1.

Multiple choice questions

1. Who normally appoints the external auditors of a company?
A. Directors
B. Shareholders
C. Audit committee

2. Which of the following are implied in the auditor's report and reported only by exception?
(1) Adequate accounting records have been kept
(2) The directors' report is consistent with the financial statements
(3) Adequate returns have been received from branches
(4) The financial statements agree with the underlying records
A. 1, 2 and 4
B. 1, 3 and 4
C. 2, 3 and 4
D. 1, 2, 3 and 4

3. Which of the following is the most appropriate definition of the external audit?
A. The external audit is an exercise carried out by auditors in order to give an opinion on
whether the financial statements of a company are true and fair.
B. The external audit is an exercise carried out in order to give an opinion on the
effectiveness of a company's internal control system.
C. The external audit is performed by management to identify areas of deficiency within a
company and to make recommendations to mitigate those deficiencies.
D. The external audit provides negative assurance on the truth and fairness of a company's
financial statements.

4. Which of the following statements correctly describes the principal purpose of an external audit
of a limited company?
A. To assist in the preparation of the companys financial statements.
B. To prevent fraud within the company.
C. To examine and express an opinion on the companys financial statements.
D. To assist the directors in improving the companys financial reporting process.

5. The level of assurance provided by an external audit is absolute. Is this statement true or false?
A. True
B. False

6. Which of the following are examples of good internal control within a company?
(1) Internal audit department
(2) Segregation of duties
(3) External audit
(4) Audit committee
A. 1, 2, 3 and 4
B. 1, 3 and 4
C. 1, 2 and 4
D. 2, 3 and 4

7. Who is responsible for the prevention and detection of fraud within an organisation?
A. External auditors
B. Directors
C. Internal auditors

8. Which body is responsible for issuing International Standards on Auditing?

A. International Accounting Standards Board
B. Auditing Practices Board
C. International Auditing and Assurance Standards Board
D. International Federation of Accountants

9. Using UK law as an example, which of the following is ineligible for appointment as a company
auditor?
A. An officer or employee
B. A shareholder
C. A close relative of an officer or employee
D. A receivable (debtor) or payable (creditor) of the company

10. Which of the following are recognised threats to independence and objectivity as identified in
ACCA's Code of Ethics and Conduct?
(1) Familiarity
(2) Self-interest
(3) Integrity
(4) Advocacy
A. 1, 2, 3 and 4
B. 1, 2 and 4
C. 2, 3 and 4
D. 2 and 4 only
2

11. Which of the following is the correct definition of 'integrity' in accordance with ACCA's Code of
Ethics and Conduct?
A. Members should not allow bias, conflicts of interest or undue influence of others to
override professional or business judgements.
B. Members should act diligently and in accordance with applicable technical and
professional standards when providing professional services.
C. Members should comply with relevant laws and regulations and should avoid any action
that discredits the profession.
D. Members should be straightforward and honest in all business and professional
relationships.

12. An audit firm providing internal audit services to its external audit client is an example of a selfreview threat. Is this statement true or false?
A. True
B. False

13. Which of the following is not one of the fundamental principles of ACCAs Code of Ethics and
Conduct?
A. Integrity
B. Objectivity
C. Independence
D. Confidentiality

14. Which of the following statements is true in respect of the external audit?
A. An external audit is undertaken by the management of a company to assess the
effectiveness of the internal controls.
B. An external audit is carried out in order for auditors to report independently on the truth
and fairness of a companys financial statements.
C. An external audit is performed with the express purpose of reporting on deficiencies in
internal control.
D. An external audit must always consist of an interim audit visit and a final audit visit.

15. Which of the following statements explains one of the reasons why external audits provide only
reasonable, but not absolute, assurance?
A. Some reliance is placed on the work of internal audit
B. Not all transactions and balances are examined
C. The audit has to be completed within a specific timeframe
D. Not all members of the audit team are fully qualified accountants

16. Which of the following is not a statutory right of the auditors of a limited liability company?
(1) A right to attend all directors meetings and receive all notices and communications relating
to such meetings.
(2) A right to speak at general meetings on any part of the business that concerns them as
auditors.
(3) A right to attend any general meeting and receive all notices and communications relating to
such meetings.
A. (1) only
B. (1) and (3)
C. (2) only
D. (2) and (3)

17. The primary purpose of an auditor evaluating and testing the internal controls of a limited liability
company, is to enable the auditor to advise management of the deficiencies in the internal
controls. Is this statement true or false?
A. True
B. False

2. Multiple choice questions

1. When gaining an understanding of the specific business operations of an audit client which of
the following matters would an auditor need to consider?
A. Accounting principles and industry specific practices relevant to the clients business
B. Acquisitions or disposals of the clients business activities
C. Leasing of property, plant or equipment for use in the clients business
D. Products or services and markets of the clients business

2. Which of the following statements most accurately describes substantive audit procedures?
A. Substantive audit procedures consist of analytical procedures and tests of controls.
B. Substantive audit procedures are tests to obtain audit evidence about the design and
operation of an entity's internal control system.
C. Substantive audit procedures are tests to obtain audit evidence to detect material
misstatements in the financial statements.
D. Substantive audit procedures are only carried out when the internal control system is
assessed as being strong.

3. Which of the following is not a financial statement assertion relating to presentation and
disclosure, in accordance with ISA 315 Identifying and assessing the risks of material
misstatement through understanding the entity and its environment?
A. Completeness
B. Existence
C. Accuracy and valuation
D. Classification and understandability

4. Which audit procedure describes an audit test to perform a proof in total of the depreciation
charge for the year?
A. Reperformance
B. Analytical procedures
C. Confirmation

5. Which of the following statements about materiality are correct?

1. Information is material if its omission or misstatement could influence the economic decisions
of users of the financial statements.
2. Materiality is based on the auditor's experience and judgement.
3. Materiality is always based on turnover.
4. Materiality should only be calculated at the planning stage of the audit.
A. 1, 2 and 3
B. 1, 3 and 4
C. 1 and 2
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D. 2 and 4

6. Why do auditors need to obtain an understanding of the client and its environment?
A. To assist them in designing and performing further audit procedures
B. To help them estimate how much the audit will cost
C. To ascertain whether the audit report will be modified or not
D. To assist them when writing their report to management

7. Which of the following procedures must the auditor use to obtain an understanding of the entity
and its environment in accordance with ISA 315 Identifying and assessing the risks of material
misstatement through understanding the entity and its environment?
1 Analytical procedures
2 Inquiry
3 Confirmation
4 Reperformance
A. 1, 2 and 3
B. 1 and 2
C. 2, 3 and 4
D. 1 and 4

8. What are the two elements of the risk of material misstatement at the assertion level?
A. Inherent risk and detection risk
B. Audit risk and detection risk
C. Inherent risk and control risk
D. Detection risk and control risk

9. Which of the following is an example of an inherent risk factor?

A. The company is rapidly expanding.
B. There is no log in or password required to access the accounting system.
C. The company does not maintain a non-current asset register to record its assets.
D. No backups are taken of the computer system at the end of each day.

10. Which of the following sets the scope, timing and direction of the audit?
A. Audit plan
B. Audit strategy
C. Audit engagement letter

11. What are the purposes of planning the audit?

1 To ensure appropriate attention is devoted to different areas of the audit.
2 To identify potential problem areas.
3 To facilitate delegation of work to audit team members.
4 To ensure the audit is completed within budget and time restraints.
A. 1, 2, 3 and 4
B. 1, 3 and 4
C. 1, 2 and 3
D. 2 and 3

12. Which of the following descriptions accurately defines audit documentation?

A. The record of procedures performed by the auditor, and all evidential matters including
discussions with management and third parties
B. The record of audit evidence obtained by the auditor and conclusions with regard to the
financial statements subject to audit
C. The record of a current nature of procedures performed by the auditor and all evidence,
matters and conclusions relevant to the audit
D. The record of audit procedures performed, relevant audit evidence obtained, and
conclusions the auditor reached

13. Which of the following factors influences the auditors judgement as to what constitutes
sufficient, appropriate audit evidence?
(1) Risk
(2) Cost
(3) Materiality
(4) Experience from prior audits
A. 1, 2 and 3
B. 1, 3 and 4
C. 3 and 4
D. 2, 3 and 4

14. During which of the following stages of the audit must analytical procedures be used, in
accordance with International Standards on Auditing?
(1) Audit planning
(2) Audit fieldwork
(3) Audit completion
A. 1 and 3
B. 1, 2 and 3
C. 1 only
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D. 1 and 2

15. For which of the following could the external auditor employ the services of an expert in
accordance with ISA 620 Using the work of an auditor's expert?
1 Analytical procedures on inventory
2 Valuation of land and buildings
3 Legal opinion on the outcome of a court case
4 Verifying directors' transactions
A. 1, 2 and 3
B. 2, 3 and 4
C. 2 and 3
D. 1, 3 and 4

16. Which of the following is not a method used when selecting a sample for audit testing?
A. Systematic selection
B. Haphazard selection
C. Statistical selection

17. In which of the following situations would it be most appropriate to test 100% of the population?
A. The population consists of a small number of high value items.
B. Control risk has been assessed as low.
C. The population consists of a high number of low value items.
D. Audit evidence can be obtained from various sources.

18. The auditor can reduce sampling risk by increasing the sample size. Is this statement true or
false?
A. True
B. False

19. Which of the following is not an example of an audit working paper?

A. Audit strategy
B. Memorandum of the company
C. Audit file
D. Analytical procedures

20. Which of the following factors influences the form and content of audit working papers?
1 Risks of material misstatement
2 Exceptions identified
8

3 Nature of the package used for documentation

4 Cost to the audit
A. 1, 2 and 4
B. 1, 3 and 4
C. 1 and 2
D. 2 and 4

21. The disclosure checklist is prepared as part of the planning stage of the audit. Is this statement
true or false?
A. True
B. False

22. Which of the following papers would normally be retained on the permanent file maintained for a
company audit client?
A. Completed checklist of statutory disclosure provisions
B. Extracts of minutes of meetings of the directors
C. Letter of representation
D. Copy of the companys legal constitution

23. Which of the following would normally be retained on the current file maintained for a company
audit client?
A. Narrative notes describing the companys accounting systems
B. A copy of the companys constitution
C. A representation letter
D. A description of the companys business and its operations

24. Performance materiality levels are higher than the materiality for the financial statements as a
whole. Is this statement true or false?
A. True
B. False

25. Audit risk represents the risk that the auditor will give an inappropriate opinion on the financial
statements when the financial statements are materially misstated. Which of the following
categories of risk can be controlled by the auditor?
Category of risk:
(1) Control risk
(2) Detection risk
(3) Sampling risk
A. (1) and (2)
9

B. (2) only
C. (1) and (3)
D. (2) and (3)

26. Which of the following papers would normally be retained on the permanent file maintained for a
limited liability company audit client?
A. Completed checklist of statutory disclosure provisions
B. Extracts of minutes of meetings of the directors
C. Written representations from management
D. Copy of the companys legal constitution

27. Which of the following should be facilitated by the standardisation of substantive procedure
working papers?
(1) Meeting of specified audit objectives
(2) Communicating with the staff of the audit client
(3) Delegation of audit work
A. (1) only
B. (1) and (3)
C. (2) and (3)
D. (3) only

28. Which audit working paper should provide satisfactory evidence that audit resources have been
directed towards high risk areas of an audit?
A. Systems narrative notes
B. Audit attention points brought forward from the previous years audit
C. The overall audit strategy documentation

29. Which of the following statements are correct with regard to the relationship between the audit
plan and the audit strategy for an external audit engagement?
(1) The audit plan should be developed before the audit strategy is established.
(2) The audit plan and the audit strategy should be established and developed at the same
time.
(3) The overall audit strategy should be more detailed than the audit plan.
(4) The audit strategy should be established before the audit plan is developed.
A. (1) and (3)
B. (2) only
C. (3) and (4)
D. (4) only

10

30. The definition of financial reporting (or financial statement) risk is Inherent Risk x Control Risk x
Detection Risk. Is this statement true or false?
A. True
B. False

31. Which of the following is the distinguishing factor of the systematic sample selection method?
A. All items in the population under review have the same statistical probability of being
selected.
B. The currency unit value rather than the items is used as the sampling population.
C. A uniform sampling interval is calculated by dividing the population size by the sample
size.
D. None of the above.

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3. Multiple choice questions

1. Internal control is the responsibility of the internal audit department. Is this statement true or
false?
A. True
B. False

2. Which of the following is an element of internal control?

A. Information system relevant to financial reporting
B. Internal control questionnaires
C. External audit
D. Analytical procedures

3. Which of the following are management controls?

1 The separation of authorisation, execution, custody and recording functions
2 Monthly reporting to the directors of inventory levels
3 Review of management accounts and comparison to budgets
4 The internal audit function
A. 1, 2 and 3
B. 2, 3 and 4
C. 1, 2 and 4
D. 1, 3 and 4

4. Which of the following is not an example of a control activity?

A. Bank reconciliations are prepared each month by the accountant.
B. Entry to the inventory store room is by keypad.
C. Senior managers have to authorise all purchase order requests.
D. There is an IT policy handbook in place.

5. Which of the following questions would you expect to find on an Internal Control Evaluation
Questionnaire (ICEQ) for the area of inventory when auditing a companys financial statements?
1 Can inventory be wasted without proper recording?
2 Is there inadequate documentation over the receipt and issue of inventory?
3 Does the system produce inadequate information for completeness of recording in the
companys accounting records?
4 Can inventory be over/under valued?
A. 1 and 3 only
B. 1, 3 and 4
C. 3 and 4 only
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D. 1, 2 and 4

6. Which of the following questions would you expect to find on an Internal Control Evaluation
Questionnaire (ICEQ) for the payroll system of a limited company?
1 Can the payroll supervisor authorise the payment of wages?
2 Can employees be paid for work not done?
3 Can bonuses be wrongly paid?
4 Can statutory deductions be incorrectly recorded?
A. 1, 2 and 3
B. 1, 2 and 4
C. 1, 3 and 4
D. 2, 3 and 4

7. Which of the following is the correct definition of general IT controls?

A. Controls that are preventative or detective in nature and are designed to ensure the
integrity of the accounting records
B. Policies and procedures that relate to many applications and support the effective
functioning of application controls
C. Programmes designed for auditors which carry out audit procedures automatically

8. Which of the following is not an example of a general IT control?

A. All computer users must change their log-on password every six weeks.
B. Information on computer servers is backed up every day.
C. The accounting system has a program installed which produces hash totals.
D. The computer system has a firewall installed.

9. Which of the following statements is a not a valid reason to explain the inherent limitations of
control systems?
A. There is potential for human error.
B. The auditors cannot test every transaction and balance.
C. Controls can be bypassed or overridden.
D. The cost of controls does not outweigh their benefit.

10. Which of the following explains why the control environment in a small company is often
deficient?
A. The directors are usually the owners of the company.
B. There is likely to be a lack of segregation of duties.
C. Small companies do not need to have an external audit.

13

11. Which of the following are examples of tests of controls?

1 Reperforming the year-end bank reconciliation
2 Reviewing the minutes of the monthly board of directors meetings
3 Agreeing invoices to the amounts recorded on the ledger
4 Physically inspecting a sample of assets selected from the non-current assets register
A. 1 and 4
B. 2, 3 and 4
C. 1 and 2
D. 3 and 4

12. What is the primary purpose of the report to management (letter on internal control)?
A. It sets out management's responsibilities and those of the auditor.
B. It sets out deficiencies found in the internal control system and makes recommendations
to overcome those deficiencies.
C. It states the audit fee for the audit.
D. It states whether the financial statements are true and fair.

13. With regard to which of the following financial statement assertions may an auditor encounter
particular difficulties in obtaining sufficient evidence where internal controls are weak?
A. Ownership
B. Existence
C. Valuation
D. Completeness

14. Which of the following is a control objective relating to the sales system?
A. Credit notes are only issued for valid reasons.
B. Sales invoices are checked to Goods Despatched Notes by accounts staff.
C. Customer accounts are scrutinised to see if credit limits have been observed.
D. Orders are made only to authorised suppliers.

15. Which of the following is not a control activity relating to the purchases system?
A. All orders are authorised by a senior staff member.
B. Blank order forms are kept in a secure location with restricted access.
C. All goods and services received are accurately recorded.
D. Order forms are sequentially pre-numbered.

14

16. The following data for employees exists in the computer-based wages system of an audit client:
1 Standard hourly rate of pay
2 Hours actually paid each week in the year to date
3 Identifying department code
4 Holiday pay paid in the year to date
Which of the above data should be held on the wages master file?
A. 1, 2, 3 and 4
B. 1 and 3 only
C. 1, 3 and 4
D. 2 and 4 only

17. Which of the following questions would you expect to find on an Internal Control Evaluation
Questionnaire (ICEQ) for the area of sales when auditing a companys financial statements?
1 Can sales be made without proper authorisation?
2 Can sales be made to customers who are not creditworthy?
3 Are all invoices properly prepared?
4 Are sales invoices checked to Goods DespatchNotes before being recorded on the ledger?
A. 1, 2 and 3
B. 1, 2, and 4
C. 1, 3 and 4
D. 2, 3 and 4

18. Which of the following are nota recognised method for recording a companys accounting and
control systems?
A. Questionnaires
B. Disclosure checklists
C. Narrative notes

19. Which of the following audit procedures is a test of controls over non-current assets?
A. Agreeing the totals on the non-current asset register to the general ledger
B. Performing a proof in total for depreciation
C. Inspecting purchase orders for authorising signatures
D. Inquiring of management their plans for future capital expenditure

20. Which of the following is a test of controls for cash?

A. The Financial Accountant reviews the monthly bank reconciliations.
B. Petty cash is kept in a locked tin in the safe.
C. Cash and cheques are safeguarded against loss or theft.
15

D. Post-opening procedures are observed.

21. Which of the following audit procedures would assist the auditor in assessing whether inventory
at the year-end was appropriately valued?
A. Reviewing precautions in place to guard against theft and misuse of inventory
B. Inspecting inventory to identify obsolete or damaged items
C. Matching a sample of inventory items with inventory records
D. Reviewing the entity's procedures for the year-end inventory count

22. Which of the following questions would you expect to find on an Internal Control Evaluation
Questionnaire (ICEQ) for the area of purchases when auditing a companys financial
statements?
1 Can goods or services be received without a liability being recorded?
2 Can a liability be recorded for unauthorised items?
3 Can payments be made without proper authorisation?
4 Are purchase invoices checked to Goods Received Notes before being passed for payment?
A. 1, 2 and 3
B. 1, 2, 3 and 4
C. 1, 2 and 4
D. 2 and 3 only

23. Which of the following audit procedures is a test of controls over inventory?
A. Performing test counts on year-end inventory
B. Physically inspecting a warehouse owned by the company to store inventory
C. Inspecting a sample of inventory movement records for authorisation
D. Matching the last Goods Received Notes of the period to the relevant purchase invoices

24. Which of the following controls would provide the most positive assurance as to the
completeness of the sales figure recorded in the financial statements of a manufacturing
company?
A. Segregation of sales between the preparation of goods despatched notes and the
preparation of the sales invoices
B. The issue of pre-numbered sales invoices for every sales transaction and internal
checking for completion of processing
C. The use of a pre-numbered goods despatched note for every sales transaction and
internal checking for completeness of processing
D. Authorisation of all sales invoices by the sales manager prior to processing

16

25. Which of the following data should not be held on a wages master file of a company for an
individual employee of a company?
A. Authorised rate of pay
B. Employees identification number
C. Cumulative statutory deductions to date
D. Date of commencement of employment

26. Which of the following types of internal controls does a small limited liability company normally
have particular difficulty in implementing satisfactorily?
1 Segregation of duties
2 Performance reviews
3 Information processing
A. A 1 only
B. B 2 only
C. C 3 only
D. 1, 2 and 3

27. Which of the following types of internal controls does a small limited liability company find the
most difficult to implement?
A. Authorisation
B. Segregation of duties
C. Information processing

28. When auditing the financial statements of a limited liability company, auditors should ascertain
and document the internal controls relevant to the accounting system only when they plan to rely
on the system. Is this statement true or false?
A. True
B. False

17

4. Multiple choice questions

1. The auditors of Three Co recently completed their interim audit for the year ending 31 July 20X9.
They confined their work only to tests of control on accounting records to 31 March 20X9 and
concluded that controls were totally unreliable.
What will be the nature of the work carried out when conducting the final audit of the companys
financial statements for the year ending 31 July 20X9?
A. Tests of control on the system and substantive procedures on transactions for the period
from 1 April 20X9 to 31 July 20X9, plus a review of the financial statements.
B. Tests of control on the system for the period from 1 April 20X9 to 31 July 20X9,
substantive procedures on the statement of financial position as at 31 July 20X9, plus a
review of the financial statements.
C. Substantive procedures on transactions for the whole accounting period and on the
statement of financial position as at 31 July 20X9, plus a review of the financial
statements.
D. Substantive procedures on the statement of financial position as at 31 July 20X9, plus a
review of the financial statements.

2. Why does the auditor need to undertake analytical procedures at the final review stage of the
audit?
A. To identify areas of risk
B. To form an overall view about the consistency of the financial statements
C. To assist in identifying material misstatements
D. To provide evidence to support the financial statement assertions

3. Which of the following is not an example of an accounting estimate?

A. Depreciation of computers
B. Allowance for receivables
C. Accrual for audit fee
D. Directors' benefits in kind

4. Which of the following inventory valuation methods is specifically not an option allowed by IAS
2?
A. FIFO
B. LIFO
C. Weighted average cost
D. Historic cost

5. Which of the following is the correct definition of net realisable value?

A. Expenditure which has been incurred in the normal course of business in bringing
inventory to its present location and condition

18

B. Estimated or actual selling price (net of trade discounts but before settlement discounts)
less all further costs to completion and less all costs to be incurred in marketing, selling
and distribution
C. Estimated or actual selling price (net of settlement discounts but before trade discounts)
less all further costs to completion and less all costs to be incurred in marketing, selling
and distribution
D. Purchase price including import duties, transport and handling costs and any other
directly attributable costs, less trade discounts, rebates and subsidies

6. Which of the following regarding the timing of the entity's inventory count is the best from the
auditor's point of view?
A. Inventory count just after the year-end
B. Inventory count at the year-end date Inventory count just before the year-end
C. All of the timings in A, B and C above are equally good

7. Which of the following audit procedures is a valid test for the existence of tangible non-current
assets?
A. Inspecting title deeds to buildings
B. Agreeing figures on the valuation certificate for a building to the general ledger
C. Agreeing a sample of assets selected by physical inspection back to the non-current
assets register
D. Physically inspecting a sample of assets selected from the non-current assets register

8. Which of the following financial statement assertions does the receivables' confirmation provide
assurance over?
1 Existence
2 Completeness
3 Valuation
4 Rights and obligations
A. 1 and 3
B. 1 and 4
C. 1, 2 and 4
D. 2 and 4

9. Which of the following techniques for collecting audit evidence, is generally accepted to be very
reliable from the perspective of the auditor when testing for the existence of a freehold
building?
A. Inspection
B. Inquiry
C. Observation
D. Confirmation
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10. Which of the following statements about the receivables' confirmation is correct?
A. Under the positive method, the customer is requested to confirm the accuracy of the
balance stated or state in what respect he disagrees.
B. The receivables' confirmation has to take place immediately after the year-end.
C. Receivables' confirmation letters are sent by the auditor on the audit firm's headed
notepaper.
D. The receivables' confirmation provides assurance as to the valuation of year-end
receivables balances.

11. What action should the auditors take if a reply to a positive confirmation request letter for a
material amount is not received from the customer within two or three weeks of being sent out?
A. Qualify the audit report due to lack of sufficient appropriate audit evidence
B. Inform the entity's internal audit department
C. Send out a second request to the customer
D. Qualify the audit report due to a material misstatement in the financial statements

12. Which of the following statements about the bank letter is correct?
A. Only one bank letter is required for each audit client.
B. The bank letter should be sent to the bank immediately after the year-end.
C. The banks will require explicit written authority from their client to disclose the
information.
D. The bank letter is sent by the client on its own headed notepaper.

13. Which of the following matters would an auditor seek confirmation on when sending a standard
letter (bank report for audit purposes) to the bank of an audit client?
1 Customers assets held as security
2 Directors guarantees
3 Contingent liabilities
4 Particulars of any set-off arrangements
A. 1 and 3 only
B. 1, 3 and 4
C. 3 and 4 only
D. 1, 2 and 4

14. Which of the following audit procedures is the most appropriate when testing for the existence,
rights and obligations and completeness of trade payables balances?
A. A payables' confirmation
B. Comparison of suppliers' statements with payables ledger balances
C. C Analytical procedures
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D. Tests of controls

15. Which of the following audit procedures is primarily a test for completeness of trade payables of
an entity?
A. Circularisation of trade payables suppliers
B. Sample checking of balances outstanding per the accounting records at the end of the
accounting period forward to payments to suppliers made immediately after the end of
the accounting period (i.e. balances to payments)
C. Sample checking of payments to suppliers made immediately after the end of the
accounting back to balances outstanding per the accounting records at the end of the
accounting period (i.e. payments to balances)
D. A review of the relationship between reported purchases for the accounting period and
the reported level of trade payables balances outstanding at the end of the accounting
period

16. What is the definition of a provision in accordance with IAS 37 Provisions, contingent liabilities
and contingent assets?
A. A provision is an obligation of an entity to transfer economic benefits as a result of past
transactions or events.
B. A provision is a possible obligation that arises from past events and whose existence will
be confirmed only by the occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the entity.
C. A provision is a present obligation that arises from past events but is not recognised
because it is not probable that transfer of economic benefits will be required to settle it or
the amount cannot be measured with sufficient reliability.
D. A provision is a liability of uncertain timing or amount.

17. Which of the following techniques for collecting audit evidence is generally accepted to be the
most efficient from the perspective of the auditor when testing for the completeness and
accuracy of the depreciation charge for the year?
A. Recalculation
B. Reperformance
C. Analytical procedures
D. Confirmation

18. Which of the following is not a financial statement assertion relating to classes of transactions, in
accordance with ISA 315 Identifying and assessing the risks of material misstatement through
understanding the entity and its environment?
A. Occurrence
B. Completeness
C. Existence

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19. Which of the following are examples of accounting estimates?

1 Depreciation
2 Provisions for warranties
3 Share capital
4 Losses on long-term contracts
A. 1 and 3 only
B. 1, 2 and 3
C. 1, 2 and 4
D. 2 and 4 only

20. Which of the following is not a financial statement assertion relating to account balances, in
accordance with ISA 315 Identifying and assessing the risks of material misstatement through
understanding the entity and its environment?
A. Valuation
B. Completeness
C. Rights and obligations
D. Occurrence

21. Which of the following sources of evidence would be most appropriate to confirm the existence
of yearend trade receivables balances?
A. External confirmations
B. Written representations from management
C. Analytical procedures
D. Recalculation

22. What primary audit objective is an auditor seeking to confirm when carrying out a physical
inspection of the plant and equipment of a company?
A. Ownership of the assets
B. Existence of the assets
C. Ownership and existence of the assets
D. Valuation of the assets

23. Which of the following procedures carried out at a inventory count by an auditor is a test
primarily for overstatement of inventory?
A. Ensure completeness of sequence of pre-numbered inventory sheets at the conclusion
of the count.
B. Check valuation of slow-moving or obsolete inventory lines.
C. Check that inventory held at third party locations are included in the count.
D. Agree items that have been counted (including items of high value) to inventory sheets.
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24. Which of the following correctly describes the stages of an audit during which the auditor must
make use of analytical procedures?
A. As a risk assessment procedure at the planning stage, and the results of analytical
procedures must be used at the overall review stage of the audit
B. At all stages of an audit other than the planning stage
C. In the closing stages of the audit only, when conducting the overall review of the financial
statements
D. At the planning stage and the substantive procedures stage of the audit

25. Which of the following describes the auditors role when attending a clients inventory count?
A. To count all of the inventory
B. To observe the conduct of the inventory count
C. To identify damaged and obsolete inventory
D. To supervise the inventory counting teams

26. The auditor of Four Co, a manufacturing company, has noted an increase in total sales value but
a decrease in the companys gross profit percentage for 20X9 as compared to the previous year.
Which of the following is consistent with and adequately explains the decrease?
A. Sales commission payable to the companys sales force increased in relation to sales
values as compared to 20X8.
B. Sales volumes have decreased as compared to 20X8.
C. During 20X9, due to a scarcity of supply the company had to pay higher prices when
purchasing components.
D. During 20X9 a major component supplier withdrew the settlement discounts previously
granted.

27. Which of the following would provide the most persuasive evidence of a companys ownership of
a freehold office building?
A. Inspection of the purchase documentation
B. Inspection of recent expense invoices for extensive repairs to the building, paid for by the
company
C. Inspection of the title deeds to the building
D. Inspection of a directors board minute confirming ownership of the building

28. Which of the following strategies should give an auditor the strongest assurance as to the
existence of trade receivables year-end balances, in a company with weak internal controls,
over the sales and trade receivables function?
A. Carrying out a positive circularisation of receivable balances in respect of the year-end
balances.
B. Carrying out a negative circularisation of receivables balances in respect of year-end
balances.
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C. Confirming receivables balances by agreeing to sales invoices, authorised delivery notes

and valid order.
D. Confirming receivables balances by verifying subsequent payments after the year-end.

29. The auditor of Berry Co, a manufacturing company, has noted an increase in total sales value
but a decrease in the companys gross profit percentage for 2011 as compared to the previous
year. Which of the following is consistent with, and adequately explains, the decrease?
1 Sales volumes have decreased as compared to 2010.
2 During 2011, due to a scarcity of supply the company had to pay higher prices when
purchasing components.
3 During 2011, a major component supplier withdrew early settlement discounts previously
granted.
A. 1 only
B. 1 and 2
C. 2 only
D. 3 only

30. An auditors responsibility extends to both evaluating the overall presentation of the financial
statements and evaluating the reasonableness of accounting estimates made by management.
Is this statement true or false?
A. True
B. False

31. Checking a sample of purchase invoices to goods received notes (GRNs) would provide
assurance the purchases had been completely recorded. Is this statement true or false?
A. True
B. False

32. Which of the following sources of evidence should be used by an auditor to provide evidence of
the completeness of Provisions as stated in the financial statements of a limited liability
company?
1 Correspondence from the companys solicitors
2 Representations by the directors of the company
3 Minutes of the directors board meetings
A. 1 only
B. 3 only
C. 1 and 3
D. 1, 2 and 3

33. Which of the following documents is the most relevant in providing direction and control of an
external audit?
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A. A summary of the results of the initial analytical review of the financial statements
B. An internal control questionnaire
C. An audit completion checklist
D. A management letter

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5. Multiple choice questions

1. Which of the following techniques is not used at the final review stage of the audit?
A. Tests of controls
B. B Analytical procedures
C. Accounting policies review
D. Discussion with directors

2. Which of the following would be an adjusting event in accordance with IAS 10 Events after the
reporting period? Assume that all amounts are material.
A. An announcement made by the entity after the year-end to discontinue an operation
B. A fall in value after the year-end of investments held by the entity
C. An announcement to declare dividends made after the year-end
D. The bankruptcy of a customer after the year-end who owed $500,000 to the entity

3. Which of the following statements describes the auditor's responsibility for events occurring after
the year-end but before the date of the audit report?
A. The auditor has no responsibility to consider events that have occurred after the yearend.
B. The auditor only has to consider adjusting events because non-adjusting events do not
need to be reflected in the financial statements.
C. The auditor is responsible for carrying out procedures to obtain audit evidence that all
events occurring after the year-end and before the date of the audit report which need to
be reflected in the financial statements are identified.
D. The auditor only has to consider events occurring after the year-end which occur
between the date of the audit report and the date the financial statements are issued.

4. The management accounts of a limited liability company audit client reveal the following assets
and liabilities at the end of an accounting period:

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The companys Quick (Acid Test) Ratio was 1.60 in the previous year. What might the auditor
infer?
A. The company should consider cheaper forms of finance.
B. The companys current liabilities may have been overstated in the previous year.
C. The company is finding it difficult to support its level of debt and may have going concern
issues.
D. None of the above

5. What type of audit report should be issued if the auditor identified a material adjusting event but
the directors refuse to amend the financial statements to reflect it?
A. Unmodified opinion
B. Disclaimer of opinion
C. Adverse opinion
D. Qualified opinion

6. What type of audit report should be issued if the auditor identified a non-adjusting event which
he considers needs disclosure in the financial statements but the directors refuse to include the
disclosure?
A. Unmodified opinion
B. Disclaimer of opinion
C. C Adverse opinion
D. D Qualified opinion

7. Which of the following factors is indicative of going concern problems?

A. The recruitment of a new Finance Director to replace the former who was found to be
carrying out a fraud
B. The bankruptcy of a customer after the year-end who owed the entity $5,000
C. The entity has stopped paying dividends to shareholders
D. The entity has lost an unfair dismissal case brought by a former employee who was an
accounts assistant

8. Which of the following statements describes most accurately the auditor's responsibility in
respect of going concern?
A. The auditor has no responsibility regarding going concern.
B. The auditor has a responsibility to consider the appropriateness of management's use of
the going concern assumption only.
C. The auditor has a responsibility to consider the appropriateness of management's use of
the going concern assumption and to consider whether there are material uncertainties in
respect of going concern which need to be disclosed in the financial statements.
D. The auditor only has to consider going concern when there are indications of going
concern problems.
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9. If the use of the going concern assumption is appropriate but a material uncertainty exists which
has been disclosed, what type of audit report should be issued as a result?
A. Unmodified opinion
B. Disclaimer of opinion
C. Adverse opinion
D. Qualified opinion

10. Who prepares the written representation letter?

A. The audit committee
B. The external auditors
C. The management
D. The internal auditors

11. Which of the following is not included in the standard auditors report?
A. Statement of management's responsibilities
B. Date
C. Title
D. Audit fee

12. Which of the following is not a necessary component of a standard audit report for a limited
company?
A. A title identifying to whom the report is addressed
B. Identification of the financial statements audited
C. Confirmation of the accounting convention used in preparing the financial statements
D. Confirmation of the directors responsibility in connection with the preparation of the
financial statements

13. Which of the following should be included in an auditors report, when there has been a limitation
on the auditors work in connection with a matter they consider material but not pervasive to the
financial statements of a company?
A. A qualified opinion
B. A disclaimer of opinion
C. An adverse opinion
D. None of the above

14. Which of the following should a firm of auditors include in their report to shareholders when they
disagree with the accounting treatment of an item that is material and pervasive to the
companys financial statements?
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A. An qualified opinion
B. An unmodified opinion
C. An adverse opinion
D. A disclaimer of opinion

15. The directors of an entity are refusing to amend the financial statements to take account of a
customer who went bankrupt after the year-end and who owed the entity $10,000 at the yearend. This amount is material. What type of audit report should be issued as a result?
A. A Qualified opinion
B. B Adverse opinion
C. Unmodified opinion
D. Disclaimer of opinion

16. The auditors have been unable to verify the value of year-end inventory held by an entity due to
a fire in one of its premises which destroyed some records. The value of inventory affected is
thought to be around $1.5 million. Materiality is $2 million. What type of audit report should be
issued as a result?
A. Disclaimer
B. Adverse opinion
C. Unmodified opinion
D. Qualified opinion

17. The management accounts of a limited liability company audit client reveal the following assets
and liabilities at the end of an accounting period:

The companys current ratio was 2.8 in the previous year, and the average current ratio in the
industry is 3.2. What conclusions might the auditor draw?
A. The companys current liabilities may be understated.
B. The companys current assets may be overstated.
C. The company may have going concern problems.
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D. The financial statements may have been manipulated by management.

18. From your review of the financial statements of ABC Ltd, you calculated that the current ratio at
31 December 20X9 was marginally lower than it was at31 December 20X8. However, the quick
ratio at 31 December 20X9 was significantly lower than it had been a year earlier.
In the light of this, which one of the following should you be most concerned about in your audit
of ABC Ltd?
A. Inventory has been over-stated
B. Trade receivables have been over-stated
C. Inventory has been under-stated
D. Trade receivables have been under-stated

19. Which of the following should a firm of auditors include in its auditors report when they have
been unable to obtain sufficient appropriate audit evidence for an issue that is material and
pervasive to the clients financial statements?
A. An adverse opinion
B. A disclaimer of opinion
C. An qualified opinion

20. From your review of the financial statements of XYZ Ltd, you calculated that the current ratio at
31 December 20X9 was significantly higher than it had been at 31 December 20X8. The quick
ratio at 31 December 20X9 was also significantly higher than it had been a year earlier.
In the light of this, which one of the following should you be most concerned about in your audit
of XYZ Ltd?
A. Inventory has been under-stated
B. Trade receivables have been under-stated
C. Allowances for receivables have been over-stated
D. Accruals have been under-stated

21. Which of the following should a firm of auditors include in its auditors report when there is a
misstatement arising from the accounting treatment of an item that is material and pervasive to
the clients financial statements?
A. An adverse opinion
B. A qualified opinion
C. A disclaimer of opinion

22. Which of the following statements is true with regard to an emphasis of matter paragraph
included in a modified auditors report?
(1) The paragraph may refer to a matter other than those presented or disclosed in the financial
statements that, in the auditors opinion is relevant to users understanding of the audit.

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(2) The paragraph should ordinarily refer to the fact that the auditors opinion is modified in
respect of the subject matter.
(3) The inclusion of the paragraph should not affect the auditors opinion on the financial
statements.
A. (1) only
B. (2) only
C. (3) only
D. (1) (2) and (3)

23. An auditor may obtain audit evidence by receiving representations in various forms from the
management of a limited liability company.
Which of the following forms of audit evidence does not constitute evidence by way of
management representations?
A. Approved minutes of a board meeting at which year-end discretionary salary bonuses
payable to administrative staff and accrued in the financial statements were agreed.
B. A valuation report from a property valuation expert, addressed to the directors, and made
available to the auditor, providing confirming evidence of the value of a building owned
by the company.
C. A letter from the auditor addressed to the directors, setting out the auditors
understanding of the directors opinion on a specific issue affecting the financial
statements, subsequently acknowledged and confirmed by them.
D. Oral confirmation to the auditor by the managing director concerning the companys
ability to continue as a going concern for the foreseeable future.

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