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1- When an auditor has substantial doubt about an entity's ability to continue as a going concern

because of
the probable discontinuance of operations, the auditor most likely would express a qualified opinion if:
a. The effects of the adverse financial conditions likely will cause a bankruptcy filing.
b... Information about the entity's ability to continue as a going concern is not disclosed.
c. Management has no plans to reduce or delay future expenditures.
d. Negative trends and recurring operating losses appear to be irreversible.

2- Which of the following factors would most likely be considered an inherent limitation to an entity's
internal
control?
a. The complexity of the information processing system.
b.. Human judgment in the decision making process.
c. The ineffectiveness of the board of directors.
d. The lack of management incentives to improve the control environment.

3- A successor auditor is required to attempt communication with the predecessor auditor prior to:
a. Performing test of controls.
b. Testing beginning balances for the current year.
c. Making a proposal for the audit engagement.
d.. Accepting the engagement.

4- Which of the following factors would least likely affect the extent of the auditor's consideration of
the
client's internal controls?
a.. The amount of time budgeted to complete the engagement.
b. The size and complexity of the client.
c. The nature of specific relevant controls.
d. The auditor's prior experience with client operations.

5- The most reliable procedure for an auditor to use to test the existence of a client's inventory at an
outside
location would be to:
a.. Observe physical counts of the inventory items.
b. Trace the total on the inventory listing to the general ledger inventory account.
c. Obtain a confirmation from the client indicating inventory ownership.
d. Analytically compare the current-year inventory balance to the prior-year balance.

6- An auditor compared the current-year gross margin with the prior-year gross margin to determine
if cost
of sales is reasonable. What type of audit procedure was performed?
a. Test of transactions.
b.. Analytical procedures.
c. Test of controls.
d. Test of details.

7- If the business environment is experiencing a recession, the auditor most likely would focus
increased
attention on which of the following accounts?
a. Purchase returns and allowances.
b. Allowance for doubtful accounts.
c. Common stock.
d. Noncontrolling interest of a subsidiary purchased during the year.

8- Which of the following is true regarding reportable conditions?
a.. Auditors must search for them.
b. Auditors must communicate them to the audit committee.
c. They must be included in the financial statements.
d. They must be disclosed in footnotes.

9- An auditor who uses a transaction cycle approach to assessing control risk most likely would test
control
activities related to transactions involving the sale of goods to customers with the:
a.. Collection of receivables.
b. Purchase of merchandise inventory.
c. Payment of accounts payable.
d. Sale of long-term debt.

10- Tracing copies of computer-prepared sales invoices to copies of the corresponding computer-
prepared
shipping documents provides evidence that:
a. Shipments to customers were properly billed.
b. Entries in the accounts receivable subsidiary ledger were for sales actually shipped.
c.. Sales billed to customers were actually shipped.
d. No duplicate shipments to customers were made.

11- Which of the following procedures is usually the first step in reviewing the financial statements of
a
nonpublic entity?
a. Make preliminary judgments about risk and materiality to determine the scope and nature of the
procedures to be performed.
b.. Obtain a general understanding of the entity's organization, its operating characteristics, and its
products or services.
c. Assess the risk of material misstatement arising from fraudulent financial reporting and the
misappropriation of assets.
d. Perform a preliminary assessment of the operating efficiency of the entity's internal control activities.

12- Which of the following events most likely would indicate the existence of related parties?
a. Granting stock options to key executives at favorable prices.
b. High turnover of senior management and members of the board of directors.
c. Failure to correct internal control weaknesses on a timely basis.
d.. Selling real estate at a price significantly different from appraised value.

13- An auditor discovered that a client's accounts receivable turnover is substantially lower for the
current
year than for the prior year. This may indicate that:
a. Obsolete inventory has not yet been reduced to fair market value.
b.. There was an improper cutoff of sales at the end of the year.
c. An unusually large receivable was written off near the end of the year.
d. The aging of accounts receivable was improperly performed in both years.

14- The main object of an audit is ___
a) Expression of opinion b) Detection and Prevention of fraud and error
c) Both (a) and (b) d).. Depends on the type of audit.

Which of the following is not true about opinion on financial statements?
a) The auditor should express an opinion on financial statements.
b) His opinion is no guarantee to future viability of business
c).. He is responsible for detection and prevention of frauds and errors in financial statements
d) He should examine whether recognised accounting principle have been consistently

A sale of Rs. 50.000 to A was entered as a sale to B. This is an example of _
a) Error of omission b).. Error of commission c) a&b d) Error of principle

Goods sent on approval basis have been recorded as Credit sales. This is an example of _
a).. Error of principle b) Error of commission c) Error of omission d) Error of duplication

The risk of management fraud increases in the presence of :
a) Frequent changes in supplies b) Improved internal control system
c) Substantial increases in sales
d).. Management incentive system based on sales done in a quarter

Auditing standards differ from audit procedures in that procedures relate to
a) Audit assumptions b).. acts to be performed c) quality criterion d) a&b

Professional skepticism requires that the auditor assume that management is
a) reasonably honest b).. Neither honest nor dishonest
c) Not necessarily honest d) Dishonest

The audit engagement letter, generally, should include a reference to each of the following
except
a) limitations of auditing b) responsibilities of management with respect to audit work
c) expectation of receiving a written management representation letter.
d).. a description of the auditors method of sample selection.


An auditor who accepts an audit but does not possess the industry expertise of the
business entity should
a) engage experts
b).. obtain knowledge of matters that relate to the nature of entitys business
c) inform management about it d) take help of other auditors


Which of the following is not a quality control consideration on accepting a new client?
a) Availability of audit assistants with necessary skill and competence.
b) Provision of other services to the client which may impair independence
c).. Predecessor auditors advice as to whether audit fees were paid promptly
d) a&b

An auditor obtains knowledge about a new clients business and its industry toa)
Make constructive suggestions concerning improvements to the clients internal control
system.
b) Evaluate the appropriateness of audit evidence obtained
c).. Under stand the events and transactions that may have an effect on clients financial
statements.
d) All of the above

Audit in depth is synonymous for:
a)annual audit b) 2 year audit c) Final audit d) ..Detailed audit

In determining the level of materiality for an audit, what should not be considered?
a) Prior years errors b).. The auditors remuneration
c) Adjusted interim financial statements d) Prior years financial statements

Of the following, which is the least persuasive type of audit evidence?
a) Bank statements obtained from the client
b) Documents obtained by auditor from third parties directly.
c).. Carbon copies of sales invoices
d) Computations made by the auditor

Which of the following statements is, generally, correct about the reliability of audit
evidence?
a) To be reliable, evidence should conclusive rather than persuasive
b).. Effective internal control system provides reliable audit evidence
c) Evidence obtained from outside sources routed is unreliabe
d) All are correct.

Which of the following factors is most important in determining the appropriations of audit
evidence?
a).. The reliability of audit evidence and its relevance in meeting the audit objective
b) The unreliability of audit evidence
c) The quantity of audit evidence d) The independence of the source of evidence

Appropriateness of evidence is related to
a) ..Quality b) quantity c) a&b d) none of above

sufficency of evidence is related to
a) Quality b).. quantity c) a&b d) none of above

What would most appropriately describe the risk of incorrect rejection in terms of
substantive testing?
a) The auditor concludes balance is materially correct when in actual fact it is not
b).. The auditor concludes that the balance is materially misstated when in actual fact it not
c) The auditor has rejected an item when it is not correct
d) None of the above

Audit programme is prepared by
a)the management b) the client c) directors
d).. the auditor and his audit assistants

Knowledge of the entitys business does not help the auditor to
a)..reduce inherent risk b) identify problem areas
c) evaluate reasonableness of estimates d) all of above

Which of the following statements is correct?
a) Lower the sampling risk greater the sample size
b) Smaller the tolerable error, greater the sample size
c) Lower the expected error, smaller the sample size d).. All are correct

Tolerable error, is the maximum monetary error that the auditor is prepared to accept in the
population and still conclude that audit objective has been achieved, is directly related to
a) Sample size b) Audit risk c).. Materiality d) Expected error

Which of the following expenses should not be treated as capital expenditure?
a) Expenses paid on installation of a plant.
b) Cost of dismantling a building in case a new building is to be constructed on the land
c).. purchasing of inventory
d) The fees paid to engineer who constructed the plant.

Who is responsible for the appointment of statutory auditor of a limited company ?
a) Directors of the company b).. Members of the company
c) The Central Government d) All of the above

The auditor has noticed existence of recurring losses sale of fixed assets this indicates
a).. Depreciation charges are insufficient
b) Policy of sale or disposal of fixed assets needs to be reviewed
c) The sale of assets have not been properly authorized d) Accounting errors

Tests of control are not concerned with_
a) Existence of controls b) Effectiveness of controls
c) Continuity of controls d).. Designing of controls

The performance of tests of control is documented in
a)audit programme b) flow charts c).. working papers d) any of the above

An auditor should study and evaluate internal controls toa)
determine whether assets are safeguarded b) Suggest improvements in internal control
c).. Plan audit procedures d) express and opinion

While verifying intangible assets, an auditor would recompute amortization charges and
determine whether amortization period is reasonable. The auditor tries to establish .by
doing it
a).. valuation b) existence c) disclosure d) possession

Which of the following is most crucial to a purchase department?
a) Reducing the cost of acquisition b) Selecting supplies
c) ..Authorizing the acquisition of goods d) Assuring the quality of goods

For vouching of which item, the auditor is most likely to examine cost records?
a) Commission earned b) Bad debts recorded c) Credit sales d).. Sale of scrap

To test whether sales have been recorded, the auditor should draw a sample from a file of
a) purchase orders b) purchase invoice c) sales invoices d) bill of loading

Working paper is properity of.
a) Auditor b) management c) shareholder d) government

Management has time of . To appoint the 1
st
auditor after incorporation.
a) 120 days b) 60 days c) 360 days d) 100 days
If management fails to appoint the 1
st
auditor within 60 days then who will appoint the auditor?
a) Auditor b) management c) shareholder d) government

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