It allows the auditor to measure the sufficiency of the evidential matter obtained

It allows the auditor to greatly reduce substantive testing

It provides means for mathematically measuring the degree of sampling

risk

Question No: 26 ( Marks: 1 ) – Please choose one

Which one of the following is an underlying feature of random-based

selection of items?

Each stratum of the accounting population be given equal representation in the

sample

All items in the accounting population be randomly ordered.

Every item in the population should have an opportunity to be selected

Every item must be systematically selected using replacement

Question No: 27 ( Marks: 1 ) – Please choose one

Which one of the following matters is generally included in an auditor’s

engagement letter?

Management’s responsibility for the entity’s compliance with laws and

regulations

The factors to be considered in setting preliminary judgments about materiality

Management’s vicarious liability for illegal acts committed by its employees

The auditor’s responsibility to search for significant internal control deficiencies

Question No: 28 ( Marks: 1 ) – Please choose one

What should be the next step of an auditor after establishing the overall

audit strategy of an entity?

To develop an audit plan

To define the scope of audit

To determine the focus of engagement team efforts

To determine the objectives of audit

Question No: 29 ( Marks: 1 ) – Please choose one

The establishment of the overall audit strategy involves the following

EXCEPT:

To determine the characteristics of the engagement

To ascertain the reporting objectives of the engagement

To consider the important factors i.e. materiality levels, higher risks of material

misstatement etc.

To guide the development of detailed business activities to occur in future

Question No: 30 ( Marks: 1 ) – Please choose one

Which one of the following mainly affects the auditors opinion?

Agreement on accounting policies

Limitation on the scope of the auditors work

Dispute among the members of the company

Future prospects of the company s growth

Question No: 31 ( Marks: 1 ) – Please choose one

Which one of the following matters does NOT affect Auditor s Opinion?

When there is a limitation on the scope of the auditor s work

When there is a disagreement with management regarding the accounting

policies selected

When there is a disagreement with management regarding the method of

applying accounting policies

When an auditor modify the auditor s report by adding a paragraph to highlight a

material matter

Question No: 32 ( Marks: 1 ) – Please choose one

Tracing selected shipments to the sales journal to be sure that each one is

included is a test of which of the following?

Accuracy

Classification

Completeness

Existence

Question No: 33 ( Marks: 1 ) – Please choose one

Which one of the following best describes the term Input VAT?

Input VAT is charged on a firm when it makes its purchases

ACC311 quiz

1. Standard format of Auditor’s Report as per the Companies Ordinance 1984 is

described in which one of the following Legal Forms?

A. Form31A

B. Form32A

C. Form30A

D. Form35A

2. IFRS stands for which one of the following?

A. International Financial Reporting Standards

B. International Financial Recording Systems

C. International Financial Recording Statements

D. International Financial Reporting Systems

International Financial Reporting Standards.

3. Which of the following is NOT one of the five major components of internal control?

A. Risk assessment

B. Control activities

C. Information and communication system

D. Human resource background checks

Human resource background checks.

4. All of the following should be observed and inspected by the auditors during the risk

assessment process of an entity EXCEPT:

A. Observations of Activities and operations

B. Inspection of Documents and records

C. Reading Management reports

D. Visit to other companies in the industry

Visit to other companies in the industry.

5. Which one of the following audit techniques ordinarily provides an auditor with the

least assurance about the operating effectiveness of an internal control activity?

A. Inquiry of client personnel

B. Inspection of documents and reports

C. Observation of client personnel

D. Preparation of system flowcharts

Inspection of documents and reports.

6. Which one of the following opinions advocates that the auditor should form an opinion

only after obtaining sufficient audit evidence instead of blindly accepting any information

given by the management?

A. Auditor’s liability

B. Professional ethics

C. Professional Skepticism

D. Auditor’s opinion

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ACC311 2nd Online Solved Quiz Spring 2011

Quiz No. # 01: During audit of the financial statements, the auditors are concerned with

the verification and determination of which one of the following items?

Statements, accuracy, and feasibility

Date, accuracy, and reliability

Policies, value, and reliability

Cycle, policies, and reliability

Quiz No. # 02: Which one of the following authorities shall fix the remuneration of the

auditors, if auditors are appointed by the SECP? (Companies Ordinance, 1984)

Directors

Shareholders

Company registrar

SECP

Quiz No. # 03: The phrase (Scope of an Audit) refers to which one of the followings?

Engagement letters

Audit procedures

Audit evidence

Reasonable assurance

Quiz No. # 04: Following statements are true about the legal requirements of books

accounts for the companies EXCEPT: (Companies Ordinance, 1984)

Books of accounts should be preserved for 10 years

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Books of accounts are to be kept at the registered office of the company

Directors can review the books of account during the business hours

If a company fails to maintain books of accounts according, it may leads to

demolish the entity

Quiz No. # 05: The factors that affect reasonable assurance include all of the following

EXCEPT:

Use of testing (Sampling)

Interest limitations of accounting and internal control

Remuneration of the auditor

Persuasive nature of audit evidence

Quiz No. # 06: A well designed Internal Control Questionnaire (ICQ) should incorporate

the following EXCEPT:

Be a sufficient source of data for the evaluation of internal controls

Identity the internal control system’s strengths and weaknesses

Be organized by individual functional organizations

Should include simple yes or no responses but no narrative responses

Quiz No. # 07: Which one of the following is FALSE about Internal Control Evaluation

Checklists (ICEC)?

ICEC is developed to overcome the shortcomings of Internal Control Questionnaire

The rules of constructing ICEC is different than construction of Internal Control

Questionnaire

It is designed to determine, whether desirable internal controls are present

It is normally employed where system’s information has already been recorded

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Quiz No. # 08: An auditor’s flow chart of an entity’s information system is a

diagrammatic representation. It depicts what kind of information?

Program for tests of control

Understanding of the system

Understanding of the types of irregularity that are probable given by the present system

Documentation of the study and evaluation of the system

Quiz No. # 09: Which one of the following is NOT a factor included in the control

environment of an entity?

Integrity and ethical values

Risk assessment

Commitment to competence

Organization structure

Quiz No. # 10: The audit which is a review of any part of an entity’s operating procedures

and methods is known as:

Financial statement audits

Operational audits

Technical Audits

Compliance audits

Quiz No. # 11: While considering internal control system of an entity, the auditor is

basically concerned that the system provides reasonable assurance about which one of the

following?

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That the management can not override the system

Operational efficiency has been achieved according to management plans

Errors have been prevented or detected

Controls have not been circumvented by collusion

Quiz No. # 12: Which one of the following is the source document for staff salaries?

Approved payrolls

Vouchers

Accounting statements

Cash memos

Quiz No. # 13: Analytical procedures used in planning an audit should focus on

identifying which one of the followings?

Areas that may represent specific risks relevant to the audit

Material weaknesses in the internal control structure

The predictability of financial data form individual transactions

The various assertions that are embodied in the financial report

Quiz No. # 14: Which one of the following meetings is considered as a ‘meeting of

directors or management?

General meeting

Extra ordinary general meeting

Board meeting

Management meeting

Answers Are Not 100% Sure. Verify them at Yourself

FINALTERM EXAMINATION

Fall 2008

ACC311- Fundamentals of Auditing (Session – 1)

Question No: 1 ( Marks: 1 ) – Please choose one

When the cash sales should be recorded by the companies in order to achieve control objectives?

Record the cash sales when purchase order is received from the customer

Record the cash sales at the point they are made

Record the cash sales after some period

Record the cash sales weekly

sales when delivery is done n cash received bcoz sales r recorded after delivery. Cash sales

should be recorded at the point the sale is made. Usually this is by means of a Cash Till or

the use of cash sale invoices or receipts.

Question No: 2 ( Marks: 1 ) – Please choose one

Auditors conduct auditing in accordance with :

International Financial Reporting Standards

Local pronouncements/Legislations

Financial Accounting Standards Board

All of the given options

True and fair presentation means that the financial statement are prepared and presented in

accordance with the requirements of the applicable International Financial Reporting

Standards (IFRS) and local pronouncements/legislations.

Question No: 3 ( Marks: 1 ) – Please choose one

Which of the following primary assertions is satisfied when an auditor ensures that there are no

unrecorded assets, liabilities, transactions or events or undisclosed items in the client s financial

records?

Valuation

Completeness

Existence

Rights and obligations

ompleteness means that all transactions and relevent information has been

recorede according with applicable ifrs as well as legislations

Question No: 4 ( Marks: 1 ) – Please choose one

Which one of the following statements is NOT true about the internal control system of a

company?

Internal control is affected by people working in an organization

Internal control is a process of bringing accuracy and improvements in the systems

Internal control system is expected to provide absolute assurance about the

performance of a company

Internal control is geared to achieve objectives of financial reporting, compliance and

operations

Internal control systems always minimize risk but never these can eliminate risks absolutely

in auditing and accounting noting is absolute

Question No: 5 ( Marks: 1 ) – Please choose one

Who shall fix the remuneration of the auditors, if auditors of a company are appointed by the

shareholders? (Companies Ordinance, 1984)

Directors

Shareholders

Securities and Exchange Commission

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Institute of Chartered Accountants of Pakistan (ICAP)

ut company ordinance 1984 is only applicable in pakistan not in world

lazyboy: in rest of world we have company law 2006

Question No: 6 ( Marks: 1 ) – Please choose one

If Directors could not appoint the first auditors of a company, then the first auditors shall be

appointed by which one of the following authorities? (Companies Ordinance, 1984)

Shareholders

Securities and Exchange Commission

Company secretary

Company registrar

Question No: 7 ( Marks: 1 ) – Please choose one

The books of accounts of a company should be kept at which one of the following offices?

(Companies Ordinance, 1984)

Registered office of the company

Accounts office of the company

Record office of the company

Registrar office

by the way books of prime entry will b kept at accounts office bcoz account office oftenly

need these books

Question No: 8 ( Marks: 1 ) – Please choose one

Which one of the following is also called as books of secondary entries ?

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Journal

Voucher

Ledger

Memo

Question No: 9 ( Marks: 1 ) – Please choose one

According to Section 236, Director s report should be attached to which of the following

financial statement? (Companies Ordinance, 1984)

Balance sheet

Profit and loss account

Statement of retained earnings

Statement of cash flows

Question No: 10 ( Marks: 1 ) – Please choose one

A well designed Internal Control Questionnaire (ICQ) should incorporate the following

EXCEPT:

Be a sufficient source of data for the evaluation of internal controls

Identify the internal control system s strengths and weaknesses

Be organized by individual functional organizations

Should include simple yes or no responses but not narrative responses

Question No: 11 ( Marks: 1 ) – Please choose one

Which one of the following examples constitutes the most reliable piece of evidence available to

an auditor?

A written confirmation from a bank

A supplier s invoice kept in the client’s records

A duplicate sales receipt dated and signed

A receipted shipping document

Question No: 12 ( Marks: 1 ) – Please choose one

Considering the Extent of audit procedure refers to which one of the following description?

It refers to the nature of testing and their procedures that is, designing, structuring, and

compiling work to be done

It refers to the purpose i.e. (tests of controls or substantive procedures) and their type,

that is, inspections, observation, inquiry confirmation, recalculation, re-performances or

analytical procedures

It refers to when audit procedures are performed or the period or date to which the audit

evidence applies

It refers to sample size or number of observations of a control activity (quantity of audit

evidence)

Question No: 13 ( Marks: 1 ) – Please choose one

Which one of the following situations can constitute grounds for a claim of negligence on part of

the auditors to detect a fraud?

The fraud was committed by a senior management override of internal controls which

had been relied upon in reducing the extent of detailed testing

The auditor relied on sample evidence and thus failed to detect the fraudulent transactions

The auditor reported discrepancies to local management but did not investigate further as

the likely impact on the accounts was not material

The auditor accepted local management representations as to discrepancies as the

potential impact of the fraud was not material to the accounts as a whole

Question No: 14 ( Marks: 1 ) – Please choose one

The control objectives of a sales system typically include the following EXCEPT:

Invoices and credits should be appropriately checked for accuracy and should be

authorized before entering in the records

Goods returned and claims by customers should be controlled to determine the liability for

goods returned and claims received

Customers’ orders should be authorized, controlled and recorded in order to execute them

promptly

All valid transactions relating to payables, and only those transactions, should

be accurately recorded in the accounting records

bcoz payables relate to purchases not to sales

Question No: 15 ( Marks: 1 ) – Please choose one

A local gas station has one clerk that accepts cash payments for gas and rings them up on the cash

register. Which one of the following would be the best control to provide assurance that the

cashier is not keeping some of the cash?

Count all cash before and after the shift and compare it to cash register totals

Require that each customer be given a receipt of their purchase

Compare cash register totals to a total that is automatically generated by each gas pump

Each employee should have a separate cash drawer that only they use

If receipt is given total receipts can be matched with total cash received

Question No: 16 ( Marks: 1 ) – Please choose one

Which one of the following may NOT be the control procedure at key stages of the sales cycle of

an entity?

Receipt of goods

Receivables

Bad Debts

Invoicing and credit notes

petty cash count

u r not paying customer customer is paying u

so u will match cash register with wht

Question No: 17 ( Marks: 1 ) – Please choose one

While testing the purchase system of an entity, which one of the following control tests may

NOT be applied to the purchase order document?

Evidence of a sequence check

Evidence of approval of requisitions

Proof of issuance date

Adherence to authority limits

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Question No: 18 ( Marks: 1 ) – Please choose one

While testing the purchase system of an entity, which one of the following control tests may be

applied to the Goods Returned Notes by the auditors?

Adherence to authority limits

Evidence of approval of requisitions

Evidence of the sequence check

Proof of the issuance date

to see if what is returned was purchased with or without authorization

Question No: 19 ( Marks: 1 ) – Please choose one

An oil marketing company employs 1000 personnel in its local market. Majority of its workers

are paid on the piece rate basis. The company should compensate them in which one of the

following forms of payment?

Salary

Cheque

Wages

None of the given options

Question No: 20 ( Marks: 1 ) – Please choose one

According to the requirements of auditing standards for Wages and Salaries, who should be

allowed to take wages of another employee in a company?

Any colleague

Next of kin

An oil exploring company employs 1500 personal in its international market. All of its personnel

are paid on monthly basis. The company should compensate them in which form of payment?

Salary

Cheque

Wages

None of the given option

Question No: 24 ( Marks: 1 ) – Please choose one

Which one of the following best describes the process of ‘teeming and lading’ in the cash system

of an entity?

The use of one’s occupation for personal enrichment through the deliberate misuse of

organization s assets

An attempt to hide the loss of cash received from one customer by using cash

from another customer or customers to replace it

The conversion and obtaining of money or property by false pretense

Any intentional deception resulting in injury to another person

Question No: 25 ( Marks: 1 ) – Please choose one

KMC Electronics Company hires auditors at the year end. Auditors are at the stage of verification

and vouching of company s financials. Before examining the equity section, they developed

general aspects concerning the owner s equity. In your opinion, which one of the following

aspects may NOT be considered by the auditors during this assessment?

Share capital is properly classified and described in the accounts

Assets of the company are properly classified and presented

Reserves are properly classified and presented

Movements in reserves are properly authorized

all odrs r equity related

Question No: 26 ( Marks: 1 ) – Please choose one

Following are the points considered during the verification of bank balances EXCEPT:

Obtain direct bank confirmation Obtain direct bank confirmation

Investigate about outstanding stale cheques

Investigate any significant reconciling items of an unusual nature in

Ensure that the creditors have been paid for their loan amount

creditors we will see in payables portion

Question No: 27 ( Marks: 1 ) – Please choose one

Judgmental sampling has the following advantages EXCEPT:

No special knowledge of statistics is required in this type

It tends to cause uniform standards among different audit firms

No time is spent on playing with mathematics

This approach has been well understood and refined by the experience over years

Question No: 28 ( Marks: 1 ) – Please choose one

In which one of the following methods of sampling, an auditor is concerned that client should not

be able to know or guess which items will be examined?

Block sampling

Representative sampling

Unpredictable sampling

Haphazard sampling

Question No: 29 ( Marks: 1 ) – Please choose one

Which one of the following is a common approach to increase the audit efficiency in sampling?

Selective testing

Stratification

Systematic selection

Random selection

Question No: 30 ( Marks: 1 ) – Please choose one

Which one of the following can be an advantage of using statistical sampling techniques?

It defines the values of tolerable error and risk of incorrect acceptance required for audit

satisfaction

It has been established in the courts to be superior to judgmental sampling

It mathematically measures risk

It eliminates the need for judgmental decisions

Question No: 31 ( Marks: 1 ) – Please choose one

Following statements describes the functions of internal auditing EXCEPT:

It is a function that evaluates an organization s risk management, control and governance

processes

It is a wide ranging activity and includes functions that are advisory or task oriented

It is an activity which entails appraising the entity’s strategies and expressing an opinion

on the financial statements

It is an activity that extends beyond the appraisal of efficiency and effectiveness

Question No: 32 ( Marks: 1 ) – Please choose one

An audit firm started planning annual audit process for a sports goods manufacturing company.

The planning involves the following key points EXCEPT:

Establishing the overall audit strategy for the engagement

Developing an audit plan, in order to reduce audit risk to an acceptably low level

Surveillance of company operations and procedures

To benefit from the experience and insight of auditors and other key members of the

engagement team

Question No: 33 ( Marks: 1 ) – Please choose one

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What is NOT required as part of the audit process?

Substantive procedures

Tests of control

Assessment of materiality

Procedures to obtain an understanding of the internal control structure

Question No: 34 ( Marks: 1 ) – Please choose one

Which one of the following mainly affects the auditor s opinion?

Agreement on accounting policies

Limitation on the scope of the auditor s work

Dispute among the members of the company

Future prospects of the company s growth

Question No: 35 ( Marks: 1 ) – Please choose one

Which one of the following matters does NOT affect Auditor s Opinion?

When there is a limitation on the scope of the auditor s work

When there is a disagreement with management regarding the accounting policies selected

When there is a disagreement with management regarding the method of

applying

accounting policies

matter

When an auditor modify the auditor s report by adding a paragraph to highlight a material

Question No: 36 ( Marks: 1 ) – Please choose one

Which one of the following statements is TRUE?

A very small sample of only one or two pieces of relevant, competent, and timely

evidence lacks persuasiveness

A large sample of highly competent evidence is not persuasive unless it is relevant to the

audit objective

A large sample of evidence that is neither competent nor timely is not persuasive

All of the given options are true

if its so small thing u r checking u can check all transactions

Question No: 37 ( Marks: 1 ) – Please choose one

Analytical procedures are performed as a substantive test to achieve which of the following

objectives?

To determine the nature, timing, and extent of compliance procedures

To reduce detection risk

To determine the nature, timing, and extent of other audit procedures

To keep audit risk to an acceptably low level

Question No: 38 ( Marks: 1 ) – Please choose one

A written understanding between the auditor and the client concerning the auditor’s responsibility

for the discovery of illegal acts is usually set forth in which of the following letters?

Client representation letter

Letter of audit inquiry

Management letter

Engagement letter

Question No: 39 ( Marks: 1 ) – Please choose one

Gains and losses during business operations of a company are determined in terms of increases

and decreases in which one of the following sections of the Balance sheet?

Long term finances

Investments

Owners’ equity

Long term liabilities

Question No: 40 ( Marks: 1 ) – Please choose one

All expenditures incurred through petty cash should be recorded in which one of the following?

Cheque

Register

Computer sheet

Voucher

Question No: 41 ( Marks: 1 ) – Please choose one

Which one of the following International Auditing Standards deals with the Audit Materiality?

ISA 300

ISA 315

ISA – 320

ISA 335

Question No: 42 ( Marks: 1 ) – Please choose one

Property, plant and equipment are stated at cost less accumulated depreciation. Which of the

following is the relevant assertion?

Rights and obligations

Valuation

Completeness

Existence or occurrence

Question No: 43 ( Marks: 3 )

According to your understanding, what control objectives must be defined for bringing fairness in

the Cash System of an entity?

Ans: first of all only authorized vouchers should be paid for n daily cash should be counted

Matched with cash in books

Question No: 44 ( Marks: 3 )

What are the Control Accounts? How they should be monitored in order to bring fairness in the

inventory system of an entity?

Question No: 45 ( Marks: 3 )

Suppose you have been appointed as the auditor of a company and have started examining the

entity by taking initial interviews of the concerned personnel. During this course, one of the

person from management has asked you the following information:

1. What are the matters about which an auditor may disagree with the management?

2. What should an auditor do if such disagreements are material?

Give your answers in brief

Question No: 46 ( Marks: 5 )

According to your knowledge, what tests of controls auditors usually perform for the evaluation

of Purchase Invoice of an entity?

Question No: 47 ( Marks: 5 )

What matters should the auditor consider for developing an overall audit plan for the expected

scope and control of an audit?

Question No: 48 ( Marks: 10 )

A company has hired auditors at the year end. Auditors used audit sampling techniques which

made them enable to gather audit evidence efficiently. State the objectives auditors might have

defined first to achieve by using sampling techniques and also briefly explain further steps the

auditors might undertake to complete the sampling process.

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Question No: 49 ( Marks: 10 )

An unlisted public limited company undergoing expansion intends to create an internal audit

department. The Managing Director (MD) has asked your advice and comments on each of the

matters listed below:

1. The fundamental differences in the scope, approach, and responsibility between the

internal and external auditor.

2. Whether it would be advisable to assign the responsibility of development of systems and

procedures to the internal auditor?

Which of the following authorities shall fix the remuneration of the auditor, if auditors

are appointed by the SCEP?(companies ordinance, 1984)

Directors

Shareholders

Company Registrar

SECP

The small audit firms provide the following services EXCEPT:

Liquidation and receivership work, fraud auditing

Financial management and system consultancy

Financial system planning and preparation

Tax management and statutory form filling

Which of the following audit process determines that whether entity is following specific

procedures, rules or regulations set down by some higher authority?

Technical audit

Financial statement audit

Compliance audit

Operational audit

Reliability of audit evidence is influenced by all of the following factors EXCEPT:

Source and the nature of the information

Timeliness

Objectivity

Quantity

Which statement cannot be highlighted as a merit of audit process?

It settles the dispute between management

It helps the auditor to give more constructive advice top management

Its help to restrict sole proprietor to by changing some fee

It gives strength to the company for acquiring the finance

For better assessing the audit risk, auditor inquires different groups in the organizations

EXCEPT:

Board of governance and top level management

Legal counsel

Middle level management

Stakeholders

Which of the following is the least concern to an auditor regarding the client’s internal

control system?

Efficiency and effectiveness of operations

Controls related to the reliability of financial reporting

Controls over classes of transactions

Auditors are equally concern with each of the given issues

During test of control procedure its design can easily tested with the help of:

ICQs and walk through tests

ICQs and judgment sample

ICQs and random sample

ICQS and ICEC

Testing the Design:

Proper design of internal control is tested through ICQs and ICEC.

Internal source of audit evidence for an entity includes the following EXCEPT:

Associated companies of the entity

Accounting systems, records and documents

Non-financial data and records

Management representation and discussion

Associated company is not internal source.

An “Associated Company” is an entity in which the Company has significant influence, but not a

controlling interest, over the operating and financial management policy decisions of the entity.

Associated Companies are accounted for using the equity method. Significant influence is

generally presumed when the Company holds between 20 percent and 50 percent of the voting

rights.

Which of the following is TRUE?

The audit profession is unregulated

The audit profession is regulated by its own professional body

Outside bodies sometimes become involved in the regulation of audit profession

The audit profession is regulated only by the government

Fall Semester 2008

Fundamentals of Auditing (ACC311)

Quiz # 01

1. Which one of the following cannot be considered as the essential feature of Auditing?

a. An auditor is involved in the examination of financial statements

b. The auditor is responsible for the preparation of the financial statements

c. The end result of an audit is an opinion to assist the user of the financial statements.

d. The auditor should be independent of the entity

2. Which one of the following best describes why an independent auditor is asked to express

an opinion on the presentation of financial reports?

a. It is difficult to prepare financial reports that fairly present a company’s financial

position without the expertise of an external auditor

b. It is management’s responsibility to seek available independent aid in the appraisal

of financial information shown in its financial reports

c. The opinion of an independent party is needed because a company may not be

objective with respect to its own financial reports

d. It is a customary courtesy that all shareholders of a company receive an

independent report on management’s stewardship of the affairs of the business

3. The audit which is a review of any part of an entity’s operating procedures and methods

is known as which one of the following?

a. Financial statement audits

b. Operational audits

c. Technical Audits

d. Compliance audits

4. Which one of the following is considered as the formal opinion, or disclaimer thereof,

issued by an independent auditor as a result of audit or evaluation performed on a legal

entity?

a. Financial report

b. Financial statement

c. Director’s report

d. Auditor’s report

5. Which of the following statements is true?

a. The auditing profession is unregulated

b. The auditing profession is regulated only by its own professional body

c. Outside bodies sometimes become involved in the regulation of the audit

profession

d. The auditing profession is regulated only by the government

6. Which one of the following primary assertions is satisfied when an auditor ensures that there

are no unrecorded assets, liabilities, transactions or events or undisclosed items in the

client’s financial records?

a. Valuation

b. Completeness

c. Existence

d. Rights and obligations

7. Internal control is primarily established within a company to do which of the following?

a. To prevent fraud in the company affairs

b. To provide reasonable assurance that the company’s objectives will be achieved

c. To catch all errors that may occur in the company

d. To aid in the effective auditing of the company

8. Fixation of remuneration of auditors can be determined by the following authorities

EXCEPT: (Companies Ordinance, 1984)

a. Directors

b. Company secretary

c. Commission

d. Members

9. A leather goods manufacturing company has started its operations in year 2001. After five

years of conducting successful business, it has become a listed company recently. Now, the

company is required to hire its first auditors, but neither the directors nor the members could

appoint the auditors during the past 4 months since the incorporation of the company.

Select among the following authorities who can appoint the auditors in this situation?

(Companies Ordinance, 1984)

a. Company secretary

b. Company registrar

c. Commission

d. Institute of Chartered Accountants of Pakistan (ICAP)

10. A company has hired auditors who have performed the audit process in accordance with the

auditing standards, but they fail to present its report. According to the Company law, 1984,

the auditors shall be liable for which one of the following liabilities?

a. Criminal liability

b. Liability for misfeasance

c. Liability for negligence

d. Accounting liability

Question No: 1 ( Marks: 1 ) – Please choose one

A series of constant, or level, cash flows that occur at the end of each period for some

fixed number of periods is called a/an:

Present Value

Future Value

Ordinary Annuity

Ordinary Share

Question No: 2 ( Marks: 1 ) – Please choose one

The Ratios showing the ability of a firm to pay its bills in short-run are called:

Leverage Ratios

Liquidity Ratios

Profitability Ratios

Market Value Ratios

Question No: 3 ( Marks: 1 ) – Please choose one

GAAP stands for:

► Generally Accepted Accounting Principles

Generally All-rounder Accounting Principles

General Accepting Accounts Principles

None of the given options

Question No: 4 ( Marks: 1 ) – Please choose one

A contract between the bond issuer and bond holder is called:

Bond Indenture

Bond Debenture

Bond Value

None of the given options

Question No: 5 ( Marks: 1 ) – Please choose one

Suppose you have a portfolio comprised of two securities X and Y. In the portfolio, 60

shares are of stock X valued at Rs.10 per share and 40 shares are of stock Y valued at

Rs.3 per share. What is the approximate weight of stock X in the portfolio?

23 %

40 %

60 %

83 %

Question No: 6 ( Marks: 1 ) – Please choose one

In which market, previously issued securities are traded among investors?

Primary Market

Secondary Market

Tertiary Market

None of the given options

Question No: 7 ( Marks: 1 ) – Please choose one

Which of the following is the present value of a series of future net cash flows that will

result from an investment, minus the amount of the original investment?

Present Value

Future Value

Net Present Value

Terminal Value

Question No: 8 ( Marks: 1 ) – Please choose one

You earn a 5 percent real return. If the inflation rate is 4 percent, what is your nominal

return?

8.96 %

9.05 %

9.20 %

9.92 %

Question No: 9 ( Marks: 1 ) – Please choose one

Fee paid to the consultant for evaluating the option of launching a new product will be

considered as:

Sunk Cost

Opportunity Cost

Financing Cost

Operating Cost

Question No: 10 ( Marks: 1 ) – Please choose one

A risk that affects a single or at most a small number of assets is called:

Unsystematic Risk

Unique Risk

► Diversifiable Risk

All of the given options

Question No: 11 ( Marks: 1 ) – Please choose one

What will be the payback period of a Rs.70,000 investment with the following

cash inflows?

Years Cash flows

1 Rs. 15,000

2 Rs. 20,000

3 Rs. 25,000

4 Rs. 15,000

5 Rs. 5,000

3.57 years

3.67 years

4.57 years

4.67 years

Question No: 12 ( Marks: 1 ) – Please choose one

Which of the following is the required return on a firm’s debt by its creditors?

Cost of Equity

Cost of Debt

Cost of Preferred Stock

Cost of Capital

Question No: 13 ( Marks: 1 ) – Please choose one

Which one of the followings is the overall required return the firm must earn on its

existing assets to maintain the value of the stock?

AAR (Average Accounting Return)

IRR (Internal Rate of Return)

MIRR (Modified Internal Rate of Return)

WACC (Weighted Average Cost of Capital)

Question No: 14 ( Marks: 1 ) – Please choose one

The costs to store and finance the assets are known as:

Carrying Costs

Shortage Costs

Manufacturing Costs

None of the given options

Question No: 15 ( Marks: 1 ) – Please choose one

The minimum level of inventory that a firm keeps on hand is called:

Common stock

Safety Stock

Preferred Stock

Dangerous Stock

Question No: 16 ( Marks: 1 ) – Please choose one

Realization Principle is one of the basic principles of GAAP.

True

False

Question No: 17 ( Marks: 1 ) – Please choose one

Whenever the word Dividend is used, it always refers to a long-term loan.

True

False

Question No: 18 ( Marks: 1 ) – Please choose one

A preferred dividend is exactly like interest on bond.

True

False

Question No: 19 ( Marks: 1 ) – Please choose one

By IRR rule, take a project when its IRR exceeds the required return.

True

False

Question No: 20 ( Marks: 1 ) – Please choose one

Diversification is the group of assets such as stocks and bonds held by investor.

True

False

Question No: 21 ( Marks: 1 )

___________________ is a special case of Annuity, where the stream of cash flows

continues forever.

Question No: 22 ( Marks: 1 )

________________ is the value of a present amount at a certain date in the future based

on a determined rate of return.

Question No: 23 ( Marks: 1 )

The amount of time required for an investment to generate cash flows sufficient to

ICQS and ICEC

Testing the Design:

Proper design of internal control is tested through ICQs and ICEC.

Internal source of audit evidence for an entity includes the following EXCEPT:

Associated companies of the entity

Accounting systems, records and documents

Non-financial data and records

Management representation and discussion

Associated company is not internal source.

An “Associated Company” is an entity in which the Company has significant influence,

but not a controlling interest, over the operating and financial management policy

decisions of the entity. Associated Companies are accounted for using the equity method.

Significant influence is generally presumed when the Company holds between 20 percent

and 50 percent of the voting rights.

Which of the following is TRUE?

The audit profession is unregulated

The audit profession is regulated by its own professional body

Outside bodies sometimes become involved in the regulation of audit profession

The audit profession is regulated only by the government

 

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